Stock Analysis on Net

Royal Dutch Shell PLC (NYSE:RDSA)

This company has been moved to the archive! The financial data has not been updated since March 12, 2015.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Royal Dutch Shell PLC, free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.60%
01 FCFE0 22,114
1 FCFE1 23,377 = 22,114 × (1 + 5.71%) 20,223
2 FCFE2 24,567 = 23,377 × (1 + 5.09%) 18,385
3 FCFE3 25,665 = 24,567 × (1 + 4.47%) 16,616
4 FCFE4 26,653 = 25,665 × (1 + 3.85%) 14,927
5 FCFE5 27,515 = 26,653 × (1 + 3.23%) 13,331
5 Terminal value (TV5) 229,725 = 27,515 × (1 + 3.23%) ÷ (15.60%3.23%) 111,301
Intrinsic value of Royal Dutch Shell PLC common stock 194,783
 
Intrinsic value of Royal Dutch Shell PLC common stock (per share) $61.88
Current share price $58.66

Based on: 20-F (reporting date: 2014-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of Royal Dutch Shell PLC common stock βRDSA 1.22
 
Required rate of return on Royal Dutch Shell PLC common stock3 rRDSA 15.60%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rRDSA = RF + βRDSA [E(RM) – RF]
= 4.43% + 1.22 [13.60%4.43%]
= 15.60%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Royal Dutch Shell PLC, PRAT model

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Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in millions)
Dividends paid 11,843 11,338 10,955 10,457 10,196
Income attributable to Royal Dutch Shell plc shareholders 14,874 16,371 26,592 30,918 20,127
Revenue 421,105 451,235 467,153 470,171 368,056
Total assets 353,116 357,512 360,325 345,257 322,560
Equity attributable to Royal Dutch Shell plc shareholders 171,966 180,047 188,494 169,517 148,013
Financial Ratios
Retention rate1 0.20 0.31 0.59 0.66 0.49
Profit margin2 3.53% 3.63% 5.69% 6.58% 5.47%
Asset turnover3 1.19 1.26 1.30 1.36 1.14
Financial leverage4 2.05 1.99 1.91 2.04 2.18
Averages
Retention rate 0.45
Profit margin 4.98%
Asset turnover 1.25
Financial leverage 2.03
 
FCFE growth rate (g)5 5.71%

Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).

2014 Calculations

1 Retention rate = (Income attributable to Royal Dutch Shell plc shareholders – Dividends paid) ÷ Income attributable to Royal Dutch Shell plc shareholders
= (14,87411,843) ÷ 14,874
= 0.20

2 Profit margin = 100 × Income attributable to Royal Dutch Shell plc shareholders ÷ Revenue
= 100 × 14,874 ÷ 421,105
= 3.53%

3 Asset turnover = Revenue ÷ Total assets
= 421,105 ÷ 353,116
= 1.19

4 Financial leverage = Total assets ÷ Equity attributable to Royal Dutch Shell plc shareholders
= 353,116 ÷ 171,966
= 2.05

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.45 × 4.98% × 1.25 × 2.03
= 5.71%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (184,633 × 15.60%22,114) ÷ (184,633 + 22,114)
= 3.23%

where:
Equity market value0 = current market value of Royal Dutch Shell PLC common stock (US$ in millions)
FCFE0 = the last year Royal Dutch Shell PLC free cash flow to equity (US$ in millions)
r = required rate of return on Royal Dutch Shell PLC common stock


FCFE growth rate (g) forecast

Royal Dutch Shell PLC, H-model

Microsoft Excel
Year Value gt
1 g1 5.71%
2 g2 5.09%
3 g3 4.47%
4 g4 3.85%
5 and thereafter g5 3.23%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 5.71% + (3.23%5.71%) × (2 – 1) ÷ (5 – 1)
= 5.09%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 5.71% + (3.23%5.71%) × (3 – 1) ÷ (5 – 1)
= 4.47%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 5.71% + (3.23%5.71%) × (4 – 1) ÷ (5 – 1)
= 3.85%