Stock Analysis on Net
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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Royal Dutch Shell PLC, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 12.87%
01 FCFF0 22,921
1 FCFF1 23,982 = 22,921 × (1 + 4.63%) 21,248
2 FCFF2 24,979 = 23,982 × (1 + 4.16%) 19,608
3 FCFF3 25,899 = 24,979 × (1 + 3.68%) 18,012
4 FCFF4 26,730 = 25,899 × (1 + 3.21%) 16,471
5 FCFF5 27,462 = 26,730 × (1 + 2.74%) 14,993
5 Terminal value (TV5) 278,507 = 27,462 × (1 + 2.74%) ÷ (12.87% – 2.74%) 152,052
Intrinsic value of Royal Dutch Shell PLC capital 242,384
Less: Debt (fair value) 47,822
Intrinsic value of Royal Dutch Shell PLC common stock 194,562
 
Intrinsic value of Royal Dutch Shell PLC common stock (per share) $61.81
Current share price $58.66

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

1 See details »

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.

Weighted Average Cost of Capital (WACC)

Royal Dutch Shell PLC, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 184,633 0.79 15.45%
Debt (fair value) 47,822 0.21 2.89% = 5.38% × (1 – 46.29%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 3,147,518,791 × $58.66
= $184,633,452,280.06

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (47.98% + 50.80% + 46.63% + 43.97% + 42.07%) ÷ 5
= 46.29%

WACC = 12.87%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Royal Dutch Shell PLC, PRAT model

Microsoft Excel
Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in millions)
Interest expense, excluding accretion expense 765 650 894 535 249
Income attributable to Royal Dutch Shell plc shareholders 14,874 16,371 26,592 30,918 20,127
Add: Net income attributable to noncontrolling interest (144) 155 248 267 347
Add: Income tax expense 13,584 17,066 23,449 24,475 14,870
Earnings before tax (EBT) 28,314 33,592 50,289 55,660 35,344
 
Effective income tax rate (EITR)1 47.98% 50.80% 46.63% 43.97% 42.07%
 
Interest expense, excluding accretion expense, after tax2 398 320 477 300 144
Add: Dividends paid 11,843 11,338 10,955 10,457 10,196
Interest expense (after tax) and dividends 12,241 11,658 11,432 10,757 10,340
 
EBIT(1 – EITR)3 15,272 16,691 27,069 31,218 20,271
 
Non-current debt 38,332 36,218 29,921 30,463 34,381
Current debt 7,208 8,344 7,833 6,712 9,951
Equity attributable to Royal Dutch Shell plc shareholders 171,966 180,047 188,494 169,517 148,013
Total capital 217,506 224,609 226,248 206,692 192,345
Financial Ratios
Retention rate (RR)4 0.20 0.30 0.58 0.66 0.49
Return on invested capital (ROIC)5 7.02% 7.43% 11.96% 15.10% 10.54%
Averages
RR 0.44
ROIC 10.41%
 
FCFF growth rate (g)6 4.63%

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 EITR = 100 × Income tax expense ÷ EBT
= 100 × 13,584 ÷ 28,314
= 47.98%

2 Interest expense, excluding accretion expense, after tax = Interest expense, excluding accretion expense × (1 – EITR)
= 765 × (1 – 47.98%)
= 398

3 EBIT(1 – EITR) = Income attributable to Royal Dutch Shell plc shareholders + Interest expense, excluding accretion expense, after tax
= 14,874 + 398
= 15,272

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [15,272 – 12,241] ÷ 15,272
= 0.20

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 15,272 ÷ 217,506
= 7.02%

6 g = RR × ROIC
= 0.44 × 10.41%
= 4.63%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (232,455 × 12.87% – 22,921) ÷ (232,455 + 22,921)
= 2.74%

where:

Total capital, fair value0 = current fair value of Royal Dutch Shell PLC debt and equity (US$ in millions)
FCFF0 = the last year Royal Dutch Shell PLC free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Royal Dutch Shell PLC capital

FCFF growth rate (g) forecast

Royal Dutch Shell PLC, H-model

Microsoft Excel
Year Value gt
1 g1 4.63%
2 g2 4.16%
3 g3 3.68%
4 g4 3.21%
5 and thereafter g5 2.74%

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 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 4.63% + (2.74% – 4.63%) × (2 – 1) ÷ (5 – 1)
= 4.16%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 4.63% + (2.74% – 4.63%) × (3 – 1) ÷ (5 – 1)
= 3.68%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 4.63% + (2.74% – 4.63%) × (4 – 1) ÷ (5 – 1)
= 3.21%