Xero Limited, together with its subsidiaries, provides platform for online accounting and business services to small businesses and their advisors in New Zealand, Australia, the United Kingdom, North America, and internationally. More info.
The calculations below outline how an intrinsic value for Xero is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
See our documentation to learn about this calculation.
|Levered FCF (NZD, Millions)||$-80.58||$-37.67||$28.00||$52.96||$61.44|
|Source||Analyst x3||Analyst x3||Analyst x3||Analyst x1||Extrapolated @ (16%, capped from 67.9%)|
Discounted (@ 8.8%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = $61 × (1 + 2.6%) ÷ (8.84% – 2.6%)
Terminal value based on the Perpetuity Method where growth (g) = 2.6%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding ($655 / 137)
Value per share (NZD): $4.78Exchange rate NZD/AUD = 0.947
Value per share (AUD): $4.53
Current discount (share price of $23.03): -408%
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.84% = 2.6% + (0.844 * 7.4%)
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.844 = 0.844 (1 + (1- 30%) (0%))
Levered Beta used in calculation = 0.844
If the companies market cap is in a different currency to that of the listing the equivalent number of shares outstanding must be calculated.
Market Cap (NZD): 3,329Exchange rate NZD/AUD = 0.947
Market Cap (AUD): $3,154
Equivalent shares outstanding: $3,154 / $23.03 = 137
Are Xero's annual earnings growth expected to exceed 3.9% over the next 3 years?
Mr. Rod Drury, BCA, HFNZCS is a Co-Founder of Xero Limited and serves as its Chief Executive Officer and Director. Mr. Drury serves as an Independent Director of Xero Live Limited (UK), Xero Live Pty Limited (Australia) and Xero Trustee Limited. He served as an Independent Director at NZX Limited from November 18, 2009 to May 3, 2013. He serves as a Member of Technical Advisory Board at 2 Ignite Fund. Mr. Drury is the winner of NZX Entrepreneur of the Year Award.
Average tenure of the Xero management team:
Average tenure of the Xero board of directors:
Xero Limited, together with its subsidiaries, provides platform for online accounting and business services to small businesses and their advisors in New Zealand, Australia, the United Kingdom, North America, and internationally. It offers Xero, an online accounting software, including online accounting, invoicing, bank reconciliation, payroll, mobile, inventory, quotes, expense claims, reporting, and payments. Xero Limited was founded in 2006 and is based in Wellington, New Zealand.
|Market Cap:||$3,329 million|
3 Market Lane, Wellington, 6011, New Zealand
|Sector:||Software and Services|