Intrinsic value of Prudential ADR - PUK

Previous Close

$48.98

  Intrinsic Value

$1,926

stock screener

  Rating & Target

str. buy

+999%

Previous close

$48.98

 
Intrinsic value

$1,926

 
Up/down potential

+999%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as PUK.

We calculate the intrinsic value of PUK stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 63.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  73.93
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  0
  139,741
  215,900
  322,878
  468,479
  660,957
  908,663
  1,219,692
  1,601,532
  2,060,783
  2,602,936
  3,232,256
  3,951,743
  4,763,179
  5,667,243
  6,663,671
  7,751,449
  8,929,019
  10,194,480
  11,545,779
  12,980,883
  14,497,922
  16,095,310
  17,771,836
  19,526,736
  21,359,741
  23,271,104
  25,261,620
  27,332,627
  29,486,004
  31,724,161
Variable operating expenses, $m
 
  128,594
  198,580
  296,887
  430,687
  607,563
  835,192
  1,121,011
  1,471,903
  1,893,930
  2,392,140
  2,970,272
  3,631,442
  4,377,109
  5,207,896
  6,123,561
  7,123,171
  8,205,296
  9,368,187
  10,609,960
  11,928,744
  13,322,823
  14,790,737
  16,331,376
  17,944,037
  19,628,471
  21,384,913
  23,214,092
  25,117,238
  27,096,077
  29,152,824
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  84,356
  128,594
  198,580
  296,887
  430,687
  607,563
  835,192
  1,121,011
  1,471,903
  1,893,930
  2,392,140
  2,970,272
  3,631,442
  4,377,109
  5,207,896
  6,123,561
  7,123,171
  8,205,296
  9,368,187
  10,609,960
  11,928,744
  13,322,823
  14,790,737
  16,331,376
  17,944,037
  19,628,471
  21,384,913
  23,214,092
  25,117,238
  27,096,077
  29,152,824
Operating income, $m
  2,982
  11,147
  17,320
  25,991
  37,792
  53,393
  73,471
  98,680
  129,630
  166,853
  210,796
  261,984
  320,300
  386,070
  459,347
  540,110
  628,278
  723,723
  826,293
  935,819
  1,052,139
  1,175,099
  1,304,572
  1,440,460
  1,582,699
  1,731,270
  1,886,192
  2,047,529
  2,215,390
  2,389,927
  2,571,337
EBITDA, $m
  2,982
  11,354
  17,542
  26,235
  38,065
  53,705
  73,832
  99,104
  130,129
  167,445
  211,496
  262,630
  321,091
  387,022
  460,480
  541,443
  629,828
  725,509
  828,332
  938,129
  1,054,735
  1,177,999
  1,307,791
  1,444,014
  1,586,605
  1,735,542
  1,890,846
  2,052,581
  2,220,856
  2,395,825
  2,577,681
Interest expense (income), $m
  418
  470
  10,381
  26,956
  50,240
  81,930
  123,822
  177,734
  245,429
  328,535
  428,490
  546,488
  683,457
  840,052
  1,016,658
  1,213,425
  1,430,295
  1,667,047
  1,923,341
  2,198,765
  2,492,871
  2,805,217
  3,135,396
  3,483,063
  3,847,954
  4,229,903
  4,628,851
  5,044,854
  5,478,084
  5,928,832
  6,397,509
Earnings before tax, $m
  2,766
  10,677
  6,939
  -965
  -12,447
  -28,536
  -50,351
  -79,054
  -115,799
  -161,682
  -217,693
  -284,504
  -363,157
  -453,982
  -557,312
  -673,315
  -802,017
  -943,323
  -1,097,049
  -1,262,946
  -1,440,732
  -1,630,118
  -1,830,824
  -2,042,604
  -2,265,255
  -2,498,633
  -2,742,660
  -2,997,325
  -3,262,694
  -3,538,905
  -3,826,172
Tax expense, $m
  431
  2,883
  1,874
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  2,335
  7,794
  5,066
  -965
  -12,447
  -28,536
  -50,351
  -79,054
  -115,799
  -161,682
  -217,693
  -284,504
  -363,157
  -453,982
  -557,312
  -673,315
  -802,017
  -943,323
  -1,097,049
  -1,262,946
  -1,440,732
  -1,630,118
  -1,830,824
  -2,042,604
  -2,265,255
  -2,498,633
  -2,742,660
  -2,997,325
  -3,262,694
  -3,538,905
  -3,826,172

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  571,984
  913,339
  1,411,108
  2,110,312
  3,061,957
  4,319,978
  5,938,974
  7,971,840
  10,467,531
  13,469,168
  17,012,654
  21,125,857
  25,828,385
  31,131,888
  37,040,802
  43,553,404
  50,663,067
  58,359,603
  66,630,588
  75,462,609
  84,842,373
  94,757,660
  105,198,101
  116,155,788
  127,625,726
  139,606,150
  152,098,721
  165,108,630
  178,644,624
  192,718,984
  207,347,454
Adjusted assets (=assets-cash), $m
  571,984
  913,339
  1,411,108
  2,110,312
  3,061,957
  4,319,978
  5,938,974
  7,971,840
  10,467,531
  13,469,168
  17,012,654
  21,125,857
  25,828,385
  31,131,888
  37,040,802
  43,553,404
  50,663,067
  58,359,603
  66,630,588
  75,462,609
  84,842,373
  94,757,660
  105,198,101
  116,155,788
  127,625,726
  139,606,150
  152,098,721
  165,108,630
  178,644,624
  192,718,984
  207,347,454
Revenue / Adjusted assets
  0.000
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
Average production assets, $m
  206
  279
  432
  646
  937
  1,322
  1,817
  2,439
  3,203
  4,122
  5,206
  6,465
  7,903
  9,526
  11,334
  13,327
  15,503
  17,858
  20,389
  23,092
  25,962
  28,996
  32,191
  35,544
  39,053
  42,719
  46,542
  50,523
  54,665
  58,972
  63,448
Working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total debt, $m
  12,706
  280,556
  728,548
  1,357,832
  2,214,313
  3,346,531
  4,803,627
  6,633,207
  8,879,329
  11,580,803
  14,769,940
  18,471,822
  22,704,097
  27,477,251
  32,795,273
  38,656,614
  45,055,311
  51,982,193
  59,426,080
  67,374,899
  75,816,687
  84,740,445
  94,136,842
  103,998,760
  114,321,704
  125,104,086
  136,347,400
  148,056,318
  160,238,713
  172,905,636
  186,071,260
Total liabilities, $m
  554,155
  822,005
  1,269,997
  1,899,281
  2,755,762
  3,887,980
  5,345,076
  7,174,656
  9,420,778
  12,122,252
  15,311,389
  19,013,271
  23,245,546
  28,018,700
  33,336,722
  39,198,063
  45,596,760
  52,523,642
  59,967,529
  67,916,348
  76,358,136
  85,281,894
  94,678,291
  104,540,209
  114,863,153
  125,645,535
  136,888,849
  148,597,767
  160,780,162
  173,447,085
  186,612,709
Total equity, $m
  17,829
  91,334
  141,111
  211,031
  306,196
  431,998
  593,897
  797,184
  1,046,753
  1,346,917
  1,701,265
  2,112,586
  2,582,838
  3,113,189
  3,704,080
  4,355,340
  5,066,307
  5,835,960
  6,663,059
  7,546,261
  8,484,237
  9,475,766
  10,519,810
  11,615,579
  12,762,573
  13,960,615
  15,209,872
  16,510,863
  17,864,462
  19,271,898
  20,734,745
Total liabilities and equity, $m
  571,984
  913,339
  1,411,108
  2,110,312
  3,061,958
  4,319,978
  5,938,973
  7,971,840
  10,467,531
  13,469,169
  17,012,654
  21,125,857
  25,828,384
  31,131,889
  37,040,802
  43,553,403
  50,663,067
  58,359,602
  66,630,588
  75,462,609
  84,842,373
  94,757,660
  105,198,101
  116,155,788
  127,625,726
  139,606,150
  152,098,721
  165,108,630
  178,644,624
  192,718,983
  207,347,454
Debt-to-equity ratio
  0.713
  3.070
  5.160
  6.430
  7.230
  7.750
  8.090
  8.320
  8.480
  8.600
  8.680
  8.740
  8.790
  8.830
  8.850
  8.880
  8.890
  8.910
  8.920
  8.930
  8.940
  8.940
  8.950
  8.950
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
Adjusted equity ratio
  0.031
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2,335
  7,794
  5,066
  -965
  -12,447
  -28,536
  -50,351
  -79,054
  -115,799
  -161,682
  -217,693
  -284,504
  -363,157
  -453,982
  -557,312
  -673,315
  -802,017
  -943,323
  -1,097,049
  -1,262,946
  -1,440,732
  -1,630,118
  -1,830,824
  -2,042,604
  -2,265,255
  -2,498,633
  -2,742,660
  -2,997,325
  -3,262,694
  -3,538,905
  -3,826,172
Depreciation, amort., depletion, $m
  0
  207
  222
  244
  273
  311
  361
  423
  500
  591
  700
  646
  790
  953
  1,133
  1,333
  1,550
  1,786
  2,039
  2,309
  2,596
  2,900
  3,219
  3,554
  3,905
  4,272
  4,654
  5,052
  5,467
  5,897
  6,345
Funds from operations, $m
  2,946
  8,001
  5,288
  -722
  -12,174
  -28,225
  -49,990
  -78,631
  -115,299
  -161,091
  -216,993
  -283,857
  -362,367
  -453,029
  -556,178
  -671,982
  -800,467
  -941,537
  -1,095,010
  -1,260,636
  -1,438,136
  -1,627,219
  -1,827,605
  -2,039,049
  -2,261,349
  -2,494,361
  -2,738,005
  -2,992,273
  -3,257,227
  -3,533,008
  -3,819,827
Change in working capital, $m
  270
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from operations, $m
  2,676
  8,001
  5,288
  -722
  -12,174
  -28,225
  -49,990
  -78,631
  -115,299
  -161,091
  -216,993
  -283,857
  -362,367
  -453,029
  -556,178
  -671,982
  -800,467
  -941,537
  -1,095,010
  -1,260,636
  -1,438,136
  -1,627,219
  -1,827,605
  -2,039,049
  -2,261,349
  -2,494,361
  -2,738,005
  -2,992,273
  -3,257,227
  -3,533,008
  -3,819,827
Maintenance CAPEX, $m
  0
  -21
  -28
  -43
  -65
  -94
  -132
  -182
  -244
  -320
  -412
  -521
  -646
  -790
  -953
  -1,133
  -1,333
  -1,550
  -1,786
  -2,039
  -2,309
  -2,596
  -2,900
  -3,219
  -3,554
  -3,905
  -4,272
  -4,654
  -5,052
  -5,467
  -5,897
New CAPEX, $m
  -423
  -74
  -152
  -214
  -291
  -385
  -495
  -622
  -764
  -919
  -1,084
  -1,259
  -1,439
  -1,623
  -1,808
  -1,993
  -2,176
  -2,355
  -2,531
  -2,703
  -2,870
  -3,034
  -3,195
  -3,353
  -3,510
  -3,666
  -3,823
  -3,981
  -4,142
  -4,307
  -4,476
Cash from investing activities, $m
  -667
  -95
  -180
  -257
  -356
  -479
  -627
  -804
  -1,008
  -1,239
  -1,496
  -1,780
  -2,085
  -2,413
  -2,761
  -3,126
  -3,509
  -3,905
  -4,317
  -4,742
  -5,179
  -5,630
  -6,095
  -6,572
  -7,064
  -7,571
  -8,095
  -8,635
  -9,194
  -9,774
  -10,373
Free cash flow, $m
  2,009
  7,907
  5,108
  -979
  -12,530
  -28,704
  -50,618
  -79,434
  -116,307
  -162,329
  -218,490
  -285,637
  -364,452
  -455,443
  -558,939
  -675,109
  -803,975
  -945,443
  -1,099,326
  -1,265,378
  -1,443,316
  -1,632,849
  -1,833,700
  -2,045,621
  -2,268,414
  -2,501,933
  -2,746,100
  -3,000,908
  -3,266,422
  -3,542,781
  -3,830,201
Issuance/(repayment) of debt, $m
  1,492
  267,850
  447,993
  629,284
  856,481
  1,132,218
  1,457,096
  1,829,580
  2,246,122
  2,701,474
  3,189,137
  3,701,883
  4,232,275
  4,773,153
  5,318,023
  5,861,341
  6,398,697
  6,926,882
  7,443,887
  7,948,819
  8,441,788
  8,923,758
  9,396,397
  9,861,918
  10,322,944
  10,782,382
  11,243,314
  11,708,918
  12,182,395
  12,666,924
  13,165,624
Issuance/(repurchase) of shares, $m
  16
  65,711
  44,711
  70,886
  107,612
  154,338
  212,251
  282,341
  365,368
  461,846
  572,042
  695,824
  833,410
  984,332
  1,148,203
  1,324,575
  1,512,983
  1,712,977
  1,924,147
  2,146,148
  2,378,709
  2,621,647
  2,874,868
  3,138,372
  3,412,248
  3,696,676
  3,991,917
  4,298,316
  4,616,293
  4,946,341
  5,289,019
Cash from financing (excl. dividends), $m  
  1,089
  333,561
  492,704
  700,170
  964,093
  1,286,556
  1,669,347
  2,111,921
  2,611,490
  3,163,320
  3,761,179
  4,397,707
  5,065,685
  5,757,485
  6,466,226
  7,185,916
  7,911,680
  8,639,859
  9,368,034
  10,094,967
  10,820,497
  11,545,405
  12,271,265
  13,000,290
  13,735,192
  14,479,058
  15,235,231
  16,007,234
  16,798,688
  17,613,265
  18,454,643
Total cash flow (excl. dividends), $m
  4,315
  341,467
  497,812
  699,191
  951,562
  1,257,853
  1,618,729
  2,032,486
  2,495,183
  3,000,990
  3,542,689
  4,112,070
  4,701,233
  5,302,043
  5,907,287
  6,510,808
  7,107,705
  7,694,416
  8,268,708
  8,829,589
  9,377,181
  9,912,557
  10,437,566
  10,954,669
  11,466,779
  11,977,125
  12,489,131
  13,006,326
  13,532,267
  14,070,483
  14,624,442
Retained Cash Flow (-), $m
  -2,080
  -73,505
  -49,777
  -70,886
  -107,612
  -154,338
  -212,251
  -282,341
  -365,368
  -461,846
  -572,042
  -695,824
  -833,410
  -984,332
  -1,148,203
  -1,324,575
  -1,512,983
  -1,712,977
  -1,924,147
  -2,146,148
  -2,378,709
  -2,621,647
  -2,874,868
  -3,138,372
  -3,412,248
  -3,696,676
  -3,991,917
  -4,298,316
  -4,616,293
  -4,946,341
  -5,289,019
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  267,962
  448,035
  628,305
  843,951
  1,103,515
  1,406,479
  1,750,145
  2,129,814
  2,539,144
  2,970,647
  3,416,246
  3,867,823
  4,317,711
  4,759,084
  5,186,233
  5,594,722
  5,981,440
  6,344,561
  6,683,441
  6,998,472
  7,290,910
  7,562,697
  7,816,297
  8,054,531
  8,280,449
  8,497,214
  8,708,010
  8,915,973
  9,124,143
  9,335,423
Discount rate, %
 
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
 
  249,499
  385,759
  496,579
  607,484
  717,382
  818,408
  902,876
  964,261
  998,009
  1,002,047
  976,913
  925,531
  852,700
  764,398
  667,047
  566,820
  469,106
  378,152
  296,900
  227,002
  168,968
  122,394
  86,233
  59,059
  39,289
  25,368
  15,882
  9,632
  5,652
  3,205
Current shareholders' claim on cash, %
  100
  49.1
  43.1
  37.8
  33.0
  28.9
  25.4
  22.4
  19.8
  17.6
  15.8
  14.1
  12.7
  11.5
  10.4
  9.5
  8.6
  7.9
  7.2
  6.6
  6.1
  5.6
  5.1
  4.7
  4.4
  4.0
  3.7
  3.5
  3.2
  3.0
  2.8

Prudential Public Limited Company is an international financial services company. The Company offers a range of retail financial products and services and asset management services throughout these territories. The Company operates through Insurance operations and Asset management operations. The retail financial products and services include life insurance, pensions and annuities as well as collective investment schemes. Its insurance operations include Asia, the United States (Jackson National Life Insurance Company (Jackson)) and the United Kingdom. Its asset management operations include Eastspring Investments, M&G and Prudential Capital.

FINANCIAL RATIOS  of  Prudential ADR (PUK)

Valuation Ratios
P/E Ratio 54.1
Price to Sales 1.4
Price to Book 7.1
Price to Tangible Book
Price to Cash Flow 47.2
Price to Free Cash Flow 56.1
Growth Rates
Sales Growth Rate 73.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 36%
Cap. Spend. - 3 Yr. Gr. Rate 9.5%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 71.3%
Total Debt to Equity 71.3%
Interest Coverage 8
Management Effectiveness
Return On Assets 0.5%
Ret/ On Assets - 3 Yr. Avg. 0.7%
Return On Total Capital 8.3%
Ret/ On T. Cap. - 3 Yr. Avg. 11%
Return On Equity 13.9%
Return On Equity - 3 Yr. Avg. 18.5%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 3.6%
EBITDA Margin - 3 Yr. Avg. 5.6%
Operating Margin 3.4%
Oper. Margin - 3 Yr. Avg. 5.2%
Pre-Tax Margin 3.2%
Pre-Tax Margin - 3 Yr. Avg. 5%
Net Profit Margin 2.7%
Net Profit Margin - 3 Yr. Avg. 4.2%
Effective Tax Rate 15.6%
Eff/ Tax Rate - 3 Yr. Avg. 16.3%
Payout Ratio 66%

PUK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PUK stock intrinsic value calculation we used $87338 million for the last fiscal year's total revenue generated by Prudential ADR. The default revenue input number comes from 2016 income statement of Prudential ADR. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PUK stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.4%, whose default value for PUK is calculated based on our internal credit rating of Prudential ADR, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Prudential ADR.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PUK stock the variable cost ratio is equal to 92.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for PUK stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.7% for Prudential ADR.

Corporate tax rate of 27% is the nominal tax rate for Prudential ADR. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PUK stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PUK are equal to 0.2%.

Life of production assets of 10 years is the average useful life of capital assets used in Prudential ADR operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PUK is equal to 0%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $17829 million for Prudential ADR - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 1292.23 million for Prudential ADR is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Prudential ADR at the current share price and the inputted number of shares is $63.3 billion.

RELATED COMPANIES Price Int.Val. Rating
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AEG Aegon ADR 6.21 15.11  str.buy
MET MetLife 52.84 264.68  str.buy

COMPANY NEWS

▶ Bubbly bitcoin not worth the wager - investors   [Nov-17-17 11:09AM  Reuters]
▶ Jackson Introduces Perspective Advisory IISM   [Nov-14-17 08:00AM  Business Wire]
▶ Prudential plc (LSE:PRU): Poised For Long-Term Success?   [Nov-02-17 01:12PM  Simply Wall St.]
▶ What Does Prudential plcs (LSE:PRU) Share Price Indicate?   [Oct-17-17 10:31AM  Simply Wall St.]
▶ Get Ready for Video Ads on Your LinkedIn News Feed   [Oct-12-17 08:43AM  Fortune]
▶ Jackson Announces Sponsorship of Together Live Tour   [Sep-25-17 10:30AM  Business Wire]
▶ [$$] Foreign Firms to Sell Large Stakes in Malaysian Insurers   [Sep-18-17 11:39PM  The Wall Street Journal]
▶ [$$] Prudential sells US broker-dealer network for $325m   [Aug-16-17 05:52AM  Financial Times]
▶ Jackson Reports First Half 2017 Financial Results1   [Aug-10-17 11:00AM  Business Wire]
▶ [$$] Prudential confronts question of a break-up   [Aug-07-17 12:46PM  Financial Times]
▶ [$$] Prudential: the triple lock   [11:42AM  Financial Times]
▶ Strategists: Junk Bonds Not Worth Their Yield   [Jul-17-17 05:31PM  Barrons.com]
▶ [$$] Investors warn tidal power project risks stalling   [Jul-08-17 11:00PM  Financial Times]
▶ Top Ranked Income Stocks to Buy for June 23rd   [Jun-23-17 11:52AM  Zacks]
▶ [$$] Bristol university borrows £200m for new campus   [May-26-17 12:00AM  Financial Times]
▶ [$$] Prudential replaces Asia chief in management shake up   [May-18-17 06:12PM  Financial Times]
▶ [$$] RateSetter appoints City heavyweight as chairman   [May-15-17 10:19AM  Financial Times]
▶ Jackson Releases Results of 2017 Investor Education Survey   [Apr-03-17 08:13AM  Business Wire]
▶ [$$] Prudential and Blackstone snap up B&B loans for £11.8bn   [Mar-31-17 09:43AM  Financial Times]
▶ 5 UK Stocks That Dropped on Brexit Launch   [Mar-29-17 06:19PM  GuruFocus.com]
▶ [$$] Americans Shun Life Insurance, Forcing New Tactics at Prudential   [Mar-16-17 07:20AM  at The Wall Street Journal]
▶ Jackson Reports Record 2016 Financial Results1   [Mar-14-17 09:00AM  Business Wire]
▶ [$$] HSBC's History-Making New Chairman Is a Wise Choice   [Mar-13-17 05:08AM  at The Wall Street Journal]
▶ [$$] Your Pension Check May Soon Be Coming From an Insurance Company   [Mar-12-17 04:02PM  at The Wall Street Journal]
▶ [$$] Prudential Fires Back Against Three Former Employees   [Jan-26-17 02:44PM  at The Wall Street Journal]
▶ Jackson Launches Elite Access AdvisorySM   [Jan-23-17 10:00AM  Business Wire]
▶ Target Date Funds: Prudential Enters Price War   [Dec-19-16 10:15AM  at Barrons.com]
▶ Jackson Launches Perspective AdvisorySM   [Sep-21-16 10:30AM  Business Wire]
▶ Jackson Reports First Half 2016 Financial Results1   [Aug-10-16 09:49AM  Business Wire]
Financial statements of PUK
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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