L’Oréal has been growing its earnings with a CAGR of 11,3% for the period 2019-2024. D&A was flat, which surely helped boost earnings a bit, as CAPEX was growing at a CAGR of 6%. The company was quite busy on the M&A front, so it invested an average of 914 million EUR per year through M&A. That made free cash flow grow at a CAGR of 7.7%, which is much lower than earnings.
Although earnings for the last 12 months (TTM) were lower than FY 2024, the current price of 400 EUR extrapolates 10,2% CAGR of earnings up to 2029. D&A and CAPEX are presumed to grow at the same rate. Since the company was M&A active, we presume an average M&A of 1 billion EUR to grow in line with earnings from 2026 (no change to 750 billion for TTM). What is most important is that during the period 2025-2029, D&A will be at the levels of 43% relative to total D&A, M&A, and CAPEX ( close to historical 45%).
Total free cash flow is implied to grow at a 7.8% CAGR, slightly above the 7.7% growth rate in the last period.
During the next 10 years, free cash flow is implied to grow at 6,25% up to a perpetuity rate of 3,5%.
The risk-free rate is stated as the yield on the French 10-year bond at 3.5%, while we use a 5-year beta of 0.9.