We're gonna calculate a valuation for Generali, and to do that, we're gonna use a dividend discount model. So that's using the Gordon Growth formula to calculate the present value of the future dividends of the business. Now to do that, we're gonna need some assumptions, and the first of those is the discount rate, so that's the cost of equity. And we've been given an assumption of 9 1/2% Now the other assumption that we'll need is the long-term growth rate for the dividends, and that's 2 1/2% Finally, the other piece of information we've been given here is the shares in issue, and that's gonna help us with calculating a per-share value for Generali. Now, one other thing that we are absolutely gonna need for evaluation is we've been given an extract of a model for Generali which gives the reconciliation of beginning equity to ending equity for a five-year forecast period, and crucially, that gives us some dividend forecasts for those five years. Now, beyond that five years, we're gonna need to assume a stable growth rate for those dividends, and we'll do that using our long-term growth rate and that allows us to calculate a terminal value, so let's do that first.

Now, the first thing we'll do is to take the final year forecast dividend, and I'm gonna make that into a positive number, and we apply growth rate to that and that gives us a forecast dividend for FY6. And then we divide that by the cost of equity less our long-term growth rate. So that's converting our six-year dividend into a perpetuity, and that's our terminal value in FY5. Now let's turn our attentions to the dividends within our five-year forecast period. So we take one divided by one plus our cost of equity.

And I'm gonna lock my cell reference there.

And that's to the power of our year count. So that's my discount factor for FY1. I just now need to roll that forward. So I've got a discount factor for all my five years of forecasts. I can now use that to calculate the present value of each of my dividend forecasts. So I take my dividends, again making those a positive number, and then multiply those by the discount factor. So that's the present value of my first forecast dividend. And I can do that for each of my years by just copying that formula to the right. So that's the present value of the dividends. We've got the terminal value, so let's bring all of those numbers together. So the first thing is the present value of the dividends within my forecast period. So I just sum all of those items together.

So now I need to add to that the present value of the terminal value because, remember, that terminal value that we have there is in FY5 and we need it in today's terms. So we go up to our terminal value and multiply that by the discount factor in FY5.

So that's our present value of our terminal value and we can now just sum both of those items together to give the total equity value for Generali. So we've done all of that hard work. Just a couple of things to do now, first of all, to calculate the implied share price, and that's just the total equity value divided by the number of shares in issue, and that gives us an implied share price of 15.9. Now the last thing to do is to calculate the PE multiple that's implied by that, and we're gonna do a one year forward PE multiple, and that's the total equity value divided by the FY1 forecast for net income. And we can take that from our reconciliation there, and that gives an implied one year forward PE multiple of 10.1 times.