DCF Studio

    LAND.L · LSE · Real Estate

    Land Securities Group Plc

    Also onConsensus Drift

    Implied value per share

    GBp 274.77

    Market price

    GBp 625.50

    Implied upside

    -56.1%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 16.2% of revenue against depreciation of 0.5%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Current EV/EBITDA of 21.3x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    GBp 274.77-56.1%
    Exit multiple
    GBp 617.08-1.3%
    Market price
    GBp 625.50

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    0m167m334mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 898.0mGBP 927.0mGBP 956.9mGBP 987.7mGBP 1.0bn+3.2%
    EBITGBP 465.8mGBP 480.8mGBP 496.3mGBP 512.3mGBP 528.8m+3.2%
    NOPATGBP 463.1mGBP 478.0mGBP 493.5mGBP 509.4mGBP 525.8m+3.2%
    Add depreciation & amortisationGBP 4.4mGBP 4.5mGBP 4.6mGBP 4.8mGBP 5.0m+3.2%
    Less capital expenditureGBP -145.2mGBP -149.9mGBP -154.7mGBP -159.7mGBP -164.9m+3.2%
    Less increase in working capitalGBP -28.0mGBP -29.0mGBP -29.9mGBP -30.9mGBP -31.8m+3.2%
    Free cashflow to firmGBP 294.2mGBP 303.7mGBP 313.5mGBP 323.6mGBP 334.0m+3.2%
    Discount factor0.96420.89640.83340.77480.7203-
    Present valueGBP 283.7mGBP 272.3mGBP 261.3mGBP 250.7mGBP 240.6m-4.0%
    Present Value Of The ForecastGBP 1.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate4.50%GBP assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta1.098Reported 1.147, pulled toward 1.0 (Blume)
    Cost of equity10.54%Risk-free + beta x equity risk premium
    Cost of debt4.50%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationGBP 4.7bn50.9% of capital
    Total debtGBP 4.5bn49.1% of capital, book value as a proxy
    Tax rate0.6%Effective, capped at statutory
    WACC7.56%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareGBP 2.75

    80% of EV

    Forecast FCFF, final year
    GBP 334.0m
    Capex at depreciation, working capital in reinvestment
    GBP 525.8m
    Less reinvestment at g/ROIC (33.1% of NOPAT)
    GBP -173.8m
    Capitalised
    GBP 352.0m
    ROIC (WACC floor)
    7.6%
    Terminal value, undiscounted
    GBP 7.1bn
    Terminal value, discounted
    GBP 5.1bn
    Enterprise value
    GBP 6.4bn
    Less net debt
    GBP 4.4bn
    Equity value
    GBP 2.1bn

    Exit at 20.0x EBITDA

    Value per shareGBP 6.17

    85% of EV

    Terminal value, undiscounted
    GBP 10.7bn
    Terminal value, discounted
    GBP 7.7bn
    Enterprise value
    GBP 9.0bn
    Less net debt
    GBP 4.4bn
    Equity value
    GBP 4.6bn

    Spread between methods: 77%.

    Sensitivity

    Value per share (GBP) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.56%6.026.076.126.176.22
    6.56%4.094.134.174.224.26
    7.56%2.682.712.752.782.81
    8.56%1.601.631.661.691.72
    9.56%0.750.780.800.830.85

    Outlined: this model. Green text: above today's price of 6.25. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.2%12.2%+8.9pp
    EBIT margin51.9%70.8%+18.9pp
    Discount rate7.6%5.5%-2.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.