DCF Studio

    NG.L · LSE · Utilities

    National Grid plc

    Also onConsensus Drift

    Implied value per share

    GBp -335.78

    Market price

    GBp 1148.00

    Implied upside

    -129.2%

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

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 44.9% of revenue against depreciation of 11.4%. 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.

    Value Per Share

    Perpetuity growth
    GBp -335.78-129.2%
    Exit multiple
    GBp -60.63-105.3%
    Market price
    GBp 1148.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    -1665859202-8329296010FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 16.5bnGBP 15.5bnGBP 14.4bnGBP 13.5bnGBP 12.6bn-6.5%
    EBITGBP 4.5bnGBP 4.2bnGBP 3.9bnGBP 3.6bnGBP 3.4bn-6.5%
    NOPATGBP 3.4bnGBP 3.2bnGBP 3.0bnGBP 2.8bnGBP 2.6bn-6.5%
    Add depreciation & amortisationGBP 1.9bnGBP 1.8bnGBP 1.7bnGBP 1.5bnGBP 1.4bn-6.5%
    Less capital expenditureGBP -7.4bnGBP -6.9bnGBP -6.5bnGBP -6.1bnGBP -5.7bn-6.5%
    Less increase in working capitalGBP 462.2mGBP 432.1mGBP 403.8mGBP 377.5mGBP 352.8m+6.5%
    Free cashflow to firmGBP -1.7bnGBP -1.6bnGBP -1.5bnGBP -1.4bnGBP -1.3bn+6.5%
    Discount factor0.97020.91330.85980.80940.7619-
    Present valueGBP -1.6bnGBP -1.4bnGBP -1.3bnGBP -1.1bnGBP -968.8m+12.0%
    Present Value Of The ForecastGBP -6.4bn

    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
    Beta0.725Reported 0.589, pulled toward 1.0 (Blume)
    Cost of equity8.49%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 57.7bn55.2% of capital
    Total debtGBP 46.8bn44.8% of capital, book value as a proxy
    Tax rate23.4%Effective, capped at statutory
    WACC6.23%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 -3.36

    123% of EV

    Forecast FCFF, final year
    GBP -1.3bn
    Capex at depreciation, working capital in reinvestment
    GBP 2.7bn
    Less reinvestment at g/ROIC (40.1% of NOPAT)
    GBP -1.1bn
    Capitalised
    GBP 1.6bn
    ROIC (WACC floor)
    6.2%
    Terminal value, undiscounted
    GBP 44.1bn
    Terminal value, discounted
    GBP 33.6bn
    Enterprise value
    GBP 27.2bn
    Less net debt
    GBP 43.9bn
    Equity value
    GBP -16.7bn

    Exit at 12.8x EBITDA

    Value per shareGBP -0.61

    116% of EV

    Terminal value, undiscounted
    GBP 62.0bn
    Terminal value, discounted
    GBP 47.3bn
    Enterprise value
    GBP 40.9bn
    Less net debt
    GBP 43.9bn
    Equity value
    GBP -3.0bn

    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%
    4.23%1.502.153.154.939.09
    5.23%-1.82-1.78-1.74-1.70-1.66
    6.23%-3.42-3.39-3.36-3.32-3.29
    7.23%-4.56-4.53-4.51-4.48-4.45
    8.23%-5.41-5.38-5.36-5.34-5.31

    Outlined: this model. Green text: above today's price of 11.48. 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 year-6.5%22.5%+29.0pp
    EBIT margin27.0%70.5%+43.5pp
    Discount rate6.2%3.6%-2.6pp
    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.