DCF Studio

    S32.AX · ASX · Basic Materials

    South32 Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 1.01

    Market price

    AUD 4.93

    Implied upside

    -79.5%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · USD model at 1.4042

    AdjustedReports in USD, trades in AUD. Modelled in USD, converted at the end.
    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 19.1% of revenue against depreciation of 10.2%. 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.

    Value Per Share

    Perpetuity growth
    AUD 1.01-79.5%
    Exit multiple
    AUD 4.40-10.7%
    Market price
    AUD 4.93

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    -57590291-287951450FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayUSD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueUSD 5.9bnUSD 5.9bnUSD 6.0bnUSD 6.1bnUSD 6.1bn+1.0%
    EBITUSD 656.4mUSD 662.9mUSD 669.5mUSD 676.1mUSD 682.9m+1.0%
    NOPATUSD 459.5mUSD 464.0mUSD 468.6mUSD 473.3mUSD 478.0m+1.0%
    Add depreciation & amortisationUSD 601.0mUSD 607.0mUSD 613.0mUSD 619.1mUSD 625.3m+1.0%
    Less capital expenditureUSD -1.1bnUSD -1.1bnUSD -1.1bnUSD -1.2bnUSD -1.2bn+1.0%
    Less increase in working capitalUSD 7.5mUSD 7.6mUSD 7.7mUSD 7.7mUSD 7.8m-1.0%
    Free cashflow to firmUSD -55.4mUSD -55.9mUSD -56.5mUSD -57.0mUSD -57.6m-1.0%
    Discount factor0.95340.86650.78760.71590.6507-
    Present valueUSD -52.8mUSD -48.4mUSD -44.5mUSD -40.8mUSD -37.5m+8.2%
    Present Value Of The ForecastUSD -224.0m

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta0.800Reported 0.702, pulled toward 1.0 (Blume)
    Cost of equity10.15%Risk-free + beta x equity risk premium
    Cost of debt12.11%Interest expense / average total debt
    Market capitalisationUSD 22.1bn92.3% of capital
    Total debtUSD 1.9bn7.7% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC10.02%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 shareUSD 0.72

    108% of EV

    Forecast FCFF, final year
    USD -57.6m
    Capex at depreciation, working capital in reinvestment
    USD 478.0m
    Less reinvestment at g/ROIC (24.9% of NOPAT)
    USD -119.3m
    Capitalised
    USD 358.8m
    ROIC (WACC floor)
    10.0%
    Terminal value, undiscounted
    USD 4.9bn
    Terminal value, discounted
    USD 3.2bn
    Enterprise value
    USD 3.0bn
    Less net debt
    USD -278.0m
    Equity value
    USD 3.2bn

    Exit at 16.5x EBITDA

    Value per shareUSD 3.13

    102% of EV

    Terminal value, undiscounted
    USD 21.6bn
    Terminal value, discounted
    USD 14.1bn
    Enterprise value
    USD 13.8bn
    Less net debt
    USD -278.0m
    Equity value
    USD 14.1bn

    Spread between methods: 125%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.02%0.960.960.970.970.98
    9.02%0.820.820.830.830.84
    10.02%0.710.720.720.720.73
    11.02%0.620.630.630.630.64
    12.02%0.550.550.560.560.56

    Outlined: this model. Green text: above today's price of 3.51. 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 year1.0%36.0%+35.0pp
    EBIT margin11.2%39.1%+27.9pp
    Discount rate10.0%3.8%-6.2pp
    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.