DCF Studio

    SO · NYQ · Utilities

    The Southern Company

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 1.24

    Market price

    USD 85.52

    Implied upside

    -98.5%

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

    Wrong toolThis model values the shares at 1.5% of the market price. A gap that size is a modelling failure rather than a view - most often an unusable beta, a currency or units mismatch, or a cashflow base that does not represent the business. Read the figures below as diagnostics, not as a call.
    AdjustedCapital expenditure runs at 34.9% of revenue against depreciation of 18.4%. 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.

    Value Per Share

    Perpetuity growth
    USD 1.24-98.5%
    Exit multiple
    USD 47.31-44.7%
    Market price
    USD 85.52

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m394m788mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 29.6bnUSD 29.7bnUSD 29.8bnUSD 29.9bnUSD 30.0bn+0.3%
    EBITUSD 6.9bnUSD 6.9bnUSD 6.9bnUSD 6.9bnUSD 6.9bn+0.3%
    NOPATUSD 5.7bnUSD 5.7bnUSD 5.7bnUSD 5.7bnUSD 5.7bn+0.3%
    Add depreciation & amortisationUSD 5.5bnUSD 5.5bnUSD 5.5bnUSD 5.5bnUSD 5.5bn+0.3%
    Less capital expenditureUSD -10.4bnUSD -10.4bnUSD -10.4bnUSD -10.4bnUSD -10.5bn+0.3%
    Less increase in working capitalUSD 13.0mUSD 13.0mUSD 13.0mUSD 13.1mUSD 13.1m-0.3%
    Free cashflow to firmUSD 778.3mUSD 780.7mUSD 783.1mUSD 785.6mUSD 788.0m+0.3%
    Discount factor0.96980.91220.85790.80690.7590-
    Present valueUSD 754.8mUSD 712.1mUSD 671.9mUSD 633.9mUSD 598.1m-5.7%
    Present Value Of The ForecastUSD 3.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.542Reported 0.316, pulled toward 1.0 (Blume)
    Cost of equity7.98%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 98.4bn57.0% of capital
    Total debtUSD 74.1bn43.0% of capital, book value as a proxy
    Tax rate17.5%Effective, capped at statutory
    WACC6.32%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 1.24

    95% of EV

    Forecast FCFF, final year
    USD 788.0m
    Capex at depreciation, working capital in reinvestment
    USD 5.7bn
    Less reinvestment at g/ROIC (39.6% of NOPAT)
    USD -2.3bn
    Capitalised
    USD 3.5bn
    ROIC (WACC floor)
    6.3%
    Terminal value, undiscounted
    USD 92.8bn
    Terminal value, discounted
    USD 70.4bn
    Enterprise value
    USD 73.8bn
    Less net debt
    USD 72.4bn
    Equity value
    USD 1.4bn

    Exit at 12.8x EBITDA

    Value per shareUSD 47.31

    97% of EV

    Terminal value, undiscounted
    USD 160.0bn
    Terminal value, discounted
    USD 121.5bn
    Enterprise value
    USD 124.8bn
    Less net debt
    USD 72.4bn
    Equity value
    USD 52.4bn

    Spread between methods: 190%.

    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%
    4.32%48.2955.1665.5983.61123.09
    5.32%15.8716.3016.7417.2217.74
    6.32%0.620.931.241.551.86
    7.32%-10.29-10.04-9.78-9.52-9.26
    8.32%-18.50-18.28-18.06-17.85-17.63

    Outlined: this model. Green text: above today's price of 85.52. 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 year0.3%17.8%+17.5pp
    EBIT margin23.1%45.9%+22.7pp
    Discount rate6.3%4.1%-2.2pp
    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.