DCF Studio

    SSE.L · LSE · Utilities

    SSE plc

    Also onConsensus Drift

    Implied value per share

    GBp -372.39

    Market price

    GBp 2432.00

    Implied upside

    -115.3%

    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 28.3% of revenue against depreciation of 8.3%. 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 -372.39-115.3%
    Exit multiple
    GBp 241.24-90.1%
    Market price
    GBp 2432.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    -1405305446-7026527230FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 9.5bnGBP 8.9bnGBP 8.3bnGBP 7.8bnGBP 7.3bn-6.6%
    EBITGBP 1.5bnGBP 1.4bnGBP 1.3bnGBP 1.3bnGBP 1.2bn-6.6%
    NOPATGBP 1.2bnGBP 1.1bnGBP 1.0bnGBP 946.4mGBP 884.2m-6.6%
    Add depreciation & amortisationGBP 794.4mGBP 742.2mGBP 693.4mGBP 647.8mGBP 605.3m-6.6%
    Less capital expenditureGBP -2.7bnGBP -2.5bnGBP -2.3bnGBP -2.2bnGBP -2.1bn-6.6%
    Less increase in working capitalGBP -669.4mGBP -625.4mGBP -584.3mGBP -545.9mGBP -510.0m-6.6%
    Free cashflow to firmGBP -1.4bnGBP -1.3bnGBP -1.2bnGBP -1.1bnGBP -1.1bn+6.6%
    Discount factor0.96600.90160.84140.78520.7328-
    Present valueGBP -1.4bnGBP -1.2bnGBP -1.0bnGBP -899.9mGBP -784.6m+12.8%
    Present Value Of The ForecastGBP -5.3bn

    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
    Beta0.718Reported 0.579, pulled toward 1.0 (Blume)
    Cost of equity8.45%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 29.3bn74.3% of capital
    Total debtGBP 10.1bn25.7% of capital, book value as a proxy
    Tax rate24.5%Effective, capped at statutory
    WACC7.15%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 -3.72

    222% of EV

    Forecast FCFF, final year
    GBP -1.1bn
    Capex at depreciation, working capital in reinvestment
    GBP 884.2m
    Less reinvestment at g/ROIC (33.0% of NOPAT)
    GBP -291.7m
    Capitalised
    GBP 592.5m
    ROIC (reported)
    7.6%
    Terminal value, undiscounted
    GBP 13.1bn
    Terminal value, discounted
    GBP 9.6bn
    Enterprise value
    GBP 4.3bn
    Less net debt
    GBP 8.6bn
    Equity value
    GBP -4.3bn

    Exit at 12.8x EBITDA

    Value per shareGBP 2.41

    146% of EV

    Terminal value, undiscounted
    GBP 22.7bn
    Terminal value, discounted
    GBP 16.6bn
    Enterprise value
    GBP 11.3bn
    Less net debt
    GBP 8.6bn
    Equity value
    GBP 2.8bn

    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%
    5.15%1.442.383.665.518.45
    6.15%-1.85-1.51-1.08-0.530.21
    7.15%-3.93-3.83-3.72-3.60-3.45
    8.15%-5.22-5.19-5.16-5.12-5.09
    9.15%-6.11-6.09-6.06-6.03-6.00

    Outlined: this model. Green text: above today's price of 24.32. 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-6.6%18.2%+24.8pp
    EBIT margin16.1%53.5%+37.4pp
    Discount rate7.2%3.7%-3.4pp
    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.