DCF Studio

    STO.AX · ASX · Energy

    Santos Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 6.86

    Market price

    AUD 8.51

    Implied upside

    -19.4%

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

    Wrong toolThis line has no market capitalisation, which means it is not ordinary shares - typically a hybrid, preference line, note or unlisted stub. A discounted cashflow values a claim on the whole business, so applying it here attributes all of the group’s revenue to a security that has no such claim. Its value is its coupon and call schedule. Look up the ordinary line instead.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReports in USD, trades in AUD. Modelled in USD, converted at the end.
    AdjustedBeta of -0.088 is not usable in a cost of equity. Clamped to 0.30.

    No usable EV/EBITDA (EBITDA is not positive), so the exit multiple falls back to 8x.

    Value Per Share

    Perpetuity growth
    AUD 6.86-19.4%
    Exit multiple
    AUD 2.63-69.0%
    Market price
    AUD 8.51

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0m315m631mFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 4.3bnUSD 3.7bnUSD 3.1bnUSD 2.7bnUSD 2.3bn-14.0%
    EBITUSD 1.3bnUSD 1.2bnUSD 996.9mUSD 857.1mUSD 736.9m-14.0%
    NOPATUSD 970.4mUSD 834.3mUSD 717.3mUSD 616.7mUSD 530.3m-14.0%
    Add depreciation & amortisationUSD 1.3bnUSD 1.1bnUSD 951.4mUSD 818.0mUSD 703.3m-14.0%
    Less capital expenditureUSD -1.6bnUSD -1.4bnUSD -1.2bnUSD -1.0bnUSD -861.2m-14.0%
    Less increase in working capitalUSD -50.6mUSD -43.5mUSD -37.4mUSD -32.1mUSD -27.6m-14.0%
    Free cashflow to firmUSD 630.8mUSD 542.3mUSD 466.3mUSD 400.9mUSD 344.7m-14.0%
    Discount factor0.98130.94490.90990.87620.8437-
    Present valueUSD 619.0mUSD 512.5mUSD 424.3mUSD 351.3mUSD 290.8m-17.2%
    Present Value Of The ForecastUSD 2.2bn

    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
    Beta0.300Clamped from a reported -0.088
    Cost of equity7.15%Risk-free + beta x equity risk premium
    Cost of debt5.35%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 0.000.0% of capital
    Total debtUSD 7.5bn100.0% of capital, book value as a proxy
    Tax rate28.0%Effective, capped at statutory
    WACC3.85%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 4.89

    90% of EV

    Forecast FCFF, final year
    USD 344.7m
    Capex at depreciation, working capital in reinvestment
    USD 530.3m
    Less reinvestment at g/ROIC (42.6% of NOPAT)
    USD -225.8m
    Capitalised
    USD 304.5m
    ROIC (reported)
    5.9%
    Terminal value, undiscounted
    USD 23.1bn
    Terminal value, discounted
    USD 19.5bn
    Enterprise value
    USD 21.7bn
    Less net debt
    USD 5.8bn
    Equity value
    USD 15.9bn

    Exit at 8.0x EBITDA

    Value per shareUSD 1.88

    82% of EV

    Terminal value, undiscounted
    USD 11.5bn
    Terminal value, discounted
    USD 9.7bn
    Enterprise value
    USD 11.9bn
    Less net debt
    USD 5.8bn
    Equity value
    USD 6.1bn

    Spread between methods: 89%.

    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%
    1.85%31.44————
    2.85%6.9410.2823.15——
    3.85%3.313.894.897.0515.38
    4.85%1.851.982.182.462.96
    5.85%1.061.071.081.091.11

    Outlined: this model. Green text: above today's price of 6.06. 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-14.0%-11.1%+2.9pp
    EBIT margin31.7%37.0%+5.3pp
    Discount rate3.8%3.6%-0.2pp
    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.