DCF Studio

    SVT.L · LSE · Utilities

    Severn Trent PLC

    Also onConsensus Drift

    Implied value per share

    GBp -366.71

    Market price

    GBp 3054.00

    Implied upside

    -112.0%

    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 46.1% of revenue against depreciation of 19.2%. 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.
    NoteRisk-free rate is an assumption: GBP assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    GBp -366.71-112.0%
    Exit multiple
    GBp 3229.80+5.8%
    Market price
    GBp 3054.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    -428122043-2140610210FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayGBP
    LineFY26FY27FY28FY29FY30CAGR
    RevenueGBP 2.6bnGBP 2.8bnGBP 3.0bnGBP 3.3bnGBP 3.5bn+7.7%
    EBITGBP 624.1mGBP 672.1mGBP 723.7mGBP 779.4mGBP 839.3m+7.7%
    NOPATGBP 468.1mGBP 504.1mGBP 542.8mGBP 584.5mGBP 629.4m+7.7%
    Add depreciation & amortisationGBP 502.9mGBP 541.6mGBP 583.2mGBP 628.0mGBP 676.3m+7.7%
    Less capital expenditureGBP -1.2bnGBP -1.3bnGBP -1.4bnGBP -1.5bnGBP -1.6bn+7.7%
    Less increase in working capitalGBP -84.8mGBP -91.3mGBP -98.3mGBP -105.9mGBP -114.0m+7.7%
    Free cashflow to firmGBP -318.4mGBP -342.8mGBP -369.2mGBP -397.6mGBP -428.1m-7.7%
    Discount factor0.97220.91890.86850.82090.7759-
    Present valueGBP -309.5mGBP -315.0mGBP -320.6mGBP -326.4mGBP -332.2m-1.8%
    Present Value Of The ForecastGBP -1.6bn

    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
    Beta0.701Reported 0.553, pulled toward 1.0 (Blume)
    Cost of equity8.35%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 9.2bn48.8% of capital
    Total debtGBP 9.7bn51.2% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC5.80%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 -3.67

    121% of EV

    Forecast FCFF, final year
    GBP -428.1m
    Capex at depreciation, working capital in reinvestment
    GBP 672.0m
    Less reinvestment at g/ROIC (43.1% of NOPAT)
    GBP -289.6m
    Capitalised
    GBP 382.4m
    ROIC (WACC floor)
    5.8%
    Terminal value, undiscounted
    GBP 11.9bn
    Terminal value, discounted
    GBP 9.2bn
    Enterprise value
    GBP 7.6bn
    Less net debt
    GBP 8.7bn
    Equity value
    GBP -1.1bn

    Exit at 17.0x EBITDA

    Value per shareGBP 32.30

    109% of EV

    Terminal value, undiscounted
    GBP 25.8bn
    Terminal value, discounted
    GBP 20.0bn
    Enterprise value
    GBP 18.4bn
    Less net debt
    GBP 8.7bn
    Equity value
    GBP 9.7bn

    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%
    3.80%19.7722.7727.9039.1686.99
    4.80%3.834.024.214.404.59
    5.80%-3.97-3.82-3.67-3.52-3.37
    6.80%-9.38-9.26-9.14-9.02-8.89
    7.80%-13.34-13.23-13.13-13.03-12.93

    Outlined: this model. Green text: above today's price of 30.54. 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 year7.7%28.5%+20.8pp
    EBIT margin23.9%46.2%+22.3pp
    Discount rate5.8%3.8%-2.1pp
    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.