DCF Studio

    UU.L · LSE · Utilities

    United Utilities Group PLC

    Also onConsensus Drift

    Implied value per share

    GBp 897.02

    Market price

    GBp 1375.00

    Implied upside

    -34.8%

    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 45.7% of revenue against depreciation of 21.7%. 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 897.02-34.8%
    Exit multiple
    GBp 2125.18+54.6%
    Market price
    GBp 1375.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (GBP). Outflows negative.

    -60286366-301431830FY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayGBP
    LineFY27FY28FY29FY30FY31CAGR
    RevenueGBP 3.0bnGBP 3.4bnGBP 3.8bnGBP 4.3bnGBP 4.9bn+13.2%
    EBITGBP 898.4mGBP 1.0bnGBP 1.2bnGBP 1.3bnGBP 1.5bn+13.2%
    NOPATGBP 673.8mGBP 762.6mGBP 863.2mGBP 977.0mGBP 1.1bn+13.2%
    Add depreciation & amortisationGBP 642.5mGBP 727.3mGBP 823.2mGBP 931.7mGBP 1.1bn+13.2%
    Less capital expenditureGBP -1.4bnGBP -1.5bnGBP -1.7bnGBP -2.0bnGBP -2.2bn+13.2%
    Less increase in working capitalGBP 705.2kGBP 798.3kGBP 903.5kGBP 1.0mGBP 1.2m-13.2%
    Free cashflow to firmGBP -36.7mGBP -41.6mGBP -47.1mGBP -53.3mGBP -60.3m-13.2%
    Discount factor0.97230.91920.86900.82150.7767-
    Present valueGBP -35.7mGBP -38.2mGBP -40.9mGBP -43.8mGBP -46.8m-7.0%
    Present Value Of The ForecastGBP -205.4m

    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
    Beta0.723Reported 0.587, pulled toward 1.0 (Blume)
    Cost of equity8.48%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 10.2bn47.1% of capital
    Total debtGBP 11.5bn52.9% of capital, book value as a proxy
    Tax rate25.0%Effective, capped at statutory
    WACC5.78%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 8.97

    101% of EV

    Forecast FCFF, final year
    GBP -60.3m
    Capex at depreciation, working capital in reinvestment
    GBP 1.2bn
    Less reinvestment at g/ROIC (43.3% of NOPAT)
    GBP -503.2m
    Capitalised
    GBP 659.7m
    ROIC (WACC floor)
    5.8%
    Terminal value, undiscounted
    GBP 20.6bn
    Terminal value, discounted
    GBP 16.0bn
    Enterprise value
    GBP 15.8bn
    Less net debt
    GBP 9.7bn
    Equity value
    GBP 6.1bn

    Exit at 12.4x EBITDA

    Value per shareGBP 21.25

    101% of EV

    Terminal value, undiscounted
    GBP 31.4bn
    Terminal value, discounted
    GBP 24.4bn
    Enterprise value
    GBP 24.2bn
    Less net debt
    GBP 9.7bn
    Equity value
    GBP 14.5bn

    Spread between methods: 81%.

    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%
    3.78%24.2024.3924.5824.7739.19
    4.78%14.8214.9615.1115.2515.40
    5.78%8.748.868.979.089.20
    6.78%4.504.604.694.784.88
    7.78%1.391.471.551.631.71

    Outlined: this model. Green text: above today's price of 13.75. 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 year13.2%17.5%+4.3pp
    EBIT margin30.3%35.6%+5.2pp
    Discount rate5.8%5.0%-0.8pp
    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.