The calculations below outline how an intrinsic value for Pennon Group is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.
See our documentation to learn about this calculation.
|Levered FCF (GBP, Millions)||£128.00||£119.00||£150.00||£195.00||£200.33|
|Source||Analyst x1||Analyst x1||Analyst x2||Analyst x2||Extrapolated @ (2.73%)|
Discounted (@ 8.2%)
Present value of next 5 years cash flows:
Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)
Terminal Value = £200 × (1 + 1.2%) ÷ (8.23% – 1.2%)
Terminal value based on the Perpetuity Method where growth (g) = 1.2%:
Present value of terminal value:
Equity Value (Total value) = Present value of next 5 years cash flows + terminal value
Value = Total value / Shares Outstanding (£2,547 / 424)
Value per share:
Current discount (share price of £7.875): -31%
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.23% = 1.17% + (0.8 * 8.83%)
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.566 = 0.318 (1 + (1- 21%) (99.09%))
Levered Beta used in calculation = 0.8
Are Pennon Group's annual earnings growth expected to exceed 1.8% over the next 3 years?
Mr. Christopher Loughlin, also known as Chris, BSc Hons, MICE, CEng, MBA, has been Group Chief Executive Officer of Pennon Group Plc since January 1, 2016. Mr. Loughlin served as the Chief Executive Officer of South West Water Limited from August 1, 2006 to December 31, 2015. Mr. Loughlin served as Chief Operating Officer of Lloyd's Register. He started his career as a Consulting Engineer and subsequently held a number of senior positions at British Nuclear Fuels. He served as an Executive Chairman of Magnox Electric Plc. He serves as Non-Executive Director of Bournemouth Water Ltd. He has been an Executive Director at Pennon Group Plc since August 1, 2006. He served as an Executive Director of British Nuclear Fuels Ltd. Mr. Loughlin is a chartered civil engineer and has an honours degree in civil engineering and an MBA.
Average tenure of the Pennon Group board of directors:
Pennon Group Plc engages in the environmental infrastructure businesses worldwide. The company operates through Water, and Waste Management segments. The Water segment comprises the regulated water and wastewater services for customers in Cornwall, Devon, and parts of Dorset and Somerset serving 1.7 million customers; and water services in the areas of Dorset, Hampshire, and Wiltshire serving approximately 0.5 million customers. The Waste Management segment provides recycling, energy recovery, and waste management services serving approximately 150 local authorities and corporate clients, as well as 32,000 customers across the United Kingdom. The company operates 8 energy recovery facilities; 300 recycling, energy recovery, and waste management facilities; and 650 waste collection vehicles securing materials. Pennon Group Plc was incorporated in 1989 and is based in Exeter, the United Kingdom.
|Name:||Pennon Group Plc|
|Market Cap:||£3,336 million|
Peninsula House, Exeter, EX2 7HR, United Kingdom