Intrinsic value of Advantage Oil & Gas Ltd. - AAV

Previous Close

$3.70

  Intrinsic Value

$1.63

stock screener

  Rating & Target

str. sell

-56%

Previous close

$3.70

 
Intrinsic value

$1.63

 
Up/down potential

-56%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of AAV stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Advantage Oil & Gas Ltd. (AAV) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  24.60
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
  4.87
Revenue, $m
  157
  161
  165
  169
  175
  180
  186
  193
  200
  208
  216
  225
  234
  244
  255
  266
  277
  290
  303
  317
  332
  347
  364
  381
  399
  418
  438
  459
  482
  505
  530
Variable operating expenses, $m
 
  124
  127
  131
  135
  139
  144
  149
  154
  160
  167
  173
  180
  188
  196
  205
  214
  224
  234
  244
  256
  268
  280
  294
  308
  322
  338
  354
  371
  389
  408
Fixed operating expenses, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  177
  124
  127
  131
  135
  139
  144
  149
  154
  160
  167
  173
  180
  188
  196
  205
  214
  224
  234
  244
  256
  268
  280
  294
  308
  322
  338
  354
  371
  389
  408
Operating income, $m
  -20
  37
  38
  39
  40
  41
  43
  44
  46
  48
  49
  51
  54
  56
  58
  61
  64
  66
  69
  73
  76
  80
  83
  87
  91
  96
  100
  105
  110
  116
  121
EBITDA, $m
  96
  155
  159
  164
  169
  174
  180
  187
  193
  201
  209
  217
  226
  236
  246
  257
  268
  280
  293
  307
  321
  336
  352
  368
  386
  404
  424
  444
  466
  488
  512
Interest expense (income), $m
  9
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  27
  29
  31
  33
Earnings before tax, $m
  -20
  31
  31
  32
  33
  34
  35
  36
  37
  38
  39
  41
  42
  44
  45
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
Tax expense, $m
  -4
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
Net income, $m
  -16
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  1,496
  1,530
  1,569
  1,613
  1,662
  1,716
  1,774
  1,837
  1,905
  1,979
  2,057
  2,140
  2,229
  2,324
  2,424
  2,530
  2,643
  2,761
  2,887
  3,020
  3,160
  3,307
  3,463
  3,627
  3,799
  3,981
  4,173
  4,374
  4,586
  4,809
  5,043
Adjusted assets (=assets-cash), $m
  1,496
  1,530
  1,569
  1,613
  1,662
  1,716
  1,774
  1,837
  1,905
  1,979
  2,057
  2,140
  2,229
  2,324
  2,424
  2,530
  2,643
  2,761
  2,887
  3,020
  3,160
  3,307
  3,463
  3,627
  3,799
  3,981
  4,173
  4,374
  4,586
  4,809
  5,043
Revenue / Adjusted assets
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
  0.105
Average production assets, $m
  1,449
  1,482
  1,520
  1,563
  1,610
  1,662
  1,719
  1,780
  1,846
  1,917
  1,992
  2,073
  2,159
  2,251
  2,348
  2,451
  2,560
  2,675
  2,797
  2,925
  3,061
  3,204
  3,355
  3,513
  3,681
  3,857
  4,042
  4,237
  4,442
  4,658
  4,885
Working capital, $m
  -19
  -19
  -20
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
Total debt, $m
  153
  160
  168
  176
  186
  196
  207
  220
  233
  247
  262
  278
  295
  313
  333
  353
  375
  398
  422
  448
  475
  503
  533
  565
  598
  633
  670
  709
  750
  793
  838
Total liabilities, $m
  288
  295
  303
  311
  321
  331
  342
  355
  368
  382
  397
  413
  430
  448
  468
  488
  510
  533
  557
  583
  610
  638
  668
  700
  733
  768
  805
  844
  885
  928
  973
Total equity, $m
  1,208
  1,234
  1,266
  1,302
  1,341
  1,385
  1,432
  1,483
  1,538
  1,597
  1,660
  1,727
  1,799
  1,875
  1,956
  2,042
  2,133
  2,228
  2,330
  2,437
  2,550
  2,669
  2,795
  2,927
  3,066
  3,213
  3,367
  3,530
  3,701
  3,881
  4,070
Total liabilities and equity, $m
  1,496
  1,529
  1,569
  1,613
  1,662
  1,716
  1,774
  1,838
  1,906
  1,979
  2,057
  2,140
  2,229
  2,323
  2,424
  2,530
  2,643
  2,761
  2,887
  3,020
  3,160
  3,307
  3,463
  3,627
  3,799
  3,981
  4,172
  4,374
  4,586
  4,809
  5,043
Debt-to-equity ratio
  0.127
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.210
Adjusted equity ratio
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807
  0.807

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -16
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
Depreciation, amort., depletion, $m
  116
  119
  122
  125
  129
  133
  137
  142
  148
  153
  159
  166
  173
  180
  188
  196
  205
  214
  224
  234
  245
  256
  268
  281
  294
  309
  323
  339
  355
  373
  391
Funds from operations, $m
  176
  141
  144
  148
  153
  158
  163
  168
  175
  181
  188
  196
  204
  212
  221
  231
  241
  251
  263
  274
  287
  300
  314
  329
  344
  361
  378
  396
  415
  435
  456
Change in working capital, $m
  1
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
Cash from operations, $m
  175
  141
  145
  149
  153
  158
  163
  169
  175
  182
  189
  197
  205
  213
  222
  232
  242
  253
  264
  276
  289
  302
  316
  331
  346
  363
  380
  398
  417
  437
  459
Maintenance CAPEX, $m
  0
  -116
  -119
  -122
  -125
  -129
  -133
  -137
  -142
  -148
  -153
  -159
  -166
  -173
  -180
  -188
  -196
  -205
  -214
  -224
  -234
  -245
  -256
  -268
  -281
  -294
  -309
  -323
  -339
  -355
  -373
New CAPEX, $m
  -127
  -33
  -38
  -43
  -47
  -52
  -57
  -61
  -66
  -71
  -76
  -81
  -86
  -92
  -97
  -103
  -109
  -115
  -122
  -129
  -136
  -143
  -151
  -159
  -167
  -176
  -185
  -195
  -205
  -216
  -227
Cash from investing activities, $m
  -127
  -149
  -157
  -165
  -172
  -181
  -190
  -198
  -208
  -219
  -229
  -240
  -252
  -265
  -277
  -291
  -305
  -320
  -336
  -353
  -370
  -388
  -407
  -427
  -448
  -470
  -494
  -518
  -544
  -571
  -600
Free cash flow, $m
  48
  -8
  -12
  -15
  -19
  -23
  -26
  -30
  -33
  -36
  -40
  -44
  -47
  -51
  -55
  -59
  -63
  -67
  -72
  -76
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
Issuance/(repayment) of debt, $m
  -39
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
Issuance/(repurchase) of shares, $m
  0
  4
  9
  12
  16
  19
  22
  25
  28
  31
  34
  38
  41
  44
  48
  51
  55
  59
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
  124
Cash from financing (excl. dividends), $m  
  -48
  11
  17
  21
  25
  29
  33
  37
  41
  45
  49
  54
  58
  62
  67
  72
  77
  82
  87
  93
  98
  103
  110
  117
  123
  130
  137
  145
  153
  161
  169
Total cash flow (excl. dividends), $m
  0
  3
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
Retained Cash Flow (-), $m
  -86
  -26
  -32
  -36
  -39
  -43
  -47
  -51
  -55
  -59
  -63
  -67
  -72
  -76
  -81
  -86
  -91
  -96
  -101
  -107
  -113
  -119
  -126
  -132
  -139
  -147
  -154
  -162
  -171
  -180
  -189
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  -23
  -27
  -30
  -34
  -37
  -40
  -43
  -47
  -50
  -54
  -57
  -61
  -65
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -101
  -107
  -112
  -118
  -125
  -131
  -138
  -145
  -153
  -161
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  -22
  -25
  -26
  -28
  -29
  -29
  -29
  -29
  -29
  -28
  -27
  -26
  -25
  -23
  -21
  -20
  -18
  -16
  -14
  -12
  -10
  -9
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
Current shareholders' claim on cash, %
  100
  99.5
  98.5
  97.1
  95.5
  93.6
  91.6
  89.3
  87.0
  84.5
  82.0
  79.4
  76.8
  74.2
  71.6
  69.0
  66.5
  64.0
  61.5
  59.1
  56.7
  54.4
  52.2
  50.0
  47.9
  45.9
  44.0
  42.1
  40.2
  38.5
  36.8

Advantage Oil & Gas Ltd. is an intermediate natural gas and liquids development and production company. The Company is engaged in the business of natural gas exploitation, development, acquisition and production in the Province of Alberta. The Company focuses on the development of Montney resource play at Glacier, Alberta in Western Canada. The Company has drilled over 10 Montney gas wells. The Glacier property lies along the Alberta side of the border with British Columbia between Grande Prairie, Alberta and Dawson Creek, British Columbia. The primary zones of interest are within the Triassic Montney and Doig formation siltstones. The Glacier property consists of over 90 net sections of land with Doig/Montney interests. It owns and operates a gas plant located at 5-02-76-12W6. It also holds interest in approximately 20 additional sections of Doig/Montney land rights in the Glacier, Valhalla and Wembley area proximal to its existing land holdings.

FINANCIAL RATIOS  of  Advantage Oil & Gas Ltd. (AAV)

Valuation Ratios
P/E Ratio -42.7
Price to Sales 4.4
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow 14.2
Growth Rates
Sales Growth Rate 24.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.5%
Cap. Spend. - 3 Yr. Gr. Rate -2.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 12.7%
Total Debt to Equity 12.7%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.6%
Ret/ On Assets - 3 Yr. Avg. 1%
Return On Total Capital -1.2%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity -1.4%
Return On Equity - 3 Yr. Avg. 0.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 87.3%
Gross Margin - 3 Yr. Avg. 88.4%
EBITDA Margin 66.9%
EBITDA Margin - 3 Yr. Avg. 88.8%
Operating Margin -12.7%
Oper. Margin - 3 Yr. Avg. 20.4%
Pre-Tax Margin -12.7%
Pre-Tax Margin - 3 Yr. Avg. 20.4%
Net Profit Margin -10.2%
Net Profit Margin - 3 Yr. Avg. 4.7%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. 25.4%
Payout Ratio 0%

AAV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAV stock intrinsic value calculation we used $157 million for the last fiscal year's total revenue generated by Advantage Oil & Gas Ltd.. The default revenue input number comes from 2016 income statement of Advantage Oil & Gas Ltd.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AAV stock valuation model: a) initial revenue growth rate of 2.3% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for AAV is calculated based on our internal credit rating of Advantage Oil & Gas Ltd., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Advantage Oil & Gas Ltd..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AAV stock the variable cost ratio is equal to 77.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for AAV stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for Advantage Oil & Gas Ltd..

Corporate tax rate of 27% is the nominal tax rate for Advantage Oil & Gas Ltd.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AAV stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AAV are equal to 922.6%.

Life of production assets of 12.5 years is the average useful life of capital assets used in Advantage Oil & Gas Ltd. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AAV is equal to -12.1%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1208 million for Advantage Oil & Gas Ltd. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 185.185 million for Advantage Oil & Gas Ltd. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Advantage Oil & Gas Ltd. at the current share price and the inputted number of shares is $0.7 billion.

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Financial statements of AAV
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