Intrinsic value of AltaGas Ltd. - ALA

Previous Close

$29.05

  Intrinsic Value

$5.38

stock screener

  Rating & Target

str. sell

-81%

Previous close

$29.05

 
Intrinsic value

$5.38

 
Up/down potential

-81%

 
Rating

str. sell

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

We calculate the intrinsic value of ALA 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.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 5.0

 

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, %
  -0.14
  2.00
  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
Revenue, $m
  2,190
  2,234
  2,285
  2,344
  2,410
  2,483
  2,563
  2,650
  2,745
  2,847
  2,956
  3,073
  3,197
  3,330
  3,471
  3,621
  3,780
  3,948
  4,125
  4,313
  4,511
  4,720
  4,941
  5,173
  5,418
  5,676
  5,948
  6,234
  6,534
  6,851
  7,184
Variable operating expenses, $m
 
  1,906
  1,948
  1,996
  2,049
  2,109
  2,174
  2,245
  2,322
  2,405
  2,494
  2,504
  2,606
  2,714
  2,829
  2,951
  3,080
  3,217
  3,362
  3,515
  3,676
  3,847
  4,026
  4,216
  4,415
  4,626
  4,847
  5,080
  5,325
  5,583
  5,854
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
  1,809
  1,906
  1,948
  1,996
  2,049
  2,109
  2,174
  2,245
  2,322
  2,405
  2,494
  2,504
  2,606
  2,714
  2,829
  2,951
  3,080
  3,217
  3,362
  3,515
  3,676
  3,847
  4,026
  4,216
  4,415
  4,626
  4,847
  5,080
  5,325
  5,583
  5,854
Operating income, $m
  381
  328
  337
  348
  360
  374
  389
  405
  422
  441
  461
  569
  592
  616
  643
  670
  700
  731
  764
  798
  835
  874
  914
  958
  1,003
  1,051
  1,101
  1,154
  1,209
  1,268
  1,330
EBITDA, $m
  653
  667
  683
  700
  720
  742
  766
  792
  820
  850
  883
  918
  955
  995
  1,037
  1,082
  1,129
  1,179
  1,232
  1,288
  1,347
  1,410
  1,476
  1,545
  1,618
  1,695
  1,777
  1,862
  1,952
  2,046
  2,146
Interest expense (income), $m
  142
  135
  139
  144
  149
  155
  161
  169
  176
  185
  194
  204
  214
  225
  237
  250
  263
  277
  293
  308
  325
  343
  362
  381
  402
  424
  447
  472
  497
  524
  552
Earnings before tax, $m
  246
  193
  198
  205
  212
  219
  227
  236
  246
  256
  268
  365
  378
  391
  405
  420
  436
  453
  471
  490
  510
  531
  553
  576
  601
  626
  654
  682
  712
  744
  777
Tax expense, $m
  33
  52
  54
  55
  57
  59
  61
  64
  66
  69
  72
  99
  102
  106
  109
  113
  118
  122
  127
  132
  138
  143
  149
  156
  162
  169
  176
  184
  192
  201
  210
Net income, $m
  204
  141
  145
  149
  154
  160
  166
  173
  180
  187
  195
  266
  276
  285
  296
  307
  319
  331
  344
  358
  372
  387
  404
  421
  438
  457
  477
  498
  520
  543
  567

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19
  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
  10,201
  10,390
  10,629
  10,902
  11,209
  11,548
  11,921
  12,327
  12,767
  13,240
  13,748
  14,292
  14,872
  15,490
  16,146
  16,842
  17,580
  18,362
  19,188
  20,061
  20,983
  21,955
  22,981
  24,062
  25,201
  26,401
  27,664
  28,994
  30,393
  31,865
  33,413
Adjusted assets (=assets-cash), $m
  10,182
  10,390
  10,629
  10,902
  11,209
  11,548
  11,921
  12,327
  12,767
  13,240
  13,748
  14,292
  14,872
  15,490
  16,146
  16,842
  17,580
  18,362
  19,188
  20,061
  20,983
  21,955
  22,981
  24,062
  25,201
  26,401
  27,664
  28,994
  30,393
  31,865
  33,413
Revenue / Adjusted assets
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
Average production assets, $m
  7,464
  7,613
  7,788
  7,988
  8,213
  8,462
  8,735
  9,032
  9,354
  9,701
  10,074
  10,472
  10,897
  11,349
  11,830
  12,341
  12,882
  13,454
  14,059
  14,699
  15,374
  16,087
  16,839
  17,631
  18,465
  19,345
  20,270
  21,244
  22,270
  23,348
  24,482
Working capital, $m
  -257
  241
  247
  253
  260
  268
  277
  286
  296
  307
  319
  332
  345
  360
  375
  391
  408
  426
  446
  466
  487
  510
  534
  559
  585
  613
  642
  673
  706
  740
  776
Total debt, $m
  3,879
  3,973
  4,105
  4,255
  4,424
  4,611
  4,816
  5,039
  5,281
  5,541
  5,821
  6,120
  6,439
  6,778
  7,139
  7,522
  7,928
  8,358
  8,812
  9,293
  9,799
  10,334
  10,899
  11,493
  12,120
  12,780
  13,474
  14,206
  14,975
  15,785
  16,636
Total liabilities, $m
  5,620
  5,714
  5,846
  5,996
  6,165
  6,352
  6,557
  6,780
  7,022
  7,282
  7,562
  7,861
  8,180
  8,519
  8,880
  9,263
  9,669
  10,099
  10,553
  11,034
  11,540
  12,075
  12,640
  13,234
  13,861
  14,521
  15,215
  15,947
  16,716
  17,526
  18,377
Total equity, $m
  4,581
  4,675
  4,783
  4,906
  5,044
  5,197
  5,365
  5,547
  5,745
  5,958
  6,187
  6,431
  6,692
  6,970
  7,266
  7,579
  7,911
  8,263
  8,635
  9,027
  9,442
  9,880
  10,341
  10,828
  11,341
  11,880
  12,449
  13,047
  13,677
  14,339
  15,036
Total liabilities and equity, $m
  10,201
  10,389
  10,629
  10,902
  11,209
  11,549
  11,922
  12,327
  12,767
  13,240
  13,749
  14,292
  14,872
  15,489
  16,146
  16,842
  17,580
  18,362
  19,188
  20,061
  20,982
  21,955
  22,981
  24,062
  25,202
  26,401
  27,664
  28,994
  30,393
  31,865
  33,413
Debt-to-equity ratio
  0.847
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.990
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.050
  1.060
  1.070
  1.080
  1.080
  1.090
  1.090
  1.100
  1.110
Adjusted equity ratio
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  204
  141
  145
  149
  154
  160
  166
  173
  180
  187
  195
  266
  276
  285
  296
  307
  319
  331
  344
  358
  372
  387
  404
  421
  438
  457
  477
  498
  520
  543
  567
Depreciation, amort., depletion, $m
  272
  339
  345
  352
  359
  368
  377
  387
  397
  409
  421
  349
  363
  378
  394
  411
  429
  448
  469
  490
  512
  536
  561
  588
  616
  645
  676
  708
  742
  778
  816
Funds from operations, $m
  378
  480
  490
  501
  514
  528
  543
  559
  577
  596
  617
  616
  639
  664
  690
  718
  748
  779
  812
  848
  885
  924
  965
  1,008
  1,054
  1,102
  1,153
  1,206
  1,262
  1,321
  1,383
Change in working capital, $m
  -78
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
Cash from operations, $m
  456
  475
  484
  495
  507
  520
  534
  550
  567
  585
  605
  603
  625
  649
  675
  702
  731
  761
  793
  827
  863
  901
  941
  983
  1,027
  1,074
  1,123
  1,175
  1,230
  1,287
  1,347
Maintenance CAPEX, $m
  0
  -249
  -254
  -260
  -266
  -274
  -282
  -291
  -301
  -312
  -323
  -336
  -349
  -363
  -378
  -394
  -411
  -429
  -448
  -469
  -490
  -512
  -536
  -561
  -588
  -616
  -645
  -676
  -708
  -742
  -778
New CAPEX, $m
  -532
  -149
  -175
  -200
  -225
  -249
  -273
  -297
  -322
  -347
  -372
  -398
  -425
  -453
  -481
  -510
  -541
  -572
  -605
  -640
  -675
  -713
  -752
  -792
  -835
  -879
  -926
  -974
  -1,025
  -1,079
  -1,134
Cash from investing activities, $m
  -752
  -398
  -429
  -460
  -491
  -523
  -555
  -588
  -623
  -659
  -695
  -734
  -774
  -816
  -859
  -904
  -952
  -1,001
  -1,053
  -1,109
  -1,165
  -1,225
  -1,288
  -1,353
  -1,423
  -1,495
  -1,571
  -1,650
  -1,733
  -1,821
  -1,912
Free cash flow, $m
  -296
  77
  56
  35
  16
  -3
  -21
  -39
  -56
  -74
  -91
  -131
  -149
  -166
  -184
  -203
  -221
  -241
  -261
  -281
  -302
  -324
  -347
  -370
  -395
  -420
  -447
  -475
  -504
  -534
  -565
Issuance/(repayment) of debt, $m
  -208
  113
  131
  150
  169
  187
  205
  223
  242
  260
  279
  299
  319
  340
  361
  383
  406
  430
  454
  480
  507
  535
  564
  595
  627
  660
  695
  731
  770
  810
  852
Issuance/(repurchase) of shares, $m
  604
  0
  0
  0
  0
  0
  2
  10
  18
  26
  33
  0
  0
  0
  0
  7
  14
  21
  28
  35
  43
  50
  58
  66
  74
  83
  91
  100
  110
  119
  129
Cash from financing (excl. dividends), $m  
  386
  113
  131
  150
  169
  187
  207
  233
  260
  286
  312
  299
  319
  340
  361
  390
  420
  451
  482
  515
  550
  585
  622
  661
  701
  743
  786
  831
  880
  929
  981
Total cash flow (excl. dividends), $m
  91
  191
  187
  185
  184
  184
  186
  195
  204
  213
  222
  168
  170
  173
  177
  187
  198
  210
  222
  234
  247
  261
  275
  290
  306
  322
  339
  357
  376
  395
  416
Retained Cash Flow (-), $m
  -413
  -94
  -108
  -123
  -138
  -153
  -168
  -183
  -198
  -213
  -229
  -245
  -261
  -278
  -295
  -313
  -332
  -352
  -372
  -393
  -415
  -438
  -462
  -487
  -513
  -540
  -568
  -598
  -630
  -662
  -697
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
 
  96
  79
  62
  46
  31
  18
  12
  6
  0
  -7
  -77
  -91
  -105
  -119
  -126
  -134
  -142
  -150
  -158
  -167
  -177
  -186
  -196
  -207
  -218
  -229
  -241
  -254
  -267
  -281
Discount rate, %
 
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
 
  89
  67
  48
  32
  19
  10
  6
  2
  0
  -2
  -20
  -19
  -18
  -16
  -14
  -11
  -9
  -7
  -5
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.8
  99.5
  99.1
  98.6
  98.6
  98.6
  98.6
  98.6
  98.5
  98.4
  98.1
  97.8
  97.5
  97.0
  96.6
  96.1
  95.5
  94.9
  94.3
  93.6
  92.9
  92.2
  91.5
  90.8

AltaGas Ltd is a Canada-based energy infrastructure company. The Company operates through three segments: Gas, Power and Utilities. The Gas segment transacts approximately two billion cubic feet per day (Bcf/d) of natural gas and includes natural gas gathering and processing, natural gas liquids extraction and separation, transmission, storage and natural gas marketing, as well as its interest in Petrogas Energy Corp. The Power segment includes generation assets located across North America with over 2,000 megawatt (MW) of capacity from over five fuel types, with opportunities to expand in California and across the United States, as well as the opportunity to develop new gas-fired and renewable generation in Alberta to replace coal. The Utilities segment serves over 560,000 customers through ownership of regulated natural gas distribution utilities across North America and a regulated natural gas storage utility in the United States, delivering natural gas to homes and businesses.

FINANCIAL RATIOS  of  AltaGas Ltd. (ALA)

Valuation Ratios
P/E Ratio 23.8
Price to Sales 2.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 10.6
Price to Free Cash Flow -63.8
Growth Rates
Sales Growth Rate -0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.3%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 73.5%
Total Debt to Equity 84.7%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 2.4%
Return On Total Capital 2.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1.7%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 3.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 53.6%
Gross Margin - 3 Yr. Avg. 47.6%
EBITDA Margin 30.1%
EBITDA Margin - 3 Yr. Avg. 22.8%
Operating Margin 17.4%
Oper. Margin - 3 Yr. Avg. 13.5%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 7.6%
Net Profit Margin 9.3%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 13.4%
Eff/ Tax Rate - 3 Yr. Avg. 23.3%
Payout Ratio 178.9%

ALA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALA stock intrinsic value calculation we used $2190 million for the last fiscal year's total revenue generated by AltaGas Ltd.. The default revenue input number comes from 2016 income statement of AltaGas 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 ALA stock valuation model: a) initial revenue growth rate of 2% 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 8.1%, whose default value for ALA is calculated based on our internal credit rating of AltaGas 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 AltaGas 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 ALA stock the variable cost ratio is equal to 85.4%.

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 ALA 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 3.5% for AltaGas Ltd..

Corporate tax rate of 27% is the nominal tax rate for AltaGas 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 ALA 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 ALA are equal to 340.8%.

Life of production assets of 30.6 years is the average useful life of capital assets used in AltaGas 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 ALA is equal to 10.8%. 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 - $4581 million for AltaGas 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 173.162 million for AltaGas 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 AltaGas Ltd. at the current share price and the inputted number of shares is $5.0 billion.

RELATED COMPANIES Price Int.Val. Rating
PPL Pembina Pipeli 45.09 4.13  str.sell
JE Just Energy Gr 5.37 2.64  str.sell
FTS Fortis Inc. 47.27 241.57  str.buy
Financial statements of ALA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.