Intrinsic value of Canadian Natural Resources Limited - CNQ

Previous Close

$44.51

  Intrinsic Value

$5.40

stock screener

  Rating & Target

str. sell

-88%

Previous close

$44.51

 
Intrinsic value

$5.40

 
Up/down potential

-88%

 
Rating

str. sell

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

We calculate the intrinsic value of CNQ 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 54.2

 

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, %
  -14.88
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  10,523
  16,837
  26,013
  38,902
  56,445
  79,636
  109,481
  146,956
  192,962
  248,295
  313,617
  389,441
  476,129
  573,896
  682,823
  802,879
  933,941
  1,075,821
  1,228,291
  1,391,104
  1,564,014
  1,746,796
  1,939,258
  2,141,256
  2,352,697
  2,573,548
  2,803,841
  3,043,670
  3,293,197
  3,552,649
  3,822,315
Variable operating expenses, $m
 
  11,920
  18,417
  27,543
  39,963
  56,382
  77,513
  104,045
  136,617
  175,793
  222,041
  275,724
  337,100
  406,318
  483,439
  568,438
  661,230
  761,681
  869,630
  984,902
  1,107,322
  1,236,731
  1,372,995
  1,516,009
  1,665,709
  1,822,072
  1,985,119
  2,154,918
  2,331,583
  2,515,275
  2,706,199
Fixed operating expenses, $m
 
  4,570
  4,685
  4,802
  4,922
  5,045
  5,171
  5,300
  5,433
  5,569
  5,708
  5,851
  5,997
  6,147
  6,300
  6,458
  6,619
  6,785
  6,955
  7,128
  7,307
  7,489
  7,676
  7,868
  8,065
  8,267
  8,473
  8,685
  8,902
  9,125
  9,353
Total operating expenses, $m
  11,802
  16,490
  23,102
  32,345
  44,885
  61,427
  82,684
  109,345
  142,050
  181,362
  227,749
  281,575
  343,097
  412,465
  489,739
  574,896
  667,849
  768,466
  876,585
  992,030
  1,114,629
  1,244,220
  1,380,671
  1,523,877
  1,673,774
  1,830,339
  1,993,592
  2,163,603
  2,340,485
  2,524,400
  2,715,552
Operating income, $m
  -1,279
  346
  2,911
  6,558
  11,560
  18,209
  26,797
  37,611
  50,912
  66,934
  85,868
  107,866
  133,033
  161,431
  193,084
  227,983
  266,091
  307,355
  351,707
  399,074
  449,385
  502,575
  558,587
  617,378
  678,922
  743,209
  810,248
  880,066
  952,711
  1,028,248
  1,106,763
EBITDA, $m
  3,579
  8,147
  14,964
  24,582
  37,713
  55,107
  77,524
  105,700
  140,318
  181,977
  231,178
  288,307
  353,640
  427,336
  509,459
  599,983
  698,817
  805,819
  920,815
  1,043,619
  1,174,045
  1,311,924
  1,457,110
  1,609,494
  1,769,005
  1,935,620
  2,109,361
  2,290,300
  2,478,559
  2,674,309
  2,877,769
Interest expense (income), $m
  617
  587
  1,289
  2,306
  3,734
  5,678
  8,247
  11,554
  15,706
  20,803
  26,934
  34,171
  42,573
  52,177
  63,009
  75,078
  88,380
  102,901
  118,621
  135,514
  153,553
  172,711
  192,963
  214,287
  236,668
  260,095
  284,564
  310,080
  336,652
  364,299
  393,045
Earnings before tax, $m
  -1,063
  -242
  1,622
  4,252
  7,826
  12,531
  18,550
  26,057
  35,206
  46,130
  58,934
  73,695
  90,460
  109,254
  130,074
  152,904
  177,711
  204,454
  233,085
  263,560
  295,832
  329,864
  365,624
  403,091
  442,255
  483,115
  525,684
  569,986
  616,059
  663,949
  713,717
Tax expense, $m
  -859
  0
  438
  1,148
  2,113
  3,383
  5,009
  7,035
  9,506
  12,455
  15,912
  19,898
  24,424
  29,498
  35,120
  41,284
  47,982
  55,202
  62,933
  71,161
  79,875
  89,063
  98,718
  108,835
  119,409
  130,441
  141,935
  153,896
  166,336
  179,266
  192,704
Net income, $m
  -204
  -242
  1,184
  3,104
  5,713
  9,148
  13,542
  19,022
  25,701
  33,675
  43,022
  53,797
  66,036
  79,755
  94,954
  111,620
  129,729
  149,251
  170,152
  192,399
  215,957
  240,801
  266,906
  294,257
  322,846
  352,674
  383,749
  416,090
  449,723
  484,683
  521,014

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  930
  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
  58,648
  92,510
  142,928
  213,748
  310,138
  437,560
  601,545
  807,449
  1,060,231
  1,364,260
  1,723,171
  2,139,788
  2,616,096
  3,153,275
  3,751,775
  4,411,421
  5,131,541
  5,911,105
  6,748,854
  7,643,428
  8,593,482
  9,597,778
  10,655,265
  11,765,143
  12,926,906
  14,140,375
  15,405,718
  16,723,460
  18,094,489
  19,520,047
  21,001,730
Adjusted assets (=assets-cash), $m
  57,718
  92,510
  142,928
  213,748
  310,138
  437,560
  601,545
  807,449
  1,060,231
  1,364,260
  1,723,171
  2,139,788
  2,616,096
  3,153,275
  3,751,775
  4,411,421
  5,131,541
  5,911,105
  6,748,854
  7,643,428
  8,593,482
  9,597,778
  10,655,265
  11,765,143
  12,926,906
  14,140,375
  15,405,718
  16,723,460
  18,094,489
  19,520,047
  21,001,730
Revenue / Adjusted assets
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
Average production assets, $m
  51,193
  81,911
  126,553
  189,259
  274,606
  387,429
  532,626
  714,939
  938,761
  1,207,957
  1,525,748
  1,894,632
  2,316,370
  2,792,004
  3,321,934
  3,906,004
  4,543,621
  5,233,870
  5,975,638
  6,767,721
  7,608,927
  8,498,161
  9,434,492
  10,417,211
  11,445,871
  12,520,312
  13,640,685
  14,807,453
  16,021,403
  17,283,636
  18,595,562
Working capital, $m
  -756
  202
  312
  467
  677
  956
  1,314
  1,763
  2,316
  2,980
  3,763
  4,673
  5,714
  6,887
  8,194
  9,635
  11,207
  12,910
  14,739
  16,693
  18,768
  20,962
  23,271
  25,695
  28,232
  30,883
  33,646
  36,524
  39,518
  42,632
  45,868
Total debt, $m
  16,805
  34,842
  62,320
  100,917
  153,449
  222,894
  312,266
  424,484
  562,250
  727,946
  923,552
  1,150,608
  1,410,196
  1,702,959
  2,029,141
  2,388,648
  2,781,114
  3,205,976
  3,662,549
  4,150,092
  4,667,872
  5,215,213
  5,791,544
  6,396,427
  7,029,588
  7,690,928
  8,380,540
  9,098,710
  9,845,920
  10,622,850
  11,430,367
Total liabilities, $m
  32,381
  50,418
  77,896
  116,493
  169,025
  238,470
  327,842
  440,060
  577,826
  743,522
  939,128
  1,166,184
  1,425,772
  1,718,535
  2,044,717
  2,404,224
  2,796,690
  3,221,552
  3,678,125
  4,165,668
  4,683,448
  5,230,789
  5,807,120
  6,412,003
  7,045,164
  7,706,504
  8,396,116
  9,114,286
  9,861,496
  10,638,426
  11,445,943
Total equity, $m
  26,267
  42,092
  65,032
  97,256
  141,113
  199,090
  273,703
  367,389
  482,405
  620,738
  784,043
  973,603
  1,190,324
  1,434,740
  1,707,058
  2,007,196
  2,334,851
  2,689,553
  3,070,728
  3,477,760
  3,910,034
  4,366,989
  4,848,146
  5,353,140
  5,881,742
  6,433,871
  7,009,602
  7,609,174
  8,232,992
  8,881,622
  9,555,787
Total liabilities and equity, $m
  58,648
  92,510
  142,928
  213,749
  310,138
  437,560
  601,545
  807,449
  1,060,231
  1,364,260
  1,723,171
  2,139,787
  2,616,096
  3,153,275
  3,751,775
  4,411,420
  5,131,541
  5,911,105
  6,748,853
  7,643,428
  8,593,482
  9,597,778
  10,655,266
  11,765,143
  12,926,906
  14,140,375
  15,405,718
  16,723,460
  18,094,488
  19,520,048
  21,001,730
Debt-to-equity ratio
  0.640
  0.830
  0.960
  1.040
  1.090
  1.120
  1.140
  1.160
  1.170
  1.170
  1.180
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.190
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
Adjusted equity ratio
  0.439
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455
  0.455

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -204
  -242
  1,184
  3,104
  5,713
  9,148
  13,542
  19,022
  25,701
  33,675
  43,022
  53,797
  66,036
  79,755
  94,954
  111,620
  129,729
  149,251
  170,152
  192,399
  215,957
  240,801
  266,906
  294,257
  322,846
  352,674
  383,749
  416,090
  449,723
  484,683
  521,014
Depreciation, amort., depletion, $m
  4,858
  7,801
  12,053
  18,025
  26,153
  36,898
  50,726
  68,089
  89,406
  115,043
  145,309
  180,441
  220,607
  265,905
  316,375
  372,000
  432,726
  498,464
  569,108
  644,545
  724,660
  809,349
  898,523
  992,115
  1,090,083
  1,192,411
  1,299,113
  1,410,234
  1,525,848
  1,646,061
  1,771,006
Funds from operations, $m
  2,910
  7,560
  13,237
  21,128
  31,866
  46,046
  64,268
  87,111
  115,106
  148,719
  188,331
  234,238
  286,643
  345,660
  411,329
  483,621
  562,455
  647,715
  739,261
  836,943
  940,617
  1,050,149
  1,165,429
  1,286,372
  1,412,929
  1,545,084
  1,682,862
  1,826,324
  1,975,571
  2,130,744
  2,292,020
Change in working capital, $m
  -542
  76
  110
  155
  211
  278
  358
  450
  552
  664
  784
  910
  1,040
  1,173
  1,307
  1,441
  1,573
  1,703
  1,830
  1,954
  2,075
  2,193
  2,310
  2,424
  2,537
  2,650
  2,764
  2,878
  2,994
  3,113
  3,236
Cash from operations, $m
  3,452
  7,484
  13,126
  20,974
  31,656
  45,767
  63,910
  86,661
  114,554
  148,055
  187,547
  233,329
  285,602
  344,487
  410,022
  482,180
  560,882
  646,012
  737,431
  834,990
  938,542
  1,047,956
  1,163,119
  1,283,948
  1,410,391
  1,542,434
  1,680,098
  1,823,446
  1,972,577
  2,127,630
  2,288,784
Maintenance CAPEX, $m
  0
  -4,875
  -7,801
  -12,053
  -18,025
  -26,153
  -36,898
  -50,726
  -68,089
  -89,406
  -115,043
  -145,309
  -180,441
  -220,607
  -265,905
  -316,375
  -372,000
  -432,726
  -498,464
  -569,108
  -644,545
  -724,660
  -809,349
  -898,523
  -992,115
  -1,090,083
  -1,192,411
  -1,299,113
  -1,410,234
  -1,525,848
  -1,646,061
New CAPEX, $m
  -3,803
  -30,719
  -44,642
  -62,707
  -85,346
  -112,823
  -145,197
  -182,314
  -223,821
  -269,196
  -317,791
  -368,885
  -421,737
  -475,635
  -529,930
  -584,070
  -637,617
  -690,249
  -741,768
  -792,083
  -841,206
  -889,234
  -936,331
  -982,719
  -1,028,660
  -1,074,442
  -1,120,372
  -1,166,769
  -1,213,950
  -1,262,232
  -1,311,927
Cash from investing activities, $m
  -3,811
  -35,594
  -52,443
  -74,760
  -103,371
  -138,976
  -182,095
  -233,040
  -291,910
  -358,602
  -432,834
  -514,194
  -602,178
  -696,242
  -795,835
  -900,445
  -1,009,617
  -1,122,975
  -1,240,232
  -1,361,191
  -1,485,751
  -1,613,894
  -1,745,680
  -1,881,242
  -2,020,775
  -2,164,525
  -2,312,783
  -2,465,882
  -2,624,184
  -2,788,080
  -2,957,988
Free cash flow, $m
  -359
  -28,110
  -39,316
  -53,786
  -71,716
  -93,209
  -118,185
  -146,379
  -177,357
  -210,547
  -245,287
  -280,866
  -316,576
  -351,754
  -385,813
  -418,265
  -448,735
  -476,963
  -502,800
  -526,202
  -547,209
  -565,938
  -582,561
  -597,294
  -610,383
  -622,090
  -632,685
  -642,436
  -651,607
  -660,450
  -669,203
Issuance/(repayment) of debt, $m
  506
  18,967
  27,478
  38,597
  52,532
  69,445
  89,371
  112,218
  137,766
  165,696
  195,607
  227,056
  259,588
  292,763
  326,182
  359,507
  392,466
  424,862
  456,573
  487,543
  517,779
  547,341
  576,331
  604,884
  633,161
  661,340
  689,612
  718,170
  747,211
  776,929
  807,517
Issuance/(repurchase) of shares, $m
  559
  16,067
  21,756
  29,120
  38,144
  48,829
  61,071
  74,665
  89,316
  104,658
  120,283
  135,763
  150,684
  164,661
  177,363
  188,519
  197,926
  205,450
  211,023
  214,633
  216,317
  216,154
  214,251
  210,738
  205,756
  199,455
  191,982
  183,483
  174,095
  163,946
  153,152
Cash from financing (excl. dividends), $m  
  1,065
  35,034
  49,234
  67,717
  90,676
  118,274
  150,442
  186,883
  227,082
  270,354
  315,890
  362,819
  410,272
  457,424
  503,545
  548,026
  590,392
  630,312
  667,596
  702,176
  734,096
  763,495
  790,582
  815,622
  838,917
  860,795
  881,594
  901,653
  921,306
  940,875
  960,669
Total cash flow (excl. dividends), $m
  706
  6,923
  9,918
  13,931
  18,961
  25,066
  32,258
  40,504
  49,726
  59,806
  70,602
  81,954
  93,696
  105,670
  117,732
  129,761
  141,657
  153,350
  164,796
  175,974
  186,888
  197,558
  208,021
  218,327
  228,533
  238,705
  248,909
  259,217
  269,699
  280,425
  291,466
Retained Cash Flow (-), $m
  1,114
  -16,067
  -22,940
  -32,223
  -43,857
  -57,977
  -74,613
  -93,686
  -115,016
  -138,333
  -163,305
  -189,561
  -216,720
  -244,417
  -272,317
  -300,139
  -327,655
  -354,702
  -381,176
  -407,031
  -432,275
  -456,955
  -481,157
  -504,994
  -528,602
  -552,128
  -575,731
  -599,573
  -623,818
  -648,629
  -674,166
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
 
  -9,143
  -13,022
  -18,292
  -24,896
  -32,911
  -42,355
  -53,182
  -65,291
  -78,527
  -92,702
  -107,607
  -123,024
  -138,747
  -154,585
  -170,378
  -185,998
  -201,351
  -216,380
  -231,057
  -245,387
  -259,397
  -273,136
  -286,667
  -300,069
  -313,424
  -326,822
  -340,356
  -354,119
  -368,204
  -382,700
Discount rate, %
 
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
 
  -8,577
  -11,389
  -14,817
  -18,545
  -22,376
  -26,071
  -29,385
  -32,085
  -33,989
  -34,974
  -34,997
  -34,088
  -32,346
  -29,922
  -26,999
  -23,772
  -20,430
  -17,140
  -14,038
  -11,222
  -8,755
  -6,663
  -4,944
  -3,575
  -2,517
  -1,724
  -1,148
  -742
  -466
  -283
Current shareholders' claim on cash, %
  100
  77.1
  61.7
  50.7
  42.6
  36.5
  31.7
  28.0
  25.1
  22.7
  20.7
  19.1
  17.8
  16.7
  15.7
  14.9
  14.2
  13.7
  13.2
  12.7
  12.4
  12.0
  11.8
  11.5
  11.3
  11.1
  11.0
  10.8
  10.7
  10.6
  10.5

Canadian Natural Resources Limited is an independent crude oil and natural gas exploration, development and production company. The Company's segments include Exploration and Production, Oil Sands Mining and Upgrading, and Midstream. The Exploration and Production segment includes exploration, development, production and marketing of crude oil, natural gas liquids (NGLs) and natural gas. The Company's exploration and production operations are focused in North America in Western Canada, the United Kingdom portion of the North Sea, and Cote d'Ivoire, Gabon and South Africa in Offshore Africa. The Horizon Oil Sands Mining and Upgrading segment (Horizon) produces synthetic crude oil (SCO) through bitumen mining and upgrading operations. Midstream activities include the Company's pipeline operations, an electricity co-generation system and an investment in the North West Redwater Partnership (Redwater Partnership).

FINANCIAL RATIOS  of  Canadian Natural Resources Limited (CNQ)

Valuation Ratios
P/E Ratio -242.4
Price to Sales 4.7
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 14.3
Price to Free Cash Flow -140.9
Growth Rates
Sales Growth Rate -14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -28.7%
Cap. Spend. - 3 Yr. Gr. Rate -12.2%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 57.1%
Total Debt to Equity 64%
Interest Coverage -1
Management Effectiveness
Return On Assets -0.1%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital -0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity -0.8%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 42%
Gross Margin - 3 Yr. Avg. 46.5%
EBITDA Margin 41.9%
EBITDA Margin - 3 Yr. Avg. 47.1%
Operating Margin -12.2%
Oper. Margin - 3 Yr. Avg. 3.1%
Pre-Tax Margin -10.1%
Pre-Tax Margin - 3 Yr. Avg. 4%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. 4.6%
Effective Tax Rate 80.8%
Eff/ Tax Rate - 3 Yr. Avg. 36.4%
Payout Ratio -371.6%

CNQ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CNQ stock intrinsic value calculation we used $10523 million for the last fiscal year's total revenue generated by Canadian Natural Resources Limited. The default revenue input number comes from 2016 income statement of Canadian Natural Resources Limited. 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 CNQ stock valuation model: a) initial revenue growth rate of 60% 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 6.6%, whose default value for CNQ is calculated based on our internal credit rating of Canadian Natural Resources Limited, 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 Canadian Natural Resources Limited.
    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 CNQ stock the variable cost ratio is equal to 70.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $4459 million in the base year in the intrinsic value calculation for CNQ 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 3.7% for Canadian Natural Resources Limited.

Corporate tax rate of 27% is the nominal tax rate for Canadian Natural Resources Limited. 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 CNQ 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 CNQ are equal to 486.5%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Canadian Natural Resources Limited 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 CNQ is equal to 1.2%. 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 - $26267 million for Canadian Natural Resources Limited - 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 1216.91 million for Canadian Natural Resources Limited 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 Canadian Natural Resources Limited at the current share price and the inputted number of shares is $54.2 billion.

RELATED COMPANIES Price Int.Val. Rating
IMO Imperial Oil L 39.24 35.03  hold
CVE Cenovus Energy 12.31 2.31  str.sell
SU Suncor Energy 44.69 6.73  str.sell
HSE Husky Energy I 16.09 4.21  str.sell
ARX ARC Resources 14.97 2.29  str.sell
MEG MEG Energy Cor 5.38 2.79  str.sell
BNP Bonavista Ener 1.89 1.48  sell
BIR Birchcliff Ene 4.39 1.66  str.sell
Financial statements of CNQ
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.