Intrinsic value of EnerCare Inc. - ECI

Previous Close

$19.89

  Intrinsic Value

$6.39

stock screener

  Rating & Target

str. sell

-68%

Previous close

$19.89

 
Intrinsic value

$6.39

 
Up/down potential

-68%

 
Rating

str. sell

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

We calculate the intrinsic value of ECI 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

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, %
  76.60
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
Revenue, $m
  996
  1,028
  1,063
  1,100
  1,141
  1,184
  1,231
  1,281
  1,334
  1,390
  1,450
  1,513
  1,581
  1,651
  1,727
  1,806
  1,889
  1,977
  2,070
  2,168
  2,271
  2,380
  2,494
  2,615
  2,741
  2,874
  3,014
  3,162
  3,316
  3,479
  3,650
Variable operating expenses, $m
 
  903
  933
  964
  998
  1,035
  1,074
  1,116
  1,161
  1,208
  1,259
  1,274
  1,330
  1,390
  1,453
  1,520
  1,590
  1,664
  1,742
  1,825
  1,912
  2,003
  2,099
  2,200
  2,307
  2,419
  2,537
  2,661
  2,791
  2,928
  3,072
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
  908
  903
  933
  964
  998
  1,035
  1,074
  1,116
  1,161
  1,208
  1,259
  1,274
  1,330
  1,390
  1,453
  1,520
  1,590
  1,664
  1,742
  1,825
  1,912
  2,003
  2,099
  2,200
  2,307
  2,419
  2,537
  2,661
  2,791
  2,928
  3,072
Operating income, $m
  88
  125
  130
  136
  142
  149
  157
  165
  173
  182
  191
  240
  250
  262
  274
  286
  299
  313
  328
  344
  360
  377
  395
  414
  434
  455
  478
  501
  525
  551
  578
EBITDA, $m
  233
  285
  295
  306
  317
  329
  342
  356
  370
  386
  403
  420
  439
  459
  479
  501
  525
  549
  575
  602
  631
  661
  693
  726
  761
  798
  837
  878
  921
  966
  1,014
Interest expense (income), $m
  37
  41
  43
  45
  47
  49
  51
  54
  57
  60
  63
  66
  70
  74
  78
  82
  87
  91
  96
  102
  107
  113
  119
  126
  132
  139
  147
  155
  163
  172
  181
Earnings before tax, $m
  86
  84
  88
  92
  96
  100
  105
  111
  116
  122
  128
  173
  180
  188
  196
  204
  213
  222
  232
  242
  253
  264
  276
  289
  302
  316
  331
  346
  362
  379
  397
Tax expense, $m
  25
  23
  24
  25
  26
  27
  28
  30
  31
  33
  35
  47
  49
  51
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  82
  85
  89
  93
  98
  102
  107
Net income, $m
  61
  61
  64
  67
  70
  73
  77
  81
  85
  89
  94
  127
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  220
  231
  241
  253
  264
  277
  290

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  48
  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
  1,973
  1,988
  2,055
  2,128
  2,207
  2,291
  2,381
  2,477
  2,580
  2,689
  2,805
  2,927
  3,057
  3,194
  3,339
  3,493
  3,654
  3,825
  4,005
  4,194
  4,394
  4,604
  4,825
  5,057
  5,302
  5,560
  5,831
  6,115
  6,415
  6,729
  7,060
Adjusted assets (=assets-cash), $m
  1,925
  1,988
  2,055
  2,128
  2,207
  2,291
  2,381
  2,477
  2,580
  2,689
  2,805
  2,927
  3,057
  3,194
  3,339
  3,493
  3,654
  3,825
  4,005
  4,194
  4,394
  4,604
  4,825
  5,057
  5,302
  5,560
  5,831
  6,115
  6,415
  6,729
  7,060
Revenue / Adjusted assets
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
  0.517
Average production assets, $m
  1,212
  1,250
  1,292
  1,338
  1,387
  1,440
  1,497
  1,557
  1,622
  1,690
  1,763
  1,840
  1,922
  2,008
  2,099
  2,196
  2,297
  2,405
  2,518
  2,637
  2,762
  2,894
  3,033
  3,180
  3,333
  3,495
  3,666
  3,845
  4,033
  4,231
  4,439
Working capital, $m
  -285
  -71
  -73
  -76
  -79
  -82
  -85
  -88
  -92
  -96
  -100
  -104
  -109
  -114
  -119
  -125
  -130
  -136
  -143
  -150
  -157
  -164
  -172
  -180
  -189
  -198
  -208
  -218
  -229
  -240
  -252
Total debt, $m
  995
  990
  1,036
  1,085
  1,139
  1,196
  1,257
  1,323
  1,392
  1,466
  1,545
  1,629
  1,717
  1,810
  1,909
  2,013
  2,123
  2,239
  2,361
  2,490
  2,626
  2,769
  2,919
  3,077
  3,244
  3,419
  3,603
  3,796
  4,000
  4,214
  4,439
Total liabilities, $m
  1,356
  1,352
  1,398
  1,447
  1,501
  1,558
  1,619
  1,685
  1,754
  1,828
  1,907
  1,991
  2,079
  2,172
  2,271
  2,375
  2,485
  2,601
  2,723
  2,852
  2,988
  3,131
  3,281
  3,439
  3,606
  3,781
  3,965
  4,158
  4,362
  4,576
  4,801
Total equity, $m
  616
  636
  658
  681
  706
  733
  762
  793
  826
  860
  897
  937
  978
  1,022
  1,069
  1,118
  1,169
  1,224
  1,282
  1,342
  1,406
  1,473
  1,544
  1,618
  1,697
  1,779
  1,866
  1,957
  2,053
  2,153
  2,259
Total liabilities and equity, $m
  1,972
  1,988
  2,056
  2,128
  2,207
  2,291
  2,381
  2,478
  2,580
  2,688
  2,804
  2,928
  3,057
  3,194
  3,340
  3,493
  3,654
  3,825
  4,005
  4,194
  4,394
  4,604
  4,825
  5,057
  5,303
  5,560
  5,831
  6,115
  6,415
  6,729
  7,060
Debt-to-equity ratio
  1.615
  1.560
  1.570
  1.590
  1.610
  1.630
  1.650
  1.670
  1.690
  1.700
  1.720
  1.740
  1.750
  1.770
  1.790
  1.800
  1.820
  1.830
  1.840
  1.860
  1.870
  1.880
  1.890
  1.900
  1.910
  1.920
  1.930
  1.940
  1.950
  1.960
  1.960
Adjusted equity ratio
  0.296
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320
  0.320

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  61
  61
  64
  67
  70
  73
  77
  81
  85
  89
  94
  127
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  220
  231
  241
  253
  264
  277
  290
Depreciation, amort., depletion, $m
  145
  161
  165
  169
  174
  179
  185
  191
  197
  204
  211
  180
  188
  197
  206
  215
  225
  236
  247
  259
  271
  284
  297
  312
  327
  343
  359
  377
  395
  415
  435
Funds from operations, $m
  147
  222
  229
  236
  244
  253
  262
  272
  282
  293
  305
  307
  320
  334
  349
  364
  381
  398
  416
  435
  455
  477
  499
  523
  547
  573
  601
  630
  660
  692
  725
Change in working capital, $m
  -18
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from operations, $m
  165
  224
  231
  239
  247
  256
  265
  275
  286
  297
  309
  311
  325
  339
  354
  370
  386
  404
  422
  442
  463
  484
  507
  531
  556
  583
  610
  640
  670
  703
  737
Maintenance CAPEX, $m
  0
  -119
  -123
  -127
  -131
  -136
  -141
  -147
  -153
  -159
  -166
  -173
  -180
  -188
  -197
  -206
  -215
  -225
  -236
  -247
  -259
  -271
  -284
  -297
  -312
  -327
  -343
  -359
  -377
  -395
  -415
New CAPEX, $m
  -154
  -38
  -42
  -46
  -49
  -53
  -57
  -61
  -64
  -69
  -73
  -77
  -82
  -86
  -91
  -96
  -102
  -107
  -113
  -119
  -125
  -132
  -139
  -146
  -154
  -162
  -170
  -179
  -188
  -198
  -208
Cash from investing activities, $m
  -518
  -157
  -165
  -173
  -180
  -189
  -198
  -208
  -217
  -228
  -239
  -250
  -262
  -274
  -288
  -302
  -317
  -332
  -349
  -366
  -384
  -403
  -423
  -443
  -466
  -489
  -513
  -538
  -565
  -593
  -623
Free cash flow, $m
  -353
  67
  66
  66
  67
  67
  67
  68
  69
  70
  71
  61
  63
  64
  66
  68
  69
  71
  74
  76
  79
  81
  84
  87
  90
  94
  97
  101
  105
  110
  114
Issuance/(repayment) of debt, $m
  216
  43
  46
  50
  53
  57
  61
  65
  70
  74
  79
  83
  88
  93
  99
  104
  110
  116
  122
  129
  136
  143
  150
  158
  166
  175
  184
  194
  204
  214
  225
Issuance/(repurchase) of shares, $m
  230
  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 from financing (excl. dividends), $m  
  447
  43
  46
  50
  53
  57
  61
  65
  70
  74
  79
  83
  88
  93
  99
  104
  110
  116
  122
  129
  136
  143
  150
  158
  166
  175
  184
  194
  204
  214
  225
Total cash flow (excl. dividends), $m
  95
  110
  112
  116
  120
  124
  129
  133
  138
  144
  149
  145
  151
  158
  164
  172
  179
  187
  196
  205
  214
  224
  234
  245
  257
  269
  282
  295
  309
  324
  339
Retained Cash Flow (-), $m
  -226
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -106
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
 
  90
  91
  93
  95
  97
  100
  103
  106
  109
  112
  106
  109
  114
  118
  123
  128
  133
  138
  144
  150
  157
  164
  171
  179
  187
  195
  204
  213
  223
  233
Discount rate, %
 
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
 
  83
  76
  70
  64
  58
  53
  47
  41
  36
  31
  24
  20
  17
  14
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Enercare Inc is a Canada-based company engaged in home services and sub-metering businesses. The Company operates through two segments: Home Services and Sub-metering. Its Home Services segment is engaged in the provision of water heaters, furnaces, air conditioners and other heating, ventilation and air conditioning (HVAC) rental products, protection plans and related services. Through its subsidiary, Enercare Solutions Inc., it operates the Home Services business, which has four business activities: Rentals, Protection Plans, HVAC Sales and Other. Its protection plans are maintenance protection plans and full service protection plans. Its Other category includes services, such as duct cleaning, plumbing work and other non-contracted chargeable services. Its Sub-metering segment is engaged in the provision of sub-metering equipment and billing services. The Company, through EnerCare Connections Inc., provides sub-metering services for electricity, thermal and water.

FINANCIAL RATIOS  of  EnerCare Inc. (ECI)

Valuation Ratios
P/E Ratio 34
Price to Sales 2.1
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 12.6
Price to Free Cash Flow 188.3
Growth Rates
Sales Growth Rate 76.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.9%
Cap. Spend. - 3 Yr. Gr. Rate 14.3%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 118.7%
Total Debt to Equity 161.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 4.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.8%
Return On Equity 12.1%
Return On Equity - 3 Yr. Avg. 10.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 53.8%
Gross Margin - 3 Yr. Avg. 62.3%
EBITDA Margin 26.9%
EBITDA Margin - 3 Yr. Avg. 37.2%
Operating Margin 8.8%
Oper. Margin - 3 Yr. Avg. 9.9%
Pre-Tax Margin 8.6%
Pre-Tax Margin - 3 Yr. Avg. 9.9%
Net Profit Margin 6.1%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 29.1%
Eff/ Tax Rate - 3 Yr. Avg. 28.8%
Payout Ratio 139.3%

ECI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ECI stock intrinsic value calculation we used $996 million for the last fiscal year's total revenue generated by EnerCare Inc.. The default revenue input number comes from 2016 income statement of EnerCare Inc.. 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 ECI stock valuation model: a) initial revenue growth rate of 3.2% 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 8.8%, whose default value for ECI is calculated based on our internal credit rating of EnerCare Inc., 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 EnerCare Inc..
    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 ECI stock the variable cost ratio is equal to 88%.

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 ECI 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 4.3% for EnerCare Inc..

Corporate tax rate of 27% is the nominal tax rate for EnerCare Inc.. 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 ECI 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 ECI are equal to 121.6%.

Life of production assets of 10.2 years is the average useful life of capital assets used in EnerCare Inc. 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 ECI is equal to -6.9%. 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 - $616 million for EnerCare Inc. - 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 106.29 million for EnerCare Inc. 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 EnerCare Inc. at the current share price and the inputted number of shares is $2.1 billion.

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Financial statements of ECI
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