Intrinsic value of Enerflex Ltd. - EFX

Previous Close

$13.96

  Intrinsic Value

$38.34

stock screener

  Rating & Target

str. buy

+175%

Previous close

$13.96

 
Intrinsic value

$38.34

 
Up/down potential

+175%

 
Rating

str. buy

We calculate the intrinsic value of EFX 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 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  20.20
  18.68
  17.31
  16.08
  14.97
  13.98
  13.08
  12.27
  11.54
  10.89
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
Revenue, $m
  1,359
  1,613
  1,893
  2,197
  2,526
  2,879
  3,256
  3,655
  4,077
  4,521
  4,987
  5,474
  5,982
  6,513
  7,065
  7,639
  8,236
  8,857
  9,502
  10,172
  10,868
  11,593
  12,346
  13,129
  13,945
  14,795
  15,680
  16,602
  17,564
  18,568
Variable operating expenses, $m
  856
  1,005
  1,169
  1,348
  1,541
  1,748
  1,970
  2,204
  2,452
  2,713
  2,929
  3,215
  3,514
  3,826
  4,150
  4,487
  4,838
  5,203
  5,582
  5,975
  6,384
  6,810
  7,252
  7,713
  8,192
  8,691
  9,211
  9,752
  10,318
  10,907
Fixed operating expenses, $m
  528
  540
  552
  564
  576
  589
  602
  615
  629
  643
  657
  671
  686
  701
  717
  732
  748
  765
  782
  799
  817
  834
  853
  872
  891
  910
  930
  951
  972
  993
Total operating expenses, $m
  1,384
  1,545
  1,721
  1,912
  2,117
  2,337
  2,572
  2,819
  3,081
  3,356
  3,586
  3,886
  4,200
  4,527
  4,867
  5,219
  5,586
  5,968
  6,364
  6,774
  7,201
  7,644
  8,105
  8,585
  9,083
  9,601
  10,141
  10,703
  11,290
  11,900
Operating income, $m
  -25
  68
  172
  285
  409
  542
  684
  835
  996
  1,165
  1,401
  1,587
  1,782
  1,986
  2,198
  2,419
  2,650
  2,889
  3,138
  3,398
  3,668
  3,948
  4,241
  4,545
  4,863
  5,193
  5,539
  5,899
  6,275
  6,668
EBITDA, $m
  85
  188
  302
  428
  564
  710
  867
  1,035
  1,211
  1,398
  1,594
  1,800
  2,014
  2,239
  2,472
  2,716
  2,969
  3,233
  3,507
  3,793
  4,089
  4,398
  4,720
  5,055
  5,404
  5,768
  6,147
  6,543
  6,957
  7,388
Interest expense (income), $m
  14
  14
  19
  25
  32
  39
  47
  55
  64
  74
  84
  94
  105
  117
  129
  141
  154
  168
  182
  197
  212
  228
  245
  262
  280
  298
  318
  338
  359
  380
  403
Earnings before tax, $m
  -38
  49
  147
  253
  370
  495
  629
  771
  922
  1,082
  1,306
  1,482
  1,665
  1,857
  2,057
  2,265
  2,482
  2,707
  2,942
  3,186
  3,439
  3,704
  3,979
  4,266
  4,564
  4,876
  5,201
  5,540
  5,894
  6,264
Tax expense, $m
  0
  13
  40
  68
  100
  134
  170
  208
  249
  292
  353
  400
  450
  501
  555
  612
  670
  731
  794
  860
  929
  1,000
  1,074
  1,152
  1,232
  1,317
  1,404
  1,496
  1,591
  1,691
Net income, $m
  -38
  36
  107
  185
  270
  361
  459
  563
  673
  790
  954
  1,082
  1,216
  1,356
  1,502
  1,653
  1,812
  1,976
  2,147
  2,325
  2,511
  2,704
  2,905
  3,114
  3,332
  3,559
  3,797
  4,044
  4,303
  4,573

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
Total assets, $m
  2,060
  2,445
  2,868
  3,329
  3,827
  4,362
  4,933
  5,538
  6,177
  6,850
  7,555
  8,294
  9,064
  9,868
  10,704
  11,574
  12,479
  13,419
  14,397
  15,412
  16,467
  17,565
  18,706
  19,893
  21,129
  22,416
  23,757
  25,155
  26,613
  28,134
Adjusted assets (=assets-cash), $m
  2,060
  2,445
  2,868
  3,329
  3,827
  4,362
  4,933
  5,538
  6,177
  6,850
  7,555
  8,294
  9,064
  9,868
  10,704
  11,574
  12,479
  13,419
  14,397
  15,412
  16,467
  17,565
  18,706
  19,893
  21,129
  22,416
  23,757
  25,155
  26,613
  28,134
Revenue / Adjusted assets
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
Average production assets, $m
  712
  845
  992
  1,151
  1,324
  1,509
  1,706
  1,915
  2,136
  2,369
  2,613
  2,868
  3,135
  3,413
  3,702
  4,003
  4,316
  4,641
  4,979
  5,330
  5,695
  6,075
  6,469
  6,880
  7,307
  7,752
  8,216
  8,699
  9,204
  9,730
Working capital, $m
  207
  245
  288
  334
  384
  438
  495
  556
  620
  687
  758
  832
  909
  990
  1,074
  1,161
  1,252
  1,346
  1,444
  1,546
  1,652
  1,762
  1,877
  1,996
  2,120
  2,249
  2,383
  2,524
  2,670
  2,822
Total debt, $m
  548
  720
  909
  1,115
  1,338
  1,577
  1,832
  2,102
  2,388
  2,689
  3,004
  3,334
  3,679
  4,038
  4,412
  4,801
  5,205
  5,625
  6,062
  6,516
  6,988
  7,478
  7,988
  8,519
  9,072
  9,647
  10,246
  10,871
  11,523
  12,203
Total liabilities, $m
  921
  1,093
  1,282
  1,488
  1,711
  1,950
  2,205
  2,475
  2,761
  3,062
  3,377
  3,707
  4,052
  4,411
  4,785
  5,174
  5,578
  5,998
  6,435
  6,889
  7,361
  7,851
  8,361
  8,892
  9,445
  10,020
  10,619
  11,244
  11,896
  12,576
Total equity, $m
  1,139
  1,352
  1,586
  1,841
  2,117
  2,412
  2,728
  3,063
  3,416
  3,788
  4,178
  4,586
  5,013
  5,457
  5,919
  6,401
  6,901
  7,421
  7,961
  8,523
  9,106
  9,713
  10,344
  11,001
  11,684
  12,396
  13,138
  13,911
  14,717
  15,558
Total liabilities and equity, $m
  2,060
  2,445
  2,868
  3,329
  3,828
  4,362
  4,933
  5,538
  6,177
  6,850
  7,555
  8,293
  9,065
  9,868
  10,704
  11,575
  12,479
  13,419
  14,396
  15,412
  16,467
  17,564
  18,705
  19,893
  21,129
  22,416
  23,757
  25,155
  26,613
  28,134
Debt-to-equity ratio
  0.480
  0.530
  0.570
  0.610
  0.630
  0.650
  0.670
  0.690
  0.700
  0.710
  0.720
  0.730
  0.730
  0.740
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
  0.770
  0.770
  0.770
  0.770
  0.780
  0.780
  0.780
  0.780
  0.780
  0.780
Adjusted equity ratio
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -38
  36
  107
  185
  270
  361
  459
  563
  673
  790
  954
  1,082
  1,216
  1,356
  1,502
  1,653
  1,812
  1,976
  2,147
  2,325
  2,511
  2,704
  2,905
  3,114
  3,332
  3,559
  3,797
  4,044
  4,303
  4,573
Depreciation, amort., depletion, $m
  110
  120
  131
  142
  155
  169
  184
  199
  215
  233
  194
  212
  232
  253
  274
  297
  320
  344
  369
  395
  422
  450
  479
  510
  541
  574
  609
  644
  682
  721
Funds from operations, $m
  71
  156
  238
  327
  425
  530
  643
  762
  889
  1,022
  1,147
  1,294
  1,448
  1,608
  1,776
  1,950
  2,131
  2,320
  2,516
  2,720
  2,933
  3,154
  3,384
  3,624
  3,873
  4,134
  4,405
  4,689
  4,985
  5,294
Change in working capital, $m
  35
  39
  42
  46
  50
  54
  57
  61
  64
  67
  71
  74
  77
  81
  84
  87
  91
  94
  98
  102
  106
  110
  114
  119
  124
  129
  135
  140
  146
  153
Cash from operations, $m
  37
  117
  195
  281
  375
  476
  585
  701
  825
  955
  1,076
  1,220
  1,371
  1,528
  1,692
  1,863
  2,040
  2,226
  2,418
  2,618
  2,827
  3,044
  3,269
  3,504
  3,749
  4,005
  4,271
  4,548
  4,838
  5,141
Maintenance CAPEX, $m
  -44
  -53
  -63
  -73
  -85
  -98
  -112
  -126
  -142
  -158
  -175
  -194
  -212
  -232
  -253
  -274
  -297
  -320
  -344
  -369
  -395
  -422
  -450
  -479
  -510
  -541
  -574
  -609
  -644
  -682
New CAPEX, $m
  -120
  -133
  -146
  -159
  -172
  -185
  -197
  -209
  -221
  -233
  -244
  -255
  -267
  -278
  -289
  -301
  -313
  -325
  -338
  -351
  -365
  -379
  -395
  -411
  -427
  -445
  -464
  -483
  -504
  -526
Cash from investing activities, $m
  -164
  -186
  -209
  -232
  -257
  -283
  -309
  -335
  -363
  -391
  -419
  -449
  -479
  -510
  -542
  -575
  -610
  -645
  -682
  -720
  -760
  -801
  -845
  -890
  -937
  -986
  -1,038
  -1,092
  -1,148
  -1,208
Free cash flow, $m
  -127
  -69
  -14
  48
  117
  193
  276
  366
  462
  564
  657
  771
  892
  1,018
  1,150
  1,287
  1,431
  1,581
  1,736
  1,898
  2,067
  2,242
  2,425
  2,615
  2,812
  3,018
  3,233
  3,456
  3,690
  3,933
Issuance/(repayment) of debt, $m
  154
  172
  189
  206
  223
  239
  255
  271
  286
  301
  315
  330
  345
  359
  374
  389
  404
  420
  437
  454
  472
  490
  510
  531
  552
  575
  599
  625
  652
  680
Issuance/(repurchase) of shares, $m
  231
  177
  127
  70
  6
  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  
  385
  349
  316
  276
  229
  239
  255
  271
  286
  301
  315
  330
  345
  359
  374
  389
  404
  420
  437
  454
  472
  490
  510
  531
  552
  575
  599
  625
  652
  680
Total cash flow (excl. dividends), $m
  257
  280
  302
  324
  346
  432
  531
  636
  747
  865
  972
  1,101
  1,236
  1,377
  1,524
  1,676
  1,835
  2,001
  2,173
  2,352
  2,539
  2,733
  2,935
  3,145
  3,365
  3,594
  3,832
  4,081
  4,341
  4,613
Retained Cash Flow (-), $m
  -231
  -213
  -234
  -255
  -276
  -296
  -315
  -335
  -354
  -372
  -390
  -408
  -426
  -444
  -463
  -481
  -500
  -520
  -540
  -562
  -584
  -607
  -631
  -657
  -683
  -712
  -742
  -773
  -806
  -841
Prev. year cash balance distribution, $m
  168
  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
  195
  67
  68
  69
  70
  137
  216
  302
  394
  493
  582
  693
  810
  933
  1,061
  1,195
  1,335
  1,481
  1,633
  1,791
  1,955
  2,126
  2,304
  2,489
  2,681
  2,882
  3,091
  3,308
  3,535
  3,772
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
  187
  62
  60
  57
  55
  99
  146
  189
  226
  258
  276
  296
  308
  313
  312
  304
  291
  273
  251
  228
  202
  176
  151
  127
  104
  84
  66
  51
  39
  28
Current shareholders' claim on cash, %
  82.0
  72.0
  66.3
  63.8
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6
  63.6

Enerflex Ltd. is a Canada-based supplier of natural gas compression, oil and gas processing, refrigeration systems and electric power equipment. The Company's inā€house resources provide the capability to engineer, design, manufacture, construct, commission and service hydrocarbon handling systems. The Company operates through three segments: Canada, USA and Rest of World. The Canada segment is engaged in manufacturing (primarily compression equipment), service and rentals. The USA segment is engaged in the manufacture of natural gas compression equipment and process equipment. It also offers product support services and rentals. The Company Rest of World segment is engaged in manufacturing primarily process equipment, service and rentals. Its solutions include field production facilities, compression and natural gas processing plants, carbon dioxide processing plants, refrigeration systems, and electric power equipment serving the natural gas production industry.

FINANCIAL RATIOS  of  Enerflex Ltd. (EFX)

Valuation Ratios
P/E Ratio -11.7
Price to Sales 1.1
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow 17.6
Growth Rates
Sales Growth Rate -30.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -87.8%
Cap. Spend. - 3 Yr. Gr. Rate -9.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 35.3%
Total Debt to Equity 35.3%
Interest Coverage -6
Management Effectiveness
Return On Assets -4.4%
Ret/ On Assets - 3 Yr. Avg. 0.8%
Return On Total Capital -6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 0.6%
Return On Equity -9.3%
Return On Equity - 3 Yr. Avg. 0.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 21.6%
Gross Margin - 3 Yr. Avg. 20.3%
EBITDA Margin 1%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin -8.4%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin -8.5%
Pre-Tax Margin - 3 Yr. Avg. 1.3%
Net Profit Margin -9.3%
Net Profit Margin - 3 Yr. Avg. -0.8%
Effective Tax Rate -9.4%
Eff/ Tax Rate - 3 Yr. Avg. 22.2%
Payout Ratio -25.7%

EFX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EFX stock intrinsic value calculation we used $1131 million for the last fiscal year's total revenue generated by Enerflex Ltd.. The default revenue input number comes from 2016 income statement of Enerflex 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 EFX stock valuation model: a) initial revenue growth rate of 20.2% 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 4.3%, whose default value for EFX is calculated based on our internal credit rating of Enerflex 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 Enerflex 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 EFX stock the variable cost ratio is equal to 63.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $517 million in the base year in the intrinsic value calculation for EFX 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 Enerflex Ltd..

Corporate tax rate of 27% is the nominal tax rate for Enerflex 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 EFX 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 EFX are equal to 52.4%.

Life of production assets of 13.5 years is the average useful life of capital assets used in Enerflex 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 EFX is equal to 15.2%. 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 - $1115 million for Enerflex 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 88.657 million for Enerflex 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 Enerflex Ltd. at the current share price and the inputted number of shares is $1.2 billion.

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