Intrinsic value of Fortuna Silver Mines Inc. - FVI

Previous Close

$7.61

  Intrinsic Value

$3.41

stock screener

  Rating & Target

str. sell

-55%

Previous close

$7.61

 
Intrinsic value

$3.41

 
Up/down potential

-55%

 
Rating

str. sell

We calculate the intrinsic value of FVI 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, %
  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
  290
  296
  304
  313
  322
  332
  344
  356
  369
  383
  398
  415
  432
  450
  470
  490
  512
  535
  559
  585
  612
  641
  671
  703
  736
  771
  808
  847
  888
  932
Variable operating expenses, $m
  59
  60
  62
  64
  66
  68
  70
  73
  75
  78
  81
  85
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
Fixed operating expenses, $m
  178
  182
  186
  190
  194
  198
  203
  207
  212
  216
  221
  226
  231
  236
  241
  246
  252
  257
  263
  269
  275
  281
  287
  293
  300
  306
  313
  320
  327
  334
Total operating expenses, $m
  237
  242
  248
  254
  260
  266
  273
  280
  287
  294
  302
  311
  319
  328
  337
  346
  356
  366
  377
  388
  400
  412
  424
  436
  450
  463
  478
  493
  508
  524
Operating income, $m
  53
  54
  56
  59
  62
  66
  71
  76
  82
  89
  96
  104
  113
  122
  133
  144
  156
  168
  182
  197
  212
  229
  247
  266
  286
  308
  330
  355
  380
  407
EBITDA, $m
  98
  101
  104
  108
  113
  119
  125
  132
  140
  149
  159
  170
  181
  193
  207
  221
  236
  253
  270
  289
  309
  330
  353
  377
  402
  429
  458
  488
  520
  554
Interest expense (income), $m
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
Earnings before tax, $m
  50
  51
  53
  55
  58
  62
  66
  71
  76
  83
  89
  97
  105
  114
  123
  134
  145
  157
  170
  183
  198
  214
  231
  249
  267
  288
  309
  332
  356
  382
Tax expense, $m
  13
  14
  14
  15
  16
  17
  18
  19
  21
  22
  24
  26
  28
  31
  33
  36
  39
  42
  46
  50
  54
  58
  62
  67
  72
  78
  83
  90
  96
  103
Net income, $m
  36
  37
  38
  40
  42
  45
  48
  52
  56
  60
  65
  71
  77
  83
  90
  98
  106
  115
  124
  134
  145
  156
  168
  181
  195
  210
  226
  242
  260
  279

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
  604
  617
  633
  651
  671
  692
  716
  742
  769
  799
  830
  864
  900
  938
  978
  1,021
  1,067
  1,115
  1,165
  1,219
  1,275
  1,335
  1,398
  1,464
  1,534
  1,607
  1,684
  1,765
  1,851
  1,941
Adjusted assets (=assets-cash), $m
  604
  617
  633
  651
  671
  692
  716
  742
  769
  799
  830
  864
  900
  938
  978
  1,021
  1,067
  1,115
  1,165
  1,219
  1,275
  1,335
  1,398
  1,464
  1,534
  1,607
  1,684
  1,765
  1,851
  1,941
Revenue / Adjusted assets
  0.480
  0.480
  0.480
  0.481
  0.480
  0.480
  0.480
  0.480
  0.480
  0.479
  0.480
  0.480
  0.480
  0.480
  0.481
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
  0.480
Average production assets, $m
  439
  449
  460
  473
  487
  503
  520
  539
  559
  580
  603
  628
  654
  682
  711
  742
  775
  810
  847
  886
  927
  970
  1,016
  1,064
  1,114
  1,168
  1,224
  1,283
  1,345
  1,410
Working capital, $m
  -22
  -23
  -23
  -24
  -25
  -26
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -72
Total debt, $m
  59
  63
  68
  74
  80
  87
  94
  103
  111
  121
  131
  142
  153
  165
  178
  192
  206
  222
  238
  255
  273
  292
  312
  333
  355
  379
  403
  429
  456
  485
Total liabilities, $m
  193
  197
  202
  208
  214
  221
  228
  237
  245
  255
  265
  276
  287
  299
  312
  326
  340
  356
  372
  389
  407
  426
  446
  467
  489
  513
  537
  563
  590
  619
Total equity, $m
  411
  420
  431
  443
  457
  472
  488
  505
  524
  544
  565
  588
  613
  639
  666
  695
  726
  759
  794
  830
  868
  909
  952
  997
  1,044
  1,094
  1,147
  1,202
  1,260
  1,322
Total liabilities and equity, $m
  604
  617
  633
  651
  671
  693
  716
  742
  769
  799
  830
  864
  900
  938
  978
  1,021
  1,066
  1,115
  1,166
  1,219
  1,275
  1,335
  1,398
  1,464
  1,533
  1,607
  1,684
  1,765
  1,850
  1,941
Debt-to-equity ratio
  0.140
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.310
  0.310
  0.320
  0.330
  0.330
  0.340
  0.350
  0.350
  0.360
  0.360
  0.370
Adjusted equity ratio
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681
  0.681

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  36
  37
  38
  40
  42
  45
  48
  52
  56
  60
  65
  71
  77
  83
  90
  98
  106
  115
  124
  134
  145
  156
  168
  181
  195
  210
  226
  242
  260
  279
Depreciation, amort., depletion, $m
  46
  47
  48
  49
  51
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  77
  81
  84
  88
  92
  97
  101
  106
  111
  116
  122
  127
  134
  140
  147
Funds from operations, $m
  82
  84
  86
  90
  93
  98
  102
  108
  114
  121
  128
  136
  145
  154
  164
  175
  187
  199
  212
  226
  241
  257
  274
  292
  311
  332
  353
  376
  400
  426
Change in working capital, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Cash from operations, $m
  82
  84
  87
  90
  94
  98
  103
  109
  115
  122
  129
  137
  146
  155
  166
  177
  188
  201
  214
  228
  243
  259
  277
  295
  314
  334
  356
  379
  403
  429
Maintenance CAPEX, $m
  -45
  -46
  -47
  -48
  -49
  -51
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -97
  -101
  -106
  -111
  -116
  -122
  -127
  -134
  -140
New CAPEX, $m
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
Cash from investing activities, $m
  -54
  -56
  -59
  -61
  -63
  -67
  -69
  -73
  -76
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -110
  -116
  -121
  -127
  -133
  -140
  -147
  -154
  -162
  -169
  -178
  -186
  -196
  -205
Free cash flow, $m
  29
  29
  29
  29
  30
  32
  34
  36
  39
  42
  46
  50
  55
  60
  65
  71
  78
  85
  93
  101
  110
  120
  130
  141
  152
  165
  178
  192
  207
  223
Issuance/(repayment) of debt, $m
  4
  4
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  4
  4
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
Total cash flow (excl. dividends), $m
  33
  33
  34
  35
  37
  39
  41
  44
  48
  52
  56
  61
  66
  72
  78
  85
  92
  100
  109
  118
  128
  139
  150
  162
  175
  188
  203
  218
  235
  252
Retained Cash Flow (-), $m
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -36
  -38
  -41
  -43
  -45
  -47
  -50
  -53
  -55
  -58
  -61
Prev. year cash balance distribution, $m
  169
  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
  194
  24
  23
  23
  23
  24
  25
  27
  29
  31
  34
  38
  42
  46
  51
  56
  61
  68
  74
  82
  90
  98
  107
  117
  127
  138
  150
  163
  177
  191
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
  186
  22
  20
  19
  18
  17
  17
  17
  17
  17
  16
  16
  16
  15
  15
  14
  13
  12
  11
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  1
Current shareholders' claim on cash, %
  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

Fortuna Silver Mines Inc. is a Canada-based mining company engaged in silver mining and related activities in Latin America, including exploration, extraction and processing. The Company operates the Caylloma silver, lead, and zinc mine (Caylloma) in southern Peru and the San Jose silver and gold mine (San Jose) in southern Mexico. The Company's segments include Corporate, Bateas and Cuzcatlan. The Company owns interest in the Caylloma mine and related mining concessions located in southern Peru. The Caylloma property is located in the Caylloma Mining District, approximately 220 kilometers north-northwest of Arequipa, Peru. The Company produces approximately 1.7 million ounces of silver and over 1,160 ounces of gold at Caylloma. The Company's San Jose property, which covers a silver gold bearing epithermal vein system is located in the state of Oaxaca in southern Mexico. The Company produces approximately 4.9 million ounces of silver and over 38,530 ounces of gold at San Jose.

FINANCIAL RATIOS  of  Fortuna Silver Mines Inc. (FVI)

Valuation Ratios
P/E Ratio 46.6
Price to Sales 3.9
Price to Book 2
Price to Tangible Book
Price to Cash Flow 15.8
Price to Free Cash Flow 65.8
Growth Rates
Sales Growth Rate 35.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -29.9%
Cap. Spend. - 3 Yr. Gr. Rate -8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 9.6%
Total Debt to Equity 9.6%
Interest Coverage 22
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. 2.2%
Return On Total Capital 4.6%
Ret/ On T. Cap. - 3 Yr. Avg. 2.3%
Return On Equity 5.2%
Return On Equity - 3 Yr. Avg. 2.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 38.4%
Gross Margin - 3 Yr. Avg. 33.7%
EBITDA Margin 39.4%
EBITDA Margin - 3 Yr. Avg. 29%
Operating Margin 23.2%
Oper. Margin - 3 Yr. Avg. 13.7%
Pre-Tax Margin 22.5%
Pre-Tax Margin - 3 Yr. Avg. 13.1%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 62.5%
Eff/ Tax Rate - 3 Yr. Avg. -45.1%
Payout Ratio 0%

FVI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FVI stock intrinsic value calculation we used $284 million for the last fiscal year's total revenue generated by Fortuna Silver Mines Inc.. The default revenue input number comes from 2016 income statement of Fortuna Silver Mines 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 FVI 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 4.3%, whose default value for FVI is calculated based on our internal credit rating of Fortuna Silver Mines 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 Fortuna Silver Mines 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 FVI stock the variable cost ratio is equal to 20.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $174 million in the base year in the intrinsic value calculation for FVI 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 5.6% for Fortuna Silver Mines Inc..

Corporate tax rate of 27% is the nominal tax rate for Fortuna Silver Mines 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 FVI 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 FVI are equal to 151.4%.

Life of production assets of 9.6 years is the average useful life of capital assets used in Fortuna Silver Mines 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 FVI is equal to -7.7%. 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 - $572 million for Fortuna Silver Mines 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 158.537 million for Fortuna Silver Mines 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 Fortuna Silver Mines Inc. at the current share price and the inputted number of shares is $1.2 billion.

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