Intrinsic value of Husky Energy Inc. - HSE

Previous Close

$15.75

  Intrinsic Value

$4.21

stock screener

  Rating & Target

str. sell

-73%

Previous close

$15.75

 
Intrinsic value

$4.21

 
Up/down potential

-73%

 
Rating

str. sell

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

We calculate the intrinsic value of HSE 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 15.8

 

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, %
  -21.08
  42.70
  38.93
  35.54
  32.48
  29.73
  27.26
  25.04
  23.03
  21.23
  19.61
  18.15
  16.83
  15.65
  14.58
  13.62
  12.76
  11.99
  11.29
  10.66
  10.09
  9.58
  9.13
  8.71
  8.34
  8.01
  7.71
  7.44
  7.19
  6.97
  6.78
Revenue, $m
  12,919
  18,435
  25,612
  34,714
  45,990
  59,666
  75,931
  94,941
  116,808
  141,605
  169,367
  200,099
  233,777
  270,358
  309,783
  351,990
  396,911
  444,485
  494,655
  547,378
  602,623
  660,375
  720,635
  783,421
  848,769
  916,732
  987,379
  1,060,799
  1,137,094
  1,216,384
  1,298,803
Variable operating expenses, $m
 
  24,195
  33,588
  45,500
  60,258
  78,155
  99,443
  124,322
  152,939
  185,392
  221,726
  261,879
  305,954
  353,829
  405,427
  460,665
  519,455
  581,717
  647,377
  716,378
  788,680
  864,263
  943,127
  1,025,298
  1,110,822
  1,199,767
  1,292,227
  1,388,315
  1,488,166
  1,591,936
  1,699,801
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
  11,613
  24,195
  33,588
  45,500
  60,258
  78,155
  99,443
  124,322
  152,939
  185,392
  221,726
  261,879
  305,954
  353,829
  405,427
  460,665
  519,455
  581,717
  647,377
  716,378
  788,680
  864,263
  943,127
  1,025,298
  1,110,822
  1,199,767
  1,292,227
  1,388,315
  1,488,166
  1,591,936
  1,699,801
Operating income, $m
  1,306
  -5,760
  -7,976
  -10,786
  -14,267
  -18,489
  -23,511
  -29,380
  -36,132
  -43,787
  -52,359
  -61,779
  -72,177
  -83,471
  -95,644
  -108,675
  -122,544
  -137,232
  -152,722
  -169,000
  -186,056
  -203,887
  -222,492
  -241,877
  -262,053
  -283,036
  -304,848
  -327,516
  -351,071
  -375,552
  -400,998
EBITDA, $m
  3,768
  -2,274
  -3,159
  -4,281
  -5,672
  -7,359
  -9,365
  -11,709
  -14,406
  -17,464
  -20,888
  -24,678
  -28,832
  -33,344
  -38,206
  -43,411
  -48,952
  -54,819
  -61,006
  -67,509
  -74,322
  -81,445
  -88,877
  -96,620
  -104,680
  -113,062
  -121,775
  -130,830
  -140,239
  -150,018
  -160,183
Interest expense (income), $m
  349
  276
  605
  1,034
  1,578
  2,251
  3,068
  4,040
  5,176
  6,482
  7,963
  9,622
  11,457
  13,469
  15,654
  18,010
  20,531
  23,214
  26,056
  29,053
  32,203
  35,503
  38,953
  42,553
  46,303
  50,207
  54,267
  58,487
  62,873
  67,430
  72,167
Earnings before tax, $m
  950
  -6,036
  -8,581
  -11,820
  -15,845
  -20,741
  -26,580
  -33,420
  -41,307
  -50,269
  -60,322
  -71,401
  -83,635
  -96,941
  -111,298
  -126,684
  -143,075
  -160,446
  -178,778
  -198,053
  -218,259
  -239,390
  -261,445
  -284,429
  -308,356
  -333,242
  -359,114
  -386,003
  -413,944
  -442,982
  -473,165
Tax expense, $m
  28
  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
Net income, $m
  922
  -6,036
  -8,581
  -11,820
  -15,845
  -20,741
  -26,580
  -33,420
  -41,307
  -50,269
  -60,322
  -71,401
  -83,635
  -96,941
  -111,298
  -126,684
  -143,075
  -160,446
  -178,778
  -198,053
  -218,259
  -239,390
  -261,445
  -284,429
  -308,356
  -333,242
  -359,114
  -386,003
  -413,944
  -442,982
  -473,165

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,319
  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
  32,260
  44,104
  61,273
  83,048
  110,025
  142,741
  181,654
  227,132
  279,445
  338,767
  405,185
  478,706
  559,275
  646,789
  741,109
  842,081
  949,549
  1,063,360
  1,183,385
  1,309,517
  1,441,683
  1,579,846
  1,724,008
  1,874,214
  2,030,548
  2,193,138
  2,362,152
  2,537,797
  2,720,322
  2,910,010
  3,107,184
Adjusted assets (=assets-cash), $m
  30,941
  44,104
  61,273
  83,048
  110,025
  142,741
  181,654
  227,132
  279,445
  338,767
  405,185
  478,706
  559,275
  646,789
  741,109
  842,081
  949,549
  1,063,360
  1,183,385
  1,309,517
  1,441,683
  1,579,846
  1,724,008
  1,874,214
  2,030,548
  2,193,138
  2,362,152
  2,537,797
  2,720,322
  2,910,010
  3,107,184
Revenue / Adjusted assets
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
  0.418
Average production assets, $m
  26,114
  37,258
  51,762
  70,157
  92,947
  120,584
  153,458
  191,876
  236,069
  286,183
  342,291
  404,400
  472,464
  546,393
  626,072
  711,372
  802,158
  898,304
  999,698
  1,106,251
  1,217,902
  1,334,619
  1,456,404
  1,583,295
  1,715,362
  1,852,715
  1,995,494
  2,143,875
  2,298,068
  2,458,313
  2,624,881
Working capital, $m
  1,125
  590
  820
  1,111
  1,472
  1,909
  2,430
  3,038
  3,738
  4,531
  5,420
  6,403
  7,481
  8,651
  9,913
  11,264
  12,701
  14,224
  15,829
  17,516
  19,284
  21,132
  23,060
  25,069
  27,161
  29,335
  31,596
  33,946
  36,387
  38,924
  41,562
Total debt, $m
  5,627
  11,006
  18,801
  28,687
  40,934
  55,787
  73,454
  94,101
  117,851
  144,783
  174,937
  208,316
  244,894
  284,625
  327,446
  373,288
  422,078
  473,749
  528,240
  585,504
  645,507
  708,233
  773,683
  841,876
  912,852
  986,668
  1,063,400
  1,143,143
  1,226,009
  1,312,128
  1,401,645
Total liabilities, $m
  14,644
  20,023
  27,818
  37,704
  49,951
  64,804
  82,471
  103,118
  126,868
  153,800
  183,954
  217,333
  253,911
  293,642
  336,463
  382,305
  431,095
  482,766
  537,257
  594,521
  654,524
  717,250
  782,700
  850,893
  921,869
  995,685
  1,072,417
  1,152,160
  1,235,026
  1,321,145
  1,410,662
Total equity, $m
  17,616
  24,081
  33,455
  45,344
  60,074
  77,937
  99,183
  124,014
  152,577
  184,967
  221,231
  261,374
  305,364
  353,147
  404,645
  459,776
  518,454
  580,595
  646,128
  714,996
  787,159
  862,596
  941,308
  1,023,321
  1,108,679
  1,197,453
  1,289,735
  1,385,637
  1,485,296
  1,588,866
  1,696,523
Total liabilities and equity, $m
  32,260
  44,104
  61,273
  83,048
  110,025
  142,741
  181,654
  227,132
  279,445
  338,767
  405,185
  478,707
  559,275
  646,789
  741,108
  842,081
  949,549
  1,063,361
  1,183,385
  1,309,517
  1,441,683
  1,579,846
  1,724,008
  1,874,214
  2,030,548
  2,193,138
  2,362,152
  2,537,797
  2,720,322
  2,910,011
  3,107,185
Debt-to-equity ratio
  0.319
  0.460
  0.560
  0.630
  0.680
  0.720
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.820
  0.830
  0.830
  0.830
Adjusted equity ratio
  0.533
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546
  0.546

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  922
  -6,036
  -8,581
  -11,820
  -15,845
  -20,741
  -26,580
  -33,420
  -41,307
  -50,269
  -60,322
  -71,401
  -83,635
  -96,941
  -111,298
  -126,684
  -143,075
  -160,446
  -178,778
  -198,053
  -218,259
  -239,390
  -261,445
  -284,429
  -308,356
  -333,242
  -359,114
  -386,003
  -413,944
  -442,982
  -473,165
Depreciation, amort., depletion, $m
  2,462
  3,486
  4,817
  6,504
  8,595
  11,131
  14,147
  17,671
  21,726
  26,323
  31,471
  37,101
  43,345
  50,128
  57,438
  65,263
  73,592
  82,413
  91,715
  101,491
  111,734
  122,442
  133,615
  145,256
  157,373
  169,974
  183,073
  196,686
  210,832
  225,533
  240,815
Funds from operations, $m
  1,953
  -2,550
  -3,764
  -5,315
  -7,250
  -9,610
  -12,433
  -15,749
  -19,582
  -23,946
  -28,851
  -34,300
  -40,289
  -46,813
  -53,860
  -61,421
  -69,482
  -78,033
  -87,063
  -96,562
  -106,525
  -116,948
  -127,830
  -139,173
  -150,983
  -163,269
  -176,042
  -189,317
  -203,112
  -217,449
  -232,350
Change in working capital, $m
  -18
  177
  230
  291
  361
  438
  521
  608
  700
  793
  888
  983
  1,078
  1,171
  1,262
  1,351
  1,437
  1,522
  1,605
  1,687
  1,768
  1,848
  1,928
  2,009
  2,091
  2,175
  2,261
  2,349
  2,441
  2,537
  2,637
Cash from operations, $m
  1,971
  -2,727
  -3,994
  -5,607
  -7,611
  -10,048
  -12,954
  -16,358
  -20,281
  -24,740
  -29,740
  -35,283
  -41,367
  -47,983
  -55,122
  -62,772
  -70,920
  -79,556
  -88,668
  -98,249
  -108,293
  -118,796
  -129,758
  -141,182
  -153,074
  -165,443
  -178,302
  -191,666
  -205,554
  -219,986
  -234,988
Maintenance CAPEX, $m
  0
  -2,396
  -3,418
  -4,749
  -6,436
  -8,527
  -11,063
  -14,079
  -17,603
  -21,658
  -26,255
  -31,403
  -37,101
  -43,345
  -50,128
  -57,438
  -65,263
  -73,592
  -82,413
  -91,715
  -101,491
  -111,734
  -122,442
  -133,615
  -145,256
  -157,373
  -169,974
  -183,073
  -196,686
  -210,832
  -225,533
New CAPEX, $m
  -1,705
  -11,144
  -14,505
  -18,395
  -22,789
  -27,638
  -32,873
  -38,419
  -44,193
  -50,114
  -56,108
  -62,109
  -68,063
  -73,929
  -79,680
  -85,300
  -90,786
  -96,146
  -101,394
  -106,553
  -111,651
  -116,717
  -121,785
  -126,890
  -132,068
  -137,352
  -142,779
  -148,381
  -154,193
  -160,245
  -166,568
Cash from investing activities, $m
  632
  -13,540
  -17,923
  -23,144
  -29,225
  -36,165
  -43,936
  -52,498
  -61,796
  -71,772
  -82,363
  -93,512
  -105,164
  -117,274
  -129,808
  -142,738
  -156,049
  -169,738
  -183,807
  -198,268
  -213,142
  -228,451
  -244,227
  -260,505
  -277,324
  -294,725
  -312,753
  -331,454
  -350,879
  -371,077
  -392,101
Free cash flow, $m
  2,603
  -16,267
  -21,916
  -28,750
  -36,837
  -46,213
  -56,889
  -68,855
  -82,077
  -96,511
  -112,103
  -128,796
  -146,531
  -165,258
  -184,929
  -205,509
  -226,969
  -249,294
  -272,475
  -296,518
  -321,435
  -347,247
  -373,985
  -401,688
  -430,398
  -460,168
  -491,055
  -523,121
  -556,432
  -591,063
  -627,089
Issuance/(repayment) of debt, $m
  -1,288
  5,982
  7,795
  9,886
  12,247
  14,853
  17,667
  20,647
  23,750
  26,932
  30,154
  33,379
  36,579
  39,731
  42,821
  45,842
  48,790
  51,671
  54,491
  57,264
  60,003
  62,726
  65,450
  68,193
  70,976
  73,816
  76,732
  79,743
  82,866
  86,119
  89,517
Issuance/(repurchase) of shares, $m
  0
  13,217
  17,956
  23,709
  30,574
  38,604
  47,826
  58,251
  69,870
  82,659
  96,586
  111,544
  127,626
  144,723
  162,797
  181,816
  201,752
  222,588
  244,311
  266,921
  290,422
  314,827
  340,157
  366,442
  393,714
  422,017
  451,396
  481,905
  513,603
  546,552
  580,822
Cash from financing (excl. dividends), $m  
  -1,335
  19,199
  25,751
  33,595
  42,821
  53,457
  65,493
  78,898
  93,620
  109,591
  126,740
  144,923
  164,205
  184,454
  205,618
  227,658
  250,542
  274,259
  298,802
  324,185
  350,425
  377,553
  405,607
  434,635
  464,690
  495,833
  528,128
  561,648
  596,469
  632,671
  670,339
Total cash flow (excl. dividends), $m
  1,276
  2,932
  3,834
  4,844
  5,985
  7,244
  8,603
  10,043
  11,543
  13,080
  14,637
  16,127
  17,673
  19,196
  20,689
  22,148
  23,573
  24,964
  26,327
  27,667
  28,990
  30,306
  31,622
  32,947
  34,292
  35,664
  37,073
  38,528
  40,037
  41,608
  43,250
Retained Cash Flow (-), $m
  -1,030
  -13,217
  -17,956
  -23,709
  -30,574
  -38,604
  -47,826
  -58,251
  -69,870
  -82,659
  -96,586
  -111,544
  -127,626
  -144,723
  -162,797
  -181,816
  -201,752
  -222,588
  -244,311
  -266,921
  -290,422
  -314,827
  -340,157
  -366,442
  -393,714
  -422,017
  -451,396
  -481,905
  -513,603
  -546,552
  -580,822
Prev. year cash balance distribution, $m
 
  716
  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
 
  -9,569
  -14,121
  -18,865
  -24,589
  -31,360
  -39,223
  -48,208
  -58,327
  -69,579
  -81,950
  -95,417
  -109,953
  -125,527
  -142,108
  -159,667
  -178,179
  -197,623
  -217,984
  -239,254
  -261,431
  -284,521
  -308,536
  -333,494
  -359,423
  -386,353
  -414,323
  -443,377
  -473,566
  -504,944
  -537,572
Discount rate, %
 
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
 
  -9,148
  -12,850
  -16,263
  -19,981
  -23,891
  -27,853
  -31,715
  -35,316
  -38,501
  -41,133
  -43,097
  -44,311
  -44,730
  -44,347
  -43,190
  -41,327
  -38,850
  -35,879
  -32,545
  -28,987
  -25,342
  -21,737
  -18,283
  -15,070
  -12,164
  -9,609
  -7,421
  -5,599
  -4,123
  -2,960
Current shareholders' claim on cash, %
  100
  53.5
  29.2
  16.3
  9.3
  5.4
  3.2
  2.0
  1.2
  0.8
  0.5
  0.3
  0.2
  0.1
  0.1
  0.1
  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

Husky Energy Inc. is an integrated energy company. The Company operates through two segments. The Upstream segment includes exploration, development and production of crude oil, bitumen, natural gas and natural gas liquids, and marketing of the Company's and other producers' crude oil, natural gas, natural gas liquids, sulfur and petroleum coke, pipeline transportation, the blending of crude oil and natural gas, and storage of crude oil, diluent and natural gas. The Downstream segment includes upgrading of heavy crude oil feedstock into synthetic crude oil in Canada, refining in Canada of crude oil, marketing of refined petroleum products, including gasoline, diesel, ethanol blended fuels, asphalt and ancillary products, and production of ethanol and refining in the United States of crude oil to produce and market gasoline, jet fuel and diesel fuels. The Company also sells blended heavy crude oil directly to refiners based in the United States and Canada.

FINANCIAL RATIOS  of  Husky Energy Inc. (HSE)

Valuation Ratios
P/E Ratio 17.2
Price to Sales 1.2
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 8
Price to Free Cash Flow 59.5
Growth Rates
Sales Growth Rate -21.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -43.3%
Cap. Spend. - 3 Yr. Gr. Rate -19.4%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 28.5%
Total Debt to Equity 31.9%
Interest Coverage 4
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. -0.8%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. -2.2%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. -3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 22%
Gross Margin - 3 Yr. Avg. 24.5%
EBITDA Margin 29.1%
EBITDA Margin - 3 Yr. Avg. 25.4%
Operating Margin 10.1%
Oper. Margin - 3 Yr. Avg. -4.4%
Pre-Tax Margin 7.4%
Pre-Tax Margin - 3 Yr. Avg. -6%
Net Profit Margin 7.1%
Net Profit Margin - 3 Yr. Avg. -3.7%
Effective Tax Rate 2.9%
Eff/ Tax Rate - 3 Yr. Avg. 20.3%
Payout Ratio 2.9%

HSE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSE stock intrinsic value calculation we used $12919 million for the last fiscal year's total revenue generated by Husky Energy Inc.. The default revenue input number comes from 2016 income statement of Husky Energy 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 HSE stock valuation model: a) initial revenue growth rate of 42.7% 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 4.6%, whose default value for HSE is calculated based on our internal credit rating of Husky Energy 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 Husky Energy 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 HSE stock the variable cost ratio is equal to 131.4%.

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 HSE 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 5.5% for Husky Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Husky Energy 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 HSE 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 HSE are equal to 202.1%.

Life of production assets of 10.9 years is the average useful life of capital assets used in Husky Energy 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 HSE is equal to 3.2%. 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 - $17616 million for Husky Energy 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 1005.53 million for Husky Energy 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 Husky Energy Inc. at the current share price and the inputted number of shares is $15.8 billion.

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Financial statements of HSE
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.

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