Intrinsic value of Nevsun Resources Ltd. - NSU

Previous Close

$2.98

  Intrinsic Value

$1.04

stock screener

  Rating & Target

str. sell

-65%

Previous close

$2.98

 
Intrinsic value

$1.04

 
Up/down potential

-65%

 
Rating

str. sell

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

We calculate the intrinsic value of NSU 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 0.9

 

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, %
  -35.27
  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
  312
  318
  326
  334
  343
  354
  365
  378
  391
  406
  421
  438
  456
  474
  495
  516
  538
  562
  588
  614
  643
  672
  704
  737
  772
  809
  847
  888
  931
  976
  1,023
Variable operating expenses, $m
 
  248
  254
  260
  267
  276
  284
  294
  305
  316
  328
  341
  355
  370
  385
  402
  419
  438
  458
  479
  501
  524
  548
  574
  601
  630
  660
  692
  725
  760
  797
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
  229
  248
  254
  260
  267
  276
  284
  294
  305
  316
  328
  341
  355
  370
  385
  402
  419
  438
  458
  479
  501
  524
  548
  574
  601
  630
  660
  692
  725
  760
  797
Operating income, $m
  83
  70
  72
  74
  76
  78
  81
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  187
  196
  206
  216
  226
EBITDA, $m
  131
  119
  122
  125
  129
  133
  137
  141
  147
  152
  158
  164
  171
  178
  185
  193
  202
  211
  220
  230
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
  383
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  5
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  31
  33
  35
  38
Earnings before tax, $m
  82
  70
  72
  73
  75
  76
  78
  80
  83
  85
  88
  91
  93
  97
  100
  104
  107
  111
  116
  120
  125
  130
  135
  140
  146
  152
  159
  166
  173
  180
  188
Tax expense, $m
  40
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
Net income, $m
  15
  51
  52
  53
  54
  56
  57
  59
  60
  62
  64
  66
  68
  71
  73
  76
  78
  81
  84
  88
  91
  95
  98
  103
  107
  111
  116
  121
  126
  132
  137

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  269
  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
  1,769
  1,530
  1,565
  1,605
  1,651
  1,701
  1,756
  1,815
  1,880
  1,950
  2,025
  2,105
  2,190
  2,281
  2,378
  2,480
  2,589
  2,704
  2,826
  2,954
  3,090
  3,233
  3,384
  3,543
  3,711
  3,888
  4,074
  4,270
  4,476
  4,692
  4,920
Adjusted assets (=assets-cash), $m
  1,500
  1,530
  1,565
  1,605
  1,651
  1,701
  1,756
  1,815
  1,880
  1,950
  2,025
  2,105
  2,190
  2,281
  2,378
  2,480
  2,589
  2,704
  2,826
  2,954
  3,090
  3,233
  3,384
  3,543
  3,711
  3,888
  4,074
  4,270
  4,476
  4,692
  4,920
Revenue / Adjusted assets
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
  0.208
Average production assets, $m
  931
  949
  971
  996
  1,024
  1,055
  1,089
  1,126
  1,166
  1,209
  1,256
  1,305
  1,358
  1,415
  1,475
  1,538
  1,606
  1,677
  1,753
  1,832
  1,917
  2,005
  2,099
  2,198
  2,302
  2,411
  2,527
  2,648
  2,776
  2,911
  3,052
Working capital, $m
  272
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Total debt, $m
  0
  10
  22
  35
  51
  68
  87
  107
  129
  153
  178
  206
  235
  266
  299
  334
  371
  410
  452
  495
  542
  591
  642
  696
  754
  814
  877
  944
  1,014
  1,088
  1,166
Total liabilities, $m
  512
  522
  534
  547
  563
  580
  599
  619
  641
  665
  690
  718
  747
  778
  811
  846
  883
  922
  964
  1,007
  1,054
  1,103
  1,154
  1,208
  1,266
  1,326
  1,389
  1,456
  1,526
  1,600
  1,678
Total equity, $m
  1,257
  1,008
  1,031
  1,058
  1,088
  1,121
  1,157
  1,196
  1,239
  1,285
  1,334
  1,387
  1,443
  1,503
  1,567
  1,634
  1,706
  1,782
  1,862
  1,947
  2,036
  2,131
  2,230
  2,335
  2,446
  2,562
  2,685
  2,814
  2,949
  3,092
  3,243
Total liabilities and equity, $m
  1,769
  1,530
  1,565
  1,605
  1,651
  1,701
  1,756
  1,815
  1,880
  1,950
  2,024
  2,105
  2,190
  2,281
  2,378
  2,480
  2,589
  2,704
  2,826
  2,954
  3,090
  3,234
  3,384
  3,543
  3,712
  3,888
  4,074
  4,270
  4,475
  4,692
  4,921
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.030
  0.050
  0.060
  0.070
  0.090
  0.100
  0.120
  0.130
  0.150
  0.160
  0.180
  0.190
  0.200
  0.220
  0.230
  0.240
  0.250
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
Adjusted equity ratio
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659
  0.659

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  51
  52
  53
  54
  56
  57
  59
  60
  62
  64
  66
  68
  71
  73
  76
  78
  81
  84
  88
  91
  95
  98
  103
  107
  111
  116
  121
  126
  132
  137
Depreciation, amort., depletion, $m
  48
  49
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  99
  103
  108
  113
  119
  124
  130
  137
  143
  150
  157
Funds from operations, $m
  -20
  100
  102
  105
  107
  110
  113
  117
  120
  124
  129
  133
  138
  143
  149
  155
  161
  168
  175
  182
  190
  198
  207
  216
  225
  236
  246
  257
  269
  282
  295
Change in working capital, $m
  -80
  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 operations, $m
  60
  100
  102
  105
  107
  110
  113
  117
  120
  124
  129
  133
  138
  143
  149
  155
  161
  167
  174
  182
  190
  198
  206
  215
  225
  235
  246
  257
  269
  281
  294
Maintenance CAPEX, $m
  0
  -48
  -49
  -50
  -51
  -53
  -54
  -56
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -99
  -103
  -108
  -113
  -119
  -124
  -130
  -137
  -143
  -150
New CAPEX, $m
  -335
  -18
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -50
  -53
  -56
  -60
  -64
  -67
  -71
  -75
  -80
  -84
  -89
  -94
  -99
  -104
  -110
  -115
  -121
  -128
  -134
  -141
Cash from investing activities, $m
  -334
  -66
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -115
  -120
  -126
  -133
  -140
  -146
  -154
  -161
  -170
  -178
  -188
  -197
  -207
  -217
  -229
  -239
  -251
  -265
  -277
  -291
Free cash flow, $m
  -274
  34
  31
  30
  28
  26
  25
  23
  22
  21
  20
  19
  18
  17
  16
  15
  14
  13
  13
  12
  11
  10
  9
  9
  8
  7
  6
  5
  4
  4
  3
Issuance/(repayment) of debt, $m
  0
  10
  12
  14
  15
  17
  19
  20
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  54
  57
  60
  63
  67
  70
  74
  78
Issuance/(repurchase) of shares, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  4
  5
  7
  8
  10
  11
  13
Cash from financing (excl. dividends), $m  
  2
  10
  12
  14
  15
  17
  19
  20
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  53
  56
  61
  65
  70
  75
  80
  85
  91
Total cash flow (excl. dividends), $m
  -272
  43
  43
  43
  43
  43
  43
  44
  44
  45
  45
  46
  47
  48
  49
  50
  51
  53
  54
  56
  57
  59
  62
  65
  69
  72
  76
  80
  84
  89
  93
Retained Cash Flow (-), $m
  -353
  -20
  -23
  -27
  -30
  -33
  -36
  -39
  -43
  -46
  -49
  -53
  -56
  -60
  -64
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -100
  -105
  -111
  -116
  -123
  -129
  -136
  -143
  -150
Prev. year cash balance distribution, $m
 
  269
  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
 
  292
  20
  17
  13
  10
  7
  4
  2
  -1
  -4
  -7
  -9
  -12
  -15
  -18
  -20
  -23
  -26
  -29
  -32
  -35
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -57
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
 
  280
  19
  15
  11
  8
  5
  3
  1
  -1
  -2
  -3
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -4
  -4
  -4
  -3
  -3
  -2
  -2
  -1
  -1
  -1
  -1
  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
  99.9
  99.8
  99.6
  99.3
  98.9
  98.5
  98.0
  97.5
  96.9

Nevsun Resources Ltd. is a base metals company. The Company's two principal properties are the Timok Project in Serbia, which hosts the copper-gold Cukaru Peki deposit on the Brestovac-Metovnica Exploration Permit (the B-M Permit) and the Bisha Property in Eritrea, which hosts the copper-zinc-gold Bisha deposit and includes satellite volcanogenic massive sulphides (VMS) deposits at Harena, Northwest, Hambok and Asheli. The Company's principal mining operation is the Bisha Mine, which is located on the Bisha Property. The Timok Project is located in eastern Serbia near the Bor Mining and Smelting complex. The Timok project is located within the central zone of the Timok Magmatic Complex (TMC), in the Serbian section of the East European Carpathian-Balkan Arc. In addition, the Company owns the New Mogoraib River Exploration License, which covers an area of 630 square kilometers and the Tabakin Exploration License covering 184 square kilometers both adjacent to the Bisha Mining License.

FINANCIAL RATIOS  of  Nevsun Resources Ltd. (NSU)

Valuation Ratios
P/E Ratio 59.9
Price to Sales 2.9
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 15
Price to Free Cash Flow -3.3
Growth Rates
Sales Growth Rate -35.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 191.3%
Cap. Spend. - 3 Yr. Gr. Rate 13.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 4.4%
Return On Total Capital 1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 6.4%
Return On Equity 1.4%
Return On Equity - 3 Yr. Avg. 6.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 39.7%
Gross Margin - 3 Yr. Avg. 42.9%
EBITDA Margin 41.7%
EBITDA Margin - 3 Yr. Avg. 44.8%
Operating Margin 26.6%
Oper. Margin - 3 Yr. Avg. 33%
Pre-Tax Margin 26.3%
Pre-Tax Margin - 3 Yr. Avg. 33.1%
Net Profit Margin 4.8%
Net Profit Margin - 3 Yr. Avg. 9.3%
Effective Tax Rate 48.8%
Eff/ Tax Rate - 3 Yr. Avg. 44.1%
Payout Ratio 306.7%

NSU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NSU stock intrinsic value calculation we used $312 million for the last fiscal year's total revenue generated by Nevsun Resources Ltd.. The default revenue input number comes from 2016 income statement of Nevsun Resources 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 NSU 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 NSU is calculated based on our internal credit rating of Nevsun Resources 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 Nevsun Resources 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 NSU stock the variable cost ratio is equal to 77.9%.

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 NSU 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 Nevsun Resources Ltd..

Corporate tax rate of 27% is the nominal tax rate for Nevsun Resources 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 NSU 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 NSU are equal to 298.2%.

Life of production assets of 19.4 years is the average useful life of capital assets used in Nevsun Resources 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 NSU is equal to 1%. 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 - $1257 million for Nevsun Resources 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 302.085 million for Nevsun Resources 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 Nevsun Resources Ltd. at the current share price and the inputted number of shares is $0.9 billion.

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Financial statements of NSU
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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