Intrinsic value of Peyto Exploration & Development Corp. - PEY

Previous Close

$10.28

  Intrinsic Value

$2.34

stock screener

  Rating & Target

str. sell

-77%

Previous close

$10.28

 
Intrinsic value

$2.34

 
Up/down potential

-77%

 
Rating

str. sell

We calculate the intrinsic value of PEY 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 1.7

 

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, %
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
Revenue, $m
  563
  595
  629
  664
  700
  739
  779
  821
  865
  911
  959
  1,009
  1,062
  1,117
  1,175
  1,235
  1,299
  1,366
  1,436
  1,509
  1,586
  1,667
  1,751
  1,840
  1,933
  2,031
  2,134
  2,241
  2,354
  2,473
Variable operating expenses, $m
  420
  444
  469
  495
  523
  551
  581
  612
  645
  679
  715
  753
  792
  833
  876
  922
  969
  1,019
  1,071
  1,126
  1,183
  1,243
  1,306
  1,373
  1,442
  1,515
  1,592
  1,672
  1,756
  1,845
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
  420
  444
  469
  495
  523
  551
  581
  612
  645
  679
  715
  753
  792
  833
  876
  922
  969
  1,019
  1,071
  1,126
  1,183
  1,243
  1,306
  1,373
  1,442
  1,515
  1,592
  1,672
  1,756
  1,845
Operating income, $m
  143
  151
  160
  169
  178
  188
  198
  208
  220
  231
  243
  256
  270
  284
  298
  314
  330
  347
  365
  383
  403
  423
  445
  467
  491
  516
  542
  569
  598
  628
EBITDA, $m
  492
  520
  550
  581
  613
  646
  681
  718
  756
  796
  838
  883
  929
  977
  1,028
  1,081
  1,136
  1,195
  1,256
  1,320
  1,387
  1,458
  1,532
  1,610
  1,691
  1,777
  1,866
  1,960
  2,059
  2,163
Interest expense (income), $m
  35
  37
  41
  45
  49
  54
  59
  63
  68
  74
  79
  85
  91
  97
  104
  111
  118
  126
  134
  142
  151
  161
  170
  180
  191
  202
  214
  226
  239
  253
  267
Earnings before tax, $m
  106
  110
  114
  119
  124
  129
  134
  140
  146
  152
  158
  165
  172
  180
  187
  195
  204
  213
  222
  232
  242
  253
  264
  276
  289
  302
  316
  330
  345
  361
Tax expense, $m
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  46
  48
  51
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  81
  85
  89
  93
  97
Net income, $m
  77
  80
  84
  87
  91
  94
  98
  102
  107
  111
  116
  121
  126
  131
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  220
  230
  241
  252
  264

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
  3,655
  3,864
  4,082
  4,310
  4,548
  4,797
  5,057
  5,330
  5,614
  5,913
  6,225
  6,552
  6,894
  7,253
  7,629
  8,023
  8,436
  8,869
  9,323
  9,799
  10,298
  10,822
  11,372
  11,949
  12,554
  13,189
  13,855
  14,554
  15,288
  16,058
Adjusted assets (=assets-cash), $m
  3,655
  3,864
  4,082
  4,310
  4,548
  4,797
  5,057
  5,330
  5,614
  5,913
  6,225
  6,552
  6,894
  7,253
  7,629
  8,023
  8,436
  8,869
  9,323
  9,799
  10,298
  10,822
  11,372
  11,949
  12,554
  13,189
  13,855
  14,554
  15,288
  16,058
Revenue / Adjusted assets
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
Average production assets, $m
  3,459
  3,657
  3,863
  4,079
  4,304
  4,540
  4,786
  5,044
  5,313
  5,595
  5,891
  6,200
  6,524
  6,863
  7,219
  7,592
  7,983
  8,393
  8,822
  9,273
  9,746
  10,241
  10,762
  11,307
  11,880
  12,481
  13,111
  13,773
  14,467
  15,196
Working capital, $m
  -200
  -211
  -223
  -236
  -249
  -262
  -276
  -291
  -307
  -323
  -340
  -358
  -377
  -397
  -417
  -439
  -461
  -485
  -510
  -536
  -563
  -592
  -622
  -653
  -686
  -721
  -757
  -796
  -836
  -878
Total debt, $m
  1,176
  1,293
  1,414
  1,540
  1,672
  1,810
  1,955
  2,106
  2,264
  2,429
  2,603
  2,784
  2,974
  3,173
  3,382
  3,601
  3,830
  4,070
  4,322
  4,586
  4,864
  5,154
  5,459
  5,779
  6,115
  6,468
  6,837
  7,225
  7,633
  8,060
Total liabilities, $m
  2,028
  2,145
  2,266
  2,392
  2,524
  2,662
  2,807
  2,958
  3,116
  3,281
  3,455
  3,636
  3,826
  4,025
  4,234
  4,453
  4,682
  4,922
  5,174
  5,438
  5,716
  6,006
  6,311
  6,631
  6,967
  7,320
  7,689
  8,077
  8,485
  8,912
Total equity, $m
  1,626
  1,719
  1,817
  1,918
  2,024
  2,135
  2,251
  2,372
  2,498
  2,631
  2,770
  2,915
  3,068
  3,227
  3,395
  3,570
  3,754
  3,947
  4,149
  4,361
  4,583
  4,816
  5,061
  5,317
  5,586
  5,869
  6,165
  6,477
  6,803
  7,146
Total liabilities and equity, $m
  3,654
  3,864
  4,083
  4,310
  4,548
  4,797
  5,058
  5,330
  5,614
  5,912
  6,225
  6,551
  6,894
  7,252
  7,629
  8,023
  8,436
  8,869
  9,323
  9,799
  10,299
  10,822
  11,372
  11,948
  12,553
  13,189
  13,854
  14,554
  15,288
  16,058
Debt-to-equity ratio
  0.720
  0.750
  0.780
  0.800
  0.830
  0.850
  0.870
  0.890
  0.910
  0.920
  0.940
  0.950
  0.970
  0.980
  1.000
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.090
  1.100
  1.110
  1.120
  1.120
  1.130
Adjusted equity ratio
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  77
  80
  84
  87
  91
  94
  98
  102
  107
  111
  116
  121
  126
  131
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  211
  220
  230
  241
  252
  264
Depreciation, amort., depletion, $m
  349
  369
  390
  412
  435
  459
  483
  509
  537
  565
  595
  626
  659
  693
  729
  767
  806
  848
  891
  937
  984
  1,034
  1,087
  1,142
  1,200
  1,261
  1,324
  1,391
  1,461
  1,535
Funds from operations, $m
  426
  450
  474
  499
  525
  553
  582
  612
  643
  676
  711
  747
  785
  824
  866
  910
  955
  1,003
  1,053
  1,106
  1,161
  1,219
  1,280
  1,344
  1,411
  1,481
  1,555
  1,632
  1,713
  1,798
Change in working capital, $m
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
Cash from operations, $m
  437
  461
  486
  511
  538
  566
  596
  627
  659
  692
  728
  765
  803
  844
  887
  931
  978
  1,027
  1,078
  1,132
  1,189
  1,248
  1,310
  1,375
  1,444
  1,516
  1,591
  1,670
  1,753
  1,841
Maintenance CAPEX, $m
  -330
  -349
  -369
  -390
  -412
  -435
  -459
  -483
  -509
  -537
  -565
  -595
  -626
  -659
  -693
  -729
  -767
  -806
  -848
  -891
  -937
  -984
  -1,034
  -1,087
  -1,142
  -1,200
  -1,261
  -1,324
  -1,391
  -1,461
New CAPEX, $m
  -190
  -198
  -207
  -216
  -225
  -236
  -246
  -258
  -270
  -282
  -295
  -309
  -324
  -339
  -356
  -373
  -391
  -410
  -430
  -451
  -473
  -496
  -520
  -546
  -573
  -601
  -630
  -662
  -694
  -729
Cash from investing activities, $m
  -520
  -547
  -576
  -606
  -637
  -671
  -705
  -741
  -779
  -819
  -860
  -904
  -950
  -998
  -1,049
  -1,102
  -1,158
  -1,216
  -1,278
  -1,342
  -1,410
  -1,480
  -1,554
  -1,633
  -1,715
  -1,801
  -1,891
  -1,986
  -2,085
  -2,190
Free cash flow, $m
  -83
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -133
  -140
  -147
  -154
  -162
  -171
  -180
  -189
  -199
  -210
  -221
  -232
  -245
  -257
  -271
  -285
  -300
  -316
  -332
  -350
Issuance/(repayment) of debt, $m
  106
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  229
  240
  252
  264
  277
  291
  305
  320
  336
  352
  370
  388
  407
  427
Issuance/(repurchase) of shares, $m
  10
  13
  14
  14
  15
  17
  18
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  40
  43
  45
  48
  52
  55
  58
  62
  66
  70
  75
  79
Cash from financing (excl. dividends), $m  
  116
  129
  135
  140
  147
  155
  162
  170
  178
  187
  196
  206
  217
  228
  240
  252
  264
  277
  292
  307
  322
  339
  357
  375
  394
  414
  436
  458
  482
  506
Total cash flow (excl. dividends), $m
  34
  43
  45
  46
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
  112
  118
  123
  129
  136
  143
  150
  157
Retained Cash Flow (-), $m
  -87
  -93
  -97
  -101
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -145
  -152
  -160
  -167
  -175
  -184
  -193
  -202
  -212
  -222
  -233
  -245
  -257
  -269
  -283
  -296
  -311
  -327
  -343
Prev. year cash balance distribution, $m
  2
  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
  -51
  -50
  -53
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
  -86
  -91
  -95
  -100
  -104
  -109
  -115
  -120
  -126
  -133
  -139
  -146
  -153
  -161
  -169
  -177
  -186
Discount rate, %
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
  -48
  -45
  -44
  -43
  -41
  -40
  -38
  -36
  -34
  -31
  -29
  -26
  -24
  -21
  -19
  -16
  -14
  -12
  -10
  -8
  -7
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
  0
Current shareholders' claim on cash, %
  99.4
  98.7
  98.0
  97.3
  96.6
  95.9
  95.1
  94.4
  93.7
  93.0
  92.2
  91.5
  90.7
  90.0
  89.2
  88.4
  87.7
  86.9
  86.1
  85.3
  84.5
  83.7
  82.9
  82.1
  81.3
  80.4
  79.6
  78.8
  78.0
  77.2

Peyto Exploration & Development Corp is a Canada-based energy company. The Company is engaged in acquisition, exploration, development and production of oil and natural gas in Western Canada. Its portfolio of assets includes exploration, exploitation and development opportunities located primarily in the Deep Basin of Alberta. It operates in over three areas, such as the Greater Sundance, Northern Area and Brazeau River areas of Alberta. The Greater Sundance area is located approximately 50 kilometers west of Edson, Alberta, from Township 50-56 and Range 19-24 west of the fifth meridian. The Northern Area includes producing properties in regions, including Smoky, Kakwa, Chime, Kiskiu, Chicken and Cutbank and it covers Townships 57-64 and Ranges 2-7 west of the sixth meridian. The Brazeau River area is located over 180 kilometers southwest of Edmonton, Alberta, from Township 41-44 and Range 12-13 west of the fifth meridian.

FINANCIAL RATIOS  of  Peyto Exploration & Development Corp. (PEY)

Valuation Ratios
P/E Ratio 15.1
Price to Sales 3.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 3.3
Price to Free Cash Flow 42.3
Growth Rates
Sales Growth Rate -8.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 69.4%
Total Debt to Equity 69.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 6.4%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 7.1%
Return On Equity - 3 Yr. Avg. 11.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 89.8%
Gross Margin - 3 Yr. Avg. 91.3%
EBITDA Margin 97.7%
EBITDA Margin - 3 Yr. Avg. 92.7%
Operating Margin 12.8%
Oper. Margin - 3 Yr. Avg. 30.4%
Pre-Tax Margin 28.9%
Pre-Tax Margin - 3 Yr. Avg. 36.2%
Net Profit Margin 21.1%
Net Profit Margin - 3 Yr. Avg. 25.2%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.2%
Payout Ratio 191.1%

PEY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PEY stock intrinsic value calculation we used $532 million for the last fiscal year's total revenue generated by Peyto Exploration & Development Corp.. The default revenue input number comes from 2016 income statement of Peyto Exploration & Development Corp.. 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 PEY stock valuation model: a) initial revenue growth rate of 5.8% 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 5.6%, whose default value for PEY is calculated based on our internal credit rating of Peyto Exploration & Development Corp., 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 Peyto Exploration & Development Corp..
    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 PEY stock the variable cost ratio is equal to 74.6%.

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 PEY 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 Peyto Exploration & Development Corp..

Corporate tax rate of 27% is the nominal tax rate for Peyto Exploration & Development Corp.. 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 PEY 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 PEY are equal to 614.5%.

Life of production assets of 9.9 years is the average useful life of capital assets used in Peyto Exploration & Development Corp. 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 PEY is equal to -35.5%. 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 - $1541 million for Peyto Exploration & Development Corp. - 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 165.003 million for Peyto Exploration & Development Corp. 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 Peyto Exploration & Development Corp. at the current share price and the inputted number of shares is $1.7 billion.

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