Intrinsic value of Secure Energy Services Inc. - SES

Previous Close

$7.77

  Intrinsic Value

$1.37

stock screener

  Rating & Target

str. sell

-82%

Previous close

$7.77

 
Intrinsic value

$1.37

 
Up/down potential

-82%

 
Rating

str. sell

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

We calculate the intrinsic value of SES 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 1.3

 

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, %
  4.75
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  1,410
  2,256
  3,486
  5,213
  7,563
  10,671
  14,670
  19,691
  25,855
  33,270
  42,022
  52,182
  63,798
  76,898
  91,493
  107,579
  125,141
  144,152
  164,581
  186,397
  209,566
  234,057
  259,846
  286,912
  315,243
  344,835
  375,693
  407,828
  441,263
  476,027
  512,160
Variable operating expenses, $m
 
  2,554
  3,945
  5,898
  8,556
  12,069
  16,592
  22,270
  29,240
  37,624
  47,522
  59,008
  72,142
  86,956
  103,460
  121,651
  141,509
  163,007
  186,109
  210,778
  236,977
  264,672
  293,834
  324,440
  356,477
  389,940
  424,834
  461,173
  498,981
  538,292
  579,152
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
  1,455
  2,554
  3,945
  5,898
  8,556
  12,069
  16,592
  22,270
  29,240
  37,624
  47,522
  59,008
  72,142
  86,956
  103,460
  121,651
  141,509
  163,007
  186,109
  210,778
  236,977
  264,672
  293,834
  324,440
  356,477
  389,940
  424,834
  461,173
  498,981
  538,292
  579,152
Operating income, $m
  -45
  -298
  -459
  -685
  -992
  -1,399
  -1,922
  -2,579
  -3,385
  -4,355
  -5,500
  -6,825
  -8,345
  -10,058
  -11,967
  -14,072
  -16,369
  -18,855
  -21,527
  -24,381
  -27,411
  -30,615
  -33,988
  -37,528
  -41,234
  -45,105
  -49,141
  -53,344
  -57,718
  -62,265
  -66,991
EBITDA, $m
  68
  -117
  -181
  -271
  -393
  -554
  -762
  -1,023
  -1,343
  -1,728
  -2,182
  -2,710
  -3,313
  -3,994
  -4,752
  -5,587
  -6,499
  -7,487
  -8,548
  -9,681
  -10,884
  -12,156
  -13,495
  -14,901
  -16,372
  -17,909
  -19,512
  -21,181
  -22,917
  -24,723
  -26,599
Interest expense (income), $m
  8
  7
  18
  33
  54
  83
  121
  170
  232
  308
  399
  506
  631
  773
  934
  1,114
  1,311
  1,527
  1,760
  2,011
  2,279
  2,563
  2,864
  3,181
  3,513
  3,861
  4,224
  4,603
  4,998
  5,408
  5,835
Earnings before tax, $m
  -57
  -306
  -477
  -718
  -1,047
  -1,482
  -2,043
  -2,749
  -3,617
  -4,662
  -5,898
  -7,332
  -8,976
  -10,832
  -12,902
  -15,185
  -17,680
  -20,382
  -23,288
  -26,392
  -29,690
  -33,178
  -36,852
  -40,709
  -44,747
  -48,966
  -53,365
  -57,947
  -62,715
  -67,673
  -72,826
Tax expense, $m
  -8
  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
  -49
  -306
  -477
  -718
  -1,047
  -1,482
  -2,043
  -2,749
  -3,617
  -4,662
  -5,898
  -7,332
  -8,976
  -10,832
  -12,902
  -15,185
  -17,680
  -20,382
  -23,288
  -26,392
  -29,690
  -33,178
  -36,852
  -40,709
  -44,747
  -48,966
  -53,365
  -57,947
  -62,715
  -67,673
  -72,826

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  1,425
  2,274
  3,514
  5,255
  7,624
  10,757
  14,788
  19,850
  26,064
  33,538
  42,361
  52,603
  64,312
  77,518
  92,231
  108,447
  126,150
  145,314
  165,909
  187,900
  211,256
  235,945
  261,941
  289,225
  317,785
  347,616
  378,723
  411,117
  444,821
  479,866
  516,291
Adjusted assets (=assets-cash), $m
  1,422
  2,274
  3,514
  5,255
  7,624
  10,757
  14,788
  19,850
  26,064
  33,538
  42,361
  52,603
  64,312
  77,518
  92,231
  108,447
  126,150
  145,314
  165,909
  187,900
  211,256
  235,945
  261,941
  289,225
  317,785
  347,616
  378,723
  411,117
  444,821
  479,866
  516,291
Revenue / Adjusted assets
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
  0.992
Average production assets, $m
  1,079
  1,726
  2,666
  3,988
  5,786
  8,163
  11,222
  15,064
  19,779
  25,451
  32,147
  39,919
  48,805
  58,827
  69,992
  82,298
  95,733
  110,276
  125,905
  142,594
  160,318
  179,054
  198,782
  219,487
  241,161
  263,799
  287,405
  311,988
  337,566
  364,161
  391,803
Working capital, $m
  140
  228
  352
  526
  764
  1,078
  1,482
  1,989
  2,611
  3,360
  4,244
  5,270
  6,444
  7,767
  9,241
  10,866
  12,639
  14,559
  16,623
  18,826
  21,166
  23,640
  26,244
  28,978
  31,840
  34,828
  37,945
  41,191
  44,568
  48,079
  51,728
Total debt, $m
  217
  510
  942
  1,548
  2,372
  3,462
  4,865
  6,627
  8,789
  11,390
  14,461
  18,025
  22,100
  26,695
  31,815
  37,459
  43,619
  50,288
  57,455
  65,108
  73,236
  81,828
  90,874
  100,369
  110,308
  120,689
  131,514
  142,788
  154,517
  166,712
  179,388
Total liabilities, $m
  498
  791
  1,223
  1,829
  2,653
  3,743
  5,146
  6,908
  9,070
  11,671
  14,742
  18,306
  22,381
  26,976
  32,096
  37,740
  43,900
  50,569
  57,736
  65,389
  73,517
  82,109
  91,155
  100,650
  110,589
  120,970
  131,795
  143,069
  154,798
  166,993
  179,669
Total equity, $m
  927
  1,483
  2,291
  3,426
  4,971
  7,013
  9,642
  12,942
  16,994
  21,867
  27,619
  34,297
  41,932
  50,542
  60,134
  70,707
  82,250
  94,745
  108,173
  122,511
  137,739
  153,836
  170,786
  188,575
  207,196
  226,646
  246,927
  268,048
  290,023
  312,873
  336,622
Total liabilities and equity, $m
  1,425
  2,274
  3,514
  5,255
  7,624
  10,756
  14,788
  19,850
  26,064
  33,538
  42,361
  52,603
  64,313
  77,518
  92,230
  108,447
  126,150
  145,314
  165,909
  187,900
  211,256
  235,945
  261,941
  289,225
  317,785
  347,616
  378,722
  411,117
  444,821
  479,866
  516,291
Debt-to-equity ratio
  0.234
  0.340
  0.410
  0.450
  0.480
  0.490
  0.500
  0.510
  0.520
  0.520
  0.520
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
  0.530
Adjusted equity ratio
  0.650
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652
  0.652

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -49
  -306
  -477
  -718
  -1,047
  -1,482
  -2,043
  -2,749
  -3,617
  -4,662
  -5,898
  -7,332
  -8,976
  -10,832
  -12,902
  -15,185
  -17,680
  -20,382
  -23,288
  -26,392
  -29,690
  -33,178
  -36,852
  -40,709
  -44,747
  -48,966
  -53,365
  -57,947
  -62,715
  -67,673
  -72,826
Depreciation, amort., depletion, $m
  113
  181
  278
  414
  600
  845
  1,160
  1,556
  2,042
  2,627
  3,317
  4,115
  5,031
  6,065
  7,216
  8,484
  9,869
  11,369
  12,980
  14,700
  16,528
  18,459
  20,493
  22,628
  24,862
  27,196
  29,629
  32,164
  34,801
  37,542
  40,392
Funds from operations, $m
  103
  -125
  -199
  -304
  -447
  -637
  -883
  -1,193
  -1,575
  -2,035
  -2,581
  -3,216
  -3,944
  -4,767
  -5,686
  -6,701
  -7,810
  -9,013
  -10,308
  -11,692
  -13,163
  -14,719
  -16,359
  -18,081
  -19,885
  -21,770
  -23,736
  -25,784
  -27,915
  -30,131
  -32,434
Change in working capital, $m
  6
  85
  124
  174
  237
  314
  404
  507
  623
  749
  884
  1,026
  1,173
  1,323
  1,474
  1,625
  1,774
  1,920
  2,063
  2,203
  2,340
  2,474
  2,605
  2,734
  2,861
  2,989
  3,117
  3,246
  3,377
  3,511
  3,649
Cash from operations, $m
  97
  -210
  -323
  -478
  -684
  -951
  -1,287
  -1,700
  -2,197
  -2,784
  -3,465
  -4,242
  -5,117
  -6,090
  -7,160
  -8,325
  -9,584
  -10,933
  -12,371
  -13,895
  -15,503
  -17,193
  -18,964
  -20,815
  -22,747
  -24,759
  -26,852
  -29,029
  -31,292
  -33,642
  -36,084
Maintenance CAPEX, $m
  0
  -111
  -178
  -275
  -411
  -596
  -842
  -1,157
  -1,553
  -2,039
  -2,624
  -3,314
  -4,115
  -5,031
  -6,065
  -7,216
  -8,484
  -9,869
  -11,369
  -12,980
  -14,700
  -16,528
  -18,459
  -20,493
  -22,628
  -24,862
  -27,196
  -29,629
  -32,164
  -34,801
  -37,542
New CAPEX, $m
  -63
  -647
  -941
  -1,321
  -1,798
  -2,377
  -3,059
  -3,841
  -4,716
  -5,672
  -6,696
  -7,772
  -8,886
  -10,021
  -11,165
  -12,306
  -13,434
  -14,543
  -15,629
  -16,689
  -17,724
  -18,736
  -19,728
  -20,706
  -21,674
  -22,638
  -23,606
  -24,583
  -25,578
  -26,595
  -27,642
Cash from investing activities, $m
  -159
  -758
  -1,119
  -1,596
  -2,209
  -2,973
  -3,901
  -4,998
  -6,269
  -7,711
  -9,320
  -11,086
  -13,001
  -15,052
  -17,230
  -19,522
  -21,918
  -24,412
  -26,998
  -29,669
  -32,424
  -35,264
  -38,187
  -41,199
  -44,302
  -47,500
  -50,802
  -54,212
  -57,742
  -61,396
  -65,184
Free cash flow, $m
  -62
  -969
  -1,442
  -2,074
  -2,894
  -3,925
  -5,188
  -6,698
  -8,466
  -10,495
  -12,785
  -15,329
  -18,119
  -21,143
  -24,390
  -27,847
  -31,503
  -35,346
  -39,369
  -43,564
  -47,927
  -52,456
  -57,151
  -62,014
  -67,048
  -72,259
  -77,654
  -83,242
  -89,033
  -95,037
  -101,268
Issuance/(repayment) of debt, $m
  -64
  296
  431
  606
  825
  1,090
  1,403
  1,762
  2,163
  2,601
  3,070
  3,564
  4,075
  4,596
  5,120
  5,643
  6,161
  6,669
  7,167
  7,653
  8,128
  8,592
  9,047
  9,495
  9,939
  10,381
  10,825
  11,273
  11,729
  12,196
  12,676
Issuance/(repurchase) of shares, $m
  148
  861
  1,285
  1,853
  2,592
  3,524
  4,671
  6,049
  7,669
  9,535
  11,651
  14,009
  16,610
  19,442
  22,495
  25,758
  29,222
  32,877
  36,715
  40,730
  44,918
  49,275
  53,802
  58,498
  63,368
  68,416
  73,647
  79,069
  84,691
  90,522
  96,575
Cash from financing (excl. dividends), $m  
  83
  1,157
  1,716
  2,459
  3,417
  4,614
  6,074
  7,811
  9,832
  12,136
  14,721
  17,573
  20,685
  24,038
  27,615
  31,401
  35,383
  39,546
  43,882
  48,383
  53,046
  57,867
  62,849
  67,993
  73,307
  78,797
  84,472
  90,342
  96,420
  102,718
  109,251
Total cash flow (excl. dividends), $m
  22
  189
  275
  385
  522
  690
  887
  1,112
  1,365
  1,641
  1,937
  2,245
  2,566
  2,894
  3,225
  3,554
  3,880
  4,200
  4,514
  4,820
  5,119
  5,411
  5,697
  5,980
  6,259
  6,538
  6,817
  7,100
  7,387
  7,681
  7,983
Retained Cash Flow (-), $m
  -102
  -861
  -1,285
  -1,853
  -2,592
  -3,524
  -4,671
  -6,049
  -7,669
  -9,535
  -11,651
  -14,009
  -16,610
  -19,442
  -22,495
  -25,758
  -29,222
  -32,877
  -36,715
  -40,730
  -44,918
  -49,275
  -53,802
  -58,498
  -63,368
  -68,416
  -73,647
  -79,069
  -84,691
  -90,522
  -96,575
Prev. year cash balance distribution, $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 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
 
  -672
  -1,010
  -1,468
  -2,069
  -2,835
  -3,785
  -4,937
  -6,304
  -7,894
  -9,714
  -11,765
  -14,044
  -16,548
  -19,270
  -22,204
  -25,342
  -28,677
  -32,202
  -35,911
  -39,799
  -43,864
  -48,104
  -52,519
  -57,109
  -61,878
  -66,829
  -71,969
  -77,304
  -82,842
  -88,592
Discount rate, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for distribution, $m
 
  -642
  -917
  -1,262
  -1,674
  -2,147
  -2,668
  -3,219
  -3,777
  -4,314
  -4,806
  -5,226
  -5,553
  -5,771
  -5,869
  -5,845
  -5,702
  -5,451
  -5,106
  -4,688
  -4,218
  -3,718
  -3,210
  -2,714
  -2,245
  -1,816
  -1,436
  -1,109
  -836
  -614
  -440
Current shareholders' claim on cash, %
  100
  59.6
  36.6
  23.0
  14.8
  9.8
  6.6
  4.5
  3.2
  2.2
  1.6
  1.2
  0.9
  0.7
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Secure Energy Services Inc is a Canada-based energy services company. It owns and operates midstream infrastructure and provides environmental services and products to upstream oil and natural gas companies operating in Western Canada and certain regions in the United States. It operates through three divisions. The Processing, Recovery and Disposal division owns and operates midstream infrastructure that provides processing, storing, shipping and marketing of crude oil, oilfield waste disposal and recycling. Its Drilling Services division provides equipment and product solutions for drilling, completion and production operations for oil and gas producers. Its Onsite Services division includes Environmental services, which provide pre-drilling assessment planning, drilling waste management, and remediation and reclamation assessment services; Integrated Fluid Solutions, which include water management, and pumping and storage solutions, and Projects, which include pipeline integrity.

FINANCIAL RATIOS  of  Secure Energy Services Inc. (SES)

Valuation Ratios
P/E Ratio -25.5
Price to Sales 0.9
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 12.9
Price to Free Cash Flow 36.7
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -44.7%
Cap. Spend. - 3 Yr. Gr. Rate -20.5%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 22.9%
Total Debt to Equity 23.4%
Interest Coverage -6
Management Effectiveness
Return On Assets -3.1%
Ret/ On Assets - 3 Yr. Avg. -3.6%
Return On Total Capital -4.4%
Ret/ On T. Cap. - 3 Yr. Avg. -5.1%
Return On Equity -5.6%
Return On Equity - 3 Yr. Avg. -7.1%
Asset Turnover 1
Profitability Ratios
Gross Margin 10.1%
Gross Margin - 3 Yr. Avg. 10.7%
EBITDA Margin 4.5%
EBITDA Margin - 3 Yr. Avg. 2.7%
Operating Margin -3.2%
Oper. Margin - 3 Yr. Avg. -4.7%
Pre-Tax Margin -4%
Pre-Tax Margin - 3 Yr. Avg. -5.2%
Net Profit Margin -3.5%
Net Profit Margin - 3 Yr. Avg. -4.7%
Effective Tax Rate 14%
Eff/ Tax Rate - 3 Yr. Avg. 22.1%
Payout Ratio -46.9%

SES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SES stock intrinsic value calculation we used $1410 million for the last fiscal year's total revenue generated by Secure Energy Services Inc.. The default revenue input number comes from 2016 income statement of Secure Energy Services 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 SES stock valuation model: a) initial revenue growth rate of 60% 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 4.7%, whose default value for SES is calculated based on our internal credit rating of Secure Energy Services 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 Secure Energy Services 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 SES stock the variable cost ratio is equal to 113.3%.

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 SES 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 Secure Energy Services Inc..

Corporate tax rate of 27% is the nominal tax rate for Secure Energy Services 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 SES 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 SES are equal to 76.5%.

Life of production assets of 9.7 years is the average useful life of capital assets used in Secure Energy Services 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 SES is equal to 10.1%. 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 - $927 million for Secure Energy Services 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 163.783 million for Secure Energy Services 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 Secure Energy Services Inc. at the current share price and the inputted number of shares is $1.3 billion.

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Financial statements of SES
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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