Intrinsic value of Western Forest Products Inc. - WEF

Previous Close

$2.52

  Intrinsic Value

$2.86

stock screener

  Rating & Target

hold

+14%

Previous close

$2.52

 
Intrinsic value

$2.86

 
Up/down potential

+14%

 
Rating

hold

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

We calculate the intrinsic value of WEF 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 1.0

 

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, %
  9.70
  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
  1,187
  1,211
  1,239
  1,270
  1,306
  1,346
  1,389
  1,437
  1,488
  1,543
  1,602
  1,665
  1,733
  1,805
  1,882
  1,963
  2,049
  2,140
  2,236
  2,338
  2,445
  2,558
  2,678
  2,804
  2,937
  3,077
  3,224
  3,379
  3,542
  3,713
  3,894
Variable operating expenses, $m
 
  599
  613
  629
  647
  666
  688
  711
  736
  764
  793
  824
  858
  893
  931
  972
  1,014
  1,059
  1,107
  1,157
  1,210
  1,266
  1,326
  1,388
  1,454
  1,523
  1,596
  1,672
  1,753
  1,838
  1,927
Fixed operating expenses, $m
 
  492
  504
  517
  530
  543
  557
  571
  585
  599
  614
  630
  646
  662
  678
  695
  713
  730
  749
  767
  787
  806
  826
  847
  868
  890
  912
  935
  958
  982
  1,007
Total operating expenses, $m
  1,056
  1,091
  1,117
  1,146
  1,177
  1,209
  1,245
  1,282
  1,321
  1,363
  1,407
  1,454
  1,504
  1,555
  1,609
  1,667
  1,727
  1,789
  1,856
  1,924
  1,997
  2,072
  2,152
  2,235
  2,322
  2,413
  2,508
  2,607
  2,711
  2,820
  2,934
Operating income, $m
  131
  119
  121
  125
  130
  137
  145
  155
  166
  180
  195
  211
  230
  250
  272
  296
  322
  350
  381
  413
  448
  486
  526
  569
  615
  664
  716
  771
  830
  893
  959
EBITDA, $m
  165
  154
  157
  161
  167
  175
  185
  196
  209
  224
  241
  259
  279
  302
  326
  352
  381
  412
  445
  480
  518
  559
  603
  649
  699
  752
  808
  868
  932
  999
  1,071
Interest expense (income), $m
  3
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  24
  25
  27
  29
  31
  33
  36
Earnings before tax, $m
  127
  117
  119
  122
  127
  133
  141
  150
  161
  174
  188
  204
  221
  241
  262
  285
  310
  337
  366
  397
  431
  467
  506
  547
  591
  638
  689
  742
  799
  860
  924
Tax expense, $m
  33
  32
  32
  33
  34
  36
  38
  41
  43
  47
  51
  55
  60
  65
  71
  77
  84
  91
  99
  107
  116
  126
  137
  148
  160
  172
  186
  200
  216
  232
  249
Net income, $m
  94
  86
  87
  89
  92
  97
  103
  110
  118
  127
  137
  149
  161
  176
  191
  208
  226
  246
  267
  290
  315
  341
  369
  399
  432
  466
  503
  542
  583
  628
  674

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19
  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
  777
  773
  791
  811
  834
  859
  887
  917
  950
  985
  1,023
  1,064
  1,107
  1,153
  1,201
  1,253
  1,308
  1,366
  1,428
  1,493
  1,561
  1,634
  1,710
  1,791
  1,875
  1,965
  2,059
  2,158
  2,262
  2,371
  2,486
Adjusted assets (=assets-cash), $m
  758
  773
  791
  811
  834
  859
  887
  917
  950
  985
  1,023
  1,064
  1,107
  1,153
  1,201
  1,253
  1,308
  1,366
  1,428
  1,493
  1,561
  1,634
  1,710
  1,791
  1,875
  1,965
  2,059
  2,158
  2,262
  2,371
  2,486
Revenue / Adjusted assets
  1.566
  1.567
  1.566
  1.566
  1.566
  1.567
  1.566
  1.567
  1.566
  1.566
  1.566
  1.565
  1.565
  1.565
  1.567
  1.567
  1.567
  1.567
  1.566
  1.566
  1.566
  1.565
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
Average production assets, $m
  463
  472
  483
  495
  509
  525
  542
  560
  580
  602
  625
  650
  676
  704
  734
  765
  799
  834
  872
  912
  954
  998
  1,044
  1,094
  1,145
  1,200
  1,257
  1,318
  1,381
  1,448
  1,519
Working capital, $m
  178
  162
  166
  170
  175
  180
  186
  192
  199
  207
  215
  223
  232
  242
  252
  263
  275
  287
  300
  313
  328
  343
  359
  376
  394
  412
  432
  453
  475
  498
  522
Total debt, $m
  34
  39
  45
  52
  59
  68
  77
  87
  98
  110
  123
  136
  151
  166
  182
  200
  218
  238
  258
  280
  303
  327
  353
  380
  408
  438
  470
  503
  538
  574
  613
Total liabilities, $m
  255
  259
  265
  272
  279
  288
  297
  307
  318
  330
  343
  356
  371
  386
  402
  420
  438
  458
  478
  500
  523
  547
  573
  600
  628
  658
  690
  723
  758
  794
  833
Total equity, $m
  523
  514
  526
  539
  555
  571
  590
  610
  632
  655
  680
  707
  736
  767
  799
  833
  870
  909
  950
  993
  1,038
  1,086
  1,137
  1,191
  1,247
  1,306
  1,369
  1,435
  1,504
  1,577
  1,653
Total liabilities and equity, $m
  778
  773
  791
  811
  834
  859
  887
  917
  950
  985
  1,023
  1,063
  1,107
  1,153
  1,201
  1,253
  1,308
  1,367
  1,428
  1,493
  1,561
  1,633
  1,710
  1,791
  1,875
  1,964
  2,059
  2,158
  2,262
  2,371
  2,486
Debt-to-equity ratio
  0.065
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.160
  0.170
  0.180
  0.190
  0.200
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.360
  0.360
  0.370
Adjusted equity ratio
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  86
  87
  89
  92
  97
  103
  110
  118
  127
  137
  149
  161
  176
  191
  208
  226
  246
  267
  290
  315
  341
  369
  399
  432
  466
  503
  542
  583
  628
  674
Depreciation, amort., depletion, $m
  34
  35
  36
  36
  37
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  102
  106
  112
Funds from operations, $m
  102
  120
  122
  125
  130
  136
  143
  151
  160
  171
  183
  196
  211
  227
  245
  264
  285
  307
  331
  357
  385
  414
  446
  480
  516
  554
  595
  639
  685
  734
  786
Change in working capital, $m
  -26
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Cash from operations, $m
  128
  117
  118
  121
  125
  130
  137
  144
  153
  164
  175
  188
  202
  218
  235
  253
  273
  295
  318
  343
  370
  399
  430
  463
  498
  536
  575
  618
  663
  711
  762
Maintenance CAPEX, $m
  0
  -34
  -35
  -36
  -36
  -37
  -39
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -97
  -102
  -106
New CAPEX, $m
  -56
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -60
  -64
  -67
  -70
Cash from investing activities, $m
  -56
  -44
  -46
  -48
  -50
  -52
  -56
  -58
  -61
  -65
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -139
  -145
  -152
  -161
  -169
  -176
Free cash flow, $m
  72
  73
  73
  73
  75
  77
  81
  86
  92
  99
  108
  117
  128
  140
  153
  168
  183
  201
  219
  240
  261
  285
  310
  337
  366
  397
  430
  465
  503
  543
  585
Issuance/(repayment) of debt, $m
  -29
  5
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
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
  0
Cash from financing (excl. dividends), $m  
  -31
  5
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
Total cash flow (excl. dividends), $m
  42
  78
  79
  80
  82
  86
  90
  96
  103
  111
  120
  131
  142
  155
  169
  185
  202
  220
  240
  261
  284
  309
  336
  364
  394
  427
  461
  498
  537
  579
  624
Retained Cash Flow (-), $m
  -67
  -10
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -32
  -34
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -56
  -59
  -63
  -66
  -69
  -73
  -77
Prev. year cash balance distribution, $m
 
  19
  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
 
  87
  67
  66
  67
  69
  72
  76
  81
  88
  95
  104
  114
  125
  137
  150
  165
  181
  199
  218
  239
  261
  285
  310
  338
  367
  399
  432
  468
  506
  547
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
 
  84
  61
  58
  55
  53
  52
  51
  51
  50
  50
  49
  49
  47
  46
  44
  42
  39
  37
  34
  30
  27
  24
  20
  17
  14
  12
  9
  7
  6
  4
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Western Forest Products Inc. is a softwood forest products company, operating in the coastal region of British Columbia. The Company's primary business includes timber harvesting, reforestation, forest management, sawmilling logs into lumber and wood chips, and lumber remanufacturing. The Company's log and lumber products are sold throughout the world. Its business includes the harvesting of timber, reforestation, forest management, the manufacturing and sale of lumber and wood chips, and the sale of logs. Its Lumber by species include hemlock and balsam; douglas fir; yellow and western red cedar. Its Logs include saw logs and pulp logs. Its eight facilities produce a multitude of products from framing material to timbers, decking and siding; components for doors, windows and moldings, and niche products for customers throughout the world. Its other products include Hem-Fir products, such as Green Hem Fir, Kiln-Dried Hem-Fir and Structural Hem-Fir products, and Sitka Spruce products.

FINANCIAL RATIOS  of  Western Forest Products Inc. (WEF)

Valuation Ratios
P/E Ratio 10.6
Price to Sales 0.8
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow 13.8
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.7%
Cap. Spend. - 3 Yr. Gr. Rate -1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 6.5%
Total Debt to Equity 6.5%
Interest Coverage 43
Management Effectiveness
Return On Assets 12.7%
Ret/ On Assets - 3 Yr. Avg. 11.3%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 15.5%
Return On Equity 19.2%
Return On Equity - 3 Yr. Avg. 17.8%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 19.8%
Gross Margin - 3 Yr. Avg. 19%
EBITDA Margin 13.8%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 11%
Oper. Margin - 3 Yr. Avg. 8.4%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 7.9%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 26%
Eff/ Tax Rate - 3 Yr. Avg. 10.8%
Payout Ratio 34%

WEF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WEF stock intrinsic value calculation we used $1187 million for the last fiscal year's total revenue generated by Western Forest Products Inc.. The default revenue input number comes from 2016 income statement of Western Forest Products 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 WEF 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 WEF is calculated based on our internal credit rating of Western Forest Products 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 Western Forest Products 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 WEF stock the variable cost ratio is equal to 49.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $480 million in the base year in the intrinsic value calculation for WEF 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 6.2% for Western Forest Products Inc..

Corporate tax rate of 27% is the nominal tax rate for Western Forest Products 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 WEF 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 WEF are equal to 39%.

Life of production assets of 13.6 years is the average useful life of capital assets used in Western Forest Products 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 WEF is equal to 13.4%. 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 - $523 million for Western Forest Products 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 396.154 million for Western Forest Products 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 Western Forest Products Inc. at the current share price and the inputted number of shares is $1.0 billion.

RELATED COMPANIES Price Int.Val. Rating
CFP Canfor Corpora 24.85 60.45  str.buy
IFP Interfor Corpo 20.30 2.26  str.sell
WFT West Fraser Ti 76.82 179.95  str.buy
SJ Stella-Jones I 49.68 22.31  str.sell
Financial statements of WEF
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.