Intrinsic value of Alaris Royalty Corp. - AD

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$22.29

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$22.29

 
Intrinsic value

$4.53

 
Up/down potential

-80%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of AD 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 0.8

 

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, %
  53.09
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  124
  145
  167
  191
  217
  245
  274
  305
  337
  371
  406
  443
  481
  521
  563
  606
  651
  698
  746
  797
  849
  904
  961
  1,020
  1,081
  1,145
  1,212
  1,282
  1,355
  1,431
  1,510
Variable operating expenses, $m
 
  64
  74
  85
  96
  109
  122
  135
  150
  165
  180
  197
  214
  232
  250
  269
  289
  310
  331
  354
  377
  401
  426
  453
  480
  509
  538
  569
  602
  635
  671
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
  23
  64
  74
  85
  96
  109
  122
  135
  150
  165
  180
  197
  214
  232
  250
  269
  289
  310
  331
  354
  377
  401
  426
  453
  480
  509
  538
  569
  602
  635
  671
Operating income, $m
  101
  80
  93
  106
  121
  136
  152
  169
  187
  206
  226
  246
  268
  290
  313
  337
  362
  388
  415
  443
  472
  502
  534
  567
  601
  637
  674
  713
  753
  796
  840
EBITDA, $m
  101
  81
  94
  107
  122
  137
  154
  171
  189
  208
  228
  248
  270
  292
  316
  340
  365
  391
  419
  447
  476
  507
  539
  572
  606
  642
  680
  719
  760
  802
  847
Interest expense (income), $m
  6
  7
  8
  10
  12
  13
  15
  18
  20
  22
  25
  27
  30
  32
  35
  38
  41
  45
  48
  52
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  101
Earnings before tax, $m
  86
  74
  85
  97
  109
  123
  137
  152
  168
  184
  201
  219
  238
  257
  278
  299
  321
  343
  367
  391
  417
  443
  471
  500
  530
  561
  594
  628
  663
  700
  739
Tax expense, $m
  19
  20
  23
  26
  29
  33
  37
  41
  45
  50
  54
  59
  64
  70
  75
  81
  87
  93
  99
  106
  113
  120
  127
  135
  143
  151
  160
  169
  179
  189
  199
Net income, $m
  67
  54
  62
  71
  80
  90
  100
  111
  122
  134
  147
  160
  174
  188
  203
  218
  234
  251
  268
  286
  304
  324
  344
  365
  387
  410
  433
  458
  484
  511
  539

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  29
  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
  787
  882
  1,019
  1,167
  1,325
  1,493
  1,671
  1,858
  2,055
  2,261
  2,477
  2,701
  2,936
  3,180
  3,433
  3,697
  3,971
  4,255
  4,551
  4,858
  5,178
  5,511
  5,857
  6,217
  6,592
  6,984
  7,391
  7,817
  8,261
  8,724
  9,209
Adjusted assets (=assets-cash), $m
  758
  882
  1,019
  1,167
  1,325
  1,493
  1,671
  1,858
  2,055
  2,261
  2,477
  2,701
  2,936
  3,180
  3,433
  3,697
  3,971
  4,255
  4,551
  4,858
  5,178
  5,511
  5,857
  6,217
  6,592
  6,984
  7,391
  7,817
  8,261
  8,724
  9,209
Revenue / Adjusted assets
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
  0.164
Average production assets, $m
  6
  7
  8
  9
  10
  12
  13
  15
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  72
Working capital, $m
  63
  40
  46
  52
  60
  67
  75
  83
  92
  102
  111
  121
  132
  143
  154
  166
  178
  191
  205
  218
  233
  248
  263
  279
  296
  314
  332
  351
  371
  392
  414
Total debt, $m
  99
  121
  144
  170
  198
  227
  258
  290
  325
  360
  398
  437
  478
  520
  564
  610
  658
  707
  759
  812
  868
  926
  986
  1,049
  1,114
  1,182
  1,253
  1,327
  1,404
  1,485
  1,569
Total liabilities, $m
  133
  154
  177
  203
  231
  260
  291
  323
  358
  393
  431
  470
  511
  553
  597
  643
  691
  740
  792
  845
  901
  959
  1,019
  1,082
  1,147
  1,215
  1,286
  1,360
  1,437
  1,518
  1,602
Total equity, $m
  655
  729
  842
  964
  1,094
  1,233
  1,380
  1,535
  1,697
  1,868
  2,046
  2,231
  2,425
  2,626
  2,836
  3,053
  3,280
  3,515
  3,759
  4,013
  4,277
  4,552
  4,838
  5,135
  5,445
  5,768
  6,105
  6,457
  6,823
  7,206
  7,606
Total liabilities and equity, $m
  788
  883
  1,019
  1,167
  1,325
  1,493
  1,671
  1,858
  2,055
  2,261
  2,477
  2,701
  2,936
  3,179
  3,433
  3,696
  3,971
  4,255
  4,551
  4,858
  5,178
  5,511
  5,857
  6,217
  6,592
  6,983
  7,391
  7,817
  8,260
  8,724
  9,208
Debt-to-equity ratio
  0.151
  0.170
  0.170
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.190
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.210
  0.210
  0.210
  0.210
  0.210
Adjusted equity ratio
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826
  0.826

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  67
  54
  62
  71
  80
  90
  100
  111
  122
  134
  147
  160
  174
  188
  203
  218
  234
  251
  268
  286
  304
  324
  344
  365
  387
  410
  433
  458
  484
  511
  539
Depreciation, amort., depletion, $m
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
Funds from operations, $m
  59
  55
  63
  71
  81
  91
  101
  112
  124
  136
  149
  162
  176
  190
  205
  221
  237
  254
  271
  290
  308
  328
  349
  370
  392
  415
  439
  464
  490
  518
  547
Change in working capital, $m
  -14
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
Cash from operations, $m
  73
  49
  57
  65
  74
  83
  93
  104
  115
  127
  139
  152
  166
  179
  194
  209
  225
  241
  258
  276
  294
  313
  333
  354
  375
  397
  421
  445
  471
  497
  525
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from investing activities, $m
  -14
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -11
  -11
Free cash flow, $m
  59
  47
  55
  63
  72
  81
  91
  101
  112
  124
  136
  148
  162
  175
  190
  204
  220
  236
  252
  270
  288
  306
  326
  346
  367
  389
  412
  436
  461
  487
  514
Issuance/(repayment) of debt, $m
  21
  22
  24
  26
  27
  29
  31
  33
  34
  36
  38
  39
  41
  42
  44
  46
  48
  50
  51
  53
  56
  58
  60
  63
  65
  68
  71
  74
  77
  81
  84
Issuance/(repurchase) of shares, $m
  0
  5
  35
  33
  31
  29
  25
  21
  16
  11
  5
  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  
  17
  27
  59
  59
  58
  58
  56
  54
  50
  47
  43
  39
  41
  42
  44
  46
  48
  50
  51
  53
  56
  58
  60
  63
  65
  68
  71
  74
  77
  81
  84
Total cash flow (excl. dividends), $m
  68
  69
  79
  89
  99
  110
  122
  134
  146
  160
  173
  187
  202
  218
  234
  250
  267
  285
  304
  323
  343
  364
  386
  409
  433
  457
  483
  510
  538
  568
  598
Retained Cash Flow (-), $m
  22
  -103
  -113
  -122
  -130
  -139
  -147
  -155
  -163
  -170
  -178
  -186
  -194
  -201
  -209
  -218
  -226
  -235
  -244
  -254
  -264
  -275
  -286
  -298
  -310
  -323
  -337
  -351
  -367
  -383
  -400
Prev. year cash balance distribution, $m
 
  29
  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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  9
  16
  24
  33
  41
  50
  60
  69
  79
  90
  100
  111
  123
  134
  146
  159
  171
  185
  198
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  4
  6
  8
  10
  10
  11
  11
  11
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  1
Current shareholders' claim on cash, %
  100
  99.4
  95.7
  92.7
  90.3
  88.4
  87.0
  85.9
  85.2
  84.7
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6
  84.6

Alaris Royalty Corp. is a private equity firm specializing in management buyouts, growth capital, middle market, later stage, industry consolidation, growth capital, and mature investments. The firm does not invest in turnarounds and start-ups. It prefers to invest in the companies based in all industries except for those with a declining asset base, such as oil and gas resource companies, or any industry that carry the risk of obsolescence such as high tech. The firm seeks to invest in companies raising capital for a partial liquidity, generational transfer, recapitalization, and growth and who do not want to give up control or chance the added risk that comes with high leverage levels. It prefers to invest in companies that are mostly individual or family controlled. The firm typically provides alternative financing for a diversified group of private businesses ("Private Company Partners") in exchange for royalties or distributions from the Private Company Partners, with the principal objective of generating stable and predictable cash flows for dividend payments to its shareholders. It seeks to invest in the companies based in Europe, Canada, and United States. It typically invests between $5 million and $100 million in companies with an enterprise values between $10 million and $400 million and EBITDA between $5 million and $50 million, historical EBITDA in excess of $10 million, and Low levels of debt and capital expenditure. The firm also makes small cap investments upto $20 million in private companies that have historical EBITDA in excess of $2 million. However, for larger companies, transactions can be structured to include additional investments. The firm seeks to invest in industries that do not experience large cyclical swings. It does not own any shares and does not require board representation. The firm invests through balance sheet and seeks equity dividend distribution from portfolios. It prefers to make non control equity and minority investments in its portfolio companies. Alaris Royalty Corp. was founded in 2008 and is based in Calgary, Canada.

FINANCIAL RATIOS  of  Alaris Royalty Corp. (AD)

Valuation Ratios
P/E Ratio 12.1
Price to Sales 6.5
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 11.1
Price to Free Cash Flow 11.1
Growth Rates
Sales Growth Rate 53.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 15.1%
Total Debt to Equity 15.1%
Interest Coverage 15
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 9.2%
Return On Total Capital 8.9%
Ret/ On T. Cap. - 3 Yr. Avg. 9%
Return On Equity 10.1%
Return On Equity - 3 Yr. Avg. 10%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 74.2%
EBITDA Margin - 3 Yr. Avg. 86.9%
Operating Margin 81.5%
Oper. Margin - 3 Yr. Avg. 72.5%
Pre-Tax Margin 69.4%
Pre-Tax Margin - 3 Yr. Avg. 82.6%
Net Profit Margin 54%
Net Profit Margin - 3 Yr. Avg. 66.3%
Effective Tax Rate 22.1%
Eff/ Tax Rate - 3 Yr. Avg. 20%
Payout Ratio 88.1%

AD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AD stock intrinsic value calculation we used $124 million for the last fiscal year's total revenue generated by Alaris Royalty Corp.. The default revenue input number comes from 2016 income statement of Alaris Royalty 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 AD stock valuation model: a) initial revenue growth rate of 16.7% 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 4.3%, whose default value for AD is calculated based on our internal credit rating of Alaris Royalty 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 Alaris Royalty 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 AD stock the variable cost ratio is equal to 44.4%.

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 AD 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 6.8% for Alaris Royalty Corp..

Corporate tax rate of 27% is the nominal tax rate for Alaris Royalty 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 AD 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 AD are equal to 4.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Alaris Royalty 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 AD is equal to 27.4%. 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 - $655 million for Alaris Royalty 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 36.183 million for Alaris Royalty 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 Alaris Royalty Corp. at the current share price and the inputted number of shares is $0.8 billion.


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Stock chart of AD Financial statements of AD
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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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