Intrinsic value of AltaGas Ltd. - ALA

Previous Close

$29.27

  Intrinsic Value

$5.54

stock screener

  Rating & Target

str. sell

-81%

  Value-price divergence*

-69%

Previous close

$29.27

 
Intrinsic value

$5.54

 
Up/down potential

-81%

 
Rating

str. sell

 
Value-price divergence*

-69%

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

We calculate the intrinsic value of ALA 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 4.9

 

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, %
  -0.14
  26.20
  24.08
  22.17
  20.45
  18.91
  17.52
  16.27
  15.14
  14.13
  13.21
  12.39
  11.65
  10.99
  10.39
  9.85
  9.36
  8.93
  8.54
  8.18
  7.86
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
Revenue, $m
  2,190
  2,764
  3,429
  4,190
  5,047
  6,001
  7,052
  8,199
  9,441
  10,774
  12,198
  13,709
  15,307
  16,989
  18,754
  20,601
  22,530
  24,542
  26,637
  28,816
  31,082
  33,437
  35,885
  38,428
  41,072
  43,820
  46,678
  49,651
  52,746
  55,968
  59,325
Variable operating expenses, $m
 
  2,338
  2,880
  3,500
  4,198
  4,976
  5,833
  6,767
  7,779
  8,866
  10,026
  11,172
  12,474
  13,844
  15,283
  16,788
  18,360
  19,999
  21,707
  23,483
  25,329
  27,249
  29,243
  31,316
  33,470
  35,709
  38,038
  40,461
  42,983
  45,609
  48,345
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
  1,809
  2,338
  2,880
  3,500
  4,198
  4,976
  5,833
  6,767
  7,779
  8,866
  10,026
  11,172
  12,474
  13,844
  15,283
  16,788
  18,360
  19,999
  21,707
  23,483
  25,329
  27,249
  29,243
  31,316
  33,470
  35,709
  38,038
  40,461
  42,983
  45,609
  48,345
Operating income, $m
  381
  426
  549
  690
  848
  1,025
  1,220
  1,432
  1,662
  1,909
  2,172
  2,537
  2,833
  3,144
  3,471
  3,813
  4,170
  4,542
  4,930
  5,333
  5,753
  6,189
  6,642
  7,113
  7,602
  8,110
  8,639
  9,190
  9,763
  10,359
  10,980
EBITDA, $m
  653
  826
  1,024
  1,251
  1,507
  1,792
  2,106
  2,449
  2,820
  3,218
  3,643
  4,095
  4,572
  5,074
  5,602
  6,153
  6,729
  7,330
  7,956
  8,607
  9,284
  9,987
  10,718
  11,478
  12,268
  13,088
  13,942
  14,830
  15,754
  16,717
  17,720
Interest expense (income), $m
  142
  135
  187
  246
  314
  391
  476
  570
  673
  784
  904
  1,031
  1,167
  1,310
  1,460
  1,618
  1,784
  1,956
  2,136
  2,324
  2,519
  2,722
  2,933
  3,152
  3,380
  3,616
  3,862
  4,118
  4,385
  4,662
  4,950
Earnings before tax, $m
  246
  291
  363
  444
  534
  634
  743
  862
  989
  1,124
  1,268
  1,506
  1,667
  1,835
  2,011
  2,195
  2,386
  2,586
  2,794
  3,009
  3,234
  3,467
  3,709
  3,961
  4,222
  4,494
  4,777
  5,071
  5,378
  5,697
  6,030
Tax expense, $m
  33
  79
  98
  120
  144
  171
  201
  233
  267
  304
  342
  407
  450
  495
  543
  593
  644
  698
  754
  813
  873
  936
  1,001
  1,069
  1,140
  1,213
  1,290
  1,369
  1,452
  1,538
  1,628
Net income, $m
  204
  212
  265
  324
  390
  463
  543
  629
  722
  821
  926
  1,100
  1,217
  1,339
  1,468
  1,602
  1,742
  1,888
  2,039
  2,197
  2,361
  2,531
  2,708
  2,891
  3,082
  3,281
  3,487
  3,702
  3,926
  4,159
  4,402

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
  10,201
  12,855
  15,950
  19,487
  23,473
  27,911
  32,801
  38,136
  43,910
  50,113
  56,734
  63,765
  71,195
  79,018
  87,227
  95,819
  104,792
  114,148
  123,891
  134,028
  144,568
  155,522
  166,906
  178,736
  191,031
  203,813
  217,106
  230,935
  245,329
  260,317
  275,932
Adjusted assets (=assets-cash), $m
  10,182
  12,855
  15,950
  19,487
  23,473
  27,911
  32,801
  38,136
  43,910
  50,113
  56,734
  63,765
  71,195
  79,018
  87,227
  95,819
  104,792
  114,148
  123,891
  134,028
  144,568
  155,522
  166,906
  178,736
  191,031
  203,813
  217,106
  230,935
  245,329
  260,317
  275,932
Revenue / Adjusted assets
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
  0.215
Average production assets, $m
  7,464
  9,419
  11,687
  14,278
  17,199
  20,451
  24,034
  27,943
  32,174
  36,719
  41,570
  46,722
  52,166
  57,898
  63,913
  70,208
  76,783
  83,639
  90,778
  98,205
  105,928
  113,954
  122,296
  130,963
  139,972
  149,338
  159,078
  169,211
  179,757
  190,739
  202,181
Working capital, $m
  -257
  298
  370
  452
  545
  648
  762
  886
  1,020
  1,164
  1,317
  1,481
  1,653
  1,835
  2,025
  2,225
  2,433
  2,651
  2,877
  3,112
  3,357
  3,611
  3,876
  4,150
  4,436
  4,733
  5,041
  5,362
  5,697
  6,045
  6,407
Total debt, $m
  3,879
  5,329
  7,032
  8,977
  11,169
  13,610
  16,299
  19,234
  22,410
  25,821
  29,463
  33,330
  37,416
  41,719
  46,234
  50,959
  55,895
  61,041
  66,399
  71,975
  77,771
  83,796
  90,057
  96,564
  103,326
  110,356
  117,667
  125,273
  133,190
  141,433
  150,022
Total liabilities, $m
  5,620
  7,070
  8,773
  10,718
  12,910
  15,351
  18,040
  20,975
  24,151
  27,562
  31,204
  35,071
  39,157
  43,460
  47,975
  52,700
  57,636
  62,782
  68,140
  73,716
  79,512
  85,537
  91,798
  98,305
  105,067
  112,097
  119,408
  127,014
  134,931
  143,174
  151,763
Total equity, $m
  4,581
  5,785
  7,178
  8,769
  10,563
  12,560
  14,760
  17,161
  19,760
  22,551
  25,530
  28,694
  32,038
  35,558
  39,252
  43,118
  47,156
  51,367
  55,751
  60,313
  65,056
  69,985
  75,108
  80,431
  85,964
  91,716
  97,698
  103,921
  110,398
  117,143
  124,169
Total liabilities and equity, $m
  10,201
  12,855
  15,951
  19,487
  23,473
  27,911
  32,800
  38,136
  43,911
  50,113
  56,734
  63,765
  71,195
  79,018
  87,227
  95,818
  104,792
  114,149
  123,891
  134,029
  144,568
  155,522
  166,906
  178,736
  191,031
  203,813
  217,106
  230,935
  245,329
  260,317
  275,932
Debt-to-equity ratio
  0.847
  0.920
  0.980
  1.020
  1.060
  1.080
  1.100
  1.120
  1.130
  1.150
  1.150
  1.160
  1.170
  1.170
  1.180
  1.180
  1.190
  1.190
  1.190
  1.190
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.200
  1.210
  1.210
  1.210
  1.210
Adjusted equity ratio
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450
  0.450

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  204
  212
  265
  324
  390
  463
  543
  629
  722
  821
  926
  1,100
  1,217
  1,339
  1,468
  1,602
  1,742
  1,888
  2,039
  2,197
  2,361
  2,531
  2,708
  2,891
  3,082
  3,281
  3,487
  3,702
  3,926
  4,159
  4,402
Depreciation, amort., depletion, $m
  272
  400
  475
  562
  659
  767
  887
  1,017
  1,158
  1,310
  1,471
  1,557
  1,739
  1,930
  2,130
  2,340
  2,559
  2,788
  3,026
  3,274
  3,531
  3,798
  4,077
  4,365
  4,666
  4,978
  5,303
  5,640
  5,992
  6,358
  6,739
Funds from operations, $m
  378
  612
  740
  885
  1,049
  1,230
  1,429
  1,646
  1,880
  2,130
  2,397
  2,657
  2,955
  3,269
  3,598
  3,942
  4,302
  4,676
  5,065
  5,470
  5,892
  6,329
  6,784
  7,257
  7,748
  8,259
  8,790
  9,342
  9,918
  10,517
  11,141
Change in working capital, $m
  -78
  62
  72
  82
  93
  103
  114
  124
  134
  144
  154
  163
  173
  182
  191
  200
  208
  217
  226
  235
  245
  254
  264
  275
  285
  297
  309
  321
  334
  348
  363
Cash from operations, $m
  456
  550
  668
  803
  956
  1,127
  1,316
  1,522
  1,746
  1,986
  2,243
  2,494
  2,783
  3,088
  3,408
  3,743
  4,093
  4,459
  4,839
  5,235
  5,647
  6,075
  6,520
  6,982
  7,462
  7,962
  8,481
  9,021
  9,584
  10,169
  10,779
Maintenance CAPEX, $m
  0
  -249
  -314
  -390
  -476
  -573
  -682
  -801
  -931
  -1,072
  -1,224
  -1,386
  -1,557
  -1,739
  -1,930
  -2,130
  -2,340
  -2,559
  -2,788
  -3,026
  -3,274
  -3,531
  -3,798
  -4,077
  -4,365
  -4,666
  -4,978
  -5,303
  -5,640
  -5,992
  -6,358
New CAPEX, $m
  -532
  -1,955
  -2,268
  -2,591
  -2,921
  -3,252
  -3,583
  -3,909
  -4,231
  -4,545
  -4,852
  -5,151
  -5,444
  -5,732
  -6,015
  -6,295
  -6,575
  -6,856
  -7,139
  -7,427
  -7,723
  -8,027
  -8,341
  -8,668
  -9,009
  -9,366
  -9,740
  -10,133
  -10,547
  -10,982
  -11,442
Cash from investing activities, $m
  -752
  -2,204
  -2,582
  -2,981
  -3,397
  -3,825
  -4,265
  -4,710
  -5,162
  -5,617
  -6,076
  -6,537
  -7,001
  -7,471
  -7,945
  -8,425
  -8,915
  -9,415
  -9,927
  -10,453
  -10,997
  -11,558
  -12,139
  -12,745
  -13,374
  -14,032
  -14,718
  -15,436
  -16,187
  -16,974
  -17,800
Free cash flow, $m
  -296
  -1,654
  -1,914
  -2,177
  -2,440
  -2,698
  -2,949
  -3,189
  -3,416
  -3,631
  -3,832
  -4,043
  -4,219
  -4,383
  -4,537
  -4,683
  -4,822
  -4,956
  -5,088
  -5,218
  -5,349
  -5,483
  -5,620
  -5,763
  -5,912
  -6,070
  -6,237
  -6,414
  -6,603
  -6,805
  -7,021
Issuance/(repayment) of debt, $m
  -208
  1,469
  1,702
  1,945
  2,192
  2,441
  2,689
  2,935
  3,176
  3,411
  3,642
  3,867
  4,087
  4,302
  4,515
  4,725
  4,935
  5,146
  5,359
  5,575
  5,797
  6,025
  6,261
  6,506
  6,762
  7,030
  7,311
  7,606
  7,917
  8,244
  8,588
Issuance/(repurchase) of shares, $m
  604
  991
  1,128
  1,267
  1,404
  1,534
  1,658
  1,772
  1,877
  1,971
  2,054
  2,064
  2,127
  2,181
  2,226
  2,264
  2,296
  2,322
  2,345
  2,365
  2,382
  2,399
  2,415
  2,432
  2,451
  2,471
  2,494
  2,521
  2,551
  2,586
  2,625
Cash from financing (excl. dividends), $m  
  386
  2,460
  2,830
  3,212
  3,596
  3,975
  4,347
  4,707
  5,053
  5,382
  5,696
  5,931
  6,214
  6,483
  6,741
  6,989
  7,231
  7,468
  7,704
  7,940
  8,179
  8,424
  8,676
  8,938
  9,213
  9,501
  9,805
  10,127
  10,468
  10,830
  11,213
Total cash flow (excl. dividends), $m
  91
  806
  917
  1,035
  1,156
  1,277
  1,398
  1,518
  1,636
  1,751
  1,863
  1,888
  1,995
  2,100
  2,204
  2,307
  2,409
  2,512
  2,616
  2,722
  2,830
  2,941
  3,056
  3,176
  3,301
  3,432
  3,569
  3,713
  3,864
  4,024
  4,192
Retained Cash Flow (-), $m
  -413
  -1,204
  -1,393
  -1,591
  -1,794
  -1,997
  -2,200
  -2,401
  -2,598
  -2,791
  -2,980
  -3,164
  -3,344
  -3,520
  -3,694
  -3,866
  -4,038
  -4,210
  -4,384
  -4,562
  -4,743
  -4,930
  -5,123
  -5,323
  -5,533
  -5,752
  -5,982
  -6,223
  -6,477
  -6,745
  -7,027
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
 
  -398
  -476
  -556
  -638
  -720
  -802
  -883
  -962
  -1,040
  -1,116
  -1,276
  -1,349
  -1,420
  -1,490
  -1,560
  -1,629
  -1,698
  -1,769
  -1,840
  -1,913
  -1,988
  -2,066
  -2,147
  -2,232
  -2,320
  -2,413
  -2,510
  -2,613
  -2,721
  -2,834
Discount rate, %
 
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
 
  -368
  -405
  -430
  -446
  -450
  -444
  -429
  -406
  -376
  -342
  -326
  -284
  -243
  -204
  -168
  -135
  -107
  -82
  -62
  -46
  -33
  -23
  -16
  -11
  -7
  -4
  -3
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  83.2
  70.4
  60.5
  52.6
  46.4
  41.3
  37.1
  33.7
  30.8
  28.4
  26.4
  24.7
  23.3
  22.0
  20.9
  19.9
  19.0
  18.2
  17.5
  16.9
  16.3
  15.8
  15.4
  14.9
  14.6
  14.2
  13.9
  13.6
  13.3
  13.0

AltaGas Ltd. operates as a diversified energy infrastructure company in North America. It operates through three segments: Gas, Power, and Utilities. The Gas segment engages in natural gas gathering and processing; natural gas liquids (NGL) extraction and separation, transmission, and storage; and natural gas marketing activities. This segment also buys and resells energy; and offers gas transportation, storage, and gas marketing services for producers. It serves natural gas producers, national hotel chains and retailers, hospitals, office buildings, and other institutions through 4 natural gas transmission systems with transportation capacity of approximately 0.6 billion cubic feet per day; approximately 70 gathering and processing facilities; and a 6,100 km of gathering and sales lines, as well as owns 4 NGL pipelines with combined capacity of 189,300 barrels per day. The Power segment is involved in the sale of electricity and ancillary services in Western Canada and the United States. As of December 31, 2015, it had had 2,041 megawatt (MW) of power generation capacity, including 1,194 MW of gas-fired generation, 353 MW of coal-fired generating capacity, 277 MW of run-of-river generation, 117 MW of wind power generation, 35 MW of biomass generation, 45 MW of cogeneration capacity, and 20 MW of gas-fired peaking capacity. The Utilities segment operates natural gas distribution utilities and a regulated natural gas storage utility. It owns and operates utility assets that deliver natural gas to end-users in Alberta, British Columbia, and Nova Scotia in Canada; and Michigan and Alaska in the United States. AltaGas Ltd. was founded in 1993 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  AltaGas Ltd. (ALA)

Valuation Ratios
P/E Ratio 23.9
Price to Sales 2.2
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 10.7
Price to Free Cash Flow -64.3
Growth Rates
Sales Growth Rate -0.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.3%
Cap. Spend. - 3 Yr. Gr. Rate -0.6%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 73.5%
Total Debt to Equity 84.7%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 2.4%
Return On Total Capital 2.4%
Ret/ On T. Cap. - 3 Yr. Avg. 1.7%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 3.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 53.6%
Gross Margin - 3 Yr. Avg. 47.6%
EBITDA Margin 30.1%
EBITDA Margin - 3 Yr. Avg. 22.8%
Operating Margin 17.4%
Oper. Margin - 3 Yr. Avg. 13.5%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 7.6%
Net Profit Margin 9.3%
Net Profit Margin - 3 Yr. Avg. 5.7%
Effective Tax Rate 13.4%
Eff/ Tax Rate - 3 Yr. Avg. 23.3%
Payout Ratio 178.9%

ALA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALA stock intrinsic value calculation we used $2190 million for the last fiscal year's total revenue generated by AltaGas Ltd.. The default revenue input number comes from 2016 income statement of AltaGas 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 ALA stock valuation model: a) initial revenue growth rate of 26.2% 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 8.1%, whose default value for ALA is calculated based on our internal credit rating of AltaGas 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 AltaGas 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 ALA stock the variable cost ratio is equal to 85.4%.

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 ALA 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 AltaGas Ltd..

Corporate tax rate of 27% is the nominal tax rate for AltaGas 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 ALA 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 ALA are equal to 340.8%.

Life of production assets of 30.6 years is the average useful life of capital assets used in AltaGas 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 ALA is equal to 10.8%. 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 - $4581 million for AltaGas 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 168.037 million for AltaGas 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 AltaGas Ltd. at the current share price and the inputted number of shares is $4.9 billion.

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Stock chart of ALA Financial statements of ALA
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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