Intrinsic value of Enerflex Ltd. - EFX

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$19.24

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$19.24

 
Intrinsic value

$1.54

 
Up/down potential

-92%

 
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 EFX 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
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, %
  -30.57
  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
  1,131
  1,154
  1,180
  1,210
  1,245
  1,282
  1,324
  1,369
  1,418
  1,470
  1,527
  1,587
  1,651
  1,720
  1,793
  1,870
  1,952
  2,039
  2,131
  2,227
  2,330
  2,438
  2,552
  2,672
  2,798
  2,931
  3,072
  3,219
  3,375
  3,538
  3,710
Variable operating expenses, $m
 
  735
  750
  768
  788
  810
  835
  861
  890
  921
  954
  932
  970
  1,010
  1,053
  1,099
  1,147
  1,198
  1,252
  1,308
  1,369
  1,432
  1,499
  1,569
  1,644
  1,722
  1,804
  1,891
  1,982
  2,078
  2,179
Fixed operating expenses, $m
 
  530
  543
  557
  571
  585
  600
  615
  630
  646
  662
  678
  695
  713
  731
  749
  767
  787
  806
  827
  847
  868
  890
  912
  935
  958
  982
  1,007
  1,032
  1,058
  1,084
Total operating expenses, $m
  1,226
  1,265
  1,293
  1,325
  1,359
  1,395
  1,435
  1,476
  1,520
  1,567
  1,616
  1,610
  1,665
  1,723
  1,784
  1,848
  1,914
  1,985
  2,058
  2,135
  2,216
  2,300
  2,389
  2,481
  2,579
  2,680
  2,786
  2,898
  3,014
  3,136
  3,263
Operating income, $m
  -95
  -111
  -113
  -115
  -114
  -113
  -111
  -107
  -102
  -96
  -89
  -24
  -14
  -3
  9
  23
  38
  54
  73
  92
  114
  137
  163
  190
  219
  251
  285
  321
  360
  402
  446
EBITDA, $m
  159
  67
  67
  70
  73
  78
  85
  94
  103
  115
  128
  143
  159
  177
  197
  219
  242
  268
  296
  326
  358
  393
  430
  470
  513
  558
  607
  659
  714
  773
  835
Interest expense (income), $m
  14
  14
  14
  15
  16
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  60
  63
  67
  71
Earnings before tax, $m
  -96
  -125
  -128
  -129
  -130
  -130
  -128
  -125
  -122
  -117
  -111
  -47
  -39
  -29
  -19
  -7
  7
  21
  37
  55
  74
  95
  118
  143
  169
  198
  228
  261
  297
  335
  375
Tax expense, $m
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  6
  10
  15
  20
  26
  32
  38
  46
  53
  62
  71
  80
  90
  101
Net income, $m
  -105
  -125
  -128
  -129
  -130
  -130
  -128
  -125
  -122
  -117
  -111
  -47
  -39
  -29
  -19
  -7
  5
  16
  27
  40
  54
  70
  86
  104
  123
  144
  167
  191
  217
  244
  274

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  168
  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
  1,882
  1,748
  1,788
  1,834
  1,886
  1,943
  2,006
  2,074
  2,148
  2,227
  2,313
  2,404
  2,502
  2,606
  2,716
  2,833
  2,958
  3,089
  3,228
  3,375
  3,530
  3,694
  3,866
  4,048
  4,240
  4,442
  4,654
  4,878
  5,113
  5,361
  5,621
Adjusted assets (=assets-cash), $m
  1,714
  1,748
  1,788
  1,834
  1,886
  1,943
  2,006
  2,074
  2,148
  2,227
  2,313
  2,404
  2,502
  2,606
  2,716
  2,833
  2,958
  3,089
  3,228
  3,375
  3,530
  3,694
  3,866
  4,048
  4,240
  4,442
  4,654
  4,878
  5,113
  5,361
  5,621
Revenue / Adjusted assets
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
Average production assets, $m
  593
  604
  618
  634
  652
  672
  694
  717
  743
  770
  800
  832
  865
  901
  939
  980
  1,023
  1,068
  1,116
  1,167
  1,221
  1,277
  1,337
  1,400
  1,466
  1,536
  1,610
  1,687
  1,768
  1,854
  1,944
Working capital, $m
  340
  175
  179
  184
  189
  195
  201
  208
  215
  223
  232
  241
  251
  261
  272
  284
  297
  310
  324
  339
  354
  371
  388
  406
  425
  446
  467
  489
  513
  538
  564
Total debt, $m
  394
  408
  426
  447
  470
  495
  523
  554
  587
  623
  661
  702
  745
  792
  841
  894
  949
  1,008
  1,070
  1,136
  1,205
  1,278
  1,355
  1,436
  1,522
  1,612
  1,707
  1,807
  1,913
  2,023
  2,140
Total liabilities, $m
  767
  781
  799
  820
  843
  868
  896
  927
  960
  996
  1,034
  1,075
  1,118
  1,165
  1,214
  1,267
  1,322
  1,381
  1,443
  1,509
  1,578
  1,651
  1,728
  1,809
  1,895
  1,985
  2,080
  2,180
  2,286
  2,396
  2,513
Total equity, $m
  1,115
  967
  989
  1,014
  1,043
  1,074
  1,109
  1,147
  1,188
  1,232
  1,279
  1,330
  1,384
  1,441
  1,502
  1,567
  1,636
  1,708
  1,785
  1,866
  1,952
  2,043
  2,138
  2,239
  2,345
  2,456
  2,574
  2,697
  2,828
  2,964
  3,109
Total liabilities and equity, $m
  1,882
  1,748
  1,788
  1,834
  1,886
  1,942
  2,005
  2,074
  2,148
  2,228
  2,313
  2,405
  2,502
  2,606
  2,716
  2,834
  2,958
  3,089
  3,228
  3,375
  3,530
  3,694
  3,866
  4,048
  4,240
  4,441
  4,654
  4,877
  5,114
  5,360
  5,622
Debt-to-equity ratio
  0.353
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.510
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.650
  0.660
  0.660
  0.670
  0.680
  0.680
  0.690
Adjusted equity ratio
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553
  0.553

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -105
  -125
  -128
  -129
  -130
  -130
  -128
  -125
  -122
  -117
  -111
  -47
  -39
  -29
  -19
  -7
  5
  16
  27
  40
  54
  70
  86
  104
  123
  144
  167
  191
  217
  244
  274
Depreciation, amort., depletion, $m
  254
  178
  181
  184
  188
  192
  196
  201
  206
  211
  217
  166
  173
  180
  188
  196
  205
  214
  223
  233
  244
  255
  267
  280
  293
  307
  322
  337
  354
  371
  389
Funds from operations, $m
  51
  53
  53
  55
  58
  62
  68
  75
  84
  94
  106
  120
  134
  151
  169
  189
  209
  229
  251
  274
  298
  325
  354
  384
  417
  452
  489
  528
  570
  615
  663
Change in working capital, $m
  -41
  3
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
Cash from operations, $m
  92
  4
  49
  50
  52
  56
  62
  68
  77
  86
  98
  110
  125
  141
  158
  178
  197
  216
  237
  259
  283
  309
  336
  366
  397
  431
  467
  506
  547
  590
  637
Maintenance CAPEX, $m
  0
  -119
  -121
  -124
  -127
  -130
  -134
  -139
  -143
  -149
  -154
  -160
  -166
  -173
  -180
  -188
  -196
  -205
  -214
  -223
  -233
  -244
  -255
  -267
  -280
  -293
  -307
  -322
  -337
  -354
  -371
New CAPEX, $m
  -22
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -86
  -90
Cash from investing activities, $m
  19
  -131
  -135
  -140
  -145
  -150
  -156
  -163
  -169
  -177
  -184
  -192
  -200
  -209
  -218
  -229
  -239
  -250
  -262
  -274
  -287
  -301
  -315
  -330
  -346
  -363
  -380
  -399
  -418
  -440
  -461
Free cash flow, $m
  111
  -126
  -86
  -90
  -92
  -94
  -94
  -94
  -92
  -90
  -86
  -81
  -75
  -68
  -60
  -51
  -42
  -34
  -25
  -15
  -4
  8
  21
  35
  51
  68
  87
  107
  128
  151
  176
Issuance/(repayment) of debt, $m
  -186
  14
  18
  21
  23
  26
  28
  31
  33
  36
  38
  41
  44
  46
  49
  52
  56
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
  105
  111
  116
Issuance/(repurchase) of shares, $m
  114
  0
  90
  94
  98
  100
  101
  101
  100
  98
  95
  91
  86
  79
  72
  63
  55
  48
  40
  31
  21
  9
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  -73
  14
  108
  115
  121
  126
  129
  132
  133
  134
  133
  132
  130
  125
  121
  115
  111
  107
  102
  97
  90
  82
  77
  81
  86
  90
  95
  100
  105
  111
  116
Total cash flow (excl. dividends), $m
  36
  -112
  -68
  -69
  -69
  -68
  -66
  -63
  -59
  -54
  -48
  -40
  -32
  -22
  -11
  2
  14
  25
  37
  50
  65
  81
  98
  117
  137
  158
  182
  207
  233
  262
  292
Retained Cash Flow (-), $m
  39
  -20
  -22
  -25
  -29
  -32
  -35
  -38
  -41
  -44
  -47
  -51
  -54
  -57
  -61
  -65
  -69
  -73
  -77
  -81
  -86
  -90
  -95
  -101
  -106
  -112
  -118
  -124
  -130
  -137
  -144
Prev. year cash balance distribution, $m
 
  168
  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
 
  36
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  3
  16
  31
  47
  64
  83
  103
  125
  148
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
 
  35
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  2
  2
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  94.2
  88.7
  83.4
  78.4
  73.8
  69.7
  65.9
  62.5
  59.5
  56.8
  54.5
  52.5
  50.8
  49.5
  48.3
  47.4
  46.7
  46.2
  45.8
  45.7
  45.7
  45.7
  45.7
  45.7
  45.7
  45.7
  45.7
  45.7
  45.7

Enerflex Ltd. supplies natural gas compression, oil and gas processing, refrigeration systems, and electric power equipment worldwide. The company engineers, designs, manufactures, constructs, and installs natural gas processing equipment; offers compression products, such as reciprocating compression, rotary screw compression, integral gas engine compression, and refrigeration compression services; and provides gas processing solutions, including dehydration, liquids recovery, refrigeration, cryogenic processing, condensate stabilization, dew point control, and amine sweetening. It also offers refrigeration systems and electric power systems. In addition, the company provides rental and leasing services for natural gas compression, power generation, and processing equipment; in-house engineering and mechanical services, and electrical service for gas engines, compressors, and electric power generators; and various parts and components, as well as operating, maintenance, and overhaul services. Further, it offers retrofit services to re-engineer, reconfigure, and repackage compressors; engineering, procurement, and construction services. Further, it provides integrated solutions include civil, earthworks, and concrete; piping and structural fabrication; maintaining equipment; installation of rotating equipment and packages; electrical, instrumentation, controls, and automation; and commissioning. The company was founded in 1980 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Enerflex Ltd. (EFX)

Valuation Ratios
P/E Ratio -16.2
Price to Sales 1.5
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 18.5
Price to Free Cash Flow 24.3
Growth Rates
Sales Growth Rate -30.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -87.8%
Cap. Spend. - 3 Yr. Gr. Rate -9.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 35.3%
Total Debt to Equity 35.3%
Interest Coverage -6
Management Effectiveness
Return On Assets -4.4%
Ret/ On Assets - 3 Yr. Avg. 0.8%
Return On Total Capital -6.5%
Ret/ On T. Cap. - 3 Yr. Avg. 0.6%
Return On Equity -9.3%
Return On Equity - 3 Yr. Avg. 0.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 21.6%
Gross Margin - 3 Yr. Avg. 20.3%
EBITDA Margin 15.2%
EBITDA Margin - 3 Yr. Avg. 13.3%
Operating Margin -8.4%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin -8.5%
Pre-Tax Margin - 3 Yr. Avg. 1.3%
Net Profit Margin -9.3%
Net Profit Margin - 3 Yr. Avg. -0.8%
Effective Tax Rate -9.4%
Eff/ Tax Rate - 3 Yr. Avg. 22.2%
Payout Ratio -25.7%

EFX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EFX stock intrinsic value calculation we used $1131 million for the last fiscal year's total revenue generated by Enerflex Ltd.. The default revenue input number comes from 2016 income statement of Enerflex 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 EFX 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 EFX is calculated based on our internal credit rating of Enerflex 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 Enerflex 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 EFX stock the variable cost ratio is equal to 63.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $517 million in the base year in the intrinsic value calculation for EFX 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 Enerflex Ltd..

Corporate tax rate of 27% is the nominal tax rate for Enerflex 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 EFX 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 EFX are equal to 52.4%.

Life of production assets of 4.9 years is the average useful life of capital assets used in Enerflex 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 EFX is equal to 15.2%. 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 - $1115 million for Enerflex 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 88.034 million for Enerflex 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 Enerflex Ltd. at the current share price and the inputted number of shares is $1.7 billion.


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Stock chart of EFX Financial statements of EFX
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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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