Intrinsic value of Enerplus Corporation - ERF

Previous Close

$11.30

  Intrinsic Value

$0.88

stock screener

  Rating & Target

str. sell

-92%

  Value-price divergence*

-243%

Previous close

$11.30

 
Intrinsic value

$0.88

 
Up/down potential

-92%

 
Rating

str. sell

 
Value-price divergence*

-243%

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

We calculate the intrinsic value of ERF 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 2.6

 

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, %
  -18.21
  59.40
  53.96
  49.06
  44.66
  40.69
  37.12
  33.91
  31.02
  28.42
  26.08
  23.97
  22.07
  20.36
  18.83
  17.44
  16.20
  15.08
  14.07
  13.17
  12.35
  11.61
  10.95
  10.36
  9.82
  9.34
  8.91
  8.51
  8.16
  7.85
  7.56
Revenue, $m
  723
  1,152
  1,774
  2,645
  3,826
  5,383
  7,381
  9,884
  12,950
  16,630
  20,967
  25,992
  31,729
  38,190
  45,381
  53,297
  61,932
  71,271
  81,301
  92,004
  103,365
  115,370
  128,006
  141,264
  155,138
  169,626
  184,732
  200,462
  216,826
  233,841
  251,524
Variable operating expenses, $m
 
  3,190
  4,877
  7,238
  10,441
  14,663
  20,082
  26,869
  35,184
  45,164
  56,923
  70,486
  86,043
  103,565
  123,064
  144,533
  167,947
  193,275
  220,473
  249,499
  280,308
  312,863
  347,129
  383,081
  420,705
  459,996
  500,961
  543,617
  587,994
  634,134
  682,089
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
  528
  3,190
  4,877
  7,238
  10,441
  14,663
  20,082
  26,869
  35,184
  45,164
  56,923
  70,486
  86,043
  103,565
  123,064
  144,533
  167,947
  193,275
  220,473
  249,499
  280,308
  312,863
  347,129
  383,081
  420,705
  459,996
  500,961
  543,617
  587,994
  634,134
  682,089
Operating income, $m
  195
  -2,038
  -3,103
  -4,593
  -6,615
  -9,280
  -12,700
  -16,985
  -22,234
  -28,533
  -35,957
  -44,494
  -54,314
  -65,375
  -77,683
  -91,235
  -106,016
  -122,003
  -139,172
  -157,495
  -176,943
  -197,493
  -219,123
  -241,818
  -265,568
  -290,370
  -316,228
  -343,155
  -371,168
  -400,293
  -430,565
EBITDA, $m
  524
  -1,666
  -2,565
  -3,824
  -5,531
  -7,782
  -10,670
  -14,289
  -18,721
  -24,041
  -30,310
  -37,575
  -45,868
  -55,209
  -65,603
  -77,048
  -89,530
  -103,031
  -117,530
  -133,003
  -149,427
  -166,781
  -185,048
  -204,213
  -224,270
  -245,215
  -267,053
  -289,792
  -313,448
  -338,045
  -363,609
Interest expense (income), $m
  49
  38
  72
  121
  191
  285
  409
  569
  768
  1,013
  1,306
  1,652
  2,053
  2,511
  3,026
  3,599
  4,231
  4,920
  5,664
  6,464
  7,318
  8,224
  9,182
  10,190
  11,247
  12,354
  13,509
  14,714
  15,969
  17,274
  18,631
Earnings before tax, $m
  160
  -2,076
  -3,174
  -4,714
  -6,806
  -9,565
  -13,110
  -17,554
  -23,002
  -29,546
  -37,263
  -46,146
  -56,367
  -67,885
  -80,709
  -94,835
  -110,247
  -126,923
  -144,837
  -163,959
  -184,261
  -205,717
  -228,305
  -252,007
  -276,815
  -302,723
  -329,738
  -357,869
  -387,136
  -417,567
  -449,195
Tax expense, $m
  -237
  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
  397
  -2,076
  -3,174
  -4,714
  -6,806
  -9,565
  -13,110
  -17,554
  -23,002
  -29,546
  -37,263
  -46,146
  -56,367
  -67,885
  -80,709
  -94,835
  -110,247
  -126,923
  -144,837
  -163,959
  -184,261
  -205,717
  -228,305
  -252,007
  -276,815
  -302,723
  -329,738
  -357,869
  -387,136
  -417,567
  -449,195

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1
  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
  2,639
  4,206
  6,476
  9,653
  13,964
  19,646
  26,939
  36,074
  47,263
  60,695
  76,521
  94,862
  115,799
  139,380
  165,623
  194,515
  226,028
  260,114
  296,718
  335,781
  377,246
  421,058
  467,174
  515,560
  566,196
  619,074
  674,205
  731,613
  791,337
  853,433
  917,972
Adjusted assets (=assets-cash), $m
  2,638
  4,206
  6,476
  9,653
  13,964
  19,646
  26,939
  36,074
  47,263
  60,695
  76,521
  94,862
  115,799
  139,380
  165,623
  194,515
  226,028
  260,114
  296,718
  335,781
  377,246
  421,058
  467,174
  515,560
  566,196
  619,074
  674,205
  731,613
  791,337
  853,433
  917,972
Revenue / Adjusted assets
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
Average production assets, $m
  962
  1,534
  2,362
  3,520
  5,092
  7,165
  9,824
  13,156
  17,237
  22,135
  27,907
  34,596
  42,231
  50,831
  60,402
  70,939
  82,431
  94,862
  108,211
  122,457
  137,579
  153,557
  170,376
  188,022
  206,488
  225,773
  245,879
  266,815
  288,596
  311,242
  334,779
Working capital, $m
  270
  477
  735
  1,095
  1,584
  2,229
  3,056
  4,092
  5,361
  6,885
  8,680
  10,761
  13,136
  15,811
  18,788
  22,065
  25,640
  29,506
  33,659
  38,090
  42,793
  47,763
  52,994
  58,483
  64,227
  70,225
  76,479
  82,991
  89,766
  96,810
  104,131
Total debt, $m
  769
  1,467
  2,479
  3,896
  5,819
  8,353
  11,606
  15,680
  20,671
  26,661
  33,719
  41,899
  51,237
  61,755
  73,459
  86,345
  100,399
  115,602
  131,927
  149,350
  167,843
  187,383
  207,951
  229,531
  252,114
  275,698
  300,287
  325,890
  352,527
  380,222
  409,007
Total liabilities, $m
  1,178
  1,876
  2,888
  4,305
  6,228
  8,762
  12,015
  16,089
  21,080
  27,070
  34,128
  42,308
  51,646
  62,164
  73,868
  86,754
  100,808
  116,011
  132,336
  149,759
  168,252
  187,792
  208,360
  229,940
  252,523
  276,107
  300,696
  326,299
  352,936
  380,631
  409,416
Total equity, $m
  1,461
  2,330
  3,588
  5,348
  7,736
  10,884
  14,924
  19,985
  26,184
  33,625
  42,393
  52,553
  64,153
  77,217
  91,755
  107,762
  125,219
  144,103
  164,382
  186,023
  208,994
  233,266
  258,815
  285,620
  313,672
  342,967
  373,510
  405,313
  438,401
  472,802
  508,557
Total liabilities and equity, $m
  2,639
  4,206
  6,476
  9,653
  13,964
  19,646
  26,939
  36,074
  47,264
  60,695
  76,521
  94,861
  115,799
  139,381
  165,623
  194,516
  226,027
  260,114
  296,718
  335,782
  377,246
  421,058
  467,175
  515,560
  566,195
  619,074
  674,206
  731,612
  791,337
  853,433
  917,973
Debt-to-equity ratio
  0.526
  0.630
  0.690
  0.730
  0.750
  0.770
  0.780
  0.780
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
Adjusted equity ratio
  0.553
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  397
  -2,076
  -3,174
  -4,714
  -6,806
  -9,565
  -13,110
  -17,554
  -23,002
  -29,546
  -37,263
  -46,146
  -56,367
  -67,885
  -80,709
  -94,835
  -110,247
  -126,923
  -144,837
  -163,959
  -184,261
  -205,717
  -228,305
  -252,007
  -276,815
  -302,723
  -329,738
  -357,869
  -387,136
  -417,567
  -449,195
Depreciation, amort., depletion, $m
  329
  372
  538
  769
  1,084
  1,498
  2,030
  2,696
  3,513
  4,492
  5,647
  6,919
  8,446
  10,166
  12,080
  14,188
  16,486
  18,972
  21,642
  24,491
  27,516
  30,711
  34,075
  37,604
  41,298
  45,155
  49,176
  53,363
  57,719
  62,248
  66,956
Funds from operations, $m
  319
  -1,704
  -2,637
  -3,945
  -5,722
  -8,067
  -11,080
  -14,857
  -19,489
  -25,054
  -31,616
  -39,227
  -47,921
  -57,719
  -68,629
  -80,647
  -93,761
  -107,951
  -123,195
  -139,467
  -156,745
  -175,005
  -194,229
  -214,403
  -235,517
  -257,569
  -280,562
  -304,506
  -329,417
  -355,319
  -382,240
Change in working capital, $m
  7
  178
  257
  360
  489
  645
  827
  1,036
  1,269
  1,524
  1,795
  2,080
  2,375
  2,675
  2,977
  3,277
  3,575
  3,867
  4,152
  4,431
  4,704
  4,970
  5,231
  5,489
  5,744
  5,998
  6,254
  6,512
  6,775
  7,044
  7,321
Cash from operations, $m
  312
  -1,881
  -2,894
  -4,305
  -6,211
  -8,711
  -11,907
  -15,894
  -20,759
  -26,578
  -33,412
  -41,307
  -50,296
  -60,394
  -71,606
  -83,925
  -97,335
  -111,817
  -127,347
  -143,899
  -161,449
  -179,975
  -199,461
  -219,892
  -241,261
  -263,567
  -286,816
  -311,018
  -336,192
  -362,363
  -389,561
Maintenance CAPEX, $m
  0
  -192
  -307
  -472
  -704
  -1,018
  -1,433
  -1,965
  -2,631
  -3,447
  -4,427
  -5,581
  -6,919
  -8,446
  -10,166
  -12,080
  -14,188
  -16,486
  -18,972
  -21,642
  -24,491
  -27,516
  -30,711
  -34,075
  -37,604
  -41,298
  -45,155
  -49,176
  -53,363
  -57,719
  -62,248
New CAPEX, $m
  -337
  -572
  -828
  -1,159
  -1,572
  -2,072
  -2,660
  -3,331
  -4,081
  -4,898
  -5,772
  -6,689
  -7,636
  -8,600
  -9,570
  -10,537
  -11,492
  -12,431
  -13,349
  -14,246
  -15,122
  -15,978
  -16,818
  -17,646
  -18,466
  -19,285
  -20,106
  -20,936
  -21,781
  -22,646
  -23,537
Cash from investing activities, $m
  -108
  -764
  -1,135
  -1,631
  -2,276
  -3,090
  -4,093
  -5,296
  -6,712
  -8,345
  -10,199
  -12,270
  -14,555
  -17,046
  -19,736
  -22,617
  -25,680
  -28,917
  -32,321
  -35,888
  -39,613
  -43,494
  -47,529
  -51,721
  -56,070
  -60,583
  -65,261
  -70,112
  -75,144
  -80,365
  -85,785
Free cash flow, $m
  204
  -2,646
  -4,029
  -5,936
  -8,487
  -11,802
  -16,000
  -21,190
  -27,471
  -34,923
  -43,610
  -53,578
  -64,851
  -77,440
  -91,343
  -106,542
  -123,015
  -140,734
  -159,668
  -179,787
  -201,062
  -223,469
  -246,990
  -271,613
  -297,332
  -324,149
  -352,076
  -381,130
  -411,336
  -442,728
  -475,346
Issuance/(repayment) of debt, $m
  -391
  699
  1,012
  1,417
  1,923
  2,534
  3,253
  4,074
  4,991
  5,990
  7,059
  8,180
  9,338
  10,517
  11,704
  12,886
  14,055
  15,202
  16,325
  17,422
  18,493
  19,540
  20,568
  21,580
  22,583
  23,584
  24,588
  25,604
  26,637
  27,695
  28,785
Issuance/(repurchase) of shares, $m
  220
  2,945
  4,432
  6,474
  9,194
  12,713
  17,150
  22,615
  29,201
  36,987
  46,031
  56,307
  67,966
  80,950
  95,248
  110,841
  127,705
  145,807
  165,116
  185,600
  207,232
  229,989
  253,853
  278,813
  304,867
  332,018
  360,280
  389,672
  420,223
  451,968
  484,950
Cash from financing (excl. dividends), $m  
  -175
  3,644
  5,444
  7,891
  11,117
  15,247
  20,403
  26,689
  34,192
  42,977
  53,090
  64,487
  77,304
  91,467
  106,952
  123,727
  141,760
  161,009
  181,441
  203,022
  225,725
  249,529
  274,421
  300,393
  327,450
  355,602
  384,868
  415,276
  446,860
  479,663
  513,735
Total cash flow (excl. dividends), $m
  29
  998
  1,415
  1,955
  2,629
  3,445
  4,403
  5,499
  6,721
  8,054
  9,479
  10,909
  12,454
  14,026
  15,609
  17,186
  18,744
  20,275
  21,773
  23,235
  24,663
  26,060
  27,430
  28,780
  30,118
  31,453
  32,792
  34,146
  35,524
  36,935
  38,389
Retained Cash Flow (-), $m
  -563
  -2,945
  -4,432
  -6,474
  -9,194
  -12,713
  -17,150
  -22,615
  -29,201
  -36,987
  -46,031
  -56,307
  -67,966
  -80,950
  -95,248
  -110,841
  -127,705
  -145,807
  -165,116
  -185,600
  -207,232
  -229,989
  -253,853
  -278,813
  -304,867
  -332,018
  -360,280
  -389,672
  -420,223
  -451,968
  -484,950
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
 
  -1,947
  -3,017
  -4,519
  -6,564
  -9,268
  -12,747
  -17,116
  -22,480
  -28,933
  -36,552
  -45,398
  -55,513
  -66,923
  -79,638
  -93,656
  -108,961
  -125,532
  -143,343
  -162,365
  -182,569
  -203,929
  -226,423
  -250,033
  -274,748
  -300,566
  -327,488
  -355,526
  -384,699
  -415,033
  -446,562
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  -1,844
  -2,691
  -3,776
  -5,106
  -6,668
  -8,424
  -10,314
  -12,254
  -14,148
  -15,890
  -17,378
  -18,523
  -19,256
  -19,533
  -19,344
  -18,708
  -17,672
  -16,307
  -14,697
  -12,937
  -11,119
  -9,327
  -7,633
  -6,090
  -4,735
  -3,585
  -2,640
  -1,890
  -1,314
  -886
Current shareholders' claim on cash, %
  100
  46.9
  22.7
  11.3
  5.7
  3.0
  1.6
  0.9
  0.5
  0.3
  0.1
  0.1
  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
  0.0
  0.0
  0.0
  0.0

Enerplus Corporation, together with subsidiaries, engages in the exploration and development of crude oil and natural gas in the United States and Canada. The company primarily has interests in approximately 110,000 net acres of lands comprising approximately 70,000 net acres targeting the Stacked Mannville zones and 66,000 net acres in the Willesden Green region of Alberta. As of December 31, 2015, it had proved plus probable gross reserves of 17.2 million barrels (MMbbls) of light and medium crude oil; 41.5 MMbbls of heavy crude oil; 131.3 MMbbls of tight oil; 15.7 MMbbls of natural gas liquids; 237.4 billion cubic feet (Bcf) of conventional natural gas; and 963.4 Bcf of shale gas. The company was founded in 1986 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Enerplus Corporation (ERF)

Valuation Ratios
P/E Ratio 6.8
Price to Sales 3.8
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow -108.7
Growth Rates
Sales Growth Rate -18.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.5%
Cap. Spend. - 3 Yr. Gr. Rate -18.4%
Financial Strength
Quick Ratio 0
Current Ratio 1.6
LT Debt to Equity 50.6%
Total Debt to Equity 52.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 19.9%
Ret/ On Assets - 3 Yr. Avg. -5.2%
Return On Total Capital 18.2%
Ret/ On T. Cap. - 3 Yr. Avg. -9.3%
Return On Equity 33.7%
Return On Equity - 3 Yr. Avg. -16.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 74.4%
EBITDA Margin - 3 Yr. Avg. 5.8%
Operating Margin 27%
Oper. Margin - 3 Yr. Avg. -44%
Pre-Tax Margin 22.1%
Pre-Tax Margin - 3 Yr. Avg. -46.8%
Net Profit Margin 54.9%
Net Profit Margin - 3 Yr. Avg. -32.6%
Effective Tax Rate -148.1%
Eff/ Tax Rate - 3 Yr. Avg. -35.5%
Payout Ratio 8.8%

ERF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ERF stock intrinsic value calculation we used $723 million for the last fiscal year's total revenue generated by Enerplus Corporation. The default revenue input number comes from 2016 income statement of Enerplus Corporation. 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 ERF stock valuation model: a) initial revenue growth rate of 59.4% 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 5.6%, whose default value for ERF is calculated based on our internal credit rating of Enerplus Corporation, 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 Enerplus Corporation.
    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 ERF stock the variable cost ratio is equal to 280.2%.

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 ERF 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 4.9% for Enerplus Corporation.

Corporate tax rate of 27% is the nominal tax rate for Enerplus Corporation. 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 ERF 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 ERF are equal to 133.1%.

Life of production assets of 4.9 years is the average useful life of capital assets used in Enerplus Corporation 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 ERF is equal to 41.4%. 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 - $1461 million for Enerplus Corporation - 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 230.189 million for Enerplus Corporation 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 Enerplus Corporation at the current share price and the inputted number of shares is $2.6 billion.

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Stock chart of ERF Financial statements of ERF
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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