Intrinsic value of Gibson Energy Inc. - GEI

Previous Close

$16.33

  Intrinsic Value

$22.92

stock screener

  Rating & Target

buy

+40%

  Value-price divergence*

-142%

Previous close

$16.33

 
Intrinsic value

$22.92

 
Up/down potential

+40%

 
Rating

buy

 
Value-price divergence*

-142%

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

We calculate the intrinsic value of GEI 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 2.3

 

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, %
  -15.00
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  4,594
  7,350
  11,356
  16,983
  24,642
  34,766
  47,796
  64,156
  84,241
  108,398
  136,915
  170,017
  207,863
  250,544
  298,098
  350,511
  407,728
  469,669
  536,232
  607,311
  682,798
  762,594
  846,617
  934,803
  1,027,111
  1,123,528
  1,224,066
  1,328,767
  1,437,703
  1,550,971
  1,668,699
Variable operating expenses, $m
 
  6,823
  10,517
  15,706
  22,768
  32,104
  44,119
  59,205
  77,725
  100,001
  126,297
  156,776
  191,674
  231,031
  274,882
  323,212
  375,973
  433,090
  494,469
  560,012
  629,620
  703,202
  780,681
  861,998
  947,117
  1,036,024
  1,128,732
  1,225,280
  1,325,731
  1,430,178
  1,538,736
Fixed operating expenses, $m
 
  508
  521
  534
  547
  561
  575
  590
  604
  619
  635
  651
  667
  684
  701
  718
  736
  755
  774
  793
  813
  833
  854
  875
  897
  920
  943
  966
  990
  1,015
  1,040
Total operating expenses, $m
  4,766
  7,331
  11,038
  16,240
  23,315
  32,665
  44,694
  59,795
  78,329
  100,620
  126,932
  157,427
  192,341
  231,715
  275,583
  323,930
  376,709
  433,845
  495,243
  560,805
  630,433
  704,035
  781,535
  862,873
  948,014
  1,036,944
  1,129,675
  1,226,246
  1,326,721
  1,431,193
  1,539,776
Operating income, $m
  -172
  19
  318
  743
  1,326
  2,101
  3,102
  4,362
  5,911
  7,777
  9,983
  12,591
  15,522
  18,829
  22,516
  26,580
  31,019
  35,824
  40,989
  46,506
  52,365
  58,560
  65,083
  71,929
  79,097
  86,584
  94,391
  102,522
  110,982
  119,778
  128,922
EBITDA, $m
  72
  363
  826
  1,480
  2,375
  3,562
  5,094
  7,020
  9,387
  12,237
  15,604
  19,514
  23,986
  29,032
  34,655
  40,854
  47,622
  54,950
  62,826
  71,237
  80,170
  89,614
  99,558
  109,996
  120,922
  132,335
  144,237
  156,631
  169,527
  182,937
  196,874
Interest expense (income), $m
  90
  91
  180
  308
  489
  736
  1,061
  1,480
  2,006
  2,651
  3,428
  4,345
  5,409
  6,626
  7,998
  9,526
  11,211
  13,051
  15,042
  17,182
  19,467
  21,893
  24,458
  27,160
  29,994
  32,962
  36,061
  39,293
  42,659
  46,161
  49,802
Earnings before tax, $m
  -235
  -72
  138
  435
  837
  1,366
  2,041
  2,882
  3,905
  5,126
  6,555
  8,246
  10,113
  12,204
  14,518
  17,054
  19,807
  22,774
  25,948
  29,324
  32,899
  36,666
  40,624
  44,770
  49,102
  53,622
  58,329
  63,228
  68,322
  73,617
  79,120
Tax expense, $m
  -57
  0
  37
  117
  226
  369
  551
  778
  1,054
  1,384
  1,770
  2,226
  2,730
  3,295
  3,920
  4,605
  5,348
  6,149
  7,006
  7,918
  8,883
  9,900
  10,969
  12,088
  13,258
  14,478
  15,749
  17,072
  18,447
  19,877
  21,362
Net income, $m
  -160
  -72
  101
  317
  611
  997
  1,490
  2,104
  2,851
  3,742
  4,785
  6,019
  7,382
  8,909
  10,598
  12,449
  14,459
  16,625
  18,942
  21,407
  24,016
  26,766
  29,656
  32,682
  35,845
  39,144
  42,580
  46,157
  49,875
  53,741
  57,757

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  62
  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
  3,261
  5,119
  7,908
  11,827
  17,160
  24,211
  33,284
  44,677
  58,664
  75,486
  95,345
  118,397
  144,751
  174,474
  207,589
  244,088
  283,933
  327,067
  373,421
  422,918
  475,486
  531,054
  589,566
  650,977
  715,258
  782,401
  852,413
  925,325
  1,001,186
  1,080,063
  1,162,046
Adjusted assets (=assets-cash), $m
  3,199
  5,119
  7,908
  11,827
  17,160
  24,211
  33,284
  44,677
  58,664
  75,486
  95,345
  118,397
  144,751
  174,474
  207,589
  244,088
  283,933
  327,067
  373,421
  422,918
  475,486
  531,054
  589,566
  650,977
  715,258
  782,401
  852,413
  925,325
  1,001,186
  1,080,063
  1,162,046
Revenue / Adjusted assets
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
  1.436
Average production assets, $m
  1,813
  2,903
  4,486
  6,708
  9,734
  13,733
  18,879
  25,342
  33,275
  42,817
  54,081
  67,157
  82,106
  98,965
  117,749
  138,452
  161,053
  185,519
  211,812
  239,888
  269,705
  301,225
  334,414
  369,247
  405,709
  443,793
  483,506
  524,863
  567,893
  612,634
  659,136
Working capital, $m
  363
  485
  750
  1,121
  1,626
  2,295
  3,155
  4,234
  5,560
  7,154
  9,036
  11,221
  13,719
  16,536
  19,674
  23,134
  26,910
  30,998
  35,391
  40,083
  45,065
  50,331
  55,877
  61,697
  67,789
  74,153
  80,788
  87,699
  94,888
  102,364
  110,134
Total debt, $m
  1,359
  2,682
  4,604
  7,304
  10,978
  15,836
  22,088
  29,937
  39,574
  51,165
  64,848
  80,730
  98,889
  119,367
  142,184
  167,332
  194,785
  224,504
  256,442
  290,546
  326,765
  365,052
  405,366
  447,678
  491,968
  538,229
  586,468
  636,704
  688,972
  743,319
  799,805
Total liabilities, $m
  2,204
  3,527
  5,449
  8,149
  11,823
  16,681
  22,933
  30,782
  40,419
  52,010
  65,693
  81,575
  99,734
  120,212
  143,029
  168,177
  195,630
  225,349
  257,287
  291,391
  327,610
  365,897
  406,211
  448,523
  492,813
  539,074
  587,313
  637,549
  689,817
  744,164
  800,650
Total equity, $m
  1,057
  1,592
  2,459
  3,678
  5,337
  7,530
  10,351
  13,895
  18,244
  23,476
  29,652
  36,821
  45,018
  54,261
  64,560
  75,911
  88,303
  101,718
  116,134
  131,528
  147,876
  165,158
  183,355
  202,454
  222,445
  243,327
  265,101
  287,776
  311,369
  335,900
  361,396
Total liabilities and equity, $m
  3,261
  5,119
  7,908
  11,827
  17,160
  24,211
  33,284
  44,677
  58,663
  75,486
  95,345
  118,396
  144,752
  174,473
  207,589
  244,088
  283,933
  327,067
  373,421
  422,919
  475,486
  531,055
  589,566
  650,977
  715,258
  782,401
  852,414
  925,325
  1,001,186
  1,080,064
  1,162,046
Debt-to-equity ratio
  1.286
  1.680
  1.870
  1.990
  2.060
  2.100
  2.130
  2.150
  2.170
  2.180
  2.190
  2.190
  2.200
  2.200
  2.200
  2.200
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
  2.210
Adjusted equity ratio
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311
  0.311

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -160
  -72
  101
  317
  611
  997
  1,490
  2,104
  2,851
  3,742
  4,785
  6,019
  7,382
  8,909
  10,598
  12,449
  14,459
  16,625
  18,942
  21,407
  24,016
  26,766
  29,656
  32,682
  35,845
  39,144
  42,580
  46,157
  49,875
  53,741
  57,757
Depreciation, amort., depletion, $m
  244
  345
  508
  737
  1,049
  1,461
  1,992
  2,658
  3,476
  4,460
  5,621
  6,923
  8,465
  10,203
  12,139
  14,273
  16,603
  19,126
  21,836
  24,731
  27,805
  31,054
  34,476
  38,067
  41,826
  45,752
  49,846
  54,110
  58,546
  63,158
  67,952
Funds from operations, $m
  161
  272
  609
  1,054
  1,660
  2,458
  3,482
  4,762
  6,327
  8,201
  10,406
  12,943
  15,847
  19,111
  22,737
  26,723
  31,063
  35,750
  40,778
  46,137
  51,821
  57,821
  64,131
  70,749
  77,670
  84,896
  92,426
  100,266
  108,421
  116,899
  125,709
Change in working capital, $m
  -47
  182
  264
  371
  505
  668
  860
  1,080
  1,326
  1,594
  1,882
  2,185
  2,498
  2,817
  3,139
  3,459
  3,776
  4,088
  4,393
  4,691
  4,982
  5,267
  5,546
  5,820
  6,092
  6,363
  6,636
  6,910
  7,190
  7,476
  7,770
Cash from operations, $m
  208
  90
  344
  683
  1,154
  1,790
  2,622
  3,682
  5,001
  6,607
  8,524
  10,758
  13,349
  16,294
  19,599
  23,264
  27,286
  31,662
  36,385
  41,446
  46,839
  52,554
  58,586
  64,929
  71,578
  78,532
  85,791
  93,356
  101,231
  109,423
  117,939
Maintenance CAPEX, $m
  0
  -187
  -299
  -462
  -692
  -1,003
  -1,416
  -1,946
  -2,613
  -3,430
  -4,414
  -5,575
  -6,923
  -8,465
  -10,203
  -12,139
  -14,273
  -16,603
  -19,126
  -21,836
  -24,731
  -27,805
  -31,054
  -34,476
  -38,067
  -41,826
  -45,752
  -49,846
  -54,110
  -58,546
  -63,158
New CAPEX, $m
  -255
  -1,090
  -1,582
  -2,223
  -3,025
  -3,999
  -5,147
  -6,462
  -7,934
  -9,542
  -11,264
  -13,075
  -14,949
  -16,859
  -18,784
  -20,703
  -22,601
  -24,466
  -26,293
  -28,076
  -29,817
  -31,520
  -33,189
  -34,833
  -36,462
  -38,085
  -39,713
  -41,357
  -43,030
  -44,741
  -46,502
Cash from investing activities, $m
  -247
  -1,277
  -1,881
  -2,685
  -3,717
  -5,002
  -6,563
  -8,408
  -10,547
  -12,972
  -15,678
  -18,650
  -21,872
  -25,324
  -28,987
  -32,842
  -36,874
  -41,069
  -45,419
  -49,912
  -54,548
  -59,325
  -64,243
  -69,309
  -74,529
  -79,911
  -85,465
  -91,203
  -97,140
  -103,287
  -109,660
Free cash flow, $m
  -39
  -1,187
  -1,537
  -2,002
  -2,562
  -3,213
  -3,941
  -4,727
  -5,545
  -6,365
  -7,155
  -7,893
  -8,523
  -9,029
  -9,388
  -9,578
  -9,588
  -9,407
  -9,033
  -8,466
  -7,709
  -6,770
  -5,657
  -4,380
  -2,950
  -1,378
  326
  2,153
  4,092
  6,136
  8,279
Issuance/(repayment) of debt, $m
  61
  1,323
  1,922
  2,700
  3,675
  4,858
  6,252
  7,850
  9,637
  11,591
  13,683
  15,883
  18,158
  20,479
  22,817
  25,148
  27,453
  29,719
  31,938
  34,104
  36,219
  38,287
  40,315
  42,312
  44,290
  46,261
  48,239
  50,236
  52,268
  54,347
  56,486
Issuance/(repurchase) of shares, $m
  231
  669
  767
  901
  1,048
  1,196
  1,332
  1,439
  1,499
  1,490
  1,391
  1,150
  814
  335
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  194
  1,992
  2,689
  3,601
  4,723
  6,054
  7,584
  9,289
  11,136
  13,081
  15,074
  17,033
  18,972
  20,814
  22,817
  25,148
  27,453
  29,719
  31,938
  34,104
  36,219
  38,287
  40,315
  42,312
  44,290
  46,261
  48,239
  50,236
  52,268
  54,347
  56,486
Total cash flow (excl. dividends), $m
  153
  805
  1,151
  1,599
  2,160
  2,841
  3,643
  4,562
  5,591
  6,715
  7,919
  9,140
  10,449
  11,784
  13,429
  15,569
  17,865
  20,312
  22,904
  25,638
  28,509
  31,516
  34,657
  37,931
  41,340
  44,883
  48,565
  52,389
  56,360
  60,483
  64,765
Retained Cash Flow (-), $m
  110
  -669
  -868
  -1,219
  -1,659
  -2,193
  -2,822
  -3,543
  -4,350
  -5,232
  -6,176
  -7,169
  -8,196
  -9,244
  -10,299
  -11,351
  -12,392
  -13,415
  -14,416
  -15,394
  -16,348
  -17,282
  -18,197
  -19,099
  -19,992
  -20,881
  -21,774
  -22,676
  -23,593
  -24,531
  -25,497
Prev. year cash balance distribution, $m
 
  62
  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
 
  198
  284
  380
  501
  648
  821
  1,019
  1,241
  1,483
  1,743
  1,970
  2,253
  2,541
  3,130
  4,218
  5,474
  6,897
  8,488
  10,244
  12,161
  14,235
  16,460
  18,833
  21,348
  24,002
  26,791
  29,713
  32,767
  35,952
  39,269
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  183
  240
  292
  347
  401
  449
  487
  513
  524
  519
  488
  458
  417
  409
  430
  429
  407
  369
  322
  270
  218
  169
  127
  92
  64
  43
  28
  17
  10
  6
Current shareholders' claim on cash, %
  100
  76.2
  62.3
  53.3
  47.1
  42.6
  39.4
  37.0
  35.3
  34.0
  33.1
  32.5
  32.2
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0

Gibson Energy Inc. provides movement, storage, blending, processing, marketing, and distribution of crude oil, condensate, natural gas liquids, water, oilfield waste, and refined products in Canada and the United States. It operates through Terminals and Pipelines, Environmental Services, Truck Transportation, Propane and NGL Marketing and Distribution, Processing and Wellsite Fluids, and Marketing segments. The Terminals and Pipelines segment offers storage, terminalling, and pipeline services for crude oil, condensate, and refined products. It owns and operates storage terminals at Edmonton and Hardisty for aggregating and exporting oil and refined products; pipelines connected to the Hardisty Terminal; and injection stations located in the United States. The Environmental Services segment offers environmental and production services, such as emulsion hauling and treating, water hauling and disposal services, oilfield waste management, exploration support services, and accommodation facilities to the oil and gas industry. The Truck Transportation segment provides hauling services for crude oil, condensate, propane, butane, asphalt, sulfur, petroleum coke, gypsum, emulsion, waste water, and drilling fluids. The Propane and NGL Marketing and Distribution segment engages in the distribution of propane; NGL marketing business; and selling propane to oil and gas, industrial, and residential customers. The Processing and Wellsite Fluids segment processes crude oil and markets various products, such as road asphalt, roofing flux, frac oils, light and heavy straight run distillates, combined vacuum gas oil, oil based mud products, and tops. The Marketing segment purchases, sells, stores, and blends crude oil and condensate, as well as provides aggregation services to producers. The company was formerly known as Gibson Energy Holdings ULC and changed its name to Gibson Energy Inc. in April 2011. The company was founded in 1950 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Gibson Energy Inc. (GEI)

Valuation Ratios
P/E Ratio -14.5
Price to Sales 0.5
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 11.1
Price to Free Cash Flow -49.2
Growth Rates
Sales Growth Rate -15%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.7%
Cap. Spend. - 3 Yr. Gr. Rate 1.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.5
LT Debt to Equity 128.6%
Total Debt to Equity 128.6%
Interest Coverage -2
Management Effectiveness
Return On Assets -2.8%
Ret/ On Assets - 3 Yr. Avg. -1.5%
Return On Total Capital -6.5%
Ret/ On T. Cap. - 3 Yr. Avg. -4.6%
Return On Equity -14.4%
Return On Equity - 3 Yr. Avg. -9.8%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 0.5%
Gross Margin - 3 Yr. Avg. 1.9%
EBITDA Margin 2.2%
EBITDA Margin - 3 Yr. Avg. 2.5%
Operating Margin -3.7%
Oper. Margin - 3 Yr. Avg. -1.1%
Pre-Tax Margin -5.1%
Pre-Tax Margin - 3 Yr. Avg. -3.1%
Net Profit Margin -3.5%
Net Profit Margin - 3 Yr. Avg. -2.5%
Effective Tax Rate 24.3%
Eff/ Tax Rate - 3 Yr. Avg. 19%
Payout Ratio -110%

GEI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GEI stock intrinsic value calculation we used $4594 million for the last fiscal year's total revenue generated by Gibson Energy Inc.. The default revenue input number comes from 2016 income statement of Gibson Energy 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 GEI stock valuation model: a) initial revenue growth rate of 60% 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 8.3%, whose default value for GEI is calculated based on our internal credit rating of Gibson Energy 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 Gibson Energy 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 GEI stock the variable cost ratio is equal to 93.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $496 million in the base year in the intrinsic value calculation for GEI 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 6.7% for Gibson Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Gibson Energy 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 GEI 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 GEI are equal to 39.5%.

Life of production assets of 9.7 years is the average useful life of capital assets used in Gibson Energy 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 GEI is equal to 6.6%. 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 - $1057 million for Gibson Energy 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 139.686 million for Gibson Energy 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 Gibson Energy Inc. at the current share price and the inputted number of shares is $2.3 billion.

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Stock chart of GEI Financial statements of GEI
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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