Intrinsic value of Interfor Corporation - IFP

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$20.07

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$20.07

 
Intrinsic value

$2.27

 
Up/down potential

-89%

 
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 IFP 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 1.4

 

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, %
  6.28
  7.50
  7.25
  7.02
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.78
  5.71
  5.64
  5.57
  5.51
  5.46
  5.42
  5.38
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
Revenue, $m
  1,793
  1,927
  2,067
  2,212
  2,363
  2,520
  2,684
  2,853
  3,030
  3,214
  3,406
  3,606
  3,815
  4,032
  4,260
  4,497
  4,745
  5,004
  5,275
  5,559
  5,856
  6,166
  6,491
  6,832
  7,189
  7,562
  7,954
  8,365
  8,795
  9,246
  9,719
Variable operating expenses, $m
 
  1,967
  2,108
  2,255
  2,408
  2,567
  2,732
  2,904
  3,083
  3,269
  3,464
  3,650
  3,861
  4,082
  4,312
  4,552
  4,803
  5,065
  5,340
  5,627
  5,927
  6,242
  6,571
  6,915
  7,277
  7,655
  8,051
  8,467
  8,903
  9,359
  9,838
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
  1,717
  1,967
  2,108
  2,255
  2,408
  2,567
  2,732
  2,904
  3,083
  3,269
  3,464
  3,650
  3,861
  4,082
  4,312
  4,552
  4,803
  5,065
  5,340
  5,627
  5,927
  6,242
  6,571
  6,915
  7,277
  7,655
  8,051
  8,467
  8,903
  9,359
  9,838
Operating income, $m
  76
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -75
  -79
  -84
  -88
  -93
  -97
  -102
  -108
  -113
  -119
EBITDA, $m
  187
  78
  83
  89
  95
  102
  108
  115
  122
  130
  137
  146
  154
  163
  172
  182
  192
  202
  213
  224
  236
  249
  262
  276
  290
  305
  321
  338
  355
  373
  392
Interest expense (income), $m
  17
  14
  15
  17
  19
  21
  23
  25
  27
  29
  32
  34
  36
  39
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  77
  82
  86
  91
  97
  102
  108
Earnings before tax, $m
  73
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -80
  -84
  -89
  -78
  -83
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -133
  -140
  -148
  -157
  -165
  -174
  -184
  -194
  -204
  -215
  -227
Tax expense, $m
  7
  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
  66
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -80
  -84
  -89
  -78
  -83
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -133
  -140
  -148
  -157
  -165
  -174
  -184
  -194
  -204
  -215
  -227

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
  1,302
  1,379
  1,479
  1,583
  1,691
  1,803
  1,920
  2,041
  2,167
  2,299
  2,436
  2,579
  2,729
  2,884
  3,047
  3,217
  3,394
  3,580
  3,773
  3,976
  4,189
  4,411
  4,643
  4,887
  5,142
  5,409
  5,690
  5,983
  6,291
  6,614
  6,952
Adjusted assets (=assets-cash), $m
  1,283
  1,379
  1,479
  1,583
  1,691
  1,803
  1,920
  2,041
  2,167
  2,299
  2,436
  2,579
  2,729
  2,884
  3,047
  3,217
  3,394
  3,580
  3,773
  3,976
  4,189
  4,411
  4,643
  4,887
  5,142
  5,409
  5,690
  5,983
  6,291
  6,614
  6,952
Revenue / Adjusted assets
  1.398
  1.397
  1.398
  1.397
  1.397
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
  1.398
Average production assets, $m
  867
  933
  1,001
  1,071
  1,144
  1,220
  1,299
  1,381
  1,467
  1,556
  1,649
  1,745
  1,846
  1,952
  2,062
  2,177
  2,297
  2,422
  2,553
  2,690
  2,834
  2,984
  3,142
  3,307
  3,479
  3,660
  3,850
  4,048
  4,257
  4,475
  4,704
Working capital, $m
  136
  125
  134
  144
  154
  164
  174
  185
  197
  209
  221
  234
  248
  262
  277
  292
  308
  325
  343
  361
  381
  401
  422
  444
  467
  492
  517
  544
  572
  601
  632
Total debt, $m
  309
  347
  387
  429
  472
  517
  564
  612
  663
  716
  771
  828
  888
  951
  1,016
  1,084
  1,155
  1,229
  1,307
  1,388
  1,474
  1,563
  1,656
  1,754
  1,856
  1,963
  2,076
  2,193
  2,317
  2,446
  2,582
Total liabilities, $m
  515
  553
  593
  635
  678
  723
  770
  818
  869
  922
  977
  1,034
  1,094
  1,157
  1,222
  1,290
  1,361
  1,435
  1,513
  1,594
  1,680
  1,769
  1,862
  1,960
  2,062
  2,169
  2,282
  2,399
  2,523
  2,652
  2,788
Total equity, $m
  787
  826
  886
  948
  1,013
  1,080
  1,150
  1,223
  1,298
  1,377
  1,459
  1,545
  1,634
  1,728
  1,825
  1,927
  2,033
  2,144
  2,260
  2,382
  2,509
  2,642
  2,781
  2,927
  3,080
  3,240
  3,408
  3,584
  3,768
  3,962
  4,164
Total liabilities and equity, $m
  1,302
  1,379
  1,479
  1,583
  1,691
  1,803
  1,920
  2,041
  2,167
  2,299
  2,436
  2,579
  2,728
  2,885
  3,047
  3,217
  3,394
  3,579
  3,773
  3,976
  4,189
  4,411
  4,643
  4,887
  5,142
  5,409
  5,690
  5,983
  6,291
  6,614
  6,952
Debt-to-equity ratio
  0.393
  0.420
  0.440
  0.450
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.540
  0.540
  0.550
  0.560
  0.560
  0.570
  0.570
  0.580
  0.580
  0.590
  0.590
  0.600
  0.600
  0.600
  0.610
  0.610
  0.610
  0.610
  0.620
  0.620
Adjusted equity ratio
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599
  0.599

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  66
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -80
  -84
  -89
  -78
  -83
  -88
  -94
  -100
  -106
  -112
  -119
  -126
  -133
  -140
  -148
  -157
  -165
  -174
  -184
  -194
  -204
  -215
  -227
Depreciation, amort., depletion, $m
  111
  117
  124
  132
  140
  148
  157
  166
  175
  185
  195
  190
  201
  212
  224
  237
  250
  263
  278
  292
  308
  324
  341
  359
  378
  398
  418
  440
  463
  486
  511
Funds from operations, $m
  213
  64
  68
  72
  77
  81
  86
  90
  95
  101
  106
  112
  118
  124
  130
  137
  144
  151
  159
  167
  175
  184
  193
  203
  213
  224
  235
  246
  259
  271
  285
Change in working capital, $m
  14
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
Cash from operations, $m
  199
  28
  59
  63
  67
  71
  75
  79
  84
  89
  94
  99
  104
  110
  115
  121
  128
  134
  141
  148
  156
  164
  172
  181
  190
  199
  209
  220
  231
  242
  254
Maintenance CAPEX, $m
  0
  -94
  -101
  -109
  -116
  -124
  -133
  -141
  -150
  -159
  -169
  -179
  -190
  -201
  -212
  -224
  -237
  -250
  -263
  -278
  -292
  -308
  -324
  -341
  -359
  -378
  -398
  -418
  -440
  -463
  -486
New CAPEX, $m
  -77
  -66
  -68
  -70
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
  -125
  -131
  -137
  -144
  -150
  -157
  -165
  -173
  -181
  -190
  -199
  -208
  -218
  -229
Cash from investing activities, $m
  -36
  -160
  -169
  -179
  -189
  -200
  -212
  -223
  -236
  -248
  -262
  -276
  -291
  -306
  -322
  -339
  -357
  -375
  -394
  -415
  -436
  -458
  -481
  -506
  -532
  -559
  -588
  -617
  -648
  -681
  -715
Free cash flow, $m
  163
  -132
  -110
  -116
  -123
  -130
  -137
  -144
  -152
  -160
  -168
  -177
  -187
  -197
  -207
  -218
  -229
  -241
  -253
  -266
  -280
  -295
  -310
  -326
  -342
  -360
  -378
  -398
  -418
  -439
  -462
Issuance/(repayment) of debt, $m
  -132
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
  102
  107
  112
  118
  123
  129
  136
Issuance/(repurchase) of shares, $m
  0
  133
  130
  137
  144
  152
  160
  168
  177
  186
  196
  206
  216
  227
  239
  251
  264
  277
  292
  306
  322
  338
  356
  374
  393
  413
  434
  456
  479
  503
  529
Cash from financing (excl. dividends), $m  
  -162
  171
  170
  179
  187
  197
  207
  217
  228
  239
  251
  263
  276
  289
  304
  319
  335
  351
  370
  387
  407
  427
  449
  472
  495
  520
  546
  574
  602
  632
  665
Total cash flow (excl. dividends), $m
  3
  -94
  -70
  -75
  -79
  -85
  -90
  -95
  -101
  -107
  -113
  -120
  -127
  -134
  -142
  -149
  -158
  -166
  -175
  -185
  -195
  -205
  -216
  -228
  -240
  -253
  -266
  -280
  -294
  -310
  -326
Retained Cash Flow (-), $m
  -62
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -102
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
  -176
  -184
  -193
  -203
Prev. year cash balance distribution, $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
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
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  91.1
  83.7
  77.0
  70.9
  65.4
  60.3
  55.7
  51.5
  47.7
  44.1
  40.9
  37.9
  35.1
  32.6
  30.2
  28.1
  26.1
  24.2
  22.5
  20.9
  19.4
  18.0
  16.8
  15.6
  14.5
  13.5
  12.5
  11.6
  10.8
  10.1

Interfor Corporation, together with its subsidiaries, produces wood products. It offers commodity structural lumber products; and specialty products, such as exterior decking and siding products, machine stress rated products, industrial timber products, and various appearance grade items. The company is also involved in the purchase and sale of logs that are unsuitable for cutting or in excess of its manufacturing requirements. In addition, it provides lumber by-products, including wood chips and other residuals. The company sells its products in Canada, the United States, Japan, China/Taiwan, and internationally. The company was formerly known as International Forest Products Limited and changed its name to Interfor Corporation in May 2014. Interfor Corporation was founded in 1963 and is headquartered in Vancouver, Canada.

FINANCIAL RATIOS  of  Interfor Corporation (IFP)

Valuation Ratios
P/E Ratio 21.3
Price to Sales 0.8
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 7.1
Price to Free Cash Flow 11.5
Growth Rates
Sales Growth Rate 6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -36.4%
Cap. Spend. - 3 Yr. Gr. Rate 2.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 39.3%
Total Debt to Equity 39.3%
Interest Coverage 5
Management Effectiveness
Return On Assets 6%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity 8.7%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 13.5%
Gross Margin - 3 Yr. Avg. 11.7%
EBITDA Margin 11.2%
EBITDA Margin - 3 Yr. Avg. 7.8%
Operating Margin 4.2%
Oper. Margin - 3 Yr. Avg. 1.5%
Pre-Tax Margin 4.1%
Pre-Tax Margin - 3 Yr. Avg. 0.8%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 1.6%
Effective Tax Rate 9.6%
Eff/ Tax Rate - 3 Yr. Avg. -5.6%
Payout Ratio 0%

IFP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IFP stock intrinsic value calculation we used $1793 million for the last fiscal year's total revenue generated by Interfor Corporation. The default revenue input number comes from 2016 income statement of Interfor 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 IFP stock valuation model: a) initial revenue growth rate of 7.5% 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 IFP is calculated based on our internal credit rating of Interfor 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 Interfor 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 IFP stock the variable cost ratio is equal to 102.1%.

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 IFP 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 4.4% for Interfor Corporation.

Corporate tax rate of 27% is the nominal tax rate for Interfor 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 IFP 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 IFP are equal to 48.4%.

Life of production assets of 9.2 years is the average useful life of capital assets used in Interfor 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 IFP is equal to 6.5%. 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 - $787 million for Interfor 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 69.453 million for Interfor 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 Interfor Corporation at the current share price and the inputted number of shares is $1.4 billion.


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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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