Intrinsic value of Inter Pipeline Ltd. - IPL

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$26.76

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$26.76

 
Intrinsic value

$1.93

 
Up/down potential

-93%

 
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 IPL 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 9.9

 

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, %
  8.89
  23.00
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
  5.85
Revenue, $m
  1,825
  2,245
  2,721
  3,253
  3,843
  4,489
  5,190
  5,946
  6,756
  7,617
  8,529
  9,491
  10,501
  11,560
  12,667
  13,822
  15,026
  16,278
  17,581
  18,935
  20,342
  21,804
  23,324
  24,903
  26,546
  28,254
  30,032
  31,883
  33,811
  35,820
  37,915
Variable operating expenses, $m
 
  1,173
  1,415
  1,685
  1,984
  2,312
  2,669
  3,052
  3,463
  3,901
  4,364
  4,818
  5,332
  5,869
  6,431
  7,018
  7,629
  8,264
  8,926
  9,613
  10,328
  11,070
  11,841
  12,643
  13,477
  14,345
  15,247
  16,187
  17,166
  18,186
  19,249
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
  1,046
  1,173
  1,415
  1,685
  1,984
  2,312
  2,669
  3,052
  3,463
  3,901
  4,364
  4,818
  5,332
  5,869
  6,431
  7,018
  7,629
  8,264
  8,926
  9,613
  10,328
  11,070
  11,841
  12,643
  13,477
  14,345
  15,247
  16,187
  17,166
  18,186
  19,249
Operating income, $m
  779
  1,072
  1,306
  1,568
  1,858
  2,176
  2,522
  2,894
  3,292
  3,716
  4,165
  4,672
  5,170
  5,691
  6,236
  6,805
  7,397
  8,014
  8,655
  9,322
  10,014
  10,734
  11,482
  12,260
  13,069
  13,910
  14,785
  15,696
  16,645
  17,634
  18,665
EBITDA, $m
  1,009
  1,473
  1,786
  2,135
  2,522
  2,946
  3,407
  3,903
  4,434
  5,000
  5,598
  6,229
  6,893
  7,588
  8,314
  9,073
  9,862
  10,684
  11,539
  12,428
  13,352
  14,312
  15,309
  16,346
  17,424
  18,545
  19,712
  20,927
  22,192
  23,511
  24,886
Interest expense (income), $m
  140
  202
  258
  322
  393
  471
  557
  651
  752
  859
  974
  1,095
  1,224
  1,358
  1,499
  1,647
  1,801
  1,961
  2,128
  2,301
  2,481
  2,669
  2,864
  3,066
  3,276
  3,495
  3,723
  3,960
  4,206
  4,463
  4,730
Earnings before tax, $m
  629
  869
  1,048
  1,246
  1,466
  1,705
  1,965
  2,243
  2,541
  2,857
  3,191
  3,577
  3,946
  4,333
  4,737
  5,158
  5,597
  6,053
  6,527
  7,020
  7,533
  8,065
  8,619
  9,194
  9,792
  10,414
  11,062
  11,736
  12,439
  13,171
  13,935
Tax expense, $m
  151
  235
  283
  337
  396
  460
  530
  606
  686
  771
  862
  966
  1,065
  1,170
  1,279
  1,393
  1,511
  1,634
  1,762
  1,896
  2,034
  2,178
  2,327
  2,482
  2,644
  2,812
  2,987
  3,169
  3,359
  3,556
  3,762
Net income, $m
  450
  635
  765
  910
  1,070
  1,245
  1,434
  1,638
  1,855
  2,086
  2,330
  2,611
  2,881
  3,163
  3,458
  3,765
  4,086
  4,419
  4,765
  5,125
  5,499
  5,888
  6,292
  6,712
  7,148
  7,603
  8,075
  8,568
  9,080
  9,615
  10,172

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  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
  10,152
  12,471
  15,115
  18,074
  21,349
  24,938
  28,836
  33,036
  37,532
  42,317
  47,384
  52,727
  58,341
  64,224
  70,374
  76,791
  83,476
  90,434
  97,671
  105,193
  113,010
  121,134
  129,576
  138,352
  147,477
  156,968
  166,845
  177,128
  187,838
  198,999
  210,637
Adjusted assets (=assets-cash), $m
  10,131
  12,471
  15,115
  18,074
  21,349
  24,938
  28,836
  33,036
  37,532
  42,317
  47,384
  52,727
  58,341
  64,224
  70,374
  76,791
  83,476
  90,434
  97,671
  105,193
  113,010
  121,134
  129,576
  138,352
  147,477
  156,968
  166,845
  177,128
  187,838
  198,999
  210,637
Revenue / Adjusted assets
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
Average production assets, $m
  8,982
  11,049
  13,391
  16,013
  18,915
  22,094
  25,547
  29,269
  33,252
  37,491
  41,980
  46,714
  51,688
  56,900
  62,349
  68,033
  73,956
  80,121
  86,532
  93,197
  100,123
  107,320
  114,800
  122,574
  130,659
  139,068
  147,818
  156,928
  166,417
  176,305
  186,616
Working capital, $m
  -1,813
  -117
  -141
  -169
  -200
  -233
  -270
  -309
  -351
  -396
  -444
  -494
  -546
  -601
  -659
  -719
  -781
  -846
  -914
  -985
  -1,058
  -1,134
  -1,213
  -1,295
  -1,380
  -1,469
  -1,562
  -1,658
  -1,758
  -1,863
  -1,972
Total debt, $m
  5,806
  7,385
  9,196
  11,223
  13,466
  15,925
  18,595
  21,472
  24,551
  27,829
  31,300
  34,960
  38,806
  42,836
  47,048
  51,444
  56,023
  60,789
  65,746
  70,899
  76,254
  81,819
  87,602
  93,613
  99,864
  106,365
  113,131
  120,174
  127,511
  135,157
  143,128
Total liabilities, $m
  6,964
  8,543
  10,354
  12,381
  14,624
  17,083
  19,753
  22,630
  25,709
  28,987
  32,458
  36,118
  39,964
  43,994
  48,206
  52,602
  57,181
  61,947
  66,904
  72,057
  77,412
  82,977
  88,760
  94,771
  101,022
  107,523
  114,289
  121,332
  128,669
  136,315
  144,286
Total equity, $m
  3,188
  3,928
  4,761
  5,693
  6,725
  7,856
  9,083
  10,406
  11,823
  13,330
  14,926
  16,609
  18,378
  20,231
  22,168
  24,189
  26,295
  28,487
  30,766
  33,136
  35,598
  38,157
  40,817
  43,581
  46,455
  49,445
  52,556
  55,795
  59,169
  62,685
  66,351
Total liabilities and equity, $m
  10,152
  12,471
  15,115
  18,074
  21,349
  24,939
  28,836
  33,036
  37,532
  42,317
  47,384
  52,727
  58,342
  64,225
  70,374
  76,791
  83,476
  90,434
  97,670
  105,193
  113,010
  121,134
  129,577
  138,352
  147,477
  156,968
  166,845
  177,127
  187,838
  199,000
  210,637
Debt-to-equity ratio
  1.821
  1.880
  1.930
  1.970
  2.000
  2.030
  2.050
  2.060
  2.080
  2.090
  2.100
  2.100
  2.110
  2.120
  2.120
  2.130
  2.130
  2.130
  2.140
  2.140
  2.140
  2.140
  2.150
  2.150
  2.150
  2.150
  2.150
  2.150
  2.160
  2.160
  2.160
Adjusted equity ratio
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315
  0.315

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  450
  635
  765
  910
  1,070
  1,245
  1,434
  1,638
  1,855
  2,086
  2,330
  2,611
  2,881
  3,163
  3,458
  3,765
  4,086
  4,419
  4,765
  5,125
  5,499
  5,888
  6,292
  6,712
  7,148
  7,603
  8,075
  8,568
  9,080
  9,615
  10,172
Depreciation, amort., depletion, $m
  230
  402
  480
  567
  664
  770
  885
  1,009
  1,142
  1,283
  1,433
  1,557
  1,723
  1,897
  2,078
  2,268
  2,465
  2,671
  2,884
  3,107
  3,337
  3,577
  3,827
  4,086
  4,355
  4,636
  4,927
  5,231
  5,547
  5,877
  6,221
Funds from operations, $m
  763
  1,036
  1,244
  1,477
  1,734
  2,015
  2,319
  2,647
  2,997
  3,369
  3,762
  4,168
  4,604
  5,060
  5,536
  6,033
  6,551
  7,089
  7,649
  8,231
  8,836
  9,465
  10,118
  10,797
  11,504
  12,238
  13,003
  13,799
  14,628
  15,492
  16,393
Change in working capital, $m
  -43
  -22
  -25
  -28
  -31
  -34
  -36
  -39
  -42
  -45
  -47
  -50
  -53
  -55
  -58
  -60
  -63
  -65
  -68
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -109
Cash from operations, $m
  806
  1,613
  1,269
  1,505
  1,764
  2,048
  2,356
  2,686
  3,039
  3,414
  3,810
  4,218
  4,656
  5,115
  5,594
  6,093
  6,613
  7,154
  7,717
  8,302
  8,910
  9,541
  10,197
  10,880
  11,589
  12,327
  13,095
  13,895
  14,728
  15,596
  16,502
Maintenance CAPEX, $m
  0
  -299
  -368
  -446
  -534
  -630
  -736
  -852
  -976
  -1,108
  -1,250
  -1,399
  -1,557
  -1,723
  -1,897
  -2,078
  -2,268
  -2,465
  -2,671
  -2,884
  -3,107
  -3,337
  -3,577
  -3,827
  -4,086
  -4,355
  -4,636
  -4,927
  -5,231
  -5,547
  -5,877
New CAPEX, $m
  -186
  -2,067
  -2,342
  -2,622
  -2,902
  -3,180
  -3,453
  -3,721
  -3,983
  -4,239
  -4,489
  -4,734
  -4,974
  -5,212
  -5,448
  -5,685
  -5,923
  -6,165
  -6,411
  -6,664
  -6,926
  -7,197
  -7,480
  -7,775
  -8,084
  -8,409
  -8,750
  -9,110
  -9,489
  -9,889
  -10,310
Cash from investing activities, $m
  -1,869
  -2,366
  -2,710
  -3,068
  -3,436
  -3,810
  -4,189
  -4,573
  -4,959
  -5,347
  -5,739
  -6,133
  -6,531
  -6,935
  -7,345
  -7,763
  -8,191
  -8,630
  -9,082
  -9,548
  -10,033
  -10,534
  -11,057
  -11,602
  -12,170
  -12,764
  -13,386
  -14,037
  -14,720
  -15,436
  -16,187
Free cash flow, $m
  -1,063
  -753
  -1,441
  -1,564
  -1,671
  -1,762
  -1,834
  -1,887
  -1,920
  -1,934
  -1,929
  -1,915
  -1,875
  -1,820
  -1,751
  -1,670
  -1,577
  -1,475
  -1,365
  -1,247
  -1,123
  -994
  -860
  -722
  -581
  -437
  -291
  -142
  8
  161
  315
Issuance/(repayment) of debt, $m
  979
  1,600
  1,811
  2,027
  2,244
  2,458
  2,670
  2,877
  3,080
  3,278
  3,471
  3,660
  3,846
  4,030
  4,213
  4,395
  4,580
  4,766
  4,957
  5,153
  5,355
  5,565
  5,783
  6,011
  6,250
  6,502
  6,766
  7,044
  7,337
  7,646
  7,971
Issuance/(repurchase) of shares, $m
  600
  0
  463
  469
  459
  434
  392
  333
  257
  164
  54
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1,517
  1,600
  2,274
  2,496
  2,703
  2,892
  3,062
  3,210
  3,337
  3,442
  3,525
  3,660
  3,846
  4,030
  4,213
  4,395
  4,580
  4,766
  4,957
  5,153
  5,355
  5,565
  5,783
  6,011
  6,250
  6,502
  6,766
  7,044
  7,337
  7,646
  7,971
Total cash flow (excl. dividends), $m
  451
  847
  370
  464
  573
  697
  836
  990
  1,160
  1,344
  1,542
  1,745
  1,971
  2,210
  2,461
  2,725
  3,002
  3,291
  3,592
  3,906
  4,232
  4,571
  4,923
  5,289
  5,669
  6,064
  6,475
  6,901
  7,345
  7,806
  8,286
Retained Cash Flow (-), $m
  -367
  -740
  -833
  -932
  -1,032
  -1,130
  -1,228
  -1,323
  -1,416
  -1,507
  -1,596
  -1,683
  -1,769
  -1,853
  -1,937
  -2,021
  -2,106
  -2,192
  -2,279
  -2,370
  -2,462
  -2,559
  -2,659
  -2,764
  -2,874
  -2,990
  -3,111
  -3,239
  -3,374
  -3,516
  -3,666
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
 
  106
  0
  0
  0
  0
  0
  0
  0
  0
  0
  62
  202
  356
  524
  704
  896
  1,099
  1,313
  1,536
  1,770
  2,012
  2,264
  2,525
  2,795
  3,075
  3,363
  3,662
  3,971
  4,290
  4,621
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  97
  0
  0
  0
  0
  0
  0
  0
  0
  0
  12
  31
  43
  49
  49
  46
  41
  34
  27
  21
  16
  11
  8
  5
  3
  2
  1
  1
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  96.3
  93.4
  91.0
  89.2
  87.8
  86.7
  86.1
  85.7
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6
  85.6

Inter Pipeline Ltd. engages in the petroleum transportation, natural gas liquids extraction, and bulk liquid storage businesses in Canada and Europe. The company operates through four segments: Oil Sands Transportation, Conventional Oil Pipelines, Natural Gas Liquids (NGL) Extraction, and Bulk Liquid Storage. The Oil Sands Transportation segment transports petroleum products, such as bitumen blend and diluent through Cold Lake, Corridor, and Polaris pipeline systems covering approximately 3,300 kilometers of pipeline and 3.8 million barrels of storage capacity. This segment also offers related blending and handling services. The Conventional Oil Pipelines segment is primarily involved in the transportation, storage, and processing of hydrocarbons, as well as provision of midstream marketing blending and handling services. This segment transports crude oil through the Bow River, Central Alberta, and Mid-Saskatchewan pipeline systems covering approximately 3,700 kilometers of pipeline and approximately 986,000 barrels of storage capacity. The NGL Extraction segment processes pipeline natural gas to remove NGL, including ethane, propane, and butanes and pentanes-plus; and fractionates NGL to produce ethane products and propane plus. These NGL are used as energy products; and as a feedstock for the petrochemical and crude oil refining industries. The Bulk Liquid Storage segment stores and handles bulk liquid products. This segment operates 16 terminals and approximately 800 tanks providing approximately 27 million barrels of storage capacity. Inter Pipeline Ltd. was founded in 1997 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Inter Pipeline Ltd. (IPL)

Valuation Ratios
P/E Ratio 21.9
Price to Sales 5.4
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 12.2
Price to Free Cash Flow 15.9
Growth Rates
Sales Growth Rate 8.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45.6%
Cap. Spend. - 3 Yr. Gr. Rate -37.5%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 127.6%
Total Debt to Equity 182.1%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.8%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 5.4%
Return On Equity 15%
Return On Equity - 3 Yr. Avg. 15.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 62.8%
Gross Margin - 3 Yr. Avg. 58.6%
EBITDA Margin 54.7%
EBITDA Margin - 3 Yr. Avg. 53.6%
Operating Margin 42.7%
Oper. Margin - 3 Yr. Avg. 41.8%
Pre-Tax Margin 34.5%
Pre-Tax Margin - 3 Yr. Avg. 34.4%
Net Profit Margin 24.7%
Net Profit Margin - 3 Yr. Avg. 23.9%
Effective Tax Rate 24%
Eff/ Tax Rate - 3 Yr. Avg. 25.9%
Payout Ratio 104.4%

IPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IPL stock intrinsic value calculation we used $1825 million for the last fiscal year's total revenue generated by Inter Pipeline Ltd.. The default revenue input number comes from 2016 income statement of Inter Pipeline 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 IPL stock valuation model: a) initial revenue growth rate of 23% 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 9.8%, whose default value for IPL is calculated based on our internal credit rating of Inter Pipeline 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 Inter Pipeline 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 IPL stock the variable cost ratio is equal to 52.6%.

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 IPL 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 Inter Pipeline Ltd..

Corporate tax rate of 27% is the nominal tax rate for Inter Pipeline 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 IPL 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 IPL are equal to 492.2%.

Life of production assets of 40.5 years is the average useful life of capital assets used in Inter Pipeline 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 IPL is equal to -5.2%. 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 - $3188 million for Inter Pipeline 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 370.278 million for Inter Pipeline 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 Inter Pipeline Ltd. at the current share price and the inputted number of shares is $9.9 billion.


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Stock chart of IPL Financial statements of IPL
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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