Intrinsic value of Just Energy Group Inc. - JE

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$8.30

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$8.30

 
Intrinsic value

$2.99

 
Up/down potential

-64%

 
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 JE 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 1.2

 

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, %
  5.39
  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
  4,106
  4,188
  4,284
  4,395
  4,518
  4,655
  4,805
  4,969
  5,146
  5,337
  5,542
  5,761
  5,995
  6,244
  6,508
  6,789
  7,087
  7,402
  7,735
  8,087
  8,458
  8,850
  9,264
  9,699
  10,159
  10,642
  11,151
  11,687
  12,251
  12,845
  13,469
Variable operating expenses, $m
 
  2,714
  2,776
  2,848
  2,928
  3,017
  3,114
  3,220
  3,335
  3,458
  3,591
  3,733
  3,885
  4,046
  4,217
  4,399
  4,592
  4,796
  5,012
  5,240
  5,481
  5,735
  6,003
  6,285
  6,583
  6,896
  7,226
  7,573
  7,939
  8,323
  8,728
Fixed operating expenses, $m
 
  1,331
  1,365
  1,399
  1,434
  1,470
  1,506
  1,544
  1,583
  1,622
  1,663
  1,704
  1,747
  1,791
  1,835
  1,881
  1,928
  1,977
  2,026
  2,077
  2,129
  2,182
  2,236
  2,292
  2,350
  2,408
  2,468
  2,530
  2,593
  2,658
  2,725
Total operating expenses, $m
  3,926
  4,045
  4,141
  4,247
  4,362
  4,487
  4,620
  4,764
  4,918
  5,080
  5,254
  5,437
  5,632
  5,837
  6,052
  6,280
  6,520
  6,773
  7,038
  7,317
  7,610
  7,917
  8,239
  8,577
  8,933
  9,304
  9,694
  10,103
  10,532
  10,981
  11,453
Operating income, $m
  180
  143
  143
  148
  157
  169
  185
  205
  229
  256
  288
  323
  363
  407
  456
  508
  566
  629
  697
  770
  849
  933
  1,024
  1,122
  1,226
  1,338
  1,457
  1,584
  1,719
  1,863
  2,016
EBITDA, $m
  203
  157
  158
  163
  172
  185
  202
  222
  247
  275
  307
  343
  384
  429
  478
  532
  591
  654
  723
  798
  878
  964
  1,057
  1,156
  1,261
  1,375
  1,495
  1,624
  1,761
  1,908
  2,063
Interest expense (income), $m
  58
  58
  -19
  -16
  -14
  -11
  -8
  -5
  -1
  3
  7
  12
  17
  22
  27
  33
  40
  46
  53
  61
  69
  77
  86
  95
  105
  115
  126
  137
  149
  162
  175
Earnings before tax, $m
  82
  85
  162
  164
  171
  180
  193
  210
  230
  254
  281
  312
  347
  385
  428
  475
  527
  583
  643
  709
  780
  857
  939
  1,027
  1,122
  1,223
  1,331
  1,447
  1,570
  1,701
  1,841
Tax expense, $m
  0
  23
  44
  44
  46
  49
  52
  57
  62
  68
  76
  84
  94
  104
  116
  128
  142
  157
  174
  191
  211
  231
  254
  277
  303
  330
  359
  391
  424
  459
  497
Net income, $m
  65
  62
  118
  120
  124
  132
  141
  153
  168
  185
  205
  228
  253
  281
  313
  347
  384
  425
  470
  518
  570
  625
  685
  750
  819
  893
  972
  1,056
  1,146
  1,242
  1,344

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  128
  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
  1,300
  1,196
  1,223
  1,255
  1,290
  1,329
  1,372
  1,419
  1,469
  1,524
  1,582
  1,645
  1,711
  1,782
  1,858
  1,938
  2,023
  2,113
  2,208
  2,308
  2,415
  2,526
  2,644
  2,769
  2,900
  3,038
  3,183
  3,336
  3,497
  3,667
  3,845
Adjusted assets (=assets-cash), $m
  1,172
  1,196
  1,223
  1,255
  1,290
  1,329
  1,372
  1,419
  1,469
  1,524
  1,582
  1,645
  1,711
  1,782
  1,858
  1,938
  2,023
  2,113
  2,208
  2,308
  2,415
  2,526
  2,644
  2,769
  2,900
  3,038
  3,183
  3,336
  3,497
  3,667
  3,845
Revenue / Adjusted assets
  3.503
  3.502
  3.503
  3.502
  3.502
  3.503
  3.502
  3.502
  3.503
  3.502
  3.503
  3.502
  3.504
  3.504
  3.503
  3.503
  3.503
  3.503
  3.503
  3.504
  3.502
  3.504
  3.504
  3.503
  3.503
  3.503
  3.503
  3.503
  3.503
  3.503
  3.503
Average production assets, $m
  220
  226
  231
  237
  244
  251
  259
  268
  278
  288
  299
  311
  324
  337
  351
  367
  383
  400
  418
  437
  457
  478
  500
  524
  549
  575
  602
  631
  662
  694
  727
Working capital, $m
  -119
  -251
  -257
  -264
  -271
  -279
  -288
  -298
  -309
  -320
  -333
  -346
  -360
  -375
  -391
  -407
  -425
  -444
  -464
  -485
  -507
  -531
  -556
  -582
  -610
  -639
  -669
  -701
  -735
  -771
  -808
Total debt, $m
  661
  -214
  -189
  -161
  -129
  -94
  -55
  -13
  32
  81
  134
  190
  250
  314
  382
  454
  531
  612
  697
  788
  883
  984
  1,090
  1,202
  1,320
  1,444
  1,575
  1,713
  1,858
  2,010
  2,170
Total liabilities, $m
  1,951
  1,076
  1,101
  1,129
  1,161
  1,196
  1,235
  1,277
  1,322
  1,371
  1,424
  1,480
  1,540
  1,604
  1,672
  1,744
  1,821
  1,902
  1,987
  2,078
  2,173
  2,274
  2,380
  2,492
  2,610
  2,734
  2,865
  3,003
  3,148
  3,300
  3,460
Total equity, $m
  -651
  120
  122
  125
  129
  133
  137
  142
  147
  152
  158
  164
  171
  178
  186
  194
  202
  211
  221
  231
  241
  253
  264
  277
  290
  304
  318
  334
  350
  367
  384
Total liabilities and equity, $m
  1,300
  1,196
  1,223
  1,254
  1,290
  1,329
  1,372
  1,419
  1,469
  1,523
  1,582
  1,644
  1,711
  1,782
  1,858
  1,938
  2,023
  2,113
  2,208
  2,309
  2,414
  2,527
  2,644
  2,769
  2,900
  3,038
  3,183
  3,337
  3,498
  3,667
  3,844
Debt-to-equity ratio
  -1.015
  -1.790
  -1.550
  -1.280
  -1.000
  -0.710
  -0.400
  -0.090
  0.220
  0.530
  0.850
  1.160
  1.460
  1.760
  2.060
  2.340
  2.620
  2.890
  3.160
  3.410
  3.660
  3.890
  4.120
  4.340
  4.550
  4.750
  4.950
  5.130
  5.310
  5.480
  5.640
Adjusted equity ratio
  -0.665
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  65
  62
  118
  120
  124
  132
  141
  153
  168
  185
  205
  228
  253
  281
  313
  347
  384
  425
  470
  518
  570
  625
  685
  750
  819
  893
  972
  1,056
  1,146
  1,242
  1,344
Depreciation, amort., depletion, $m
  23
  14
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  47
Funds from operations, $m
  205
  77
  133
  135
  140
  148
  158
  170
  186
  204
  224
  248
  274
  303
  335
  370
  409
  451
  496
  546
  599
  656
  717
  783
  854
  930
  1,010
  1,097
  1,189
  1,287
  1,391
Change in working capital, $m
  18
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -37
Cash from operations, $m
  187
  208
  139
  142
  148
  156
  167
  180
  196
  215
  237
  261
  288
  318
  351
  387
  427
  470
  516
  567
  621
  680
  742
  810
  882
  959
  1,041
  1,129
  1,222
  1,322
  1,428
Maintenance CAPEX, $m
  0
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
New CAPEX, $m
  -17
  -6
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -34
Cash from investing activities, $m
  -6
  -20
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -56
  -59
  -61
  -64
  -68
  -70
  -74
  -78
Free cash flow, $m
  181
  187
  119
  121
  126
  133
  142
  155
  170
  187
  207
  230
  255
  284
  315
  350
  387
  428
  473
  521
  573
  629
  689
  754
  823
  897
  977
  1,061
  1,151
  1,248
  1,350
Issuance/(repayment) of debt, $m
  -32
  -875
  25
  28
  32
  35
  39
  42
  46
  49
  53
  56
  60
  64
  68
  72
  76
  81
  86
  90
  95
  101
  106
  112
  118
  124
  131
  138
  145
  152
  160
Issuance/(repurchase) of shares, $m
  0
  1,458
  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 from financing (excl. dividends), $m  
  -53
  583
  25
  28
  32
  35
  39
  42
  46
  49
  53
  56
  60
  64
  68
  72
  76
  81
  86
  90
  95
  101
  106
  112
  118
  124
  131
  138
  145
  152
  160
Total cash flow (excl. dividends), $m
  124
  -688
  144
  149
  157
  168
  181
  197
  215
  236
  260
  286
  315
  348
  383
  422
  464
  509
  558
  611
  669
  730
  796
  866
  941
  1,022
  1,107
  1,199
  1,296
  1,400
  1,510
Retained Cash Flow (-), $m
  12
  -899
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Prev. year cash balance distribution, $m
 
  128
  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
  141
  146
  154
  164
  177
  192
  210
  231
  254
  280
  309
  341
  375
  414
  455
  500
  549
  601
  658
  719
  784
  853
  928
  1,008
  1,093
  1,184
  1,280
  1,383
  1,493
Discount rate, %
 
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.60
  17.43
  18.31
  19.22
  20.18
  21.19
  22.25
  23.36
  24.53
  25.76
  27.05
  28.40
  29.82
  31.31
  32.87
  34.52
  36.24
  38.06
  39.96
  41.96
  44.05
  46.26
  48.57
PV of cash for distribution, $m
 
  0
  112
  101
  92
  84
  76
  69
  61
  54
  47
  40
  34
  28
  23
  18
  14
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Just Energy Group Inc., through its subsidiaries, provides electricity, natural gas, and solar and green energy in the United States, Canada, and the United Kingdom. The company operates through Consumer Energy, Commercial Energy, and Residential Solar divisions. It offers a range of energy products and home energy management services, including long-term fixed-price, variable-price, and flat-bill programs; and residential solar panel installations, as well as sells smart thermostats. The company also sells residential solar finance products; and acts as an originator of residential solar deals. As of May 5, 2016, it served approximately 1.8 million residential and commercial customers. The company sells its products through broker channel using the commercial platform, door-to-door commercial independent contractors, and commercial sales representatives. Just Energy Group Inc. was founded in 1997 and is headquartered in Mississauga, Canada.

FINANCIAL RATIOS  of  Just Energy Group Inc. (JE)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 0.3
Price to Book -1.9
Price to Tangible Book
Price to Cash Flow 6.5
Price to Free Cash Flow 7.2
Growth Rates
Sales Growth Rate 5.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 30.8%
Cap. Spend. - 3 Yr. Gr. Rate -20.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity -101.5%
Total Debt to Equity -101.5%
Interest Coverage 2
Management Effectiveness
Return On Assets 9.5%
Ret/ On Assets - 3 Yr. Avg. -2%
Return On Total Capital 270.8%
Ret/ On T. Cap. - 3 Yr. Avg. 63.3%
Return On Equity -10.1%
Return On Equity - 3 Yr. Avg. -1.3%
Asset Turnover 3.2
Profitability Ratios
Gross Margin 17.1%
Gross Margin - 3 Yr. Avg. 15.6%
EBITDA Margin 4%
EBITDA Margin - 3 Yr. Avg. 0.1%
Operating Margin 4.4%
Oper. Margin - 3 Yr. Avg. 3.3%
Pre-Tax Margin 2%
Pre-Tax Margin - 3 Yr. Avg. -2.4%
Net Profit Margin 1.6%
Net Profit Margin - 3 Yr. Avg. -2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 8.9%
Payout Ratio 115.4%

JE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the JE stock intrinsic value calculation we used $4106 million for the last fiscal year's total revenue generated by Just Energy Group Inc.. The default revenue input number comes from 2016 income statement of Just Energy Group 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 JE 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 11.8%, whose default value for JE is calculated based on our internal credit rating of Just Energy Group 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 Just Energy Group 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 JE stock the variable cost ratio is equal to 64.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1299 million in the base year in the intrinsic value calculation for JE 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 8.7% for Just Energy Group Inc..

Corporate tax rate of 27% is the nominal tax rate for Just Energy Group 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 JE 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 JE are equal to 5.4%.

Life of production assets of 15.6 years is the average useful life of capital assets used in Just Energy Group 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 JE is equal to -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 - $-651 million for Just Energy Group 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 147.971 million for Just Energy Group 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 Just Energy Group Inc. at the current share price and the inputted number of shares is $1.2 billion.


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