Intrinsic value of Lucara Diamond Corp. - LUC

Previous Close

$2.70

  Intrinsic Value

$6.35

stock screener

  Rating & Target

str. buy

+135%

  Value-price divergence*

0%

Previous close

$2.70

 
Intrinsic value

$6.35

 
Up/down potential

+135%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of LUC 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 1.0

 

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, %
  32.12
  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
  399
  407
  416
  427
  439
  452
  467
  483
  500
  519
  539
  560
  583
  607
  632
  660
  689
  719
  752
  786
  822
  860
  900
  943
  987
  1,034
  1,084
  1,136
  1,191
  1,248
  1,309
Variable operating expenses, $m
 
  162
  166
  170
  175
  180
  186
  192
  199
  206
  214
  223
  232
  241
  252
  263
  274
  286
  299
  313
  327
  342
  358
  375
  393
  412
  431
  452
  474
  497
  521
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
  189
  162
  166
  170
  175
  180
  186
  192
  199
  206
  214
  223
  232
  241
  252
  263
  274
  286
  299
  313
  327
  342
  358
  375
  393
  412
  431
  452
  474
  497
  521
Operating income, $m
  210
  245
  251
  257
  264
  272
  281
  291
  301
  312
  324
  337
  351
  365
  381
  397
  415
  433
  452
  473
  495
  518
  542
  567
  594
  623
  652
  684
  717
  751
  788
EBITDA, $m
  232
  267
  274
  281
  289
  297
  307
  317
  329
  341
  354
  368
  383
  399
  416
  434
  453
  473
  494
  516
  540
  565
  592
  619
  649
  680
  712
  746
  782
  820
  860
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
Earnings before tax, $m
  210
  245
  251
  257
  264
  272
  280
  290
  300
  311
  323
  335
  349
  363
  378
  394
  411
  429
  449
  469
  490
  513
  536
  561
  588
  615
  645
  675
  708
  742
  778
Tax expense, $m
  115
  66
  68
  69
  71
  73
  76
  78
  81
  84
  87
  91
  94
  98
  102
  106
  111
  116
  121
  127
  132
  138
  145
  152
  159
  166
  174
  182
  191
  200
  210
Net income, $m
  95
  179
  183
  188
  193
  198
  205
  212
  219
  227
  236
  245
  255
  265
  276
  288
  300
  314
  327
  342
  358
  374
  392
  410
  429
  449
  471
  493
  517
  542
  568

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  72
  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
  408
  343
  350
  359
  370
  381
  393
  406
  421
  437
  453
  471
  490
  511
  532
  555
  580
  605
  633
  661
  692
  724
  758
  793
  831
  871
  912
  956
  1,002
  1,051
  1,102
Adjusted assets (=assets-cash), $m
  336
  343
  350
  359
  370
  381
  393
  406
  421
  437
  453
  471
  490
  511
  532
  555
  580
  605
  633
  661
  692
  724
  758
  793
  831
  871
  912
  956
  1,002
  1,051
  1,102
Revenue / Adjusted assets
  1.188
  1.187
  1.189
  1.189
  1.186
  1.186
  1.188
  1.190
  1.188
  1.188
  1.190
  1.189
  1.190
  1.188
  1.188
  1.189
  1.188
  1.188
  1.188
  1.189
  1.188
  1.188
  1.187
  1.189
  1.188
  1.187
  1.189
  1.188
  1.189
  1.187
  1.188
Average production assets, $m
  167
  171
  174
  179
  184
  190
  196
  202
  210
  217
  226
  235
  244
  254
  265
  276
  289
  301
  315
  329
  344
  360
  377
  395
  414
  433
  454
  476
  499
  523
  548
Working capital, $m
  90
  18
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  42
  44
  47
  49
  51
  54
  56
  59
Total debt, $m
  0
  3
  6
  10
  14
  18
  24
  29
  35
  41
  48
  56
  64
  72
  81
  90
  100
  111
  122
  134
  146
  160
  173
  188
  204
  220
  237
  255
  274
  294
  315
Total liabilities, $m
  138
  141
  144
  148
  152
  156
  162
  167
  173
  179
  186
  194
  202
  210
  219
  228
  238
  249
  260
  272
  284
  298
  311
  326
  342
  358
  375
  393
  412
  432
  453
Total equity, $m
  270
  202
  206
  212
  218
  224
  232
  239
  248
  257
  267
  278
  289
  301
  314
  327
  341
  357
  373
  390
  407
  426
  446
  467
  489
  513
  537
  563
  590
  619
  649
Total liabilities and equity, $m
  408
  343
  350
  360
  370
  380
  394
  406
  421
  436
  453
  472
  491
  511
  533
  555
  579
  606
  633
  662
  691
  724
  757
  793
  831
  871
  912
  956
  1,002
  1,051
  1,102
Debt-to-equity ratio
  0.000
  0.010
  0.030
  0.050
  0.060
  0.080
  0.100
  0.120
  0.140
  0.160
  0.180
  0.200
  0.220
  0.240
  0.260
  0.280
  0.290
  0.310
  0.330
  0.340
  0.360
  0.370
  0.390
  0.400
  0.420
  0.430
  0.440
  0.450
  0.460
  0.470
  0.490
Adjusted equity ratio
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589
  0.589

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  95
  179
  183
  188
  193
  198
  205
  212
  219
  227
  236
  245
  255
  265
  276
  288
  300
  314
  327
  342
  358
  374
  392
  410
  429
  449
  471
  493
  517
  542
  568
Depreciation, amort., depletion, $m
  22
  22
  23
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
  69
  72
Funds from operations, $m
  143
  201
  206
  211
  217
  223
  230
  238
  247
  256
  265
  276
  287
  298
  311
  324
  338
  353
  369
  386
  403
  422
  441
  462
  483
  506
  530
  556
  582
  610
  640
Change in working capital, $m
  4
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
Cash from operations, $m
  139
  201
  205
  211
  216
  223
  230
  238
  246
  255
  264
  275
  286
  297
  310
  323
  337
  352
  367
  384
  401
  420
  439
  460
  481
  504
  528
  553
  580
  608
  637
Maintenance CAPEX, $m
  0
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -63
  -66
  -69
New CAPEX, $m
  -34
  -4
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Cash from investing activities, $m
  -50
  -26
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -51
  -54
  -55
  -58
  -61
  -64
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
Free cash flow, $m
  89
  175
  179
  183
  188
  193
  199
  205
  212
  219
  227
  236
  245
  255
  266
  277
  289
  301
  314
  328
  343
  359
  375
  392
  411
  430
  450
  472
  494
  518
  543
Issuance/(repayment) of debt, $m
  0
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
Issuance/(repurchase) of shares, $m
  3
  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 from financing (excl. dividends), $m  
  3
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  92
  178
  182
  187
  192
  198
  204
  211
  218
  226
  234
  243
  253
  263
  274
  286
  299
  312
  325
  340
  356
  372
  389
  407
  426
  446
  467
  490
  513
  538
  564
Retained Cash Flow (-), $m
  77
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
Prev. year cash balance distribution, $m
 
  72
  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
 
  246
  178
  182
  186
  191
  197
  203
  209
  217
  224
  233
  242
  252
  262
  273
  284
  296
  309
  323
  338
  353
  369
  386
  404
  423
  443
  464
  486
  509
  534
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
 
  236
  163
  158
  153
  148
  143
  137
  131
  124
  118
  111
  103
  96
  88
  80
  72
  64
  57
  50
  43
  37
  31
  25
  21
  16
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  100
  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
  100.0

Lucara Diamond Corp., a diamond mining company, engages in the acquisition, exploration, development, and operation of diamond properties in Africa. Its principal property is 100% owned Karowe Mine that covers an area of 15.3 square kilometers of mining license located in Botswana. The company was formerly known as Bannockburn Resources Limited and changed its name to Lucara Diamond Corp. in August 2007. Lucara Diamond Corp. was incorporated in 1981 and is headquartered in Vancouver, Canada.

FINANCIAL RATIOS  of  Lucara Diamond Corp. (LUC)

Valuation Ratios
P/E Ratio 10.9
Price to Sales 2.6
Price to Book 3.8
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 9.8
Growth Rates
Sales Growth Rate 32.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.3%
Cap. Spend. - 3 Yr. Gr. Rate 25.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 21.8%
Ret/ On Assets - 3 Yr. Avg. 20.7%
Return On Total Capital 30.8%
Ret/ On T. Cap. - 3 Yr. Avg. 28.3%
Return On Equity 30.8%
Return On Equity - 3 Yr. Avg. 28.3%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 65.7%
Gross Margin - 3 Yr. Avg. 64.6%
EBITDA Margin 58.1%
EBITDA Margin - 3 Yr. Avg. 58.7%
Operating Margin 52.6%
Oper. Margin - 3 Yr. Avg. 52.6%
Pre-Tax Margin 52.6%
Pre-Tax Margin - 3 Yr. Avg. 52.7%
Net Profit Margin 23.8%
Net Profit Margin - 3 Yr. Avg. 25.5%
Effective Tax Rate 54.8%
Eff/ Tax Rate - 3 Yr. Avg. 53%
Payout Ratio 212.6%

LUC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LUC stock intrinsic value calculation we used $399 million for the last fiscal year's total revenue generated by Lucara Diamond Corp.. The default revenue input number comes from 2016 income statement of Lucara Diamond Corp.. 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 LUC 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 4.3%, whose default value for LUC is calculated based on our internal credit rating of Lucara Diamond Corp., 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 Lucara Diamond Corp..
    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 LUC stock the variable cost ratio is equal to 39.8%.

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 LUC 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 Lucara Diamond Corp..

Corporate tax rate of 27% is the nominal tax rate for Lucara Diamond Corp.. 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 LUC 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 LUC are equal to 41.9%.

Life of production assets of 7.6 years is the average useful life of capital assets used in Lucara Diamond Corp. 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 LUC is equal to 4.5%. 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 - $270 million for Lucara Diamond Corp. - 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 385.906 million for Lucara Diamond Corp. 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 Lucara Diamond Corp. at the current share price and the inputted number of shares is $1.0 billion.

RELATED COMPANIES Price Int.Val. Rating
DDC Dominion Diamo 17.63 4.91  str.sell
DMI Diamcor Mining 0.720 0.01  str.sell
Stock chart of LUC Financial statements of LUC
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.