Intrinsic value of MEG Energy Corp. - MEG

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$6.20

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$6.20

 
Intrinsic value

$2.85

 
Up/down potential

-54%

 
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 MEG 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 1.8

 

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, %
  -3.32
  26.10
  23.99
  22.09
  20.38
  18.84
  17.46
  16.21
  15.09
  14.08
  13.17
  12.36
  11.62
  10.96
  10.36
  9.83
  9.34
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.51
  6.36
  6.23
  6.10
  5.99
Revenue, $m
  1,862
  2,348
  2,911
  3,554
  4,279
  5,085
  5,973
  6,941
  7,989
  9,114
  10,315
  11,589
  12,936
  14,354
  15,842
  17,398
  19,024
  20,719
  22,484
  24,320
  26,230
  28,214
  30,276
  32,419
  34,646
  36,962
  39,369
  41,875
  44,482
  47,197
  50,026
Variable operating expenses, $m
 
  2,597
  3,220
  3,931
  4,732
  5,624
  6,606
  7,677
  8,836
  10,080
  11,408
  12,818
  14,308
  15,876
  17,521
  19,243
  21,041
  22,915
  24,867
  26,898
  29,010
  31,205
  33,485
  35,855
  38,319
  40,879
  43,543
  46,313
  49,197
  52,200
  55,329
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
  2,323
  2,597
  3,220
  3,931
  4,732
  5,624
  6,606
  7,677
  8,836
  10,080
  11,408
  12,818
  14,308
  15,876
  17,521
  19,243
  21,041
  22,915
  24,867
  26,898
  29,010
  31,205
  33,485
  35,855
  38,319
  40,879
  43,543
  46,313
  49,197
  52,200
  55,329
Operating income, $m
  -461
  -249
  -309
  -377
  -454
  -539
  -633
  -736
  -847
  -966
  -1,093
  -1,228
  -1,371
  -1,522
  -1,679
  -1,844
  -2,017
  -2,196
  -2,383
  -2,578
  -2,780
  -2,991
  -3,209
  -3,436
  -3,672
  -3,918
  -4,173
  -4,439
  -4,715
  -5,003
  -5,303
EBITDA, $m
  39
  380
  471
  575
  692
  822
  966
  1,123
  1,292
  1,474
  1,668
  1,874
  2,092
  2,321
  2,562
  2,814
  3,077
  3,351
  3,636
  3,933
  4,242
  4,563
  4,896
  5,243
  5,603
  5,977
  6,367
  6,772
  7,194
  7,633
  8,090
Interest expense (income), $m
  0
  177
  229
  288
  356
  433
  518
  612
  715
  826
  945
  1,072
  1,207
  1,349
  1,499
  1,657
  1,821
  1,994
  2,173
  2,360
  2,554
  2,756
  2,966
  3,184
  3,411
  3,647
  3,892
  4,147
  4,412
  4,688
  4,975
Earnings before tax, $m
  -636
  -426
  -537
  -665
  -810
  -972
  -1,152
  -1,348
  -1,562
  -1,792
  -2,038
  -2,300
  -2,578
  -2,871
  -3,179
  -3,501
  -3,838
  -4,190
  -4,556
  -4,938
  -5,334
  -5,747
  -6,175
  -6,621
  -7,084
  -7,565
  -8,065
  -8,585
  -9,127
  -9,691
  -10,278
Tax expense, $m
  -207
  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
  -429
  -426
  -537
  -665
  -810
  -972
  -1,152
  -1,348
  -1,562
  -1,792
  -2,038
  -2,300
  -2,578
  -2,871
  -3,179
  -3,501
  -3,838
  -4,190
  -4,556
  -4,938
  -5,334
  -5,747
  -6,175
  -6,621
  -7,084
  -7,565
  -8,065
  -8,585
  -9,127
  -9,691
  -10,278

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  156
  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
  8,921
  11,075
  13,732
  16,766
  20,183
  23,986
  28,174
  32,742
  37,684
  42,991
  48,655
  54,667
  61,020
  67,707
  74,724
  82,067
  89,736
  97,731
  106,057
  114,719
  123,724
  133,085
  142,811
  152,919
  163,425
  174,347
  185,705
  197,522
  209,822
  222,630
  235,974
Adjusted assets (=assets-cash), $m
  8,765
  11,075
  13,732
  16,766
  20,183
  23,986
  28,174
  32,742
  37,684
  42,991
  48,655
  54,667
  61,020
  67,707
  74,724
  82,067
  89,736
  97,731
  106,057
  114,719
  123,724
  133,085
  142,811
  152,919
  163,425
  174,347
  185,705
  197,522
  209,822
  222,630
  235,974
Revenue / Adjusted assets
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
Average production assets, $m
  7,876
  9,932
  12,315
  15,035
  18,100
  21,510
  25,266
  29,362
  33,793
  38,552
  43,632
  49,023
  54,720
  60,717
  67,010
  73,595
  80,472
  87,642
  95,108
  102,875
  110,951
  119,345
  128,067
  137,132
  146,553
  156,347
  166,533
  177,130
  188,160
  199,645
  211,612
Working capital, $m
  97
  -54
  -67
  -82
  -98
  -117
  -137
  -160
  -184
  -210
  -237
  -267
  -298
  -330
  -364
  -400
  -438
  -477
  -517
  -559
  -603
  -649
  -696
  -746
  -797
  -850
  -905
  -963
  -1,023
  -1,086
  -1,151
Total debt, $m
  5,071
  6,536
  8,239
  10,184
  12,374
  14,812
  17,497
  20,425
  23,592
  26,994
  30,625
  34,479
  38,551
  42,837
  47,335
  52,042
  56,958
  62,083
  67,420
  72,972
  78,744
  84,744
  90,979
  97,458
  104,192
  111,193
  118,474
  126,049
  133,933
  142,143
  150,696
Total liabilities, $m
  5,634
  7,099
  8,802
  10,747
  12,937
  15,375
  18,060
  20,988
  24,155
  27,557
  31,188
  35,042
  39,114
  43,400
  47,898
  52,605
  57,521
  62,646
  67,983
  73,535
  79,307
  85,307
  91,542
  98,021
  104,755
  111,756
  119,037
  126,612
  134,496
  142,706
  151,259
Total equity, $m
  3,287
  3,976
  4,930
  6,019
  7,246
  8,611
  10,115
  11,755
  13,529
  15,434
  17,467
  19,625
  21,906
  24,307
  26,826
  29,462
  32,215
  35,086
  38,074
  41,184
  44,417
  47,777
  51,269
  54,898
  58,670
  62,590
  66,668
  70,910
  75,326
  79,924
  84,715
Total liabilities and equity, $m
  8,921
  11,075
  13,732
  16,766
  20,183
  23,986
  28,175
  32,743
  37,684
  42,991
  48,655
  54,667
  61,020
  67,707
  74,724
  82,067
  89,736
  97,732
  106,057
  114,719
  123,724
  133,084
  142,811
  152,919
  163,425
  174,346
  185,705
  197,522
  209,822
  222,630
  235,974
Debt-to-equity ratio
  1.543
  1.640
  1.670
  1.690
  1.710
  1.720
  1.730
  1.740
  1.740
  1.750
  1.750
  1.760
  1.760
  1.760
  1.760
  1.770
  1.770
  1.770
  1.770
  1.770
  1.770
  1.770
  1.770
  1.780
  1.780
  1.780
  1.780
  1.780
  1.780
  1.780
  1.780
Adjusted equity ratio
  0.357
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359
  0.359

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -429
  -426
  -537
  -665
  -810
  -972
  -1,152
  -1,348
  -1,562
  -1,792
  -2,038
  -2,300
  -2,578
  -2,871
  -3,179
  -3,501
  -3,838
  -4,190
  -4,556
  -4,938
  -5,334
  -5,747
  -6,175
  -6,621
  -7,084
  -7,565
  -8,065
  -8,585
  -9,127
  -9,691
  -10,278
Depreciation, amort., depletion, $m
  500
  629
  779
  952
  1,146
  1,361
  1,599
  1,858
  2,139
  2,440
  2,761
  3,103
  3,463
  3,843
  4,241
  4,658
  5,093
  5,547
  6,019
  6,511
  7,022
  7,553
  8,106
  8,679
  9,276
  9,895
  10,540
  11,211
  11,909
  12,636
  13,393
Funds from operations, $m
  -119
  203
  242
  286
  336
  389
  448
  510
  577
  648
  723
  802
  885
  972
  1,063
  1,157
  1,255
  1,357
  1,463
  1,573
  1,688
  1,807
  1,930
  2,059
  2,192
  2,331
  2,475
  2,625
  2,782
  2,945
  3,115
Change in working capital, $m
  -25
  -11
  -13
  -15
  -17
  -19
  -20
  -22
  -24
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
Cash from operations, $m
  -94
  -6
  255
  301
  352
  408
  468
  532
  601
  674
  751
  832
  916
  1,005
  1,097
  1,193
  1,293
  1,396
  1,504
  1,616
  1,732
  1,852
  1,978
  2,108
  2,243
  2,384
  2,531
  2,683
  2,842
  3,008
  3,180
Maintenance CAPEX, $m
  0
  -498
  -629
  -779
  -952
  -1,146
  -1,361
  -1,599
  -1,858
  -2,139
  -2,440
  -2,761
  -3,103
  -3,463
  -3,843
  -4,241
  -4,658
  -5,093
  -5,547
  -6,019
  -6,511
  -7,022
  -7,553
  -8,106
  -8,679
  -9,276
  -9,895
  -10,540
  -11,211
  -11,909
  -12,636
New CAPEX, $m
  -140
  -2,056
  -2,383
  -2,720
  -3,064
  -3,411
  -3,756
  -4,096
  -4,431
  -4,759
  -5,079
  -5,392
  -5,697
  -5,997
  -6,292
  -6,585
  -6,877
  -7,170
  -7,466
  -7,767
  -8,076
  -8,394
  -8,723
  -9,064
  -9,421
  -9,794
  -10,186
  -10,597
  -11,030
  -11,486
  -11,966
Cash from investing activities, $m
  -131
  -2,554
  -3,012
  -3,499
  -4,016
  -4,557
  -5,117
  -5,695
  -6,289
  -6,898
  -7,519
  -8,153
  -8,800
  -9,460
  -10,135
  -10,826
  -11,535
  -12,263
  -13,013
  -13,786
  -14,587
  -15,416
  -16,276
  -17,170
  -18,100
  -19,070
  -20,081
  -21,137
  -22,241
  -23,395
  -24,602
Free cash flow, $m
  -225
  -2,561
  -2,756
  -3,199
  -3,664
  -4,148
  -4,649
  -5,163
  -5,688
  -6,224
  -6,768
  -7,321
  -7,884
  -8,456
  -9,038
  -9,633
  -10,242
  -10,867
  -11,509
  -12,171
  -12,855
  -13,564
  -14,298
  -15,062
  -15,857
  -16,686
  -17,551
  -18,454
  -19,399
  -20,387
  -21,422
Issuance/(repayment) of debt, $m
  -17
  1,482
  1,703
  1,945
  2,190
  2,438
  2,684
  2,928
  3,168
  3,402
  3,631
  3,854
  4,072
  4,287
  4,498
  4,707
  4,916
  5,125
  5,337
  5,552
  5,773
  6,000
  6,235
  6,479
  6,734
  7,001
  7,281
  7,575
  7,884
  8,210
  8,554
Issuance/(repurchase) of shares, $m
  0
  1,768
  2,007
  2,343
  2,700
  3,076
  3,468
  3,875
  4,295
  4,727
  5,171
  5,626
  6,092
  6,570
  7,060
  7,563
  8,080
  8,612
  9,161
  9,729
  10,316
  10,924
  11,555
  12,212
  12,895
  13,606
  14,348
  15,122
  15,930
  16,775
  17,659
Cash from financing (excl. dividends), $m  
  -17
  3,250
  3,710
  4,288
  4,890
  5,514
  6,152
  6,803
  7,463
  8,129
  8,802
  9,480
  10,164
  10,857
  11,558
  12,270
  12,996
  13,737
  14,498
  15,281
  16,089
  16,924
  17,790
  18,691
  19,629
  20,607
  21,629
  22,697
  23,814
  24,985
  26,213
Total cash flow (excl. dividends), $m
  -252
  -1,079
  -1,053
  -1,254
  -1,473
  -1,710
  -1,965
  -2,235
  -2,521
  -2,822
  -3,138
  -3,467
  -3,811
  -4,169
  -4,541
  -4,926
  -5,327
  -5,742
  -6,172
  -6,619
  -7,083
  -7,564
  -8,064
  -8,583
  -9,123
  -9,685
  -10,270
  -10,879
  -11,515
  -12,177
  -12,868
Retained Cash Flow (-), $m
  391
  -828
  -954
  -1,089
  -1,227
  -1,365
  -1,503
  -1,640
  -1,774
  -1,905
  -2,033
  -2,158
  -2,281
  -2,401
  -2,519
  -2,636
  -2,753
  -2,870
  -2,989
  -3,110
  -3,233
  -3,360
  -3,492
  -3,629
  -3,772
  -3,921
  -4,078
  -4,242
  -4,416
  -4,598
  -4,791
Prev. year cash balance distribution, $m
 
  139
  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, %
 
  10.80
  11.34
  11.91
  12.50
  13.13
  13.78
  14.47
  15.20
  15.96
  16.75
  17.59
  18.47
  19.40
  20.37
  21.38
  22.45
  23.58
  24.75
  25.99
  27.29
  28.66
  30.09
  31.59
  33.17
  34.83
  36.57
  38.40
  40.32
  42.34
  44.45
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
  55.5
  32.2
  19.2
  11.7
  7.3
  4.6
  3.0
  2.0
  1.3
  0.9
  0.6
  0.4
  0.3
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

MEG Energy Corp. develops and produces in situ oil sands in Alberta, Canada. The company is developing oil recovery projects that utilize steam assisted gravity drainage extraction methods. It owns a 100% working interest in approximately 900 square miles of oil sands leases located in the southern Athabasca oil sands region of Alberta. The company also owns a 100% interest in the Stonefell Terminal, which offers 900,000 barrels of terminalling and storage capacity located near Edmonton, Alberta; and a 50% interest in the Access Pipeline, a dual pipeline to transport diluent north from the Edmonton area to the Athabasca oil sands area, as well as a blend of bitumen and diluent south from the Christina Lake Project into the Edmonton area. As of December 31, 2015, it had 3.0 billion barrels of proved plus probable bitumen reserves. MEG Energy Corp. was incorporated in 1999 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  MEG Energy Corp. (MEG)

Valuation Ratios
P/E Ratio -3.3
Price to Sales 0.8
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow -14.9
Price to Free Cash Flow -6
Growth Rates
Sales Growth Rate -3.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -55.4%
Cap. Spend. - 3 Yr. Gr. Rate -42.5%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 153.8%
Total Debt to Equity 154.3%
Interest Coverage 0
Management Effectiveness
Return On Assets -4.7%
Ret/ On Assets - 3 Yr. Avg. -6%
Return On Total Capital -5%
Ret/ On T. Cap. - 3 Yr. Avg. -6.4%
Return On Equity -12.3%
Return On Equity - 3 Yr. Avg. -14.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 34.5%
Gross Margin - 3 Yr. Avg. 41.4%
EBITDA Margin -7.3%
EBITDA Margin - 3 Yr. Avg. -12%
Operating Margin -24.8%
Oper. Margin - 3 Yr. Avg. -5.4%
Pre-Tax Margin -34.2%
Pre-Tax Margin - 3 Yr. Avg. -33.5%
Net Profit Margin -23%
Net Profit Margin - 3 Yr. Avg. -29.2%
Effective Tax Rate 32.5%
Eff/ Tax Rate - 3 Yr. Avg. -130.1%
Payout Ratio 0%

MEG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MEG stock intrinsic value calculation we used $1862 million for the last fiscal year's total revenue generated by MEG Energy Corp.. The default revenue input number comes from 2016 income statement of MEG Energy 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 MEG stock valuation model: a) initial revenue growth rate of 26.1% 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 10.8%, whose default value for MEG is calculated based on our internal credit rating of MEG Energy 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 MEG Energy 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 MEG stock the variable cost ratio is equal to 110.6%.

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 MEG 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 MEG Energy Corp..

Corporate tax rate of 27% is the nominal tax rate for MEG Energy 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 MEG 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 MEG are equal to 423%.

Life of production assets of 15.8 years is the average useful life of capital assets used in MEG Energy 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 MEG is equal to -2.3%. 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 - $3287 million for MEG Energy 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 288.084 million for MEG Energy 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 MEG Energy Corp. at the current share price and the inputted number of shares is $1.8 billion.


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