Intrinsic value of Mullen Group Ltd. - MTL

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$14.71

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$14.71

 
Intrinsic value

$1.89

 
Up/down potential

-87%

 
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 MTL 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 1.5

 

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, %
  -14.74
  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
  1,035
  1,056
  1,080
  1,108
  1,139
  1,173
  1,211
  1,253
  1,297
  1,345
  1,397
  1,452
  1,511
  1,574
  1,641
  1,711
  1,786
  1,866
  1,950
  2,038
  2,132
  2,231
  2,335
  2,445
  2,561
  2,683
  2,811
  2,946
  3,088
  3,238
  3,395
Variable operating expenses, $m
 
  1,017
  1,040
  1,065
  1,094
  1,126
  1,162
  1,200
  1,242
  1,286
  1,334
  1,351
  1,405
  1,464
  1,526
  1,592
  1,661
  1,735
  1,813
  1,896
  1,983
  2,075
  2,172
  2,274
  2,381
  2,495
  2,614
  2,740
  2,872
  3,011
  3,157
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
  963
  1,017
  1,040
  1,065
  1,094
  1,126
  1,162
  1,200
  1,242
  1,286
  1,334
  1,351
  1,405
  1,464
  1,526
  1,592
  1,661
  1,735
  1,813
  1,896
  1,983
  2,075
  2,172
  2,274
  2,381
  2,495
  2,614
  2,740
  2,872
  3,011
  3,157
Operating income, $m
  72
  39
  40
  42
  45
  47
  50
  52
  56
  59
  63
  102
  106
  110
  115
  120
  125
  131
  136
  143
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
EBITDA, $m
  157
  138
  142
  145
  149
  154
  159
  164
  170
  176
  183
  190
  198
  206
  215
  224
  234
  244
  255
  267
  279
  292
  306
  320
  336
  351
  368
  386
  405
  424
  445
Interest expense (income), $m
  34
  26
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  64
  67
  71
  74
  78
  83
  87
  92
  97
  102
Earnings before tax, $m
  72
  13
  14
  15
  16
  18
  19
  21
  22
  24
  26
  63
  66
  68
  70
  73
  76
  79
  82
  85
  89
  93
  96
  101
  105
  109
  114
  119
  124
  130
  136
Tax expense, $m
  20
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
Net income, $m
  52
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  46
  48
  50
  51
  53
  55
  58
  60
  62
  65
  68
  70
  73
  77
  80
  83
  87
  91
  95
  99

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  270
  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
  1,873
  1,634
  1,672
  1,715
  1,763
  1,816
  1,875
  1,939
  2,008
  2,083
  2,162
  2,248
  2,339
  2,436
  2,540
  2,649
  2,765
  2,888
  3,018
  3,155
  3,300
  3,453
  3,615
  3,785
  3,964
  4,153
  4,351
  4,560
  4,781
  5,012
  5,256
Adjusted assets (=assets-cash), $m
  1,603
  1,634
  1,672
  1,715
  1,763
  1,816
  1,875
  1,939
  2,008
  2,083
  2,162
  2,248
  2,339
  2,436
  2,540
  2,649
  2,765
  2,888
  3,018
  3,155
  3,300
  3,453
  3,615
  3,785
  3,964
  4,153
  4,351
  4,560
  4,781
  5,012
  5,256
Revenue / Adjusted assets
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
  0.646
Average production assets, $m
  998
  1,018
  1,041
  1,068
  1,098
  1,131
  1,168
  1,207
  1,251
  1,297
  1,347
  1,400
  1,457
  1,517
  1,582
  1,650
  1,722
  1,799
  1,879
  1,965
  2,055
  2,151
  2,251
  2,357
  2,469
  2,586
  2,710
  2,840
  2,977
  3,121
  3,273
Working capital, $m
  243
  111
  113
  116
  120
  123
  127
  132
  136
  141
  147
  152
  159
  165
  172
  180
  188
  196
  205
  214
  224
  234
  245
  257
  269
  282
  295
  309
  324
  340
  356
Total debt, $m
  696
  576
  594
  615
  638
  664
  692
  723
  757
  793
  832
  873
  918
  965
  1,015
  1,068
  1,124
  1,184
  1,247
  1,313
  1,384
  1,458
  1,536
  1,619
  1,706
  1,797
  1,893
  1,995
  2,102
  2,214
  2,332
Total liabilities, $m
  913
  793
  811
  832
  855
  881
  909
  940
  974
  1,010
  1,049
  1,090
  1,135
  1,182
  1,232
  1,285
  1,341
  1,401
  1,464
  1,530
  1,601
  1,675
  1,753
  1,836
  1,923
  2,014
  2,110
  2,212
  2,319
  2,431
  2,549
Total equity, $m
  960
  842
  861
  883
  908
  935
  966
  999
  1,034
  1,073
  1,114
  1,158
  1,205
  1,255
  1,308
  1,364
  1,424
  1,487
  1,554
  1,625
  1,700
  1,778
  1,862
  1,949
  2,041
  2,139
  2,241
  2,349
  2,462
  2,581
  2,707
Total liabilities and equity, $m
  1,873
  1,635
  1,672
  1,715
  1,763
  1,816
  1,875
  1,939
  2,008
  2,083
  2,163
  2,248
  2,340
  2,437
  2,540
  2,649
  2,765
  2,888
  3,018
  3,155
  3,301
  3,453
  3,615
  3,785
  3,964
  4,153
  4,351
  4,561
  4,781
  5,012
  5,256
Debt-to-equity ratio
  0.725
  0.680
  0.690
  0.700
  0.700
  0.710
  0.720
  0.720
  0.730
  0.740
  0.750
  0.750
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.800
  0.810
  0.810
  0.820
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
  0.860
  0.860
Adjusted equity ratio
  0.430
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  52
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  46
  48
  50
  51
  53
  55
  58
  60
  62
  65
  68
  70
  73
  77
  80
  83
  87
  91
  95
  99
Depreciation, amort., depletion, $m
  85
  100
  101
  103
  105
  107
  109
  112
  114
  117
  120
  89
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  149
  156
  164
  172
  180
  188
  198
  207
Funds from operations, $m
  163
  109
  111
  114
  117
  120
  123
  127
  131
  135
  140
  135
  140
  146
  152
  158
  164
  171
  179
  187
  195
  204
  213
  223
  233
  244
  255
  267
  279
  292
  306
Change in working capital, $m
  -11
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  17
Cash from operations, $m
  174
  81
  109
  111
  113
  116
  119
  122
  126
  130
  134
  129
  134
  139
  145
  150
  157
  163
  170
  177
  185
  193
  202
  211
  221
  231
  241
  253
  264
  277
  290
Maintenance CAPEX, $m
  0
  -63
  -64
  -66
  -68
  -69
  -72
  -74
  -76
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -109
  -114
  -119
  -124
  -130
  -136
  -142
  -149
  -156
  -164
  -172
  -180
  -188
  -198
New CAPEX, $m
  -21
  -20
  -23
  -27
  -30
  -33
  -37
  -40
  -43
  -46
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -77
  -81
  -86
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -130
  -137
  -144
  -152
Cash from investing activities, $m
  -30
  -83
  -87
  -93
  -98
  -102
  -109
  -114
  -119
  -125
  -132
  -138
  -146
  -152
  -160
  -168
  -176
  -186
  -195
  -205
  -214
  -225
  -236
  -248
  -261
  -274
  -288
  -302
  -317
  -332
  -350
Free cash flow, $m
  144
  -2
  21
  18
  16
  13
  11
  9
  6
  4
  2
  -9
  -12
  -14
  -16
  -18
  -20
  -22
  -25
  -27
  -30
  -32
  -35
  -37
  -40
  -43
  -46
  -49
  -52
  -56
  -59
Issuance/(repayment) of debt, $m
  -77
  16
  18
  21
  23
  26
  28
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
  60
  63
  67
  70
  74
  78
  82
  87
  92
  96
  101
  107
  112
  118
Issuance/(repurchase) of shares, $m
  153
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  12
  14
  17
  19
  21
  24
  26
  29
  31
  34
  37
  40
  42
  46
  49
  52
  55
  59
  63
  67
Cash from financing (excl. dividends), $m  
  42
  16
  18
  21
  23
  26
  28
  31
  34
  36
  39
  53
  58
  64
  69
  74
  80
  86
  92
  98
  104
  111
  118
  124
  133
  141
  148
  156
  166
  175
  185
Total cash flow (excl. dividends), $m
  183
  14
  39
  39
  39
  39
  39
  40
  40
  40
  41
  32
  33
  33
  34
  35
  36
  37
  38
  39
  41
  42
  44
  45
  47
  48
  50
  52
  54
  56
  59
Retained Cash Flow (-), $m
  -153
  -16
  -19
  -22
  -25
  -28
  -30
  -33
  -36
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -79
  -83
  -88
  -92
  -97
  -102
  -108
  -113
  -119
  -125
Prev. year cash balance distribution, $m
 
  134
  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
 
  132
  20
  17
  14
  12
  9
  7
  4
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  126
  18
  14
  11
  9
  6
  4
  3
  1
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.3
  98.5
  97.7
  96.7
  95.7
  94.7
  93.6
  92.4
  91.3
  90.1
  88.8
  87.6
  86.3
  85.1
  83.8
  82.5
  81.2
  79.9
  78.6
  77.3

Mullen Group Ltd. provides transportation and related services to the oil and natural gas industry in Western Canada. The company’s Oilfield Services segment offers specialized transportation, drilling, well-servicing, and dewatering services, which include transporting of shipments; conductor pipe setting; core drilling; casing setting; and transportation, handling, storage, and computerized inventory management of oilfield fluids, tubulars and drilling mud, pipe stockpiling, and stringing. This segment also provides services related to the processing and production of heavy oil, such as well servicing and handling, and transportation and disposal of fluids, as well as frac support, dredging, water management, dewatering, pond reclamation, hydrovac excavation, and drilling rig relocation services. Its Trucking/Logistics segment offers truckload and less-than-truckload general freight services in Canada and the United States. This segment transports general freight; specialized commodities, such as cable, pipe, and steel; over-dimensional loads, including heavy equipment, compressors, and over-sized goods; and dry bulk commodities comprising cement and frac sand. This segment is also involved in the provision of logistics, warehousing and distribution, transload, and intermodal services; and in the production, excavation, and transportation of aggregate and industrial products. The company owns and leases 2,820 power units and has access to 1,095 power units; 8,960 trailers; 33 hydraulic single rigs, 12 auger drilling rigs, and 1 dual rotary rig; 200 pieces of earthmoving equipment; 730 light duty vehicles; 580 skid and trailer mounted dri-prime diesel pumps; 544 submersible pumps; 130 portable diesel generators; 46 sediment control tanks; 19 fusion machines; 46 portable engineered barges; and 9 portable dredges. Mullen Group Ltd. was founded in 1949 and is headquartered in Okotoks, Canada.

FINANCIAL RATIOS  of  Mullen Group Ltd. (MTL)

Valuation Ratios
P/E Ratio 29.3
Price to Sales 1.5
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 8.8
Price to Free Cash Flow 10
Growth Rates
Sales Growth Rate -14.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -71.2%
Cap. Spend. - 3 Yr. Gr. Rate -31%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 58.3%
Total Debt to Equity 72.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 4%
Return On Total Capital 3.2%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 5.9%
Return On Equity - 3 Yr. Avg. 6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 31.2%
Gross Margin - 3 Yr. Avg. 30.9%
EBITDA Margin 18.5%
EBITDA Margin - 3 Yr. Avg. 16.5%
Operating Margin 7%
Oper. Margin - 3 Yr. Avg. 6.6%
Pre-Tax Margin 7%
Pre-Tax Margin - 3 Yr. Avg. 6.6%
Net Profit Margin 5%
Net Profit Margin - 3 Yr. Avg. 4.2%
Effective Tax Rate 27.8%
Eff/ Tax Rate - 3 Yr. Avg. 41.9%
Payout Ratio 115.4%

MTL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MTL stock intrinsic value calculation we used $1035 million for the last fiscal year's total revenue generated by Mullen Group Ltd.. The default revenue input number comes from 2016 income statement of Mullen Group 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 MTL 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 5%, whose default value for MTL is calculated based on our internal credit rating of Mullen Group 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 Mullen Group 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 MTL stock the variable cost ratio is equal to 96.4%.

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 MTL 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 4.6% for Mullen Group Ltd..

Corporate tax rate of 27% is the nominal tax rate for Mullen Group 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 MTL 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 MTL are equal to 96.4%.

Life of production assets of 15.8 years is the average useful life of capital assets used in Mullen Group 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 MTL is equal to 10.5%. 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 - $960 million for Mullen Group 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 101.807 million for Mullen Group 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 Mullen Group Ltd. at the current share price and the inputted number of shares is $1.5 billion.


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Stock chart of MTL Financial statements of MTL
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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