Intrinsic value of New Gold Inc. - NGD

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$4.07

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$4.07

 
Intrinsic value

$1.18

 
Up/down potential

-71%

 
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 NGD 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 2.4

 

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, %
  -4.05
  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
  924
  942
  964
  989
  1,017
  1,048
  1,081
  1,118
  1,158
  1,201
  1,247
  1,296
  1,349
  1,405
  1,465
  1,528
  1,595
  1,666
  1,741
  1,820
  1,903
  1,992
  2,085
  2,183
  2,286
  2,395
  2,509
  2,630
  2,757
  2,891
  3,031
Variable operating expenses, $m
 
  1,191
  1,219
  1,250
  1,285
  1,324
  1,367
  1,413
  1,464
  1,518
  1,576
  1,639
  1,705
  1,776
  1,851
  1,931
  2,016
  2,105
  2,200
  2,300
  2,406
  2,517
  2,635
  2,759
  2,890
  3,027
  3,172
  3,324
  3,485
  3,654
  3,831
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
  903
  1,191
  1,219
  1,250
  1,285
  1,324
  1,367
  1,413
  1,464
  1,518
  1,576
  1,639
  1,705
  1,776
  1,851
  1,931
  2,016
  2,105
  2,200
  2,300
  2,406
  2,517
  2,635
  2,759
  2,890
  3,027
  3,172
  3,324
  3,485
  3,654
  3,831
Operating income, $m
  21
  -249
  -255
  -261
  -268
  -277
  -285
  -295
  -306
  -317
  -329
  -342
  -356
  -371
  -387
  -403
  -421
  -440
  -460
  -480
  -502
  -526
  -550
  -576
  -604
  -632
  -663
  -694
  -728
  -763
  -800
EBITDA, $m
  366
  102
  104
  107
  110
  113
  117
  121
  125
  130
  135
  140
  146
  152
  159
  165
  173
  180
  188
  197
  206
  216
  226
  236
  248
  259
  272
  285
  299
  313
  328
Interest expense (income), $m
  75
  79
  83
  86
  91
  96
  101
  108
  114
  121
  129
  137
  146
  156
  166
  176
  188
  200
  213
  226
  240
  255
  271
  288
  306
  324
  344
  364
  386
  409
  433
Earnings before tax, $m
  3
  -328
  -337
  -348
  -359
  -372
  -387
  -403
  -420
  -438
  -458
  -480
  -502
  -527
  -552
  -580
  -609
  -640
  -672
  -707
  -743
  -781
  -822
  -864
  -909
  -956
  -1,006
  -1,059
  -1,114
  -1,172
  -1,233
Tax expense, $m
  -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
  0
  0
  0
  0
  0
  0
Net income, $m
  4
  -328
  -337
  -348
  -359
  -372
  -387
  -403
  -420
  -438
  -458
  -480
  -502
  -527
  -552
  -580
  -609
  -640
  -672
  -707
  -743
  -781
  -822
  -864
  -909
  -956
  -1,006
  -1,059
  -1,114
  -1,172
  -1,233

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  251
  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
  5,334
  5,178
  5,298
  5,434
  5,587
  5,756
  5,942
  6,144
  6,363
  6,599
  6,852
  7,123
  7,412
  7,720
  8,047
  8,395
  8,762
  9,152
  9,564
  9,999
  10,458
  10,943
  11,454
  11,993
  12,561
  13,159
  13,788
  14,451
  15,148
  15,882
  16,654
Adjusted assets (=assets-cash), $m
  5,083
  5,178
  5,298
  5,434
  5,587
  5,756
  5,942
  6,144
  6,363
  6,599
  6,852
  7,123
  7,412
  7,720
  8,047
  8,395
  8,762
  9,152
  9,564
  9,999
  10,458
  10,943
  11,454
  11,993
  12,561
  13,159
  13,788
  14,451
  15,148
  15,882
  16,654
Revenue / Adjusted assets
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
  0.182
Average production assets, $m
  4,060
  4,140
  4,236
  4,344
  4,467
  4,602
  4,751
  4,912
  5,088
  5,276
  5,479
  5,695
  5,926
  6,173
  6,434
  6,712
  7,006
  7,317
  7,646
  7,994
  8,362
  8,749
  9,158
  9,589
  10,043
  10,521
  11,024
  11,554
  12,112
  12,698
  13,315
Working capital, $m
  316
  66
  67
  69
  71
  73
  76
  78
  81
  84
  87
  91
  94
  98
  103
  107
  112
  117
  122
  127
  133
  139
  146
  153
  160
  168
  176
  184
  193
  202
  212
Total debt, $m
  1,202
  1,251
  1,310
  1,377
  1,453
  1,537
  1,629
  1,729
  1,838
  1,955
  2,081
  2,215
  2,359
  2,511
  2,674
  2,846
  3,028
  3,221
  3,426
  3,641
  3,869
  4,110
  4,363
  4,631
  4,912
  5,209
  5,521
  5,850
  6,196
  6,560
  6,942
Total liabilities, $m
  2,520
  2,569
  2,628
  2,695
  2,771
  2,855
  2,947
  3,047
  3,156
  3,273
  3,399
  3,533
  3,677
  3,829
  3,992
  4,164
  4,346
  4,539
  4,744
  4,959
  5,187
  5,428
  5,681
  5,949
  6,230
  6,527
  6,839
  7,168
  7,514
  7,878
  8,260
Total equity, $m
  2,814
  2,610
  2,670
  2,739
  2,816
  2,901
  2,995
  3,097
  3,207
  3,326
  3,454
  3,590
  3,736
  3,891
  4,056
  4,231
  4,416
  4,613
  4,820
  5,039
  5,271
  5,515
  5,773
  6,044
  6,331
  6,632
  6,949
  7,283
  7,635
  8,005
  8,393
Total liabilities and equity, $m
  5,334
  5,179
  5,298
  5,434
  5,587
  5,756
  5,942
  6,144
  6,363
  6,599
  6,853
  7,123
  7,413
  7,720
  8,048
  8,395
  8,762
  9,152
  9,564
  9,998
  10,458
  10,943
  11,454
  11,993
  12,561
  13,159
  13,788
  14,451
  15,149
  15,883
  16,653
Debt-to-equity ratio
  0.427
  0.480
  0.490
  0.500
  0.520
  0.530
  0.540
  0.560
  0.570
  0.590
  0.600
  0.620
  0.630
  0.650
  0.660
  0.670
  0.690
  0.700
  0.710
  0.720
  0.730
  0.750
  0.760
  0.770
  0.780
  0.790
  0.790
  0.800
  0.810
  0.820
  0.830
Adjusted equity ratio
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504
  0.504

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  -328
  -337
  -348
  -359
  -372
  -387
  -403
  -420
  -438
  -458
  -480
  -502
  -527
  -552
  -580
  -609
  -640
  -672
  -707
  -743
  -781
  -822
  -864
  -909
  -956
  -1,006
  -1,059
  -1,114
  -1,172
  -1,233
Depreciation, amort., depletion, $m
  345
  351
  359
  368
  379
  390
  403
  416
  431
  447
  464
  483
  502
  523
  545
  569
  594
  620
  648
  677
  709
  741
  776
  813
  851
  892
  934
  979
  1,026
  1,076
  1,128
Funds from operations, $m
  346
  23
  22
  21
  19
  18
  16
  14
  11
  9
  6
  3
  0
  -4
  -7
  -11
  -15
  -19
  -24
  -29
  -34
  -40
  -45
  -52
  -58
  -65
  -72
  -80
  -88
  -96
  -105
Change in working capital, $m
  -35
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Cash from operations, $m
  381
  294
  20
  19
  17
  15
  13
  11
  8
  6
  3
  0
  -4
  -7
  -11
  -15
  -20
  -24
  -29
  -35
  -40
  -46
  -52
  -58
  -65
  -72
  -80
  -88
  -96
  -105
  -115
Maintenance CAPEX, $m
  0
  -344
  -351
  -359
  -368
  -379
  -390
  -403
  -416
  -431
  -447
  -464
  -483
  -502
  -523
  -545
  -569
  -594
  -620
  -648
  -677
  -709
  -741
  -776
  -813
  -851
  -892
  -934
  -979
  -1,026
  -1,076
New CAPEX, $m
  -766
  -81
  -95
  -109
  -122
  -135
  -149
  -162
  -175
  -189
  -202
  -217
  -231
  -246
  -262
  -278
  -294
  -311
  -329
  -348
  -367
  -388
  -409
  -431
  -454
  -478
  -503
  -530
  -558
  -587
  -617
Cash from investing activities, $m
  -768
  -425
  -446
  -468
  -490
  -514
  -539
  -565
  -591
  -620
  -649
  -681
  -714
  -748
  -785
  -823
  -863
  -905
  -949
  -996
  -1,044
  -1,097
  -1,150
  -1,207
  -1,267
  -1,329
  -1,395
  -1,464
  -1,537
  -1,613
  -1,693
Free cash flow, $m
  -387
  -131
  -426
  -449
  -473
  -499
  -525
  -553
  -583
  -614
  -647
  -681
  -718
  -756
  -796
  -838
  -883
  -930
  -979
  -1,030
  -1,085
  -1,142
  -1,202
  -1,265
  -1,332
  -1,402
  -1,475
  -1,552
  -1,633
  -1,718
  -1,808
Issuance/(repayment) of debt, $m
  135
  49
  59
  68
  76
  84
  92
  100
  109
  117
  126
  134
  143
  153
  162
  172
  182
  193
  204
  216
  228
  240
  254
  267
  282
  297
  312
  329
  346
  364
  383
Issuance/(repurchase) of shares, $m
  13
  0
  427
  450
  474
  500
  527
  555
  585
  616
  649
  683
  720
  758
  799
  841
  886
  933
  982
  1,034
  1,089
  1,146
  1,206
  1,270
  1,336
  1,406
  1,480
  1,557
  1,639
  1,724
  1,814
Cash from financing (excl. dividends), $m  
  173
  49
  486
  518
  550
  584
  619
  655
  694
  733
  775
  817
  863
  911
  961
  1,013
  1,068
  1,126
  1,186
  1,250
  1,317
  1,386
  1,460
  1,537
  1,618
  1,703
  1,792
  1,886
  1,985
  2,088
  2,197
Total cash flow (excl. dividends), $m
  -202
  -82
  -367
  -381
  -397
  -415
  -433
  -453
  -474
  -497
  -521
  -547
  -574
  -603
  -634
  -666
  -700
  -736
  -774
  -815
  -857
  -902
  -949
  -998
  -1,050
  -1,105
  -1,163
  -1,223
  -1,287
  -1,354
  -1,425
Retained Cash Flow (-), $m
  23
  -47
  -60
  -69
  -77
  -85
  -94
  -102
  -110
  -119
  -128
  -137
  -146
  -155
  -165
  -175
  -185
  -196
  -208
  -219
  -232
  -244
  -258
  -272
  -286
  -301
  -317
  -334
  -351
  -370
  -389
Prev. year cash balance distribution, $m
 
  251
  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
 
  122
  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, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  116
  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
  100.0
  84.1
  70.4
  58.6
  48.6
  40.2
  33.1
  27.2
  22.2
  18.1
  14.8
  12.0
  9.7
  7.8
  6.3
  5.1
  4.1
  3.3
  2.6
  2.1
  1.7
  1.3
  1.1
  0.9
  0.7
  0.5
  0.4
  0.3
  0.3
  0.2

New Gold, Inc., a gold mining company, engages in the development and operation of mineral properties. The company’s operating properties include the New Afton gold-silver-copper project located in British Columbia, Canada; the Mesquite gold mine situated in Imperial County, California, the United States; the Peak gold-copper mines in New South Wales, Australia; and the Cerro San Pedro gold-silver mine located in the state of San Luis Potosí, Mexico. It also owns 100% interests in the Rainy River gold project in Ontario, Canada; and the Blackwater gold-silver project in central British Columbia, Canada. The company is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  New Gold Inc. (NGD)

Valuation Ratios
P/E Ratio 522.7
Price to Sales 2.3
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 5.5
Price to Free Cash Flow -5.4
Growth Rates
Sales Growth Rate -4%
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 14.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 42.7%
Total Debt to Equity 42.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. -4.2%
Return On Total Capital 0.1%
Ret/ On T. Cap. - 3 Yr. Avg. -6.9%
Return On Equity 0.1%
Return On Equity - 3 Yr. Avg. -9.4%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 76.5%
Gross Margin - 3 Yr. Avg. 77.1%
EBITDA Margin 45.8%
EBITDA Margin - 3 Yr. Avg. 8.2%
Operating Margin 2.3%
Oper. Margin - 3 Yr. Avg. -23.8%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. -33.1%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. -31.2%
Effective Tax Rate -33.3%
Eff/ Tax Rate - 3 Yr. Avg. -5.1%
Payout Ratio 0%

NGD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NGD stock intrinsic value calculation we used $924 million for the last fiscal year's total revenue generated by New Gold Inc.. The default revenue input number comes from 2016 income statement of New Gold 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 NGD 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 4.9%, whose default value for NGD is calculated based on our internal credit rating of New Gold 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 New Gold 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 NGD stock the variable cost ratio is equal to 126.4%.

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 NGD 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 6.6% for New Gold Inc..

Corporate tax rate of 27% is the nominal tax rate for New Gold 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 NGD 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 NGD are equal to 439.3%.

Life of production assets of 11.8 years is the average useful life of capital assets used in New Gold 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 NGD is equal to 7%. 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 - $2814 million for New Gold 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 597.561 million for New Gold 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 New Gold Inc. at the current share price and the inputted number of shares is $2.4 billion.


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Stock chart of NGD Financial statements of NGD
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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