Intrinsic value of OceanaGold Corporation - OGC

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$4.37

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$4.37

 
Intrinsic value

$2.15

 
Up/down potential

-51%

 
Rating

str. sell

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

We calculate the intrinsic value of OGC 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 2.6

 

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, %
  23.76
  2.60
  2.84
  3.06
  3.25
  3.43
  3.58
  3.72
  3.85
  3.97
  4.07
  4.16
  4.25
  4.32
  4.39
  4.45
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.84
  4.86
  4.87
  4.89
Revenue, $m
  849
  871
  896
  923
  953
  986
  1,021
  1,059
  1,100
  1,144
  1,190
  1,240
  1,292
  1,348
  1,407
  1,470
  1,536
  1,606
  1,680
  1,758
  1,840
  1,927
  2,018
  2,114
  2,216
  2,322
  2,434
  2,552
  2,676
  2,807
  2,944
Variable operating expenses, $m
 
  267
  274
  282
  292
  302
  312
  324
  337
  350
  364
  379
  395
  413
  431
  450
  470
  492
  514
  538
  563
  590
  618
  647
  678
  711
  745
  781
  819
  859
  901
Fixed operating expenses, $m
 
  397
  407
  417
  427
  438
  449
  460
  472
  483
  495
  508
  520
  533
  547
  560
  575
  589
  604
  619
  634
  650
  666
  683
  700
  717
  735
  754
  773
  792
  812
Total operating expenses, $m
  638
  664
  681
  699
  719
  740
  761
  784
  809
  833
  859
  887
  915
  946
  978
  1,010
  1,045
  1,081
  1,118
  1,157
  1,197
  1,240
  1,284
  1,330
  1,378
  1,428
  1,480
  1,535
  1,592
  1,651
  1,713
Operating income, $m
  211
  208
  215
  224
  234
  246
  260
  275
  292
  310
  331
  353
  376
  402
  430
  460
  492
  526
  562
  601
  643
  687
  734
  785
  838
  894
  954
  1,017
  1,085
  1,156
  1,231
EBITDA, $m
  377
  378
  390
  405
  421
  439
  460
  482
  507
  534
  564
  595
  629
  666
  705
  747
  792
  840
  891
  946
  1,003
  1,065
  1,129
  1,198
  1,271
  1,349
  1,430
  1,517
  1,609
  1,705
  1,808
Interest expense (income), $m
  7
  12
  13
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  51
  54
  57
  61
  64
  68
Earnings before tax, $m
  210
  196
  202
  211
  220
  231
  244
  258
  274
  291
  310
  331
  353
  377
  404
  432
  462
  494
  529
  566
  605
  647
  692
  739
  790
  843
  900
  960
  1,024
  1,092
  1,163
Tax expense, $m
  26
  53
  55
  57
  59
  62
  66
  70
  74
  79
  84
  89
  95
  102
  109
  117
  125
  133
  143
  153
  163
  175
  187
  200
  213
  228
  243
  259
  276
  295
  314
Net income, $m
  184
  143
  148
  154
  161
  169
  178
  188
  200
  213
  226
  241
  258
  276
  295
  315
  337
  361
  386
  413
  442
  472
  505
  540
  576
  615
  657
  701
  748
  797
  849

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  94
  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
  2,588
  2,562
  2,635
  2,715
  2,804
  2,900
  3,003
  3,115
  3,235
  3,364
  3,501
  3,646
  3,801
  3,965
  4,140
  4,324
  4,519
  4,724
  4,942
  5,171
  5,413
  5,668
  5,936
  6,219
  6,517
  6,830
  7,160
  7,507
  7,871
  8,255
  8,659
Adjusted assets (=assets-cash), $m
  2,494
  2,562
  2,635
  2,715
  2,804
  2,900
  3,003
  3,115
  3,235
  3,364
  3,501
  3,646
  3,801
  3,965
  4,140
  4,324
  4,519
  4,724
  4,942
  5,171
  5,413
  5,668
  5,936
  6,219
  6,517
  6,830
  7,160
  7,507
  7,871
  8,255
  8,659
Revenue / Adjusted assets
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
Average production assets, $m
  1,595
  1,637
  1,683
  1,735
  1,791
  1,852
  1,919
  1,990
  2,067
  2,149
  2,236
  2,329
  2,428
  2,533
  2,645
  2,762
  2,887
  3,018
  3,157
  3,304
  3,458
  3,621
  3,792
  3,973
  4,163
  4,363
  4,574
  4,796
  5,029
  5,274
  5,532
Working capital, $m
  -70
  -48
  -49
  -51
  -52
  -54
  -56
  -58
  -61
  -63
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -97
  -101
  -106
  -111
  -116
  -122
  -128
  -134
  -140
  -147
  -154
  -162
Total debt, $m
  438
  364
  384
  406
  431
  457
  486
  517
  550
  586
  624
  664
  707
  752
  801
  852
  906
  963
  1,023
  1,086
  1,153
  1,224
  1,298
  1,377
  1,459
  1,546
  1,637
  1,733
  1,834
  1,941
  2,052
Total liabilities, $m
  784
  710
  730
  752
  777
  803
  832
  863
  896
  932
  970
  1,010
  1,053
  1,098
  1,147
  1,198
  1,252
  1,309
  1,369
  1,432
  1,499
  1,570
  1,644
  1,723
  1,805
  1,892
  1,983
  2,079
  2,180
  2,287
  2,398
Total equity, $m
  1,804
  1,852
  1,905
  1,963
  2,027
  2,096
  2,171
  2,252
  2,339
  2,432
  2,531
  2,636
  2,748
  2,867
  2,993
  3,126
  3,267
  3,416
  3,573
  3,739
  3,913
  4,098
  4,292
  4,496
  4,712
  4,938
  5,176
  5,427
  5,691
  5,968
  6,260
Total liabilities and equity, $m
  2,588
  2,562
  2,635
  2,715
  2,804
  2,899
  3,003
  3,115
  3,235
  3,364
  3,501
  3,646
  3,801
  3,965
  4,140
  4,324
  4,519
  4,725
  4,942
  5,171
  5,412
  5,668
  5,936
  6,219
  6,517
  6,830
  7,159
  7,506
  7,871
  8,255
  8,658
Debt-to-equity ratio
  0.243
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.280
  0.290
  0.290
  0.290
  0.300
  0.300
  0.310
  0.310
  0.310
  0.320
  0.320
  0.320
  0.330
  0.330
Adjusted equity ratio
  0.686
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723
  0.723

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  184
  143
  148
  154
  161
  169
  178
  188
  200
  213
  226
  241
  258
  276
  295
  315
  337
  361
  386
  413
  442
  472
  505
  540
  576
  615
  657
  701
  748
  797
  849
Depreciation, amort., depletion, $m
  166
  170
  175
  181
  187
  193
  200
  207
  215
  224
  233
  243
  253
  264
  275
  288
  301
  314
  329
  344
  360
  377
  395
  414
  434
  455
  476
  500
  524
  549
  576
Funds from operations, $m
  253
  313
  323
  334
  347
  362
  378
  396
  415
  436
  459
  484
  511
  539
  570
  603
  638
  675
  715
  757
  802
  849
  900
  953
  1,010
  1,070
  1,133
  1,200
  1,271
  1,346
  1,425
Change in working capital, $m
  -61
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
Cash from operations, $m
  314
  562
  324
  336
  349
  364
  380
  398
  417
  439
  462
  487
  514
  543
  573
  606
  642
  679
  719
  761
  806
  854
  905
  959
  1,016
  1,076
  1,140
  1,207
  1,278
  1,353
  1,433
Maintenance CAPEX, $m
  0
  -166
  -170
  -175
  -181
  -187
  -193
  -200
  -207
  -215
  -224
  -233
  -243
  -253
  -264
  -275
  -288
  -301
  -314
  -329
  -344
  -360
  -377
  -395
  -414
  -434
  -455
  -476
  -500
  -524
  -549
New CAPEX, $m
  -604
  -42
  -46
  -51
  -56
  -61
  -66
  -71
  -77
  -82
  -87
  -93
  -99
  -105
  -111
  -118
  -124
  -131
  -139
  -146
  -154
  -163
  -172
  -181
  -190
  -200
  -211
  -222
  -233
  -245
  -258
Cash from investing activities, $m
  -626
  -208
  -216
  -226
  -237
  -248
  -259
  -271
  -284
  -297
  -311
  -326
  -342
  -358
  -375
  -393
  -412
  -432
  -453
  -475
  -498
  -523
  -549
  -576
  -604
  -634
  -666
  -698
  -733
  -769
  -807
Free cash flow, $m
  -312
  354
  107
  109
  112
  116
  121
  126
  133
  141
  151
  161
  172
  185
  198
  213
  229
  247
  266
  286
  308
  331
  356
  383
  412
  442
  474
  509
  546
  585
  626
Issuance/(repayment) of debt, $m
  167
  20
  20
  22
  24
  27
  29
  31
  33
  36
  38
  40
  43
  46
  48
  51
  54
  57
  60
  64
  67
  71
  74
  78
  82
  87
  91
  96
  101
  106
  112
Issuance/(repurchase) of shares, $m
  16
  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  
  184
  20
  20
  22
  24
  27
  29
  31
  33
  36
  38
  40
  43
  46
  48
  51
  54
  57
  60
  64
  67
  71
  74
  78
  82
  87
  91
  96
  101
  106
  112
Total cash flow (excl. dividends), $m
  -125
  373
  128
  131
  136
  142
  149
  157
  167
  177
  189
  201
  215
  230
  246
  264
  283
  304
  326
  350
  375
  402
  431
  461
  494
  529
  566
  605
  647
  691
  738
Retained Cash Flow (-), $m
  -264
  -48
  -53
  -58
  -64
  -69
  -75
  -81
  -87
  -93
  -99
  -105
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -166
  -175
  -184
  -194
  -204
  -215
  -227
  -238
  -251
  -264
  -277
  -292
Prev. year cash balance 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
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
 
  325
  75
  73
  72
  73
  74
  77
  80
  84
  90
  96
  103
  111
  121
  131
  142
  155
  169
  184
  200
  218
  236
  257
  279
  302
  327
  354
  383
  413
  446
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
 
  312
  69
  64
  60
  56
  54
  52
  50
  48
  47
  45
  44
  42
  40
  38
  36
  34
  31
  28
  25
  23
  20
  17
  14
  12
  10
  8
  6
  5
  3
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

OceanaGold Corporation explores for and develops gold and copper properties in the Philippines, New Zealand, and the United States. The company primarily holds interest in the Didipio gold-copper mine located on the island of Luzon in the Philippines. It also holds interests in the Waihi gold mine located on the north island of New Zealand; and a gold mine at the Macraes Goldfield located on the south island of New Zealand. The company was incorporated in 2003 and is headquartered in Melbourne, Australia.

FINANCIAL RATIOS  of  OceanaGold Corporation (OGC)

Valuation Ratios
P/E Ratio 14.5
Price to Sales 3.1
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 8.5
Price to Free Cash Flow -9.2
Growth Rates
Sales Growth Rate 23.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 214.6%
Cap. Spend. - 3 Yr. Gr. Rate 22.8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 17.8%
Total Debt to Equity 24.3%
Interest Coverage 31
Management Effectiveness
Return On Assets 8.1%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital 9.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9.3%
Return On Equity 11%
Return On Equity - 3 Yr. Avg. 11.4%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 62.9%
Gross Margin - 3 Yr. Avg. 58.1%
EBITDA Margin 45.1%
EBITDA Margin - 3 Yr. Avg. 40.9%
Operating Margin 24.9%
Oper. Margin - 3 Yr. Avg. 19.5%
Pre-Tax Margin 24.7%
Pre-Tax Margin - 3 Yr. Avg. 17.4%
Net Profit Margin 21.7%
Net Profit Margin - 3 Yr. Avg. 17.3%
Effective Tax Rate 12.4%
Eff/ Tax Rate - 3 Yr. Avg. -1.8%
Payout Ratio 17.9%

OGC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OGC stock intrinsic value calculation we used $849 million for the last fiscal year's total revenue generated by OceanaGold Corporation. The default revenue input number comes from 2016 income statement of OceanaGold Corporation. 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 OGC stock valuation model: a) initial revenue growth rate of 2.6% 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 OGC is calculated based on our internal credit rating of OceanaGold Corporation, 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 OceanaGold Corporation.
    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 OGC stock the variable cost ratio is equal to 30.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $387 million in the base year in the intrinsic value calculation for OGC 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 OceanaGold Corporation.

Corporate tax rate of 27% is the nominal tax rate for OceanaGold Corporation. 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 OGC 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 OGC are equal to 187.9%.

Life of production assets of 9.6 years is the average useful life of capital assets used in OceanaGold Corporation 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 OGC is equal to -5.5%. 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 - $1804 million for OceanaGold Corporation - 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 605.839 million for OceanaGold Corporation 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 OceanaGold Corporation at the current share price and the inputted number of shares is $2.6 billion.


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Stock chart of OGC Financial statements of OGC
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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