Intrinsic value of OceanaGold Corporation - OGC

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$4.54

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$4.54

 
Intrinsic value

$2.03

 
Up/down potential

-55%

 
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 2.8

 

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, %
  23.76
  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
  849
  866
  886
  909
  934
  963
  994
  1,027
  1,064
  1,104
  1,146
  1,191
  1,240
  1,291
  1,346
  1,404
  1,465
  1,530
  1,599
  1,672
  1,749
  1,830
  1,915
  2,006
  2,101
  2,201
  2,306
  2,417
  2,533
  2,656
  2,785
Variable operating expenses, $m
 
  265
  271
  278
  286
  295
  304
  314
  326
  338
  351
  365
  379
  395
  412
  430
  448
  468
  489
  512
  535
  560
  586
  614
  643
  673
  706
  739
  775
  813
  852
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
  662
  678
  695
  713
  733
  753
  774
  798
  821
  846
  873
  899
  928
  959
  990
  1,023
  1,057
  1,093
  1,131
  1,169
  1,210
  1,252
  1,297
  1,343
  1,390
  1,441
  1,493
  1,548
  1,605
  1,664
Operating income, $m
  211
  204
  208
  214
  221
  230
  241
  253
  267
  283
  300
  319
  340
  362
  387
  414
  442
  473
  506
  542
  580
  620
  663
  709
  758
  810
  865
  923
  985
  1,051
  1,121
EBITDA, $m
  377
  374
  382
  392
  404
  419
  435
  454
  475
  499
  524
  552
  582
  615
  651
  689
  729
  773
  819
  869
  922
  978
  1,038
  1,102
  1,169
  1,240
  1,316
  1,396
  1,481
  1,571
  1,666
Interest expense (income), $m
  7
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  32
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
Earnings before tax, $m
  210
  192
  196
  201
  207
  216
  225
  237
  250
  264
  281
  298
  318
  339
  362
  387
  415
  444
  475
  508
  544
  582
  623
  666
  713
  762
  814
  870
  929
  991
  1,057
Tax expense, $m
  26
  52
  53
  54
  56
  58
  61
  64
  67
  71
  76
  81
  86
  92
  98
  105
  112
  120
  128
  137
  147
  157
  168
  180
  192
  206
  220
  235
  251
  268
  285
Net income, $m
  184
  140
  143
  147
  151
  157
  165
  173
  182
  193
  205
  218
  232
  248
  265
  283
  303
  324
  347
  371
  397
  425
  455
  487
  520
  556
  594
  635
  678
  724
  772

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
  2,547
  2,606
  2,673
  2,748
  2,831
  2,922
  3,022
  3,130
  3,246
  3,370
  3,504
  3,646
  3,797
  3,958
  4,129
  4,310
  4,501
  4,704
  4,918
  5,144
  5,382
  5,634
  5,899
  6,178
  6,472
  6,782
  7,108
  7,451
  7,812
  8,191
Adjusted assets (=assets-cash), $m
  2,494
  2,547
  2,606
  2,673
  2,748
  2,831
  2,922
  3,022
  3,130
  3,246
  3,370
  3,504
  3,646
  3,797
  3,958
  4,129
  4,310
  4,501
  4,704
  4,918
  5,144
  5,382
  5,634
  5,899
  6,178
  6,472
  6,782
  7,108
  7,451
  7,812
  8,191
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
  1,627
  1,665
  1,707
  1,755
  1,809
  1,867
  1,931
  1,999
  2,074
  2,153
  2,238
  2,329
  2,426
  2,529
  2,638
  2,753
  2,876
  3,005
  3,142
  3,286
  3,438
  3,599
  3,768
  3,947
  4,135
  4,333
  4,541
  4,760
  4,990
  5,233
Working capital, $m
  -70
  -48
  -49
  -50
  -51
  -53
  -55
  -57
  -59
  -61
  -63
  -66
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -96
  -101
  -105
  -110
  -116
  -121
  -127
  -133
  -139
  -146
  -153
Total debt, $m
  438
  360
  376
  394
  415
  438
  464
  491
  521
  553
  588
  624
  664
  706
  750
  798
  848
  901
  957
  1,016
  1,079
  1,145
  1,215
  1,288
  1,365
  1,447
  1,533
  1,623
  1,718
  1,818
  1,923
Total liabilities, $m
  784
  706
  722
  740
  761
  784
  810
  837
  867
  899
  934
  970
  1,010
  1,052
  1,096
  1,144
  1,194
  1,247
  1,303
  1,362
  1,425
  1,491
  1,561
  1,634
  1,711
  1,793
  1,879
  1,969
  2,064
  2,164
  2,269
Total equity, $m
  1,804
  1,841
  1,884
  1,932
  1,987
  2,047
  2,113
  2,185
  2,263
  2,347
  2,437
  2,533
  2,636
  2,745
  2,862
  2,985
  3,116
  3,254
  3,401
  3,556
  3,719
  3,891
  4,073
  4,265
  4,467
  4,679
  4,903
  5,139
  5,387
  5,648
  5,922
Total liabilities and equity, $m
  2,588
  2,547
  2,606
  2,672
  2,748
  2,831
  2,923
  3,022
  3,130
  3,246
  3,371
  3,503
  3,646
  3,797
  3,958
  4,129
  4,310
  4,501
  4,704
  4,918
  5,144
  5,382
  5,634
  5,899
  6,178
  6,472
  6,782
  7,108
  7,451
  7,812
  8,191
Debt-to-equity ratio
  0.243
  0.200
  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
  0.320
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
  140
  143
  147
  151
  157
  165
  173
  182
  193
  205
  218
  232
  248
  265
  283
  303
  324
  347
  371
  397
  425
  455
  487
  520
  556
  594
  635
  678
  724
  772
Depreciation, amort., depletion, $m
  166
  169
  173
  178
  183
  188
  194
  201
  208
  216
  224
  233
  243
  253
  263
  275
  287
  300
  313
  327
  342
  358
  375
  393
  411
  431
  451
  473
  496
  520
  545
Funds from operations, $m
  253
  310
  316
  324
  334
  346
  359
  374
  391
  409
  429
  451
  475
  500
  528
  558
  589
  623
  660
  698
  739
  783
  830
  879
  931
  987
  1,046
  1,108
  1,174
  1,243
  1,317
Change in working capital, $m
  -61
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  314
  558
  317
  326
  336
  347
  361
  376
  393
  411
  431
  453
  477
  503
  531
  561
  593
  627
  663
  702
  744
  788
  834
  884
  937
  992
  1,051
  1,114
  1,180
  1,250
  1,324
Maintenance CAPEX, $m
  0
  -166
  -169
  -173
  -178
  -183
  -188
  -194
  -201
  -208
  -216
  -224
  -233
  -243
  -253
  -263
  -275
  -287
  -300
  -313
  -327
  -342
  -358
  -375
  -393
  -411
  -431
  -451
  -473
  -496
  -520
New CAPEX, $m
  -604
  -32
  -37
  -43
  -48
  -53
  -58
  -64
  -69
  -74
  -80
  -85
  -91
  -97
  -103
  -109
  -116
  -122
  -129
  -137
  -144
  -152
  -161
  -169
  -178
  -188
  -198
  -208
  -219
  -231
  -242
Cash from investing activities, $m
  -626
  -198
  -206
  -216
  -226
  -236
  -246
  -258
  -270
  -282
  -296
  -309
  -324
  -340
  -356
  -372
  -391
  -409
  -429
  -450
  -471
  -494
  -519
  -544
  -571
  -599
  -629
  -659
  -692
  -727
  -762
Free cash flow, $m
  -312
  359
  110
  109
  110
  111
  114
  118
  123
  129
  136
  144
  153
  164
  175
  188
  202
  218
  234
  253
  272
  293
  316
  340
  366
  393
  423
  454
  488
  524
  562
Issuance/(repayment) of debt, $m
  167
  16
  16
  19
  21
  23
  25
  28
  30
  32
  35
  37
  39
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
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
  16
  16
  19
  21
  23
  25
  28
  30
  32
  35
  37
  39
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
Total cash flow (excl. dividends), $m
  -125
  375
  127
  128
  131
  134
  139
  145
  153
  161
  170
  181
  193
  206
  220
  236
  253
  271
  291
  312
  335
  359
  385
  413
  443
  475
  509
  545
  583
  624
  667
Retained Cash Flow (-), $m
  -264
  -37
  -42
  -48
  -54
  -60
  -66
  -72
  -78
  -84
  -90
  -96
  -103
  -109
  -116
  -123
  -131
  -138
  -146
  -155
  -163
  -172
  -182
  -192
  -202
  -213
  -224
  -236
  -248
  -261
  -274
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
 
  338
  84
  80
  76
  74
  73
  73
  75
  77
  80
  85
  90
  96
  104
  112
  122
  132
  144
  157
  171
  187
  203
  222
  241
  262
  285
  309
  335
  363
  392
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
 
  324
  77
  69
  63
  57
  53
  50
  47
  44
  42
  40
  38
  37
  35
  33
  31
  29
  27
  24
  22
  19
  17
  15
  12
  10
  8
  7
  5
  4
  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 15.1
Price to Sales 3.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 8.8
Price to Free Cash Flow -9.6
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% 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 616.071 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 $2.8 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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