Intrinsic value of Peyto Exploration & Development Corp. - PEY

Previous Close

$14.25

  Intrinsic Value

$2.33

stock screener

  Rating & Target

str. sell

-84%

Previous close

$14.25

 
Intrinsic value

$2.33

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of PEY 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, %
  -8.59
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  532
  851
  1,315
  1,967
  2,854
  4,026
  5,535
  7,429
  9,755
  12,553
  15,855
  19,689
  24,071
  29,014
  34,521
  40,590
  47,216
  54,389
  62,097
  70,329
  79,070
  88,311
  98,041
  108,253
  118,943
  130,108
  141,751
  153,876
  166,491
  179,607
  193,241
Variable operating expenses, $m
 
  635
  981
  1,467
  2,129
  3,003
  4,129
  5,542
  7,278
  9,364
  11,828
  14,688
  17,957
  21,644
  25,752
  30,280
  35,223
  40,574
  46,325
  52,465
  58,986
  65,880
  73,139
  80,757
  88,731
  97,061
  105,746
  114,791
  124,202
  133,987
  144,158
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
  464
  635
  981
  1,467
  2,129
  3,003
  4,129
  5,542
  7,278
  9,364
  11,828
  14,688
  17,957
  21,644
  25,752
  30,280
  35,223
  40,574
  46,325
  52,465
  58,986
  65,880
  73,139
  80,757
  88,731
  97,061
  105,746
  114,791
  124,202
  133,987
  144,158
Operating income, $m
  67
  216
  334
  500
  725
  1,023
  1,406
  1,887
  2,478
  3,188
  4,027
  5,001
  6,114
  7,370
  8,768
  10,310
  11,993
  13,815
  15,773
  17,863
  20,084
  22,431
  24,902
  27,496
  30,211
  33,047
  36,005
  39,084
  42,289
  45,620
  49,083
EBITDA, $m
  398
  745
  1,150
  1,720
  2,496
  3,522
  4,841
  6,499
  8,533
  10,980
  13,869
  17,222
  21,055
  25,379
  30,196
  35,505
  41,300
  47,575
  54,317
  61,517
  69,163
  77,246
  85,757
  94,690
  104,040
  113,806
  123,990
  134,596
  145,631
  157,104
  169,029
Interest expense (income), $m
  35
  37
  78
  136
  218
  330
  478
  668
  907
  1,201
  1,554
  1,970
  2,454
  3,006
  3,630
  4,325
  5,090
  5,926
  6,831
  7,803
  8,841
  9,944
  11,109
  12,337
  13,625
  14,973
  16,382
  17,850
  19,379
  20,971
  22,625
Earnings before tax, $m
  154
  179
  256
  363
  507
  692
  928
  1,219
  1,571
  1,988
  2,474
  3,031
  3,660
  4,363
  5,138
  5,985
  6,903
  7,889
  8,942
  10,061
  11,243
  12,487
  13,793
  15,160
  16,587
  18,074
  19,623
  21,234
  22,909
  24,650
  26,458
Tax expense, $m
  42
  48
  69
  98
  137
  187
  251
  329
  424
  537
  668
  818
  988
  1,178
  1,387
  1,616
  1,864
  2,130
  2,414
  2,716
  3,036
  3,372
  3,724
  4,093
  4,478
  4,880
  5,298
  5,733
  6,185
  6,655
  7,144
Net income, $m
  112
  130
  187
  265
  370
  506
  677
  890
  1,147
  1,451
  1,806
  2,212
  2,672
  3,185
  3,751
  4,369
  5,039
  5,759
  6,528
  7,344
  8,207
  9,116
  10,069
  11,067
  12,108
  13,194
  14,325
  15,501
  16,724
  17,994
  19,314

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  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
  3,463
  5,527
  8,540
  12,771
  18,530
  26,143
  35,941
  48,243
  63,347
  81,512
  102,956
  127,848
  156,306
  188,402
  224,161
  263,573
  306,599
  353,176
  403,230
  456,679
  513,443
  573,447
  636,630
  702,943
  772,356
  844,858
  920,459
  999,192
  1,081,108
  1,166,282
  1,254,810
Adjusted assets (=assets-cash), $m
  3,461
  5,527
  8,540
  12,771
  18,530
  26,143
  35,941
  48,243
  63,347
  81,512
  102,956
  127,848
  156,306
  188,402
  224,161
  263,573
  306,599
  353,176
  403,230
  456,679
  513,443
  573,447
  636,630
  702,943
  772,356
  844,858
  920,459
  999,192
  1,081,108
  1,166,282
  1,254,810
Revenue / Adjusted assets
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
  0.154
Average production assets, $m
  3,269
  5,231
  8,081
  12,086
  17,536
  24,740
  34,012
  45,654
  59,947
  77,137
  97,430
  120,986
  147,917
  178,290
  212,130
  249,427
  290,144
  334,221
  381,589
  432,169
  485,886
  542,670
  602,462
  665,216
  730,903
  799,514
  871,058
  945,565
  1,023,085
  1,103,688
  1,187,464
Working capital, $m
  -187
  -302
  -467
  -698
  -1,013
  -1,429
  -1,965
  -2,637
  -3,463
  -4,456
  -5,629
  -6,989
  -8,545
  -10,300
  -12,255
  -14,410
  -16,762
  -19,308
  -22,045
  -24,967
  -28,070
  -31,350
  -34,805
  -38,430
  -42,225
  -46,188
  -50,322
  -54,626
  -59,104
  -63,761
  -68,600
Total debt, $m
  1,070
  2,216
  3,887
  6,236
  9,432
  13,658
  19,095
  25,923
  34,305
  44,387
  56,289
  70,104
  85,898
  103,711
  123,557
  145,431
  169,310
  195,161
  222,941
  252,605
  284,109
  317,411
  352,478
  389,281
  427,805
  468,044
  510,003
  553,699
  599,163
  646,435
  695,567
Total liabilities, $m
  1,922
  3,068
  4,739
  7,088
  10,284
  14,510
  19,947
  26,775
  35,157
  45,239
  57,141
  70,956
  86,750
  104,563
  124,409
  146,283
  170,162
  196,013
  223,793
  253,457
  284,961
  318,263
  353,330
  390,133
  428,657
  468,896
  510,855
  554,551
  600,015
  647,287
  696,419
Total equity, $m
  1,541
  2,460
  3,800
  5,683
  8,246
  11,634
  15,994
  21,468
  28,189
  36,273
  45,815
  56,892
  69,556
  83,839
  99,752
  117,290
  136,437
  157,163
  179,437
  203,222
  228,482
  255,184
  283,300
  312,810
  343,698
  375,962
  409,604
  444,640
  481,093
  518,996
  558,390
Total liabilities and equity, $m
  3,463
  5,528
  8,539
  12,771
  18,530
  26,144
  35,941
  48,243
  63,346
  81,512
  102,956
  127,848
  156,306
  188,402
  224,161
  263,573
  306,599
  353,176
  403,230
  456,679
  513,443
  573,447
  636,630
  702,943
  772,355
  844,858
  920,459
  999,191
  1,081,108
  1,166,283
  1,254,809
Debt-to-equity ratio
  0.694
  0.900
  1.020
  1.100
  1.140
  1.170
  1.190
  1.210
  1.220
  1.220
  1.230
  1.230
  1.230
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.240
  1.250
  1.250
  1.250
  1.250
  1.250
Adjusted equity ratio
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445
  0.445

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  112
  130
  187
  265
  370
  506
  677
  890
  1,147
  1,451
  1,806
  2,212
  2,672
  3,185
  3,751
  4,369
  5,039
  5,759
  6,528
  7,344
  8,207
  9,116
  10,069
  11,067
  12,108
  13,194
  14,325
  15,501
  16,724
  17,994
  19,314
Depreciation, amort., depletion, $m
  331
  528
  816
  1,221
  1,771
  2,499
  3,436
  4,612
  6,055
  7,792
  9,841
  12,221
  14,941
  18,009
  21,427
  25,195
  29,307
  33,760
  38,544
  43,653
  49,079
  54,815
  60,855
  67,194
  73,829
  80,759
  87,986
  95,512
  103,342
  111,484
  119,946
Funds from operations, $m
  534
  659
  1,004
  1,486
  2,141
  3,005
  4,113
  5,501
  7,202
  9,243
  11,647
  14,433
  17,613
  21,194
  25,178
  29,564
  34,347
  39,519
  45,072
  50,998
  57,287
  63,931
  70,924
  78,260
  85,937
  93,953
  102,311
  111,013
  120,066
  129,478
  139,260
Change in working capital, $m
  25
  -113
  -165
  -231
  -315
  -416
  -536
  -673
  -826
  -993
  -1,172
  -1,361
  -1,556
  -1,755
  -1,955
  -2,155
  -2,352
  -2,546
  -2,736
  -2,922
  -3,103
  -3,280
  -3,454
  -3,625
  -3,795
  -3,964
  -4,133
  -4,304
  -4,478
  -4,656
  -4,840
Cash from operations, $m
  509
  772
  1,168
  1,717
  2,456
  3,421
  4,649
  6,174
  8,027
  10,236
  12,820
  15,794
  19,169
  22,949
  27,133
  31,719
  36,699
  42,065
  47,808
  53,920
  60,390
  67,211
  74,378
  81,885
  89,732
  97,917
  106,444
  115,317
  124,544
  134,134
  144,100
Maintenance CAPEX, $m
  0
  -330
  -528
  -816
  -1,221
  -1,771
  -2,499
  -3,436
  -4,612
  -6,055
  -7,792
  -9,841
  -12,221
  -14,941
  -18,009
  -21,427
  -25,195
  -29,307
  -33,760
  -38,544
  -43,653
  -49,079
  -54,815
  -60,855
  -67,194
  -73,829
  -80,759
  -87,986
  -95,512
  -103,342
  -111,484
New CAPEX, $m
  -469
  -1,962
  -2,851
  -4,004
  -5,450
  -7,205
  -9,272
  -11,642
  -14,293
  -17,190
  -20,293
  -23,556
  -26,931
  -30,373
  -33,840
  -37,297
  -40,717
  -44,078
  -47,367
  -50,580
  -53,717
  -56,784
  -59,792
  -62,754
  -65,688
  -68,611
  -71,544
  -74,507
  -77,520
  -80,603
  -83,776
Cash from investing activities, $m
  -490
  -2,292
  -3,379
  -4,820
  -6,671
  -8,976
  -11,771
  -15,078
  -18,905
  -23,245
  -28,085
  -33,397
  -39,152
  -45,314
  -51,849
  -58,724
  -65,912
  -73,385
  -81,127
  -89,124
  -97,370
  -105,863
  -114,607
  -123,609
  -132,882
  -142,440
  -152,303
  -162,493
  -173,032
  -183,945
  -195,260
Free cash flow, $m
  19
  -1,520
  -2,211
  -3,103
  -4,215
  -5,555
  -7,122
  -8,904
  -10,877
  -13,010
  -15,265
  -17,603
  -19,983
  -22,365
  -24,716
  -27,006
  -29,212
  -31,320
  -33,319
  -35,205
  -36,981
  -38,652
  -40,229
  -41,723
  -43,149
  -44,523
  -45,859
  -47,176
  -48,487
  -49,810
  -51,160
Issuance/(repayment) of debt, $m
  25
  1,146
  1,672
  2,348
  3,196
  4,225
  5,438
  6,828
  8,382
  10,082
  11,902
  13,815
  15,794
  17,813
  19,846
  21,874
  23,879
  25,850
  27,780
  29,664
  31,504
  33,303
  35,066
  36,804
  38,524
  40,239
  41,959
  43,696
  45,463
  47,272
  49,133
Issuance/(repurchase) of shares, $m
  180
  790
  1,153
  1,618
  2,193
  2,882
  3,683
  4,585
  5,574
  6,632
  7,737
  8,864
  9,992
  11,097
  12,162
  13,169
  14,107
  14,968
  15,746
  16,441
  17,053
  17,586
  18,047
  18,443
  18,781
  19,069
  19,318
  19,535
  19,729
  19,908
  20,080
Cash from financing (excl. dividends), $m  
  197
  1,936
  2,825
  3,966
  5,389
  7,107
  9,121
  11,413
  13,956
  16,714
  19,639
  22,679
  25,786
  28,910
  32,008
  35,043
  37,986
  40,818
  43,526
  46,105
  48,557
  50,889
  53,113
  55,247
  57,305
  59,308
  61,277
  63,231
  65,192
  67,180
  69,213
Total cash flow (excl. dividends), $m
  216
  416
  614
  863
  1,174
  1,553
  1,998
  2,509
  3,080
  3,704
  4,373
  5,076
  5,803
  6,545
  7,292
  8,037
  8,774
  9,498
  10,207
  10,900
  11,576
  12,237
  12,885
  13,523
  14,155
  14,785
  15,417
  16,056
  16,705
  17,369
  18,053
Retained Cash Flow (-), $m
  83
  -921
  -1,341
  -1,883
  -2,563
  -3,388
  -4,360
  -5,475
  -6,721
  -8,083
  -9,543
  -11,077
  -12,664
  -14,282
  -15,913
  -17,539
  -19,146
  -20,727
  -22,274
  -23,785
  -25,260
  -26,702
  -28,116
  -29,509
  -30,889
  -32,263
  -33,643
  -35,036
  -36,453
  -37,902
  -39,395
Prev. year cash balance distribution, $m
 
  2
  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
 
  -503
  -726
  -1,020
  -1,388
  -1,835
  -2,362
  -2,966
  -3,641
  -4,379
  -5,170
  -6,001
  -6,860
  -7,737
  -8,620
  -9,501
  -10,372
  -11,228
  -12,067
  -12,885
  -13,684
  -14,465
  -15,232
  -15,986
  -16,733
  -17,478
  -18,225
  -18,980
  -19,748
  -20,533
  -21,341
Discount rate, %
 
  5.60
  5.88
  6.17
  6.48
  6.81
  7.15
  7.50
  7.88
  8.27
  8.69
  9.12
  9.58
  10.06
  10.56
  11.09
  11.64
  12.22
  12.84
  13.48
  14.15
  14.86
  15.60
  16.38
  17.20
  18.06
  18.96
  19.91
  20.91
  21.95
  23.05
PV of cash for distribution, $m
 
  -476
  -648
  -852
  -1,080
  -1,320
  -1,561
  -1,787
  -1,985
  -2,141
  -2,247
  -2,297
  -2,289
  -2,226
  -2,114
  -1,962
  -1,781
  -1,581
  -1,373
  -1,166
  -970
  -789
  -627
  -488
  -371
  -275
  -199
  -141
  -97
  -65
  -42
Current shareholders' claim on cash, %
  100
  74.8
  57.3
  44.8
  35.7
  29.1
  24.1
  20.3
  17.3
  15.0
  13.2
  11.7
  10.5
  9.5
  8.7
  8.0
  7.4
  6.9
  6.5
  6.1
  5.8
  5.5
  5.3
  5.1
  4.9
  4.7
  4.5
  4.4
  4.3
  4.2
  4.1

Peyto Exploration & Development Corp is a Canada-based energy company. The Company is engaged in acquisition, exploration, development and production of oil and natural gas in Western Canada. Its portfolio of assets includes exploration, exploitation and development opportunities located primarily in the Deep Basin of Alberta. It operates in over three areas, such as the Greater Sundance, Northern Area and Brazeau River areas of Alberta. The Greater Sundance area is located approximately 50 kilometers west of Edson, Alberta, from Township 50-56 and Range 19-24 west of the fifth meridian. The Northern Area includes producing properties in regions, including Smoky, Kakwa, Chime, Kiskiu, Chicken and Cutbank and it covers Townships 57-64 and Ranges 2-7 west of the sixth meridian. The Brazeau River area is located over 180 kilometers southwest of Edmonton, Alberta, from Township 41-44 and Range 12-13 west of the fifth meridian.

FINANCIAL RATIOS  of  Peyto Exploration & Development Corp. (PEY)

Valuation Ratios
P/E Ratio 20.9
Price to Sales 4.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 4.6
Price to Free Cash Flow 58.6
Growth Rates
Sales Growth Rate -8.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -21%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 69.4%
Total Debt to Equity 69.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 6.4%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 7.1%
Return On Equity - 3 Yr. Avg. 11.6%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 89.8%
Gross Margin - 3 Yr. Avg. 91.3%
EBITDA Margin 97.7%
EBITDA Margin - 3 Yr. Avg. 92.7%
Operating Margin 12.8%
Oper. Margin - 3 Yr. Avg. 30.4%
Pre-Tax Margin 28.9%
Pre-Tax Margin - 3 Yr. Avg. 36.2%
Net Profit Margin 21.1%
Net Profit Margin - 3 Yr. Avg. 25.2%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 30.2%
Payout Ratio 191.1%

PEY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PEY stock intrinsic value calculation we used $532 million for the last fiscal year's total revenue generated by Peyto Exploration & Development Corp.. The default revenue input number comes from 2016 income statement of Peyto Exploration & Development 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 PEY stock valuation model: a) initial revenue growth rate of 60% 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 5.6%, whose default value for PEY is calculated based on our internal credit rating of Peyto Exploration & Development 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 Peyto Exploration & Development 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 PEY stock the variable cost ratio is equal to 74.6%.

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 PEY 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 Peyto Exploration & Development Corp..

Corporate tax rate of 27% is the nominal tax rate for Peyto Exploration & Development 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 PEY 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 PEY are equal to 614.5%.

Life of production assets of 9.9 years is the average useful life of capital assets used in Peyto Exploration & Development 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 PEY is equal to -35.5%. 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 - $1541 million for Peyto Exploration & Development 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 165.123 million for Peyto Exploration & Development 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 Peyto Exploration & Development Corp. at the current share price and the inputted number of shares is $2.4 billion.

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Financial statements of PEY
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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