Intrinsic value of Pembina Pipeline Corporation - PPL

Previous Close

$43.06

  Intrinsic Value

$5.19

stock screener

  Rating & Target

str. sell

-88%

  Value-price divergence*

-73%

Previous close

$43.06

 
Intrinsic value

$5.19

 
Up/down potential

-88%

 
Rating

str. sell

 
Value-price divergence*

-73%

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

We calculate the intrinsic value of PPL 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 17.2

 

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, %
  -7.98
  46.00
  41.90
  38.21
  34.89
  31.90
  29.21
  26.79
  24.61
  22.65
  20.88
  19.30
  17.87
  16.58
  15.42
  14.38
  13.44
  12.60
  11.84
  11.15
  10.54
  9.98
  9.49
  9.04
  8.63
  8.27
  7.94
  7.65
  7.38
  7.15
  6.93
Revenue, $m
  4,265
  6,227
  8,836
  12,212
  16,473
  21,728
  28,074
  35,595
  44,355
  54,402
  65,763
  78,452
  92,469
  107,800
  124,425
  142,316
  161,446
  181,784
  203,302
  225,978
  249,793
  274,734
  300,796
  327,981
  356,298
  385,765
  416,408
  448,259
  481,359
  515,756
  551,504
Variable operating expenses, $m
 
  5,305
  7,528
  10,405
  14,035
  18,512
  23,919
  30,327
  37,791
  46,350
  56,030
  66,842
  78,784
  91,846
  106,010
  121,253
  137,552
  154,880
  173,214
  192,534
  212,824
  234,074
  256,278
  279,439
  303,566
  328,672
  354,780
  381,917
  410,118
  439,424
  469,881
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
  3,458
  5,305
  7,528
  10,405
  14,035
  18,512
  23,919
  30,327
  37,791
  46,350
  56,030
  66,842
  78,784
  91,846
  106,010
  121,253
  137,552
  154,880
  173,214
  192,534
  212,824
  234,074
  256,278
  279,439
  303,566
  328,672
  354,780
  381,917
  410,118
  439,424
  469,881
Operating income, $m
  807
  922
  1,308
  1,807
  2,438
  3,216
  4,155
  5,268
  6,565
  8,051
  9,733
  11,611
  13,685
  15,954
  18,415
  21,063
  23,894
  26,904
  30,089
  33,445
  36,969
  40,661
  44,518
  48,541
  52,732
  57,093
  61,628
  66,342
  71,241
  76,332
  81,623
EBITDA, $m
  1,100
  1,560
  2,214
  3,060
  4,127
  5,444
  7,034
  8,918
  11,113
  13,629
  16,476
  19,655
  23,167
  27,007
  31,172
  35,655
  40,448
  45,543
  50,934
  56,615
  62,582
  68,830
  75,359
  82,170
  89,264
  96,647
  104,324
  112,304
  120,597
  129,214
  138,170
Interest expense (income), $m
  163
  182
  318
  498
  732
  1,026
  1,390
  1,829
  2,349
  2,955
  3,650
  4,435
  5,313
  6,283
  7,343
  8,493
  9,730
  11,053
  12,460
  13,948
  15,517
  17,164
  18,889
  20,691
  22,572
  24,530
  26,568
  28,688
  30,891
  33,180
  35,559
Earnings before tax, $m
  655
  739
  990
  1,309
  1,706
  2,189
  2,765
  3,439
  4,216
  5,097
  6,083
  7,176
  8,372
  9,672
  11,072
  12,570
  14,164
  15,851
  17,629
  19,497
  21,453
  23,497
  25,629
  27,850
  30,160
  32,563
  35,060
  37,655
  40,350
  43,152
  46,063
Tax expense, $m
  189
  200
  267
  354
  461
  591
  747
  929
  1,138
  1,376
  1,642
  1,937
  2,261
  2,611
  2,989
  3,394
  3,824
  4,280
  4,760
  5,264
  5,792
  6,344
  6,920
  7,519
  8,143
  8,792
  9,466
  10,167
  10,895
  11,651
  12,437
Net income, $m
  466
  540
  723
  956
  1,246
  1,598
  2,019
  2,511
  3,077
  3,721
  4,441
  5,238
  6,112
  7,060
  8,083
  9,176
  10,340
  11,571
  12,869
  14,232
  15,660
  17,153
  18,709
  20,330
  22,017
  23,771
  25,594
  27,488
  29,456
  31,501
  33,626

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  35
  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
  15,017
  21,849
  31,003
  42,850
  57,800
  76,238
  98,507
  124,896
  155,633
  190,883
  230,747
  275,272
  324,453
  378,246
  436,577
  499,355
  566,476
  637,837
  713,342
  792,907
  876,467
  963,980
  1,055,424
  1,150,809
  1,250,168
  1,353,562
  1,461,080
  1,572,839
  1,688,980
  1,809,670
  1,935,101
Adjusted assets (=assets-cash), $m
  14,982
  21,849
  31,003
  42,850
  57,800
  76,238
  98,507
  124,896
  155,633
  190,883
  230,747
  275,272
  324,453
  378,246
  436,577
  499,355
  566,476
  637,837
  713,342
  792,907
  876,467
  963,980
  1,055,424
  1,150,809
  1,250,168
  1,353,562
  1,461,080
  1,572,839
  1,688,980
  1,809,670
  1,935,101
Revenue / Adjusted assets
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
Average production assets, $m
  13,121
  19,154
  27,179
  37,565
  50,671
  66,835
  86,357
  109,491
  136,437
  167,339
  202,287
  241,320
  284,435
  331,593
  382,730
  437,764
  496,607
  559,166
  625,358
  695,110
  768,364
  845,082
  925,248
  1,008,868
  1,095,972
  1,186,613
  1,280,871
  1,378,845
  1,480,661
  1,586,465
  1,696,425
Working capital, $m
  -109
  -199
  -283
  -391
  -527
  -695
  -898
  -1,139
  -1,419
  -1,741
  -2,104
  -2,510
  -2,959
  -3,450
  -3,982
  -4,554
  -5,166
  -5,817
  -6,506
  -7,231
  -7,993
  -8,791
  -9,625
  -10,495
  -11,402
  -12,344
  -13,325
  -14,344
  -15,403
  -16,504
  -17,648
Total debt, $m
  4,151
  7,218
  11,320
  16,627
  23,324
  31,585
  41,561
  53,383
  67,154
  82,946
  100,805
  120,752
  142,785
  166,884
  193,017
  221,141
  251,211
  283,181
  317,007
  352,652
  390,087
  429,293
  470,260
  512,992
  557,505
  603,826
  651,994
  702,062
  754,093
  808,162
  864,355
Total liabilities, $m
  6,721
  9,788
  13,890
  19,197
  25,894
  34,155
  44,131
  55,953
  69,724
  85,516
  103,375
  123,322
  145,355
  169,454
  195,587
  223,711
  253,781
  285,751
  319,577
  355,222
  392,657
  431,863
  472,830
  515,562
  560,075
  606,396
  654,564
  704,632
  756,663
  810,732
  866,925
Total equity, $m
  8,296
  12,061
  17,114
  23,653
  31,905
  42,083
  54,376
  68,943
  85,910
  105,367
  127,372
  151,950
  179,098
  208,792
  240,991
  275,644
  312,695
  352,086
  393,765
  437,685
  483,810
  532,117
  582,594
  635,247
  690,093
  747,166
  806,516
  868,207
  932,317
  998,938
  1,068,175
Total liabilities and equity, $m
  15,017
  21,849
  31,004
  42,850
  57,799
  76,238
  98,507
  124,896
  155,634
  190,883
  230,747
  275,272
  324,453
  378,246
  436,578
  499,355
  566,476
  637,837
  713,342
  792,907
  876,467
  963,980
  1,055,424
  1,150,809
  1,250,168
  1,353,562
  1,461,080
  1,572,839
  1,688,980
  1,809,670
  1,935,100
Debt-to-equity ratio
  0.500
  0.600
  0.660
  0.700
  0.730
  0.750
  0.760
  0.770
  0.780
  0.790
  0.790
  0.790
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Adjusted equity ratio
  0.551
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  466
  540
  723
  956
  1,246
  1,598
  2,019
  2,511
  3,077
  3,721
  4,441
  5,238
  6,112
  7,060
  8,083
  9,176
  10,340
  11,571
  12,869
  14,232
  15,660
  17,153
  18,709
  20,330
  22,017
  23,771
  25,594
  27,488
  29,456
  31,501
  33,626
Depreciation, amort., depletion, $m
  293
  638
  906
  1,252
  1,689
  2,228
  2,879
  3,650
  4,548
  5,578
  6,743
  8,044
  9,481
  11,053
  12,758
  14,592
  16,554
  18,639
  20,845
  23,170
  25,612
  28,169
  30,842
  33,629
  36,532
  39,554
  42,696
  45,962
  49,355
  52,882
  56,548
Funds from operations, $m
  949
  1,178
  1,629
  2,208
  2,935
  3,826
  4,897
  6,160
  7,625
  9,299
  11,184
  13,282
  15,593
  18,114
  20,840
  23,768
  26,893
  30,210
  33,714
  37,403
  41,273
  45,322
  49,551
  53,959
  58,549
  63,325
  68,290
  73,449
  78,811
  84,383
  90,174
Change in working capital, $m
  -128
  -63
  -83
  -108
  -136
  -168
  -203
  -241
  -280
  -321
  -364
  -406
  -449
  -491
  -532
  -573
  -612
  -651
  -689
  -726
  -762
  -798
  -834
  -870
  -906
  -943
  -981
  -1,019
  -1,059
  -1,101
  -1,144
Cash from operations, $m
  1,077
  1,241
  1,712
  2,316
  3,071
  3,994
  5,100
  6,401
  7,906
  9,620
  11,547
  13,688
  16,041
  18,604
  21,372
  24,341
  27,505
  30,861
  34,403
  38,128
  42,035
  46,120
  50,385
  54,829
  59,456
  64,268
  69,270
  74,469
  79,870
  85,484
  91,318
Maintenance CAPEX, $m
  0
  -437
  -638
  -906
  -1,252
  -1,689
  -2,228
  -2,879
  -3,650
  -4,548
  -5,578
  -6,743
  -8,044
  -9,481
  -11,053
  -12,758
  -14,592
  -16,554
  -18,639
  -20,845
  -23,170
  -25,612
  -28,169
  -30,842
  -33,629
  -36,532
  -39,554
  -42,696
  -45,962
  -49,355
  -52,882
New CAPEX, $m
  -1,745
  -6,033
  -8,026
  -10,385
  -13,106
  -16,164
  -19,522
  -23,134
  -26,946
  -30,902
  -34,948
  -39,033
  -43,115
  -47,158
  -51,137
  -55,035
  -58,842
  -62,559
  -66,192
  -69,752
  -73,254
  -76,718
  -80,166
  -83,620
  -87,104
  -90,642
  -94,257
  -97,974
  -101,816
  -105,804
  -109,960
Cash from investing activities, $m
  -2,286
  -6,470
  -8,664
  -11,291
  -14,358
  -17,853
  -21,750
  -26,013
  -30,596
  -35,450
  -40,526
  -45,776
  -51,159
  -56,639
  -62,190
  -67,793
  -73,434
  -79,113
  -84,831
  -90,597
  -96,424
  -102,330
  -108,335
  -114,462
  -120,733
  -127,174
  -133,811
  -140,670
  -147,778
  -155,159
  -162,842
Free cash flow, $m
  -1,209
  -5,230
  -6,952
  -8,975
  -11,287
  -13,859
  -16,650
  -19,612
  -22,690
  -25,830
  -28,978
  -32,088
  -35,117
  -38,035
  -40,818
  -43,451
  -45,929
  -48,252
  -50,428
  -52,469
  -54,390
  -56,210
  -57,951
  -59,632
  -61,277
  -62,906
  -64,541
  -66,201
  -67,907
  -69,676
  -71,525
Issuance/(repayment) of debt, $m
  817
  3,073
  4,101
  5,307
  6,698
  8,260
  9,977
  11,822
  13,770
  15,792
  17,859
  19,947
  22,033
  24,099
  26,133
  28,124
  30,070
  31,970
  33,826
  35,645
  37,435
  39,205
  40,967
  42,732
  44,513
  46,321
  48,168
  50,068
  52,031
  54,069
  56,193
Issuance/(repurchase) of shares, $m
  781
  3,254
  4,331
  5,583
  7,007
  8,580
  10,274
  12,056
  13,889
  15,737
  17,564
  19,339
  21,036
  22,633
  24,117
  25,477
  26,711
  27,820
  28,810
  29,688
  30,465
  31,154
  31,768
  32,322
  32,829
  33,303
  33,756
  34,203
  34,654
  35,120
  35,612
Cash from financing (excl. dividends), $m  
  1,567
  6,327
  8,432
  10,890
  13,705
  16,840
  20,251
  23,878
  27,659
  31,529
  35,423
  39,286
  43,069
  46,732
  50,250
  53,601
  56,781
  59,790
  62,636
  65,333
  67,900
  70,359
  72,735
  75,054
  77,342
  79,624
  81,924
  84,271
  86,685
  89,189
  91,805
Total cash flow (excl. dividends), $m
  358
  1,097
  1,480
  1,915
  2,417
  2,981
  3,601
  4,267
  4,970
  5,699
  6,445
  7,199
  7,952
  8,697
  9,431
  10,150
  10,852
  11,538
  12,208
  12,864
  13,510
  14,149
  14,785
  15,422
  16,064
  16,717
  17,384
  18,069
  18,778
  19,513
  20,280
Retained Cash Flow (-), $m
  -872
  -3,794
  -5,053
  -6,539
  -8,252
  -10,178
  -12,293
  -14,567
  -16,967
  -19,458
  -22,005
  -24,578
  -27,148
  -29,694
  -32,199
  -34,653
  -37,051
  -39,391
  -41,679
  -43,920
  -46,125
  -48,307
  -50,478
  -52,652
  -54,846
  -57,074
  -59,350
  -61,691
  -64,110
  -66,621
  -69,238
Prev. year cash balance distribution, $m
 
  29
  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
 
  -2,667
  -3,573
  -4,624
  -5,835
  -7,197
  -8,692
  -10,300
  -11,997
  -13,759
  -15,560
  -17,379
  -19,196
  -20,996
  -22,768
  -24,503
  -26,199
  -27,854
  -29,471
  -31,056
  -32,615
  -34,158
  -35,693
  -37,230
  -38,781
  -40,357
  -41,966
  -43,621
  -45,332
  -47,107
  -48,958
Discount rate, %
 
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
 
  -2,514
  -3,156
  -3,804
  -4,441
  -5,033
  -5,543
  -5,942
  -6,208
  -6,328
  -6,300
  -6,130
  -5,835
  -5,436
  -4,958
  -4,430
  -3,878
  -3,326
  -2,795
  -2,301
  -1,854
  -1,463
  -1,130
  -853
  -629
  -453
  -318
  -218
  -145
  -94
  -59
Current shareholders' claim on cash, %
  100
  84.1
  71.7
  61.9
  54.2
  48.0
  42.9
  38.8
  35.4
  32.5
  30.1
  28.0
  26.3
  24.8
  23.5
  22.3
  21.3
  20.4
  19.7
  19.0
  18.4
  17.8
  17.3
  16.9
  16.5
  16.1
  15.7
  15.4
  15.1
  14.9
  14.6

Pembina Pipeline Corporation provides transportation and midstream services for the energy industry in North America. It operates through four segments: Conventional Pipelines, Oil Sands & Heavy Oil, Gas Services, and Midstream. The Conventional Pipelines segment operates 9,100 kilometers of pipeline network that transports hydrocarbon products and extends across Alberta and parts of British Columbia. It also transports ethane from gas plants in North Dakota and Saskatchewan to Empress, Alberta. The Oil Sands & Heavy Oil segment transports synthetic crude oil for the Syncrude Project and the Horizon Project to delivery points near Edmonton, Alberta; owns and operates the Nipisi and Mitsue pipelines, which provide transportation for producers operating in the Pelican Lake and Peace River heavy oil regions of Alberta; and the Cheecham Lateral, which transports synthetic crude to oil sands producers operating southeast of Fort McMurray, Alberta. This segment operates approximately 1,650 kilometers of pipeline and has 880 thousands of barrels per day of capacity. The Gas Services segment provides natural gas gathering, compression, and shallow and deep cut processing services primarily on a fee-for-service basis under long-term contracts. The Midstream segment offers midstream products and services, including storage, terminalling, and hub. It operates 17 truck terminals; 21 inbound and 13 outbound pipeline connections; 1.2 mmbpd of crude oil and condensate supply; and 310 mbbls of surface storage in and around the Edmonton and Fort Saskatchewan, Alberta areas, as well as operates 2 NGL operating systems. Pembina Pipeline Corporation was founded in 1997 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Pembina Pipeline Corporation (PPL)

Valuation Ratios
P/E Ratio 36.7
Price to Sales 4
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow -25.6
Growth Rates
Sales Growth Rate -8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.6%
Cap. Spend. - 3 Yr. Gr. Rate 14.7%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 50%
Total Debt to Equity 50%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.2%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.2%
Return On Equity 5.9%
Return On Equity - 3 Yr. Avg. 6.2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 23.5%
Gross Margin - 3 Yr. Avg. 18.9%
EBITDA Margin 26%
EBITDA Margin - 3 Yr. Avg. 20.9%
Operating Margin 18.9%
Oper. Margin - 3 Yr. Avg. 15.1%
Pre-Tax Margin 15.4%
Pre-Tax Margin - 3 Yr. Avg. 12.5%
Net Profit Margin 10.9%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 28.9%
Eff/ Tax Rate - 3 Yr. Avg. 30.7%
Payout Ratio 75.3%

PPL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PPL stock intrinsic value calculation we used $4265 million for the last fiscal year's total revenue generated by Pembina Pipeline Corporation. The default revenue input number comes from 2016 income statement of Pembina Pipeline 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 PPL stock valuation model: a) initial revenue growth rate of 46% 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 6.1%, whose default value for PPL is calculated based on our internal credit rating of Pembina Pipeline 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 Pembina Pipeline 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 PPL stock the variable cost ratio is equal to 85.2%.

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 PPL 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 4.4% for Pembina Pipeline Corporation.

Corporate tax rate of 27% is the nominal tax rate for Pembina Pipeline 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 PPL 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 PPL are equal to 307.6%.

Life of production assets of 44.8 years is the average useful life of capital assets used in Pembina Pipeline 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 PPL is equal to -3.2%. 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 - $8296 million for Pembina Pipeline 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 399.908 million for Pembina Pipeline 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 Pembina Pipeline Corporation at the current share price and the inputted number of shares is $17.2 billion.

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Stock chart of PPL Financial statements of PPL
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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