Intrinsic value of Stella-Jones Inc. - SJ

Previous Close

$43.74

  Intrinsic Value

$23.39

stock screener

  Rating & Target

sell

-47%

  Value-price divergence*

+344%

Previous close

$43.74

 
Intrinsic value

$23.39

 
Up/down potential

-47%

 
Rating

sell

 
Value-price divergence*

+344%

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

We calculate the intrinsic value of SJ 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 3.0

 

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, %
  17.90
  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
  1,838
  1,875
  1,918
  1,967
  2,023
  2,084
  2,151
  2,224
  2,304
  2,389
  2,481
  2,579
  2,684
  2,795
  2,913
  3,039
  3,172
  3,313
  3,462
  3,620
  3,786
  3,962
  4,147
  4,342
  4,547
  4,764
  4,992
  5,232
  5,484
  5,750
  6,029
Variable operating expenses, $m
 
  1,610
  1,646
  1,688
  1,734
  1,786
  1,843
  1,905
  1,972
  2,044
  2,121
  2,175
  2,263
  2,357
  2,457
  2,563
  2,676
  2,795
  2,920
  3,053
  3,193
  3,341
  3,498
  3,662
  3,835
  4,018
  4,210
  4,413
  4,626
  4,850
  5,085
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
  1,605
  1,610
  1,646
  1,688
  1,734
  1,786
  1,843
  1,905
  1,972
  2,044
  2,121
  2,175
  2,263
  2,357
  2,457
  2,563
  2,676
  2,795
  2,920
  3,053
  3,193
  3,341
  3,498
  3,662
  3,835
  4,018
  4,210
  4,413
  4,626
  4,850
  5,085
Operating income, $m
  233
  265
  272
  279
  288
  298
  308
  320
  332
  345
  360
  404
  420
  438
  456
  476
  497
  519
  542
  567
  593
  620
  649
  680
  712
  746
  782
  819
  859
  900
  944
EBITDA, $m
  265
  316
  323
  331
  341
  351
  362
  375
  388
  402
  418
  434
  452
  471
  491
  512
  534
  558
  583
  609
  637
  667
  698
  731
  766
  802
  840
  881
  923
  968
  1,015
Interest expense (income), $m
  19
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
  80
  85
  89
  94
Earnings before tax, $m
  215
  241
  247
  254
  262
  270
  280
  290
  301
  313
  326
  368
  383
  398
  415
  432
  451
  471
  492
  514
  537
  561
  587
  614
  643
  673
  705
  739
  774
  811
  850
Tax expense, $m
  61
  65
  67
  69
  71
  73
  75
  78
  81
  84
  88
  99
  103
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  190
  199
  209
  219
  230
Net income, $m
  154
  176
  180
  185
  191
  197
  204
  212
  220
  228
  238
  269
  279
  291
  303
  316
  329
  344
  359
  375
  392
  410
  429
  449
  469
  492
  515
  539
  565
  592
  621

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
  1,962
  1,999
  2,045
  2,097
  2,156
  2,222
  2,293
  2,371
  2,456
  2,547
  2,645
  2,749
  2,861
  2,980
  3,106
  3,240
  3,382
  3,532
  3,691
  3,859
  4,036
  4,224
  4,421
  4,629
  4,848
  5,079
  5,322
  5,578
  5,847
  6,130
  6,428
Adjusted assets (=assets-cash), $m
  1,960
  1,999
  2,045
  2,097
  2,156
  2,222
  2,293
  2,371
  2,456
  2,547
  2,645
  2,749
  2,861
  2,980
  3,106
  3,240
  3,382
  3,532
  3,691
  3,859
  4,036
  4,224
  4,421
  4,629
  4,848
  5,079
  5,322
  5,578
  5,847
  6,130
  6,428
Revenue / Adjusted assets
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
Average production assets, $m
  565
  576
  589
  604
  621
  640
  660
  683
  707
  733
  762
  792
  824
  858
  894
  933
  974
  1,017
  1,063
  1,111
  1,162
  1,216
  1,273
  1,333
  1,396
  1,463
  1,532
  1,606
  1,684
  1,765
  1,851
Working capital, $m
  928
  937
  959
  984
  1,011
  1,042
  1,076
  1,112
  1,152
  1,195
  1,240
  1,289
  1,342
  1,397
  1,457
  1,520
  1,586
  1,657
  1,731
  1,810
  1,893
  1,981
  2,073
  2,171
  2,274
  2,382
  2,496
  2,616
  2,742
  2,875
  3,015
Total debt, $m
  694
  711
  733
  758
  787
  818
  852
  889
  929
  973
  1,020
  1,069
  1,123
  1,179
  1,240
  1,303
  1,371
  1,443
  1,519
  1,599
  1,683
  1,773
  1,867
  1,966
  2,070
  2,181
  2,296
  2,418
  2,547
  2,682
  2,824
Total liabilities, $m
  936
  953
  975
  1,000
  1,029
  1,060
  1,094
  1,131
  1,171
  1,215
  1,262
  1,311
  1,365
  1,421
  1,482
  1,545
  1,613
  1,685
  1,761
  1,841
  1,925
  2,015
  2,109
  2,208
  2,312
  2,423
  2,538
  2,660
  2,789
  2,924
  3,066
Total equity, $m
  1,026
  1,045
  1,069
  1,097
  1,128
  1,162
  1,199
  1,240
  1,284
  1,332
  1,383
  1,438
  1,496
  1,558
  1,624
  1,694
  1,769
  1,847
  1,930
  2,018
  2,111
  2,209
  2,312
  2,421
  2,535
  2,656
  2,783
  2,917
  3,058
  3,206
  3,362
Total liabilities and equity, $m
  1,962
  1,998
  2,044
  2,097
  2,157
  2,222
  2,293
  2,371
  2,455
  2,547
  2,645
  2,749
  2,861
  2,979
  3,106
  3,239
  3,382
  3,532
  3,691
  3,859
  4,036
  4,224
  4,421
  4,629
  4,847
  5,079
  5,321
  5,577
  5,847
  6,130
  6,428
Debt-to-equity ratio
  0.676
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
  0.720
  0.720
  0.730
  0.740
  0.740
  0.750
  0.760
  0.760
  0.770
  0.780
  0.780
  0.790
  0.790
  0.800
  0.800
  0.810
  0.810
  0.820
  0.820
  0.830
  0.830
  0.830
  0.840
  0.840
Adjusted equity ratio
  0.522
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  154
  176
  180
  185
  191
  197
  204
  212
  220
  228
  238
  269
  279
  291
  303
  316
  329
  344
  359
  375
  392
  410
  429
  449
  469
  492
  515
  539
  565
  592
  621
Depreciation, amort., depletion, $m
  32
  51
  51
  52
  52
  53
  54
  55
  56
  57
  58
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
Funds from operations, $m
  95
  226
  231
  237
  243
  250
  258
  266
  275
  285
  296
  299
  311
  324
  337
  352
  367
  383
  400
  418
  437
  457
  478
  500
  523
  548
  574
  601
  630
  660
  692
Change in working capital, $m
  -87
  18
  22
  25
  28
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  70
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
  140
Cash from operations, $m
  182
  208
  210
  212
  216
  220
  224
  230
  236
  243
  250
  250
  259
  268
  278
  289
  300
  312
  325
  339
  353
  369
  385
  402
  420
  440
  460
  481
  504
  527
  552
Maintenance CAPEX, $m
  0
  -22
  -22
  -23
  -23
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -68
New CAPEX, $m
  -70
  -11
  -13
  -15
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
Cash from investing activities, $m
  -176
  -33
  -35
  -38
  -40
  -43
  -46
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -80
  -85
  -89
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -133
  -140
  -147
  -154
Free cash flow, $m
  6
  176
  174
  175
  175
  177
  179
  182
  185
  189
  193
  191
  196
  202
  209
  216
  223
  232
  240
  250
  260
  270
  281
  293
  306
  319
  334
  348
  364
  381
  398
Issuance/(repayment) of debt, $m
  12
  19
  22
  25
  28
  31
  34
  37
  40
  43
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  128
  135
  142
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  19
  19
  22
  25
  28
  31
  34
  37
  40
  43
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  128
  135
  142
Total cash flow (excl. dividends), $m
  25
  195
  196
  200
  204
  208
  213
  219
  226
  233
  240
  241
  249
  259
  269
  280
  291
  303
  316
  330
  344
  359
  376
  393
  411
  429
  449
  470
  493
  516
  540
Retained Cash Flow (-), $m
  -112
  -19
  -24
  -27
  -31
  -34
  -38
  -41
  -44
  -48
  -51
  -55
  -58
  -62
  -66
  -70
  -74
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
  -148
  -156
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
 
  176
  172
  172
  173
  174
  176
  178
  181
  185
  189
  186
  191
  197
  203
  210
  217
  225
  233
  242
  251
  262
  272
  284
  296
  309
  322
  337
  352
  368
  385
Discount rate, %
 
  6.00
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
PV of cash for distribution, $m
 
  166
  153
  142
  132
  122
  113
  104
  95
  86
  78
  67
  59
  52
  45
  39
  33
  28
  23
  19
  15
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
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

Stella-Jones Inc. produces and markets pressure treated wood products in Canada and the United States. It offers railway ties and timbers for railroad operators; and utility poles for electrical utilities and telecommunication companies. The company also provides residential lumber to retailers and wholesalers for use in patios, decks, fences, and other outdoor applications; and industrial products, including marine and foundation pilings, railway bridge and crossing timbers, crane mats, construction timbers, and highway guardrail posts. In addition, it offers wood preservative creosote products that are used in wood treating activities; coal tar based products, such as roof pitch and road tar; and tie logs and lumber products. The company was founded in 1992 and is headquartered in Saint-Laurent, Canada.

FINANCIAL RATIOS  of  Stella-Jones Inc. (SJ)

Valuation Ratios
P/E Ratio 19.7
Price to Sales 1.6
Price to Book 3
Price to Tangible Book
Price to Cash Flow 16.7
Price to Free Cash Flow 27.1
Growth Rates
Sales Growth Rate 17.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 79.5%
Cap. Spend. - 3 Yr. Gr. Rate 21%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 67%
Total Debt to Equity 67.6%
Interest Coverage 12
Management Effectiveness
Return On Assets 9%
Ret/ On Assets - 3 Yr. Avg. 9.6%
Return On Total Capital 9.3%
Ret/ On T. Cap. - 3 Yr. Avg. 9.9%
Return On Equity 15.9%
Return On Equity - 3 Yr. Avg. 16.6%
Asset Turnover 1
Profitability Ratios
Gross Margin 18.2%
Gross Margin - 3 Yr. Avg. 18.6%
EBITDA Margin 14.5%
EBITDA Margin - 3 Yr. Avg. 14.8%
Operating Margin 12.7%
Oper. Margin - 3 Yr. Avg. 13.1%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 12.1%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 8.6%
Effective Tax Rate 28.4%
Eff/ Tax Rate - 3 Yr. Avg. 28.7%
Payout Ratio 18.2%

SJ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SJ stock intrinsic value calculation we used $1838 million for the last fiscal year's total revenue generated by Stella-Jones Inc.. The default revenue input number comes from 2016 income statement of Stella-Jones 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 SJ 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 6%, whose default value for SJ is calculated based on our internal credit rating of Stella-Jones 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 Stella-Jones 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 SJ stock the variable cost ratio is equal to 85.9%.

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 SJ 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 Stella-Jones Inc..

Corporate tax rate of 27% is the nominal tax rate for Stella-Jones 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 SJ 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 SJ are equal to 30.7%.

Life of production assets of 26 years is the average useful life of capital assets used in Stella-Jones 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 SJ is equal to 50%. 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 - $1026 million for Stella-Jones 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 68.981 million for Stella-Jones 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 Stella-Jones Inc. at the current share price and the inputted number of shares is $3.0 billion.

RELATED COMPANIES Price Int.Val. Rating
CFP Canfor Corpora 20.42 55.51  str.buy
IFP Interfor Corpo 19.32 2.29  str.sell
WFT West Fraser Ti 63.66 243.83  str.buy
WEF Western Forest 2.58 6.27  str.buy
Stock chart of SJ Financial statements of SJ
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.