Intrinsic value of Vermilion Energy Inc. - VET

Previous Close

$39.45

  Intrinsic Value

$3.44

stock screener

  Rating & Target

str. sell

-91%

  Value-price divergence*

-141%

Previous close

$39.45

 
Intrinsic value

$3.44

 
Up/down potential

-91%

 
Rating

str. sell

 
Value-price divergence*

-141%

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

We calculate the intrinsic value of VET 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 4.5

 

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, %
  -5.15
  50.30
  45.77
  41.69
  38.02
  34.72
  31.75
  29.07
  26.67
  24.50
  22.55
  20.80
  19.22
  17.79
  16.51
  15.36
  14.33
  13.39
  12.55
  11.80
  11.12
  10.51
  9.96
  9.46
  9.01
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
Revenue, $m
  829
  1,246
  1,816
  2,574
  3,552
  4,785
  6,305
  8,138
  10,308
  12,833
  15,727
  18,998
  22,648
  26,678
  31,084
  35,860
  40,997
  46,489
  52,325
  58,499
  65,004
  71,834
  78,987
  86,459
  94,254
  102,372
  110,820
  119,605
  128,735
  138,224
  148,085
Variable operating expenses, $m
 
  1,599
  2,330
  3,302
  4,557
  6,140
  8,089
  10,441
  13,225
  16,465
  20,178
  24,374
  29,058
  34,228
  39,881
  46,008
  52,600
  59,645
  67,133
  75,055
  83,400
  92,163
  101,340
  110,927
  120,928
  131,343
  142,182
  153,453
  165,168
  177,342
  189,993
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
  925
  1,599
  2,330
  3,302
  4,557
  6,140
  8,089
  10,441
  13,225
  16,465
  20,178
  24,374
  29,058
  34,228
  39,881
  46,008
  52,600
  59,645
  67,133
  75,055
  83,400
  92,163
  101,340
  110,927
  120,928
  131,343
  142,182
  153,453
  165,168
  177,342
  189,993
Operating income, $m
  -97
  -353
  -514
  -728
  -1,005
  -1,354
  -1,784
  -2,303
  -2,917
  -3,632
  -4,451
  -5,376
  -6,409
  -7,550
  -8,797
  -10,148
  -11,602
  -13,156
  -14,808
  -16,555
  -18,396
  -20,329
  -22,353
  -24,468
  -26,674
  -28,971
  -31,362
  -33,848
  -36,432
  -39,117
  -41,908
EBITDA, $m
  431
  256
  373
  529
  730
  984
  1,296
  1,673
  2,119
  2,639
  3,234
  3,906
  4,657
  5,485
  6,391
  7,373
  8,429
  9,558
  10,758
  12,027
  13,365
  14,769
  16,240
  17,776
  19,379
  21,048
  22,785
  24,591
  26,468
  28,419
  30,446
Interest expense (income), $m
  60
  59
  114
  188
  287
  414
  575
  773
  1,012
  1,294
  1,623
  2,000
  2,426
  2,902
  3,426
  4,000
  4,622
  5,292
  6,007
  6,767
  7,571
  8,418
  9,308
  10,240
  11,213
  12,228
  13,286
  14,386
  15,530
  16,720
  17,956
Earnings before tax, $m
  -223
  -412
  -628
  -916
  -1,292
  -1,768
  -2,359
  -3,076
  -3,929
  -4,926
  -6,074
  -7,376
  -8,836
  -10,452
  -12,223
  -14,149
  -16,225
  -18,448
  -20,815
  -23,322
  -25,967
  -28,748
  -31,661
  -34,708
  -37,887
  -41,200
  -44,648
  -48,234
  -51,962
  -55,837
  -59,864
Tax expense, $m
  -63
  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
Net income, $m
  -160
  -412
  -628
  -916
  -1,292
  -1,768
  -2,359
  -3,076
  -3,929
  -4,926
  -6,074
  -7,376
  -8,836
  -10,452
  -12,223
  -14,149
  -16,225
  -18,448
  -20,815
  -23,322
  -25,967
  -28,748
  -31,661
  -34,708
  -37,887
  -41,200
  -44,648
  -48,234
  -51,962
  -55,837
  -59,864

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  63
  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
  4,087
  6,048
  8,817
  12,493
  17,243
  23,230
  30,606
  39,504
  50,038
  62,298
  76,346
  92,222
  109,944
  129,507
  150,895
  174,077
  199,017
  225,673
  254,006
  283,977
  315,553
  348,710
  383,430
  419,706
  457,542
  496,952
  537,961
  580,605
  624,929
  670,991
  718,858
Adjusted assets (=assets-cash), $m
  4,024
  6,048
  8,817
  12,493
  17,243
  23,230
  30,606
  39,504
  50,038
  62,298
  76,346
  92,222
  109,944
  129,507
  150,895
  174,077
  199,017
  225,673
  254,006
  283,977
  315,553
  348,710
  383,430
  419,706
  457,542
  496,952
  537,961
  580,605
  624,929
  670,991
  718,858
Revenue / Adjusted assets
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
Average production assets, $m
  2,025
  3,044
  4,437
  6,287
  8,678
  11,691
  15,403
  19,881
  25,182
  31,352
  38,422
  46,412
  55,330
  65,175
  75,939
  87,606
  100,157
  113,572
  127,831
  142,914
  158,805
  175,491
  192,964
  211,220
  230,262
  250,095
  270,733
  292,194
  314,501
  337,682
  361,771
Working capital, $m
  -65
  -192
  -280
  -396
  -547
  -737
  -971
  -1,253
  -1,587
  -1,976
  -2,422
  -2,926
  -3,488
  -4,108
  -4,787
  -5,522
  -6,314
  -7,159
  -8,058
  -9,009
  -10,011
  -11,062
  -12,164
  -13,315
  -14,515
  -15,765
  -17,066
  -18,419
  -19,825
  -21,287
  -22,805
Total debt, $m
  1,382
  2,647
  4,375
  6,669
  9,633
  13,369
  17,971
  23,523
  30,097
  37,747
  46,513
  56,420
  67,478
  79,685
  93,031
  107,497
  123,059
  139,693
  157,373
  176,075
  195,778
  216,468
  238,133
  260,770
  284,379
  308,971
  334,561
  361,170
  388,829
  417,571
  447,440
Total liabilities, $m
  2,509
  3,774
  5,502
  7,796
  10,760
  14,496
  19,098
  24,650
  31,224
  38,874
  47,640
  57,547
  68,605
  80,812
  94,158
  108,624
  124,186
  140,820
  158,500
  177,202
  196,905
  217,595
  239,260
  261,897
  285,506
  310,098
  335,688
  362,297
  389,956
  418,698
  448,567
Total equity, $m
  1,578
  2,274
  3,315
  4,697
  6,483
  8,735
  11,508
  14,853
  18,814
  23,424
  28,706
  34,676
  41,339
  48,695
  56,736
  65,453
  74,830
  84,853
  95,506
  106,775
  118,648
  131,115
  144,170
  157,809
  172,036
  186,854
  202,273
  218,307
  234,973
  252,293
  270,290
Total liabilities and equity, $m
  4,087
  6,048
  8,817
  12,493
  17,243
  23,231
  30,606
  39,503
  50,038
  62,298
  76,346
  92,223
  109,944
  129,507
  150,894
  174,077
  199,016
  225,673
  254,006
  283,977
  315,553
  348,710
  383,430
  419,706
  457,542
  496,952
  537,961
  580,604
  624,929
  670,991
  718,857
Debt-to-equity ratio
  0.876
  1.160
  1.320
  1.420
  1.490
  1.530
  1.560
  1.580
  1.600
  1.610
  1.620
  1.630
  1.630
  1.640
  1.640
  1.640
  1.640
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.650
  1.660
  1.660
Adjusted equity ratio
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376
  0.376

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -160
  -412
  -628
  -916
  -1,292
  -1,768
  -2,359
  -3,076
  -3,929
  -4,926
  -6,074
  -7,376
  -8,836
  -10,452
  -12,223
  -14,149
  -16,225
  -18,448
  -20,815
  -23,322
  -25,967
  -28,748
  -31,661
  -34,708
  -37,887
  -41,200
  -44,648
  -48,234
  -51,962
  -55,837
  -59,864
Depreciation, amort., depletion, $m
  528
  609
  887
  1,257
  1,736
  2,338
  3,081
  3,976
  5,036
  6,270
  7,684
  9,282
  11,066
  13,035
  15,188
  17,521
  20,031
  22,714
  25,566
  28,583
  31,761
  35,098
  38,593
  42,244
  46,052
  50,019
  54,147
  58,439
  62,900
  67,536
  72,354
Funds from operations, $m
  518
  197
  260
  341
  444
  570
  721
  900
  1,108
  1,344
  1,610
  1,906
  2,230
  2,584
  2,964
  3,372
  3,807
  4,267
  4,751
  5,260
  5,794
  6,351
  6,932
  7,536
  8,165
  8,819
  9,499
  10,205
  10,938
  11,699
  12,491
Change in working capital, $m
  8
  -64
  -88
  -117
  -151
  -190
  -234
  -282
  -334
  -389
  -446
  -504
  -562
  -621
  -679
  -735
  -791
  -846
  -899
  -951
  -1,002
  -1,052
  -1,101
  -1,151
  -1,200
  -1,250
  -1,301
  -1,353
  -1,406
  -1,461
  -1,519
Cash from operations, $m
  510
  261
  347
  458
  594
  760
  955
  1,183
  1,442
  1,733
  2,056
  2,410
  2,793
  3,204
  3,643
  4,108
  4,598
  5,112
  5,650
  6,211
  6,795
  7,403
  8,033
  8,687
  9,366
  10,070
  10,800
  11,557
  12,344
  13,161
  14,009
Maintenance CAPEX, $m
  0
  -405
  -609
  -887
  -1,257
  -1,736
  -2,338
  -3,081
  -3,976
  -5,036
  -6,270
  -7,684
  -9,282
  -11,066
  -13,035
  -15,188
  -17,521
  -20,031
  -22,714
  -25,566
  -28,583
  -31,761
  -35,098
  -38,593
  -42,244
  -46,052
  -50,019
  -54,147
  -58,439
  -62,900
  -67,536
New CAPEX, $m
  -341
  -1,019
  -1,393
  -1,850
  -2,391
  -3,013
  -3,712
  -4,478
  -5,302
  -6,170
  -7,070
  -7,990
  -8,918
  -9,845
  -10,763
  -11,667
  -12,551
  -13,415
  -14,259
  -15,083
  -15,891
  -16,686
  -17,473
  -18,256
  -19,041
  -19,833
  -20,638
  -21,461
  -22,307
  -23,181
  -24,089
Cash from investing activities, $m
  -353
  -1,424
  -2,002
  -2,737
  -3,648
  -4,749
  -6,050
  -7,559
  -9,278
  -11,206
  -13,340
  -15,674
  -18,200
  -20,911
  -23,798
  -26,855
  -30,072
  -33,446
  -36,973
  -40,649
  -44,474
  -48,447
  -52,571
  -56,849
  -61,285
  -65,885
  -70,657
  -75,608
  -80,746
  -86,081
  -91,625
Free cash flow, $m
  157
  -1,163
  -1,655
  -2,280
  -3,054
  -3,989
  -5,095
  -6,376
  -7,836
  -9,473
  -11,284
  -13,265
  -15,408
  -17,707
  -20,156
  -22,747
  -25,474
  -28,334
  -31,323
  -34,438
  -37,678
  -41,045
  -44,538
  -48,162
  -51,920
  -55,816
  -59,857
  -64,050
  -68,402
  -72,921
  -77,616
Issuance/(repayment) of debt, $m
  -27
  1,265
  1,727
  2,294
  2,964
  3,736
  4,602
  5,553
  6,574
  7,650
  8,766
  9,907
  11,058
  12,208
  13,346
  14,466
  15,562
  16,634
  17,680
  18,702
  19,704
  20,690
  21,665
  22,636
  23,610
  24,592
  25,590
  26,610
  27,658
  28,743
  29,869
Issuance/(repurchase) of shares, $m
  0
  1,171
  1,669
  2,299
  3,078
  4,020
  5,132
  6,422
  7,890
  9,536
  11,356
  13,346
  15,499
  17,807
  20,265
  22,865
  25,602
  28,471
  31,468
  34,591
  37,840
  41,214
  44,716
  48,348
  52,113
  56,018
  60,067
  64,268
  68,628
  73,156
  77,861
Cash from financing (excl. dividends), $m  
  -26
  2,436
  3,396
  4,593
  6,042
  7,756
  9,734
  11,975
  14,464
  17,186
  20,122
  23,253
  26,557
  30,015
  33,611
  37,331
  41,164
  45,105
  49,148
  53,293
  57,544
  61,904
  66,381
  70,984
  75,723
  80,610
  85,657
  90,878
  96,286
  101,899
  107,730
Total cash flow (excl. dividends), $m
  126
  1,274
  1,742
  2,313
  2,988
  3,767
  4,640
  5,598
  6,627
  7,713
  8,838
  9,988
  11,149
  12,308
  13,455
  14,584
  15,690
  16,770
  17,825
  18,855
  19,865
  20,859
  21,843
  22,822
  23,803
  24,794
  25,799
  26,828
  27,885
  28,978
  30,114
Retained Cash Flow (-), $m
  281
  -1,171
  -1,669
  -2,299
  -3,078
  -4,020
  -5,132
  -6,422
  -7,890
  -9,536
  -11,356
  -13,346
  -15,499
  -17,807
  -20,265
  -22,865
  -25,602
  -28,471
  -31,468
  -34,591
  -37,840
  -41,214
  -44,716
  -48,348
  -52,113
  -56,018
  -60,067
  -64,268
  -68,628
  -73,156
  -77,861
Prev. year cash balance distribution, $m
 
  63
  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
 
  165
  73
  14
  -90
  -253
  -492
  -823
  -1,262
  -1,823
  -2,518
  -3,358
  -4,350
  -5,500
  -6,810
  -8,281
  -9,912
  -11,701
  -13,643
  -15,736
  -17,975
  -20,355
  -22,873
  -25,526
  -28,310
  -31,224
  -34,268
  -37,440
  -40,743
  -44,178
  -47,748
Discount rate, %
 
  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
  25.93
PV of cash for distribution, $m
 
  155
  64
  11
  -68
  -175
  -310
  -467
  -640
  -818
  -991
  -1,147
  -1,274
  -1,365
  -1,415
  -1,420
  -1,383
  -1,309
  -1,204
  -1,077
  -937
  -792
  -652
  -522
  -406
  -306
  -225
  -160
  -110
  -73
  -47
Current shareholders' claim on cash, %
  100
  78.8
  62.7
  50.5
  41.1
  33.8
  28.1
  23.5
  19.8
  16.9
  14.4
  12.4
  10.7
  9.3
  8.2
  7.2
  6.3
  5.6
  4.9
  4.4
  3.9
  3.5
  3.1
  2.8
  2.5
  2.2
  2.0
  1.8
  1.6
  1.5
  1.3

Vermilion Energy Inc. acquires, explores, develops, and produces crude oil and natural gas in North America, Europe, and Australia. As of December 31, 2015, it owned 71% interest in 326,500 net acres of developed land and 88% interest in 537,000 net acres of undeveloped land, as well as 464 net producing natural gas wells and 453 net producing oil wells in Canada; and 96% interest in 208,900 net acres of developed land and 100% interest in 374,600 net acres of undeveloped land in the Aquitaine and Paris Basins, as well as 337 net producing oil wells in France. The company also owned 55% interest in 814,600 net acres of land, as well as 35 net producing gas wells in the Netherlands; 7,800 net acres of developed and 153,400 net acres of undeveloped land, and 4 net producing gas wells in Germany; and 90,700 net acres of land and 4 net producing oil wells in the United States. In addition, it holds 18.5% interest in the offshore Corrib gas field situated in Ireland; and 100% interest in the Wandoo block, which consists of 59,600 acres located in Australia. Further, the company has 71,163 barrels of oil equivalent (Mboe) of total proved reserves and 121,717 Mboe of proved plus probable reserves located in Canada; 42,027 Mboe of total proved reserves and 63,612 Mboe of proved plus probable reserves situated in France; 8,122 Mboe of total proved reserves and 16,320 Mboe of proved plus probable reserves located in the Netherlands; 5,250 Mboe of total proved reserves and 8,250 Mboe of proved plus probable reserves situated in Germany; 17,637 Mboe of total proved reserves and 25,538 Mboe of proved plus probable reserves located in Ireland; 13,765 Mboe of total proved reserves and 17,465 Mboe of proved plus probable reserves located in Australia; and 2,742 Mboe of total proved reserves and 7,988 Mboe of proved plus probable reserves located in the United States. The company was founded in 1994 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Vermilion Energy Inc. (VET)

Valuation Ratios
P/E Ratio -29.2
Price to Sales 5.6
Price to Book 3
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow 27.6
Growth Rates
Sales Growth Rate -5.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -33.9%
Cap. Spend. - 3 Yr. Gr. Rate -9.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 87.6%
Total Debt to Equity 87.6%
Interest Coverage -3
Management Effectiveness
Return On Assets -2.8%
Ret/ On Assets - 3 Yr. Avg. 0.3%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. -0.9%
Return On Equity -9.3%
Return On Equity - 3 Yr. Avg. -2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 73.1%
Gross Margin - 3 Yr. Avg. 76.5%
EBITDA Margin 44%
EBITDA Margin - 3 Yr. Avg. 50.1%
Operating Margin -11.6%
Oper. Margin - 3 Yr. Avg. -1.7%
Pre-Tax Margin -26.9%
Pre-Tax Margin - 3 Yr. Avg. -5.6%
Net Profit Margin -19.3%
Net Profit Margin - 3 Yr. Avg. -7.9%
Effective Tax Rate 28.3%
Eff/ Tax Rate - 3 Yr. Avg. 22.5%
Payout Ratio -65.6%

VET stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VET stock intrinsic value calculation we used $829 million for the last fiscal year's total revenue generated by Vermilion Energy Inc.. The default revenue input number comes from 2016 income statement of Vermilion Energy 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 VET stock valuation model: a) initial revenue growth rate of 50.3% 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 6.3%, whose default value for VET is calculated based on our internal credit rating of Vermilion Energy 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 Vermilion Energy 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 VET stock the variable cost ratio is equal to 128.3%.

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 VET 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 4.3% for Vermilion Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for Vermilion Energy 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 VET 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 VET are equal to 244.3%.

Life of production assets of 3.8 years is the average useful life of capital assets used in Vermilion Energy 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 VET is equal to -15.4%. 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 - $1578 million for Vermilion Energy 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 114.837 million for Vermilion Energy 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 Vermilion Energy Inc. at the current share price and the inputted number of shares is $4.5 billion.

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Stock chart of VET Financial statements of VET
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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