Intrinsic value of Western Forest Products Inc. - WEF

Previous Close

$2.19

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$2.19

 
Intrinsic value

$6.27

 
Up/down potential

+186%

 
Rating

str. buy

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

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

We calculate the intrinsic value of WEF 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 0.9

 

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, %
  9.70
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
  5.09
  5.08
Revenue, $m
  1,187
  1,267
  1,349
  1,435
  1,525
  1,618
  1,715
  1,816
  1,922
  2,032
  2,147
  2,267
  2,393
  2,524
  2,661
  2,804
  2,954
  3,111
  3,276
  3,448
  3,628
  3,817
  4,015
  4,223
  4,440
  4,668
  4,907
  5,158
  5,421
  5,697
  5,986
Variable operating expenses, $m
 
  627
  668
  710
  755
  801
  849
  899
  951
  1,006
  1,063
  1,122
  1,184
  1,249
  1,317
  1,388
  1,462
  1,540
  1,622
  1,707
  1,796
  1,890
  1,988
  2,090
  2,198
  2,311
  2,429
  2,553
  2,683
  2,820
  2,963
Fixed operating expenses, $m
 
  492
  504
  517
  530
  543
  557
  571
  585
  599
  614
  630
  646
  662
  678
  695
  713
  730
  749
  767
  787
  806
  826
  847
  868
  890
  912
  935
  958
  982
  1,007
Total operating expenses, $m
  1,056
  1,119
  1,172
  1,227
  1,285
  1,344
  1,406
  1,470
  1,536
  1,605
  1,677
  1,752
  1,830
  1,911
  1,995
  2,083
  2,175
  2,270
  2,371
  2,474
  2,583
  2,696
  2,814
  2,937
  3,066
  3,201
  3,341
  3,488
  3,641
  3,802
  3,970
Operating income, $m
  131
  148
  177
  208
  240
  274
  310
  347
  386
  427
  470
  515
  563
  613
  666
  721
  779
  841
  906
  974
  1,046
  1,122
  1,201
  1,285
  1,374
  1,468
  1,566
  1,670
  1,779
  1,895
  2,016
EBITDA, $m
  165
  184
  216
  249
  284
  320
  359
  399
  441
  485
  531
  580
  631
  685
  742
  801
  864
  930
  1,000
  1,073
  1,150
  1,231
  1,316
  1,407
  1,501
  1,601
  1,707
  1,818
  1,935
  2,058
  2,188
Interest expense (income), $m
  3
  2
  3
  4
  5
  7
  8
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  40
  42
  45
  48
  51
  55
  58
  62
Earnings before tax, $m
  127
  145
  174
  204
  235
  267
  302
  338
  375
  415
  457
  500
  546
  595
  646
  699
  756
  815
  878
  944
  1,014
  1,087
  1,164
  1,246
  1,332
  1,422
  1,518
  1,618
  1,725
  1,836
  1,954
Tax expense, $m
  33
  39
  47
  55
  63
  72
  81
  91
  101
  112
  123
  135
  148
  161
  174
  189
  204
  220
  237
  255
  274
  294
  314
  336
  360
  384
  410
  437
  466
  496
  528
Net income, $m
  94
  106
  127
  149
  171
  195
  220
  246
  274
  303
  333
  365
  399
  434
  471
  511
  552
  595
  641
  689
  740
  794
  850
  909
  972
  1,038
  1,108
  1,181
  1,259
  1,341
  1,427

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19
  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
  777
  809
  862
  917
  974
  1,033
  1,095
  1,160
  1,227
  1,298
  1,371
  1,448
  1,528
  1,612
  1,699
  1,791
  1,887
  1,987
  2,092
  2,202
  2,317
  2,438
  2,564
  2,696
  2,835
  2,981
  3,134
  3,294
  3,462
  3,638
  3,823
Adjusted assets (=assets-cash), $m
  758
  809
  862
  917
  974
  1,033
  1,095
  1,160
  1,227
  1,298
  1,371
  1,448
  1,528
  1,612
  1,699
  1,791
  1,887
  1,987
  2,092
  2,202
  2,317
  2,438
  2,564
  2,696
  2,835
  2,981
  3,134
  3,294
  3,462
  3,638
  3,823
Revenue / Adjusted assets
  1.566
  1.566
  1.565
  1.565
  1.566
  1.566
  1.566
  1.566
  1.566
  1.565
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.565
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
  1.566
Average production assets, $m
  463
  494
  526
  560
  595
  631
  669
  708
  750
  793
  837
  884
  933
  984
  1,038
  1,094
  1,152
  1,213
  1,278
  1,345
  1,415
  1,489
  1,566
  1,647
  1,732
  1,821
  1,914
  2,012
  2,114
  2,222
  2,335
Working capital, $m
  178
  170
  181
  192
  204
  217
  230
  243
  258
  272
  288
  304
  321
  338
  357
  376
  396
  417
  439
  462
  486
  512
  538
  566
  595
  626
  658
  691
  726
  763
  802
Total debt, $m
  34
  51
  69
  87
  106
  126
  147
  169
  191
  215
  239
  265
  292
  320
  349
  380
  412
  446
  481
  518
  556
  597
  639
  683
  730
  779
  830
  883
  940
  999
  1,061
Total liabilities, $m
  255
  271
  289
  307
  326
  346
  367
  389
  411
  435
  459
  485
  512
  540
  569
  600
  632
  666
  701
  738
  776
  817
  859
  903
  950
  999
  1,050
  1,103
  1,160
  1,219
  1,281
Total equity, $m
  523
  538
  573
  609
  648
  687
  728
  771
  816
  863
  912
  963
  1,016
  1,072
  1,130
  1,191
  1,255
  1,321
  1,391
  1,464
  1,541
  1,621
  1,705
  1,793
  1,886
  1,982
  2,084
  2,190
  2,302
  2,419
  2,542
Total liabilities and equity, $m
  778
  809
  862
  916
  974
  1,033
  1,095
  1,160
  1,227
  1,298
  1,371
  1,448
  1,528
  1,612
  1,699
  1,791
  1,887
  1,987
  2,092
  2,202
  2,317
  2,438
  2,564
  2,696
  2,836
  2,981
  3,134
  3,293
  3,462
  3,638
  3,823
Debt-to-equity ratio
  0.065
  0.090
  0.120
  0.140
  0.160
  0.180
  0.200
  0.220
  0.230
  0.250
  0.260
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
  0.380
  0.390
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
Adjusted equity ratio
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  106
  127
  149
  171
  195
  220
  246
  274
  303
  333
  365
  399
  434
  471
  511
  552
  595
  641
  689
  740
  794
  850
  909
  972
  1,038
  1,108
  1,181
  1,259
  1,341
  1,427
Depreciation, amort., depletion, $m
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
  104
  109
  115
  121
  127
  134
  141
  148
  155
  163
  172
Funds from operations, $m
  102
  143
  166
  190
  215
  242
  269
  299
  329
  361
  395
  430
  467
  507
  548
  591
  637
  684
  735
  788
  844
  903
  965
  1,031
  1,100
  1,172
  1,249
  1,329
  1,414
  1,504
  1,598
Change in working capital, $m
  -26
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
Cash from operations, $m
  128
  144
  155
  178
  203
  229
  256
  285
  315
  346
  379
  414
  451
  489
  529
  572
  616
  663
  713
  765
  820
  878
  939
  1,003
  1,070
  1,142
  1,217
  1,296
  1,379
  1,467
  1,560
Maintenance CAPEX, $m
  0
  -34
  -36
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -104
  -109
  -115
  -121
  -127
  -134
  -141
  -148
  -155
  -163
New CAPEX, $m
  -56
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
Cash from investing activities, $m
  -56
  -65
  -68
  -73
  -76
  -80
  -84
  -88
  -93
  -98
  -103
  -109
  -114
  -120
  -125
  -132
  -139
  -146
  -153
  -161
  -169
  -178
  -186
  -196
  -206
  -216
  -227
  -239
  -251
  -263
  -276
Free cash flow, $m
  72
  79
  86
  106
  127
  149
  172
  196
  222
  248
  276
  306
  337
  369
  403
  440
  477
  517
  560
  604
  651
  700
  752
  807
  864
  925
  990
  1,057
  1,129
  1,204
  1,283
Issuance/(repayment) of debt, $m
  -29
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  47
  49
  51
  54
  56
  59
  62
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -31
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  47
  49
  51
  54
  56
  59
  62
Total cash flow (excl. dividends), $m
  42
  96
  104
  124
  146
  169
  193
  218
  244
  272
  301
  331
  364
  397
  433
  470
  510
  551
  595
  641
  689
  740
  794
  851
  911
  974
  1,041
  1,111
  1,185
  1,263
  1,345
Retained Cash Flow (-), $m
  -67
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -97
  -102
  -106
  -112
  -117
  -123
Prev. year cash balance distribution, $m
 
  19
  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
 
  81
  69
  88
  108
  129
  152
  175
  199
  225
  252
  280
  310
  342
  375
  409
  446
  484
  525
  568
  613
  660
  710
  763
  819
  877
  939
  1,004
  1,073
  1,146
  1,222
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
 
  78
  63
  77
  89
  100
  110
  118
  125
  129
  132
  133
  132
  130
  126
  120
  113
  105
  97
  87
  78
  68
  59
  50
  42
  34
  27
  22
  17
  13
  9
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

Western Forest Products Inc. operates as an integrated softwood forest products company. The company is involved in the harvesting of timber; reforestation; forest management; manufacture and sale of lumber and wood chips; sale of logs; and lumber remanufacturing. Its products include western red cedar, hem-fir, douglas fir, yellow cedar, and sitka spruce lumber. The company sells its products in approximately 25 countries worldwide. Western Forest Products Inc. was founded in 1955 and is headquartered in Vancouver, Canada.

FINANCIAL RATIOS  of  Western Forest Products Inc. (WEF)

Valuation Ratios
P/E Ratio 9.2
Price to Sales 0.7
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow 12
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -9.7%
Cap. Spend. - 3 Yr. Gr. Rate -1%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 6.5%
Total Debt to Equity 6.5%
Interest Coverage 43
Management Effectiveness
Return On Assets 12.7%
Ret/ On Assets - 3 Yr. Avg. 11.3%
Return On Total Capital 17.5%
Ret/ On T. Cap. - 3 Yr. Avg. 15.5%
Return On Equity 19.2%
Return On Equity - 3 Yr. Avg. 17.8%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 19.8%
Gross Margin - 3 Yr. Avg. 19%
EBITDA Margin 13.8%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 11%
Oper. Margin - 3 Yr. Avg. 8.4%
Pre-Tax Margin 10.7%
Pre-Tax Margin - 3 Yr. Avg. 7.9%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 26%
Eff/ Tax Rate - 3 Yr. Avg. 10.8%
Payout Ratio 34%

WEF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WEF stock intrinsic value calculation we used $1187 million for the last fiscal year's total revenue generated by Western Forest Products Inc.. The default revenue input number comes from 2016 income statement of Western Forest Products 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 WEF stock valuation model: a) initial revenue growth rate of 6.7% 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 WEF is calculated based on our internal credit rating of Western Forest Products 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 Western Forest Products 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 WEF stock the variable cost ratio is equal to 49.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $480 million in the base year in the intrinsic value calculation for WEF 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 6.2% for Western Forest Products Inc..

Corporate tax rate of 27% is the nominal tax rate for Western Forest Products 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 WEF 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 WEF are equal to 39%.

Life of production assets of 13.6 years is the average useful life of capital assets used in Western Forest Products 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 WEF is equal to 13.4%. 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 - $523 million for Western Forest Products 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 399.11 million for Western Forest Products 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 Western Forest Products Inc. at the current share price and the inputted number of shares is $0.9 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
CFP Canfor Corpora 19.18 prem.  prem.
IFP Interfor Corpo 18.09 prem.  prem.
WFT West Fraser Ti 59.88 prem.  prem.
SJ Stella-Jones I 44.01 prem.  prem.
Stock chart of WEF Financial statements of WEF
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.