Intrinsic value of Ardmore Shipping - ASC

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$7.30

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$7.30

 
Intrinsic value

$3.01

 
Up/down potential

-59%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of ASC 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 0.2

 

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, %
  3.80
  2.40
  2.66
  2.89
  3.10
  3.29
  3.46
  3.62
  3.76
  3.88
  3.99
  4.09
  4.18
  4.27
  4.34
  4.41
  4.46
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
Revenue, $m
  164
  168
  172
  177
  183
  189
  195
  203
  210
  218
  227
  236
  246
  257
  268
  280
  292
  305
  319
  334
  350
  366
  383
  401
  420
  441
  462
  484
  508
  532
  558
Variable operating expenses, $m
 
  121
  124
  128
  132
  136
  141
  146
  151
  157
  163
  170
  177
  185
  193
  201
  210
  220
  230
  240
  252
  263
  276
  289
  303
  317
  333
  349
  365
  383
  402
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
  140
  121
  124
  128
  132
  136
  141
  146
  151
  157
  163
  170
  177
  185
  193
  201
  210
  220
  230
  240
  252
  263
  276
  289
  303
  317
  333
  349
  365
  383
  402
Operating income, $m
  24
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  94
  98
  102
  107
  112
  118
  123
  129
  136
  142
  149
  156
EBITDA, $m
  54
  78
  80
  82
  85
  87
  90
  94
  97
  101
  105
  109
  114
  119
  124
  129
  135
  141
  148
  155
  162
  169
  177
  186
  195
  204
  214
  224
  235
  246
  258
Interest expense (income), $m
  13
  15
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Earnings before tax, $m
  4
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  47
  49
  52
  54
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  102
  107
Tax expense, $m
  0
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
Net income, $m
  4
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  56
  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
  884
  848
  871
  896
  924
  954
  987
  1,023
  1,061
  1,103
  1,147
  1,194
  1,243
  1,296
  1,353
  1,412
  1,475
  1,542
  1,612
  1,687
  1,765
  1,848
  1,935
  2,027
  2,124
  2,225
  2,332
  2,445
  2,564
  2,688
  2,819
Adjusted assets (=assets-cash), $m
  828
  848
  871
  896
  924
  954
  987
  1,023
  1,061
  1,103
  1,147
  1,194
  1,243
  1,296
  1,353
  1,412
  1,475
  1,542
  1,612
  1,687
  1,765
  1,848
  1,935
  2,027
  2,124
  2,225
  2,332
  2,445
  2,564
  2,688
  2,819
Revenue / Adjusted assets
  0.198
  0.198
  0.197
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
Average production assets, $m
  723
  740
  759
  781
  806
  832
  861
  892
  926
  962
  1,000
  1,041
  1,085
  1,131
  1,180
  1,232
  1,287
  1,345
  1,406
  1,471
  1,540
  1,612
  1,688
  1,768
  1,852
  1,941
  2,034
  2,133
  2,236
  2,345
  2,459
Working capital, $m
  35
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
Total debt, $m
  462
  431
  443
  456
  471
  487
  504
  523
  543
  565
  589
  613
  640
  668
  698
  729
  762
  798
  835
  874
  916
  960
  1,006
  1,054
  1,105
  1,159
  1,216
  1,275
  1,338
  1,404
  1,474
Total liabilities, $m
  479
  449
  461
  474
  489
  505
  522
  541
  561
  583
  607
  631
  658
  686
  716
  747
  780
  816
  853
  892
  934
  978
  1,024
  1,072
  1,123
  1,177
  1,234
  1,293
  1,356
  1,422
  1,492
Total equity, $m
  404
  399
  410
  422
  435
  449
  465
  482
  500
  519
  540
  562
  586
  611
  637
  665
  695
  726
  759
  794
  831
  870
  911
  955
  1,000
  1,048
  1,099
  1,152
  1,207
  1,266
  1,328
Total liabilities and equity, $m
  883
  848
  871
  896
  924
  954
  987
  1,023
  1,061
  1,102
  1,147
  1,193
  1,244
  1,297
  1,353
  1,412
  1,475
  1,542
  1,612
  1,686
  1,765
  1,848
  1,935
  2,027
  2,123
  2,225
  2,333
  2,445
  2,563
  2,688
  2,820
Debt-to-equity ratio
  1.144
  1.080
  1.080
  1.080
  1.080
  1.080
  1.080
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.090
  1.100
  1.100
  1.100
  1.100
  1.100
  1.100
  1.100
  1.100
  1.100
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
  1.110
Adjusted equity ratio
  0.420
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  24
  24
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  78
Depreciation, amort., depletion, $m
  30
  31
  32
  32
  33
  35
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
  84
  88
  93
  97
  102
Funds from operations, $m
  42
  54
  56
  57
  59
  61
  63
  66
  68
  71
  73
  76
  80
  83
  87
  90
  94
  99
  103
  108
  113
  118
  124
  130
  136
  142
  149
  156
  164
  172
  180
Change in working capital, $m
  -1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
Cash from operations, $m
  43
  117
  55
  57
  58
  60
  62
  65
  67
  70
  72
  75
  78
  82
  85
  89
  93
  97
  101
  106
  111
  116
  122
  127
  133
  140
  146
  154
  161
  169
  177
Maintenance CAPEX, $m
  0
  -30
  -31
  -32
  -32
  -33
  -35
  -36
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -88
  -93
  -97
New CAPEX, $m
  -174
  -17
  -20
  -22
  -24
  -27
  -29
  -31
  -34
  -36
  -38
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -114
Cash from investing activities, $m
  -122
  -47
  -51
  -54
  -56
  -60
  -64
  -67
  -71
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -136
  -143
  -150
  -157
  -166
  -174
  -182
  -191
  -202
  -211
Free cash flow, $m
  -79
  70
  5
  3
  2
  0
  -1
  -2
  -4
  -5
  -6
  -7
  -8
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -33
  -35
Issuance/(repayment) of debt, $m
  50
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
  66
  69
Issuance/(repurchase) of shares, $m
  61
  0
  0
  0
  0
  0
  0
  0
  1
  2
  3
  4
  5
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
Cash from financing (excl. dividends), $m  
  105
  11
  12
  13
  15
  16
  17
  19
  21
  24
  26
  29
  31
  34
  38
  41
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  96
Total cash flow (excl. dividends), $m
  25
  81
  17
  17
  16
  16
  17
  17
  17
  17
  17
  18
  18
  18
  19
  20
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
Retained Cash Flow (-), $m
  -56
  -9
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -50
  -53
  -56
  -59
  -62
Prev. year cash balance distribution, $m
 
  14
  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
 
  85
  6
  5
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Discount rate, %
 
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
 
  79
  5
  4
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.9
  99.6
  98.9
  98.0
  96.8
  95.5
  94.0
  92.4
  90.7
  88.8
  86.9
  85.0
  83.0
  81.0
  78.9
  76.9
  74.8
  72.8
  70.8
  68.8
  66.8
  64.9
  63.0
  61.1

Ardmore Shipping Corporation engages in the seaborne transportation of petroleum products and chemicals through product and chemical tankers worldwide. As of December 31, 2015, the company operated 24 vessels. It serves oil majors, oil companies, oil and chemical traders, and chemical companies. The company was founded in 2010 and is based in Hamilton, Bermuda.

FINANCIAL RATIOS  of  Ardmore Shipping (ASC)

Valuation Ratios
P/E Ratio 60.4
Price to Sales 1.5
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 5.6
Price to Free Cash Flow -1.8
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25.3%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 104%
Total Debt to Equity 114.4%
Interest Coverage 1
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 0.5%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity 1.1%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 43.3%
Gross Margin - 3 Yr. Avg. 46.9%
EBITDA Margin 28.7%
EBITDA Margin - 3 Yr. Avg. 35.6%
Operating Margin 14.6%
Oper. Margin - 3 Yr. Avg. 16.6%
Pre-Tax Margin 2.4%
Pre-Tax Margin - 3 Yr. Avg. 8.6%
Net Profit Margin 2.4%
Net Profit Margin - 3 Yr. Avg. 8.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 225%

ASC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ASC stock intrinsic value calculation we used $164 million for the last fiscal year's total revenue generated by Ardmore Shipping. The default revenue input number comes from 2016 income statement of Ardmore Shipping. 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 ASC stock valuation model: a) initial revenue growth rate of 2.4% 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 8.5%, whose default value for ASC is calculated based on our internal credit rating of Ardmore Shipping, 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 Ardmore Shipping.
    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 ASC stock the variable cost ratio is equal to 72%.

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 ASC 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 Ardmore Shipping.

Corporate tax rate of 27% is the nominal tax rate for Ardmore Shipping. 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 ASC 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 ASC are equal to 440.5%.

Life of production assets of 24.1 years is the average useful life of capital assets used in Ardmore Shipping 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 ASC is equal to 12.8%. 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 - $404 million for Ardmore Shipping - 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 33.575 million for Ardmore Shipping 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 Ardmore Shipping at the current share price and the inputted number of shares is $0.2 billion.


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COMPANY NEWS

▶ Ardmore Shipping reports 4Q loss   [Feb-07-17 08:47AM  Associated Press]
▶ Hedge Funds Are Betting On Ardmore Shipping Corp (ASC)   [Dec-12-16 09:48AM  at Insider Monkey]
▶ [$$] Colonial Pipeline's Brief Trading Bonanza   [Nov-01-16 04:41PM  at The Wall Street Journal]
▶ [$$] Two Picks in Tankers Ready to Shape Up   [Jul-20-16 11:24AM  at Barrons.com]
▶ Ardmore Shipping Corp Sinks on a Discounted Stock Offering   [Jun-08-16 04:06PM  at Motley Fool]
▶ Why U.K. Retailers Are Retreating From Asia   [Apr-12-16 09:33AM  at The Wall Street Journal]
▶ Is Off-Price Overtaking Department Stores In Europe?   [Apr-11-16 12:25PM  at Forbes]
▶ [$$] Euronav Is the One Tanker to Be Long In   [Mar-22-16 02:52PM  at Barrons.com]
▶ Ardmore Shipping Announces Additional Debt Refinancing   [Feb-10-16 08:30AM  PR Newswire]
▶ Energy Stocks Plunge Again This Week   [Feb-05-16 04:05PM  at Motley Fool]
▶ Don't Miss the Boat on Oil Shippers   [Jan-28-16 11:57AM  at TheStreet]
▶ Ardmore Shipping Announces Successful Refinancing   [Jan-14-16 08:30AM  PR Newswire]
▶ S&P 500 will creep up to 2,200 in 2016, J.P. Morgan says   [Dec-07  07:01AM  at MarketWatch]
Stock chart of ASC Financial statements of ASC
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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