Intrinsic value of BP ADR - BP

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$34.32

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$34.32

 
Intrinsic value

$6.47

 
Up/down potential

-81%

 
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 BP 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 111.6

 

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, %
  -17.89
  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
  183,008
  186,668
  190,962
  195,869
  201,379
  207,484
  214,183
  221,477
  229,373
  237,880
  247,009
  256,776
  267,197
  278,293
  290,085
  302,599
  315,860
  329,897
  344,741
  360,426
  376,987
  394,461
  412,889
  432,314
  452,780
  474,335
  497,031
  520,919
  546,056
  572,501
  600,318
Variable operating expenses, $m
 
  195,233
  199,697
  204,801
  210,530
  216,879
  223,845
  231,430
  239,641
  248,487
  257,980
  267,017
  277,854
  289,392
  301,655
  314,667
  328,457
  343,054
  358,491
  374,801
  392,022
  410,193
  429,356
  449,556
  470,838
  493,254
  516,854
  541,695
  567,834
  595,335
  624,260
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
  185,904
  195,233
  199,697
  204,801
  210,530
  216,879
  223,845
  231,430
  239,641
  248,487
  257,980
  267,017
  277,854
  289,392
  301,655
  314,667
  328,457
  343,054
  358,491
  374,801
  392,022
  410,193
  429,356
  449,556
  470,838
  493,254
  516,854
  541,695
  567,834
  595,335
  624,260
Operating income, $m
  -2,896
  -8,564
  -8,736
  -8,931
  -9,151
  -9,395
  -9,662
  -9,953
  -10,268
  -10,607
  -10,971
  -10,241
  -10,657
  -11,099
  -11,570
  -12,069
  -12,598
  -13,157
  -13,749
  -14,375
  -15,035
  -15,732
  -16,467
  -17,242
  -18,058
  -18,918
  -19,823
  -20,776
  -21,779
  -22,833
  -23,943
EBITDA, $m
  12,883
  6,711
  6,865
  7,042
  7,240
  7,459
  7,700
  7,962
  8,246
  8,552
  8,880
  9,231
  9,606
  10,005
  10,429
  10,878
  11,355
  11,860
  12,393
  12,957
  13,553
  14,181
  14,843
  15,542
  16,277
  17,052
  17,868
  18,727
  19,631
  20,581
  21,581
Interest expense (income), $m
  0
  1,808
  1,922
  2,055
  2,206
  2,376
  2,565
  2,772
  2,997
  3,241
  3,503
  3,785
  4,087
  4,408
  4,751
  5,115
  5,501
  5,911
  6,344
  6,802
  7,286
  7,798
  8,337
  8,906
  9,506
  10,137
  10,803
  11,504
  12,241
  13,017
  13,833
Earnings before tax, $m
  -2,295
  -10,373
  -10,658
  -10,986
  -11,357
  -11,771
  -12,227
  -12,724
  -13,264
  -13,847
  -14,474
  -14,026
  -14,743
  -15,507
  -16,320
  -17,183
  -18,099
  -19,068
  -20,093
  -21,177
  -22,322
  -23,530
  -24,804
  -26,148
  -27,564
  -29,056
  -30,626
  -32,280
  -34,020
  -35,850
  -37,776
Tax expense, $m
  -2,467
  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
  115
  -10,373
  -10,658
  -10,986
  -11,357
  -11,771
  -12,227
  -12,724
  -13,264
  -13,847
  -14,474
  -14,026
  -14,743
  -15,507
  -16,320
  -17,183
  -18,099
  -19,068
  -20,093
  -21,177
  -22,322
  -23,530
  -24,804
  -26,148
  -27,564
  -29,056
  -30,626
  -32,280
  -34,020
  -35,850
  -37,776

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  23,528
  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
  263,316
  244,650
  250,277
  256,709
  263,931
  271,932
  280,712
  290,272
  300,620
  311,769
  323,734
  336,534
  350,193
  364,735
  380,191
  396,591
  413,971
  432,368
  451,823
  472,380
  494,085
  516,987
  541,139
  566,597
  593,421
  621,672
  651,416
  682,724
  715,670
  750,330
  786,786
Adjusted assets (=assets-cash), $m
  239,788
  244,650
  250,277
  256,709
  263,931
  271,932
  280,712
  290,272
  300,620
  311,769
  323,734
  336,534
  350,193
  364,735
  380,191
  396,591
  413,971
  432,368
  451,823
  472,380
  494,085
  516,987
  541,139
  566,597
  593,421
  621,672
  651,416
  682,724
  715,670
  750,330
  786,786
Revenue / Adjusted assets
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
  0.763
Average production assets, $m
  83,301
  84,934
  86,887
  89,121
  91,627
  94,405
  97,453
  100,772
  104,365
  108,235
  112,389
  116,833
  121,575
  126,623
  131,989
  137,682
  143,716
  150,103
  156,857
  163,994
  171,529
  179,480
  187,865
  196,703
  206,015
  215,823
  226,149
  237,018
  248,455
  260,488
  273,144
Working capital, $m
  9,459
  -7,653
  -7,829
  -8,031
  -8,257
  -8,507
  -8,782
  -9,081
  -9,404
  -9,753
  -10,127
  -10,528
  -10,955
  -11,410
  -11,894
  -12,407
  -12,950
  -13,526
  -14,134
  -14,777
  -15,456
  -16,173
  -16,928
  -17,725
  -18,564
  -19,448
  -20,378
  -21,358
  -22,388
  -23,473
  -24,613
Total debt, $m
  58,300
  54,920
  58,707
  63,035
  67,895
  73,280
  79,189
  85,623
  92,587
  100,091
  108,143
  116,758
  125,950
  135,737
  146,138
  157,176
  168,872
  181,254
  194,347
  208,182
  222,789
  238,202
  254,457
  271,590
  289,642
  308,655
  328,673
  349,744
  371,916
  395,242
  419,777
Total liabilities, $m
  168,030
  164,650
  168,437
  172,765
  177,625
  183,010
  188,919
  195,353
  202,317
  209,821
  217,873
  226,488
  235,680
  245,467
  255,868
  266,906
  278,602
  290,984
  304,077
  317,912
  332,519
  347,932
  364,187
  381,320
  399,372
  418,385
  438,403
  459,474
  481,646
  504,972
  529,507
Total equity, $m
  95,286
  80,001
  81,841
  83,944
  86,305
  88,922
  91,793
  94,919
  98,303
  101,948
  105,861
  110,047
  114,513
  119,268
  124,322
  129,685
  135,368
  141,384
  147,746
  154,468
  161,566
  169,055
  176,952
  185,277
  194,049
  203,287
  213,013
  223,251
  234,024
  245,358
  257,279
Total liabilities and equity, $m
  263,316
  244,651
  250,278
  256,709
  263,930
  271,932
  280,712
  290,272
  300,620
  311,769
  323,734
  336,535
  350,193
  364,735
  380,190
  396,591
  413,970
  432,368
  451,823
  472,380
  494,085
  516,987
  541,139
  566,597
  593,421
  621,672
  651,416
  682,725
  715,670
  750,330
  786,786
Debt-to-equity ratio
  0.612
  0.690
  0.720
  0.750
  0.790
  0.820
  0.860
  0.900
  0.940
  0.980
  1.020
  1.060
  1.100
  1.140
  1.180
  1.210
  1.250
  1.280
  1.320
  1.350
  1.380
  1.410
  1.440
  1.470
  1.490
  1.520
  1.540
  1.570
  1.590
  1.610
  1.630
Adjusted equity ratio
  0.299
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327
  0.327

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  115
  -10,373
  -10,658
  -10,986
  -11,357
  -11,771
  -12,227
  -12,724
  -13,264
  -13,847
  -14,474
  -14,026
  -14,743
  -15,507
  -16,320
  -17,183
  -18,099
  -19,068
  -20,093
  -21,177
  -22,322
  -23,530
  -24,804
  -26,148
  -27,564
  -29,056
  -30,626
  -32,280
  -34,020
  -35,850
  -37,776
Depreciation, amort., depletion, $m
  15,779
  15,275
  15,601
  15,973
  16,391
  16,854
  17,362
  17,915
  18,514
  19,159
  19,851
  19,472
  20,262
  21,104
  21,998
  22,947
  23,953
  25,017
  26,143
  27,332
  28,588
  29,913
  31,311
  32,784
  34,336
  35,970
  37,691
  39,503
  41,409
  43,415
  45,524
Funds from operations, $m
  5,955
  4,902
  4,943
  4,987
  5,033
  5,083
  5,135
  5,190
  5,249
  5,311
  5,377
  5,446
  5,519
  5,596
  5,678
  5,764
  5,854
  5,949
  6,050
  6,155
  6,266
  6,383
  6,506
  6,636
  6,772
  6,915
  7,065
  7,223
  7,390
  7,564
  7,748
Change in working capital, $m
  -4,736
  -150
  -176
  -201
  -226
  -250
  -275
  -299
  -324
  -349
  -374
  -400
  -427
  -455
  -483
  -513
  -544
  -576
  -609
  -643
  -679
  -716
  -756
  -796
  -839
  -884
  -931
  -979
  -1,031
  -1,084
  -1,140
Cash from operations, $m
  10,691
  -60,065
  5,119
  5,188
  5,259
  5,333
  5,410
  5,490
  5,573
  5,660
  5,751
  5,847
  5,946
  6,051
  6,161
  6,277
  6,398
  6,525
  6,658
  6,798
  6,945
  7,100
  7,262
  7,432
  7,611
  7,799
  7,996
  8,203
  8,420
  8,649
  8,888
Maintenance CAPEX, $m
  0
  -13,883
  -14,156
  -14,481
  -14,853
  -15,271
  -15,734
  -16,242
  -16,795
  -17,394
  -18,039
  -18,732
  -19,472
  -20,262
  -21,104
  -21,998
  -22,947
  -23,953
  -25,017
  -26,143
  -27,332
  -28,588
  -29,913
  -31,311
  -32,784
  -34,336
  -35,970
  -37,691
  -39,503
  -41,409
  -43,415
New CAPEX, $m
  -16,701
  -1,634
  -1,953
  -2,233
  -2,507
  -2,778
  -3,048
  -3,319
  -3,593
  -3,870
  -4,154
  -4,444
  -4,742
  -5,049
  -5,366
  -5,694
  -6,034
  -6,387
  -6,754
  -7,137
  -7,535
  -7,951
  -8,385
  -8,838
  -9,312
  -9,808
  -10,326
  -10,869
  -11,437
  -12,033
  -12,656
Cash from investing activities, $m
  -14,753
  -15,517
  -16,109
  -16,714
  -17,360
  -18,049
  -18,782
  -19,561
  -20,388
  -21,264
  -22,193
  -23,176
  -24,214
  -25,311
  -26,470
  -27,692
  -28,981
  -30,340
  -31,771
  -33,280
  -34,867
  -36,539
  -38,298
  -40,149
  -42,096
  -44,144
  -46,296
  -48,560
  -50,940
  -53,442
  -56,071
Free cash flow, $m
  -4,062
  -75,582
  -10,990
  -11,526
  -12,101
  -12,716
  -13,372
  -14,072
  -14,815
  -15,605
  -16,442
  -17,329
  -18,267
  -19,260
  -20,308
  -21,415
  -22,583
  -23,815
  -25,113
  -26,481
  -27,922
  -29,439
  -31,036
  -32,717
  -34,485
  -36,345
  -38,301
  -40,358
  -42,520
  -44,793
  -47,183
Issuance/(repayment) of debt, $m
  5,808
  3,254
  3,787
  4,329
  4,860
  5,385
  5,909
  6,434
  6,965
  7,503
  8,052
  8,615
  9,192
  9,787
  10,402
  11,037
  11,697
  12,381
  13,093
  13,835
  14,607
  15,413
  16,254
  17,133
  18,052
  19,013
  20,018
  21,070
  22,172
  23,326
  24,535
Issuance/(repurchase) of shares, $m
  0
  57,043
  9,043
  9,301
  9,603
  9,948
  10,335
  10,764
  11,235
  11,747
  12,302
  12,900
  13,542
  14,228
  14,961
  15,741
  16,570
  17,449
  18,382
  19,369
  20,412
  21,515
  22,680
  23,908
  25,204
  26,570
  28,009
  29,525
  31,121
  32,801
  34,569
Cash from financing (excl. dividends), $m  
  6,588
  60,297
  12,830
  13,630
  14,463
  15,333
  16,244
  17,198
  18,200
  19,250
  20,354
  21,515
  22,734
  24,015
  25,363
  26,778
  28,267
  29,830
  31,475
  33,204
  35,019
  36,928
  38,934
  41,041
  43,256
  45,583
  48,027
  50,595
  53,293
  56,127
  59,104
Total cash flow (excl. dividends), $m
  1,706
  -72,328
  -7,203
  -7,197
  -7,241
  -7,331
  -7,464
  -7,638
  -7,851
  -8,101
  -8,390
  -8,714
  -9,075
  -9,473
  -9,907
  -10,378
  -10,886
  -11,433
  -12,020
  -12,647
  -13,315
  -14,026
  -14,782
  -15,583
  -16,433
  -17,332
  -18,283
  -19,287
  -20,348
  -21,467
  -22,648
Retained Cash Flow (-), $m
  1,930
  -1,609
  -1,840
  -2,103
  -2,361
  -2,617
  -2,871
  -3,126
  -3,384
  -3,646
  -3,913
  -4,186
  -4,466
  -4,755
  -5,054
  -5,363
  -5,683
  -6,016
  -6,362
  -6,722
  -7,097
  -7,489
  -7,898
  -8,325
  -8,771
  -9,238
  -9,727
  -10,238
  -10,773
  -11,334
  -11,921
Prev. year cash balance distribution, $m
 
  16,894
  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
 
  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
Discount rate, %
 
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
PV of cash for 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
Current shareholders' claim on cash, %
  100
  61.7
  56.2
  51.3
  46.7
  42.5
  38.7
  35.2
  31.9
  29.0
  26.3
  23.8
  21.5
  19.5
  17.6
  15.9
  14.3
  12.9
  11.6
  10.4
  9.4
  8.4
  7.5
  6.8
  6.1
  5.4
  4.9
  4.3
  3.9
  3.5
  3.1

BP p.l.c. operates as an integrated oil and gas company worldwide. It operates through three segments: Upstream, Downstream, and Rosneft. The Upstream segment engages in the oil and natural gas exploration, field development, and production; midstream transportation, storage, and processing; and marketing and trading of natural gas, including liquefied natural gas (LNG), and power and natural gas liquids (NGLs). It also owns and manages crude oil and natural gas pipelines; processing facilities and export terminals; and LNG processing facilities and transportation, as well as NGLs extraction business. The Downstream segment refines, manufactures, markets, transports, supplies, and trades in crude oil, petroleum, and petrochemical products and related services to wholesale and retail customers. It offers lubricants, and related products and services under the Castrol, BP, and Aral brands to the automotive, industrial, marine, and energy markets; and petrochemical products, such as purified terephthalic acid, paraxylene, acetic acid, olefins and derivatives, and specialty petrochemical products. This segment also sells gasoline, diesel, and aviation fuel. The Rosneft segment engages in the exploration and production of hydrocarbons in the United States, Canada, Vietnam, Venezuela, Brazil, Algeria, the United Arab Emirates, Turkmenistan, and Norway; and offers jet fuel, bunkering, bitumen, and lubricants. This segment also owns and operates 10 refineries in Russia; and refineries in Germany. As of December 31, 2015, it owned and operated approximately 2,500 retail service stations in Russia and internationally. The company also produces bioethanol, sugar, and biobutanol; exports power to the local grid; transports hydrocarbon products through shipping and chartering services; and holds interests in 16 onshore wind farms with a generation capacity of 1,556 megawatts. BP p.l.c. was founded in 1889 and is headquartered in London, the United Kingdom.

FINANCIAL RATIOS  of  BP ADR (BP)

Valuation Ratios
P/E Ratio 5811.5
Price to Sales 3.7
Price to Book 7
Price to Tangible Book
Price to Cash Flow 62.5
Price to Free Cash Flow -111.2
Growth Rates
Sales Growth Rate -17.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.4%
Cap. Spend. - 3 Yr. Gr. Rate -7.4%
Financial Strength
Quick Ratio 4
Current Ratio 0.1
LT Debt to Equity 54.2%
Total Debt to Equity 61.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital 0.1%
Ret/ On T. Cap. - 3 Yr. Avg. -0.6%
Return On Equity 0.1%
Return On Equity - 3 Yr. Avg. -1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 11.5%
Gross Margin - 3 Yr. Avg. 10.7%
EBITDA Margin 7.4%
EBITDA Margin - 3 Yr. Avg. 5.4%
Operating Margin -1.6%
Oper. Margin - 3 Yr. Avg. -2%
Pre-Tax Margin -1.3%
Pre-Tax Margin - 3 Yr. Avg. -1.4%
Net Profit Margin 0.1%
Net Profit Margin - 3 Yr. Avg. -0.6%
Effective Tax Rate 107.5%
Eff/ Tax Rate - 3 Yr. Avg. 53.3%
Payout Ratio 4009.6%

BP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BP stock intrinsic value calculation we used $183008 million for the last fiscal year's total revenue generated by BP ADR. The default revenue input number comes from 2016 income statement of BP ADR. 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 BP 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 4.8%, whose default value for BP is calculated based on our internal credit rating of BP ADR, 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 BP ADR.
    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 BP stock the variable cost ratio is equal to 104.6%.

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 BP 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 BP ADR.

Corporate tax rate of 27% is the nominal tax rate for BP ADR. 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 BP 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 BP are equal to 45.5%.

Life of production assets of 6 years is the average useful life of capital assets used in BP ADR 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 BP is equal to -4.1%. 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 - $95286 million for BP ADR - 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 3250.87 million for BP ADR 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 BP ADR at the current share price and the inputted number of shares is $111.6 billion.


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COMPANY NEWS

▶ Here's What's Happening in Europe Next Week   [Apr-29-17 02:00PM  TheStreet.com]
▶ Steer clear when a crisis hits stocks, then buy   [Apr-28-17 04:52PM  MarketWatch]
▶ BP Discovers 200 Million Barrels of Oil in Gulf of Mexico   [Apr-27-17 03:41PM  TheStreet.com]
▶ Reading BPs Stock Prior to Its 1Q17 Earnings Release   [Apr-24-17 05:35PM  Market Realist]
▶ U.S. Shale Surging, But Oil Holds Steady   [03:30PM  Oilprice.com]
▶ [$$] BP's Leaking Well in Alaska Successfully 'Killed'   [02:06PM  The Wall Street Journal]
▶ BP well leaks in Alaska; Hilcorps leaking gas line clamped   [09:20AM  American City Business Journals]
▶ [$$] BP Well in Alaska Stops Leaking Oil, Still Releasing Gas   [Apr-16-17 08:01PM  The Wall Street Journal]
▶ Oil spill reported in Alaska, volume unknown   [Apr-14-17 06:47PM  Associated Press]
▶ How to Play British Petroleum   [Apr-10-17 04:10PM  Bloomberg Video]
▶ BP Employs 74,500 People in 2016, Produces 3.3MM Boepd   [Apr-09-17 08:00PM  Rigzone.com]
▶ Obliterating ISIS May Hamper Iraqi Oil Production   [Apr-05-17 06:00PM  Oilprice.com]
▶ Are Mexicos Oil Reserves Almost Depleted?   [07:00PM  Oilprice.com]
▶ [$$] Ineos buys North Sea oil pipeline from BP   [10:25AM  at Financial Times]
▶ This Man Will Purify Your Portfolio   [09:00AM  at Forbes]
▶ Heres Why BP plc (ADR) (BP) is Trending Today   [07:08AM  at Insider Monkey]
▶ [$$] Oil Companies Modest Prize: Breaking Even   [12:08AM  at The Wall Street Journal]
▶ Better Buy: ConocoPhillips vs. BP   [Mar-30-17 11:07AM  at Motley Fool]
▶ BPs Rising Short Interest   [09:06AM  at Market Realist]
▶ Confidence Hits 17 Year High, Will Brexit Shatter It?   [Mar-28-17 07:44PM  at Forbes]
▶ [$$] Hurricane Energy makes oil discovery west of Shetland Islands   [Mar-26-17 11:11AM  at Financial Times]
▶ Why Big Oil Is Still A Big Dividend Trap   [Mar-22-17 07:28PM  at Forbes]
▶ Where Will ConocoPhillips Be 1 Year From Now?   [12:00PM  at Motley Fool]
▶ This Week in Energy: SM, BP, Tesla, and More   [Mar-18-17 11:55AM  at Insider Monkey]
Stock chart of BP Financial statements of BP
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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