Intrinsic value of BRF ADR - BRFS

Previous Close

$6.26

  Intrinsic Value

$7.00

stock screener

  Rating & Target

hold

+12%

Previous close

$6.26

 
Intrinsic value

$7.00

 
Up/down potential

+12%

 
Rating

hold

We calculate the intrinsic value of BRFS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  4.76
  27.00
  24.80
  22.82
  21.04
  19.43
  17.99
  16.69
  15.52
  14.47
  13.52
  12.67
  11.90
  11.21
  10.59
  10.03
  9.53
  9.08
  8.67
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
Revenue, $m
  10,665
  13,157
  16,420
  20,167
  24,410
  29,154
  34,399
  40,141
  46,372
  53,082
  60,260
  67,896
  75,978
  84,498
  93,448
  102,823
  112,622
  122,844
  133,493
  144,576
  156,101
  168,082
  180,532
  193,470
  206,916
  220,892
  235,426
  250,544
  266,276
  282,656
  299,717
Variable operating expenses, $m
 
  11,326
  14,084
  17,251
  20,837
  24,846
  29,280
  34,133
  39,399
  45,071
  51,138
  57,387
  64,218
  71,419
  78,984
  86,908
  95,190
  103,830
  112,832
  122,199
  131,940
  142,066
  152,590
  163,525
  174,890
  186,703
  198,987
  211,765
  225,062
  238,907
  253,328
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
  10,091
  11,326
  14,084
  17,251
  20,837
  24,846
  29,280
  34,133
  39,399
  45,071
  51,138
  57,387
  64,218
  71,419
  78,984
  86,908
  95,190
  103,830
  112,832
  122,199
  131,940
  142,066
  152,590
  163,525
  174,890
  186,703
  198,987
  211,765
  225,062
  238,907
  253,328
Operating income, $m
  574
  1,832
  2,337
  2,917
  3,573
  4,307
  5,119
  6,008
  6,972
  8,011
  9,122
  10,509
  11,760
  13,078
  14,464
  15,915
  17,431
  19,014
  20,662
  22,377
  24,161
  26,015
  27,942
  29,945
  32,026
  34,189
  36,439
  38,779
  41,214
  43,749
  46,390
EBITDA, $m
  1,081
  2,652
  3,310
  4,065
  4,921
  5,877
  6,934
  8,091
  9,347
  10,700
  12,147
  13,686
  15,315
  17,033
  18,837
  20,727
  22,702
  24,763
  26,909
  29,143
  31,467
  33,882
  36,391
  38,999
  41,710
  44,527
  47,457
  50,504
  53,675
  56,977
  60,416
Interest expense (income), $m
  269
  1,657
  2,317
  3,086
  3,970
  4,971
  6,090
  7,328
  8,682
  10,152
  11,735
  13,428
  15,230
  17,136
  19,146
  21,257
  23,469
  25,781
  28,192
  30,704
  33,319
  36,038
  38,864
  41,801
  44,853
  48,025
  51,322
  54,751
  58,317
  62,028
  65,892
Earnings before tax, $m
  -100
  175
  20
  -170
  -397
  -664
  -971
  -1,320
  -1,710
  -2,141
  -2,613
  -2,920
  -3,470
  -4,058
  -4,682
  -5,343
  -6,038
  -6,767
  -7,530
  -8,327
  -9,158
  -10,022
  -10,922
  -11,856
  -12,827
  -13,836
  -14,883
  -15,972
  -17,103
  -18,280
  -19,503
Tax expense, $m
  16
  47
  5
  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
  -118
  128
  15
  -170
  -397
  -664
  -971
  -1,320
  -1,710
  -2,141
  -2,613
  -2,920
  -3,470
  -4,058
  -4,682
  -5,343
  -6,038
  -6,767
  -7,530
  -8,327
  -9,158
  -10,022
  -10,922
  -11,856
  -12,827
  -13,836
  -14,883
  -15,972
  -17,103
  -18,280
  -19,503

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2,207
  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
  13,578
  16,761
  20,917
  25,691
  31,096
  37,139
  43,820
  51,135
  59,072
  67,620
  76,764
  86,491
  96,787
  107,640
  119,042
  130,985
  143,467
  156,489
  170,055
  184,173
  198,855
  214,117
  229,977
  246,458
  263,587
  281,392
  299,906
  319,164
  339,205
  360,071
  381,805
Adjusted assets (=assets-cash), $m
  11,371
  16,761
  20,917
  25,691
  31,096
  37,139
  43,820
  51,135
  59,072
  67,620
  76,764
  86,491
  96,787
  107,640
  119,042
  130,985
  143,467
  156,489
  170,055
  184,173
  198,855
  214,117
  229,977
  246,458
  263,587
  281,392
  299,906
  319,164
  339,205
  360,071
  381,805
Revenue / Adjusted assets
  0.938
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
Average production assets, $m
  4,449
  6,158
  7,685
  9,438
  11,424
  13,644
  16,099
  18,786
  21,702
  24,842
  28,202
  31,775
  35,558
  39,545
  43,733
  48,121
  52,707
  57,491
  62,475
  67,662
  73,055
  78,662
  84,489
  90,544
  96,837
  103,378
  110,179
  117,254
  124,617
  132,283
  140,268
Working capital, $m
  1,977
  -408
  -509
  -625
  -757
  -904
  -1,066
  -1,244
  -1,438
  -1,646
  -1,868
  -2,105
  -2,355
  -2,619
  -2,897
  -3,188
  -3,491
  -3,808
  -4,138
  -4,482
  -4,839
  -5,211
  -5,596
  -5,998
  -6,414
  -6,848
  -7,298
  -7,767
  -8,255
  -8,762
  -9,291
Total debt, $m
  5,995
  8,944
  11,916
  15,329
  19,194
  23,514
  28,292
  33,522
  39,197
  45,309
  51,847
  58,801
  66,163
  73,923
  82,075
  90,614
  99,539
  108,850
  118,550
  128,644
  139,142
  150,054
  161,394
  173,178
  185,425
  198,155
  211,393
  225,162
  239,492
  254,411
  269,951
Total liabilities, $m
  9,835
  11,984
  14,956
  18,369
  22,233
  26,554
  31,332
  36,561
  42,237
  48,348
  54,887
  61,841
  69,203
  76,963
  85,115
  93,654
  102,579
  111,890
  121,589
  131,684
  142,182
  153,094
  164,434
  176,218
  188,465
  201,195
  214,432
  228,202
  242,532
  257,451
  272,991
Total equity, $m
  3,743
  4,777
  5,961
  7,322
  8,862
  10,585
  12,489
  14,573
  16,836
  19,272
  21,878
  24,650
  27,584
  30,677
  33,927
  37,331
  40,888
  44,599
  48,466
  52,489
  56,674
  61,023
  65,543
  70,241
  75,122
  80,197
  85,473
  90,962
  96,673
  102,620
  108,815
Total liabilities and equity, $m
  13,578
  16,761
  20,917
  25,691
  31,095
  37,139
  43,821
  51,134
  59,073
  67,620
  76,765
  86,491
  96,787
  107,640
  119,042
  130,985
  143,467
  156,489
  170,055
  184,173
  198,856
  214,117
  229,977
  246,459
  263,587
  281,392
  299,905
  319,164
  339,205
  360,071
  381,806
Debt-to-equity ratio
  1.602
  1.870
  2.000
  2.090
  2.170
  2.220
  2.270
  2.300
  2.330
  2.350
  2.370
  2.390
  2.400
  2.410
  2.420
  2.430
  2.430
  2.440
  2.450
  2.450
  2.460
  2.460
  2.460
  2.470
  2.470
  2.470
  2.470
  2.480
  2.480
  2.480
  2.480
Adjusted equity ratio
  0.135
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285
  0.285

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -118
  128
  15
  -170
  -397
  -664
  -971
  -1,320
  -1,710
  -2,141
  -2,613
  -2,920
  -3,470
  -4,058
  -4,682
  -5,343
  -6,038
  -6,767
  -7,530
  -8,327
  -9,158
  -10,022
  -10,922
  -11,856
  -12,827
  -13,836
  -14,883
  -15,972
  -17,103
  -18,280
  -19,503
Depreciation, amort., depletion, $m
  507
  821
  973
  1,149
  1,347
  1,569
  1,815
  2,083
  2,375
  2,689
  3,025
  3,178
  3,556
  3,954
  4,373
  4,812
  5,271
  5,749
  6,247
  6,766
  7,306
  7,866
  8,449
  9,054
  9,684
  10,338
  11,018
  11,725
  12,462
  13,228
  14,027
Funds from operations, $m
  717
  948
  988
  979
  950
  906
  844
  764
  665
  548
  412
  258
  86
  -103
  -309
  -531
  -767
  -1,018
  -1,283
  -1,561
  -1,852
  -2,156
  -2,473
  -2,802
  -3,143
  -3,498
  -3,866
  -4,247
  -4,642
  -5,051
  -5,476
Change in working capital, $m
  141
  -87
  -101
  -116
  -132
  -147
  -163
  -178
  -193
  -208
  -223
  -237
  -251
  -264
  -277
  -291
  -304
  -317
  -330
  -344
  -357
  -371
  -386
  -401
  -417
  -433
  -451
  -469
  -488
  -508
  -529
Cash from operations, $m
  576
  1,035
  1,089
  1,095
  1,082
  1,053
  1,006
  942
  859
  756
  635
  495
  336
  161
  -32
  -240
  -463
  -701
  -953
  -1,217
  -1,495
  -1,785
  -2,087
  -2,401
  -2,727
  -3,065
  -3,415
  -3,778
  -4,154
  -4,543
  -4,947
Maintenance CAPEX, $m
  0
  -485
  -616
  -768
  -944
  -1,142
  -1,364
  -1,610
  -1,879
  -2,170
  -2,484
  -2,820
  -3,178
  -3,556
  -3,954
  -4,373
  -4,812
  -5,271
  -5,749
  -6,247
  -6,766
  -7,306
  -7,866
  -8,449
  -9,054
  -9,684
  -10,338
  -11,018
  -11,725
  -12,462
  -13,228
New CAPEX, $m
  -856
  -1,312
  -1,527
  -1,754
  -1,986
  -2,220
  -2,455
  -2,687
  -2,916
  -3,140
  -3,359
  -3,573
  -3,782
  -3,987
  -4,189
  -4,388
  -4,586
  -4,784
  -4,984
  -5,187
  -5,394
  -5,607
  -5,827
  -6,055
  -6,293
  -6,541
  -6,802
  -7,075
  -7,363
  -7,666
  -7,985
Cash from investing activities, $m
  -1,315
  -1,797
  -2,143
  -2,522
  -2,930
  -3,362
  -3,819
  -4,297
  -4,795
  -5,310
  -5,843
  -6,393
  -6,960
  -7,543
  -8,143
  -8,761
  -9,398
  -10,055
  -10,733
  -11,434
  -12,160
  -12,913
  -13,693
  -14,504
  -15,347
  -16,225
  -17,140
  -18,093
  -19,088
  -20,128
  -21,213
Free cash flow, $m
  -739
  -762
  -1,054
  -1,427
  -1,848
  -2,310
  -2,813
  -3,355
  -3,936
  -4,554
  -5,209
  -5,899
  -6,624
  -7,382
  -8,175
  -9,001
  -9,861
  -10,756
  -11,686
  -12,652
  -13,655
  -14,697
  -15,780
  -16,904
  -18,074
  -19,289
  -20,554
  -21,871
  -23,242
  -24,671
  -26,160
Issuance/(repayment) of debt, $m
  1,718
  2,547
  2,972
  3,413
  3,864
  4,321
  4,777
  5,230
  5,675
  6,112
  6,538
  6,955
  7,361
  7,760
  8,152
  8,539
  8,925
  9,311
  9,700
  10,094
  10,498
  10,912
  11,340
  11,784
  12,247
  12,731
  13,237
  13,770
  14,329
  14,919
  15,540
Issuance/(repurchase) of shares, $m
  -170
  896
  1,170
  1,530
  1,937
  2,386
  2,875
  3,404
  3,972
  4,577
  5,219
  5,692
  6,404
  7,151
  7,932
  8,746
  9,595
  10,478
  11,397
  12,351
  13,342
  14,372
  15,442
  16,553
  17,709
  18,910
  20,160
  21,461
  22,815
  24,226
  25,697
Cash from financing (excl. dividends), $m  
  1,548
  3,443
  4,142
  4,943
  5,801
  6,707
  7,652
  8,634
  9,647
  10,689
  11,757
  12,647
  13,765
  14,911
  16,084
  17,285
  18,520
  19,789
  21,097
  22,445
  23,840
  25,284
  26,782
  28,337
  29,956
  31,641
  33,397
  35,231
  37,144
  39,145
  41,237
Total cash flow (excl. dividends), $m
  686
  2,682
  3,088
  3,516
  3,954
  4,397
  4,840
  5,279
  5,711
  6,135
  6,548
  6,747
  7,142
  7,529
  7,909
  8,285
  8,659
  9,033
  9,411
  9,794
  10,185
  10,587
  11,002
  11,433
  11,882
  12,351
  12,843
  13,359
  13,902
  14,474
  15,077
Retained Cash Flow (-), $m
  531
  -1,024
  -1,185
  -1,530
  -1,937
  -2,386
  -2,875
  -3,404
  -3,972
  -4,577
  -5,219
  -5,692
  -6,404
  -7,151
  -7,932
  -8,746
  -9,595
  -10,478
  -11,397
  -12,351
  -13,342
  -14,372
  -15,442
  -16,553
  -17,709
  -18,910
  -20,160
  -21,461
  -22,815
  -24,226
  -25,697
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
 
  1,658
  1,904
  1,986
  2,017
  2,011
  1,965
  1,875
  1,739
  1,557
  1,329
  1,056
  738
  378
  -23
  -462
  -936
  -1,445
  -1,986
  -2,557
  -3,157
  -3,785
  -4,440
  -5,120
  -5,827
  -6,559
  -7,317
  -8,101
  -8,913
  -9,752
  -10,620
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  1,531
  1,611
  1,527
  1,397
  1,244
  1,074
  896
  719
  550
  396
  262
  150
  62
  -3
  -47
  -73
  -85
  -86
  -80
  -70
  -58
  -46
  -35
  -25
  -17
  -12
  -8
  -5
  -3
  -2
Current shareholders' claim on cash, %
  100
  84.9
  71.7
  60.2
  50.2
  41.8
  34.8
  28.9
  24.0
  19.9
  16.6
  13.9
  11.6
  9.7
  8.2
  6.8
  5.7
  4.8
  4.0
  3.4
  2.9
  2.4
  2.0
  1.7
  1.4
  1.2
  1.0
  0.9
  0.7
  0.6
  0.5

BRF S.A. is a multinational Brazilian company that owns a diverse portfolio of products and is a producer of foods. The Company's segments include Brazil, Latin America (LATAM), Europe, Middle East and North of Africa (MENA), Asia, Africa and Other Segments. These segments include sales of all distribution channels and operations subdivided in to poultry, pork and other, processed, and other sales. The poultry operations include the production and sale of whole poultry and in-natura cuts. The pork and other operations involve the production and sale of in-natura cuts. The processed operations include the production and sale of processed foods, frozen and processed products derived from poultry, pork and beef, margarine, vegetable and soybean-based products. The other sales operations include the commercialization of flour for food service and others. Other segments include sale of in-natura beef cuts, agricultural products and animal feed.

FINANCIAL RATIOS  of  BRF ADR (BRFS)

Valuation Ratios
P/E Ratio -42.4
Price to Sales 0.5
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 8.7
Price to Free Cash Flow -17.9
Growth Rates
Sales Growth Rate 4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29.5%
Cap. Spend. - 3 Yr. Gr. Rate 9.1%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 132.8%
Total Debt to Equity 160.2%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.5%
Ret/ On Assets - 3 Yr. Avg. 6.6%
Return On Total Capital -1.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.1%
Return On Equity -2.9%
Return On Equity - 3 Yr. Avg. 11%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 22.3%
Gross Margin - 3 Yr. Avg. 27.7%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 11.8%
Operating Margin 5.4%
Oper. Margin - 3 Yr. Avg. 10.2%
Pre-Tax Margin -0.9%
Pre-Tax Margin - 3 Yr. Avg. 5.2%
Net Profit Margin -1.1%
Net Profit Margin - 3 Yr. Avg. 5.4%
Effective Tax Rate -16%
Eff/ Tax Rate - 3 Yr. Avg. -5.7%
Payout Ratio -315.3%

BRFS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BRFS stock intrinsic value calculation we used $10360 million for the last fiscal year's total revenue generated by BRF ADR. The default revenue input number comes from 2016 income statement of BRF 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 BRFS stock valuation model: a) initial revenue growth rate of 27% 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 8.3%, whose default value for BRFS is calculated based on our internal credit rating of BRF 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 BRF 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 BRFS stock the variable cost ratio is equal to 86.5%.

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 BRFS 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 25.9% for BRF ADR.

Corporate tax rate of 27% is the nominal tax rate for BRF 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 BRFS 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 BRFS are equal to 46.8%.

Life of production assets of 10 years is the average useful life of capital assets used in BRF 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 BRFS is equal to -3.1%. 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 - $3753 million for BRF 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 802 million for BRF 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 BRF ADR at the current share price and the inputted number of shares is $5.0 billion.

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COMPANY NEWS

▶ Brazil's BRF seeks to refinance bank debt -paper   [Jul-04-18 10:23AM  Reuters]
▶ Why Perry Ellis, BRF S.A., and Acxiom Jumped Today   [Jul-02-18 05:21PM  Motley Fool]
▶ Why BRF S.A. Stock Popped Today   [02:56PM  Motley Fool]
▶ Brazil chicken exports slump as EU bans weigh   [Jun-21-18 11:28AM  Reuters]
▶ PRESS DIGEST- Financial Times - June 15   [Jun-14-18 08:09PM  Reuters]
▶ BRF S.A. (BRFS) Surges: Stock Moves 8.3% Higher   [Jun-04-18 08:49AM  Zacks]
▶ BRF: 1Q Earnings Snapshot   [07:42AM  Associated Press]
▶ Why BRF S.A. Stock Just Popped 10%   [03:58PM  Motley Fool]
Financial statements of BRFS
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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