Intrinsic value of BRF ADR - BRFS

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$12.16

  Intrinsic Value

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  Value-price divergence*

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$12.16

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

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

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 9.8

 

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
  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
  10,665
  34,408
  35,199
  36,104
  37,119
  38,245
  39,479
  40,824
  42,279
  43,847
  45,530
  47,330
  49,251
  51,296
  53,470
  55,777
  58,221
  60,808
  63,545
  66,436
  69,488
  72,709
  76,106
  79,686
  83,459
  87,432
  91,615
  96,018
  100,652
  105,526
  110,654
Variable operating expenses, $m
 
  29,892
  30,569
  31,344
  32,213
  33,176
  34,234
  35,385
  36,631
  37,973
  39,414
  40,520
  42,165
  43,916
  45,777
  47,752
  49,844
  52,059
  54,402
  56,877
  59,490
  62,248
  65,156
  68,221
  71,451
  74,853
  78,434
  82,204
  86,170
  90,344
  94,733
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
  29,892
  30,569
  31,344
  32,213
  33,176
  34,234
  35,385
  36,631
  37,973
  39,414
  40,520
  42,165
  43,916
  45,777
  47,752
  49,844
  52,059
  54,402
  56,877
  59,490
  62,248
  65,156
  68,221
  71,451
  74,853
  78,434
  82,204
  86,170
  90,344
  94,733
Operating income, $m
  574
  4,516
  4,630
  4,760
  4,906
  5,068
  5,246
  5,439
  5,649
  5,874
  6,116
  6,810
  7,086
  7,380
  7,693
  8,025
  8,377
  8,749
  9,143
  9,559
  9,998
  10,461
  10,950
  11,465
  12,008
  12,580
  13,181
  13,815
  14,482
  15,183
  15,921
EBITDA, $m
  1,081
  6,076
  6,216
  6,376
  6,555
  6,754
  6,972
  7,209
  7,466
  7,743
  8,040
  8,358
  8,697
  9,059
  9,442
  9,850
  10,281
  10,738
  11,221
  11,732
  12,271
  12,840
  13,440
  14,072
  14,738
  15,440
  16,179
  16,956
  17,774
  18,635
  19,541
Interest expense (income), $m
  269
  786
  814
  847
  884
  926
  973
  1,024
  1,079
  1,139
  1,204
  1,274
  1,348
  1,427
  1,512
  1,602
  1,697
  1,798
  1,905
  2,018
  2,137
  2,263
  2,397
  2,537
  2,685
  2,841
  3,005
  3,178
  3,359
  3,551
  3,752
Earnings before tax, $m
  -100
  3,730
  3,816
  3,913
  4,022
  4,142
  4,273
  4,415
  4,569
  4,735
  4,912
  5,536
  5,738
  5,953
  6,181
  6,423
  6,680
  6,951
  7,238
  7,541
  7,860
  8,198
  8,553
  8,928
  9,323
  9,739
  10,177
  10,637
  11,122
  11,632
  12,168
Tax expense, $m
  16
  1,007
  1,030
  1,057
  1,086
  1,118
  1,154
  1,192
  1,234
  1,278
  1,326
  1,495
  1,549
  1,607
  1,669
  1,734
  1,804
  1,877
  1,954
  2,036
  2,122
  2,213
  2,309
  2,411
  2,517
  2,629
  2,748
  2,872
  3,003
  3,141
  3,285
Net income, $m
  -118
  2,723
  2,785
  2,857
  2,936
  3,024
  3,119
  3,223
  3,336
  3,456
  3,586
  4,041
  4,189
  4,346
  4,512
  4,689
  4,876
  5,074
  5,284
  5,505
  5,738
  5,984
  6,244
  6,518
  6,806
  7,109
  7,429
  7,765
  8,119
  8,491
  8,883

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
  36,682
  37,526
  38,490
  39,573
  40,772
  42,089
  43,522
  45,074
  46,745
  48,539
  50,459
  52,507
  54,687
  57,004
  59,463
  62,069
  64,828
  67,745
  70,827
  74,081
  77,515
  81,136
  84,953
  88,975
  93,211
  97,671
  102,365
  107,305
  112,502
  117,968
Adjusted assets (=assets-cash), $m
  11,371
  36,682
  37,526
  38,490
  39,573
  40,772
  42,089
  43,522
  45,074
  46,745
  48,539
  50,459
  52,507
  54,687
  57,004
  59,463
  62,069
  64,828
  67,745
  70,827
  74,081
  77,515
  81,136
  84,953
  88,975
  93,211
  97,671
  102,365
  107,305
  112,502
  117,968
Revenue / Adjusted assets
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
  0.938
Average production assets, $m
  4,449
  7,879
  8,061
  8,268
  8,500
  8,758
  9,041
  9,349
  9,682
  10,041
  10,426
  10,839
  11,279
  11,747
  12,245
  12,773
  13,333
  13,925
  14,552
  15,214
  15,913
  16,650
  17,428
  18,248
  19,112
  20,022
  20,980
  21,988
  23,049
  24,166
  25,340
Working capital, $m
  1,977
  2,581
  2,640
  2,708
  2,784
  2,868
  2,961
  3,062
  3,171
  3,289
  3,415
  3,550
  3,694
  3,847
  4,010
  4,183
  4,367
  4,561
  4,766
  4,983
  5,212
  5,453
  5,708
  5,976
  6,259
  6,557
  6,871
  7,201
  7,549
  7,914
  8,299
Total debt, $m
  5,995
  16,286
  16,939
  17,687
  18,526
  19,456
  20,476
  21,587
  22,789
  24,085
  25,475
  26,962
  28,550
  30,239
  32,035
  33,941
  35,961
  38,098
  40,359
  42,748
  45,270
  47,931
  50,738
  53,696
  56,813
  60,096
  63,552
  67,190
  71,018
  75,046
  79,282
Total liabilities, $m
  9,835
  28,429
  29,082
  29,830
  30,669
  31,599
  32,619
  33,730
  34,932
  36,228
  37,618
  39,105
  40,693
  42,382
  44,178
  46,084
  48,104
  50,241
  52,502
  54,891
  57,413
  60,074
  62,881
  65,839
  68,956
  72,239
  75,695
  79,333
  83,161
  87,189
  91,425
Total equity, $m
  3,743
  8,253
  8,443
  8,660
  8,904
  9,174
  9,470
  9,793
  10,142
  10,518
  10,921
  11,353
  11,814
  12,305
  12,826
  13,379
  13,966
  14,586
  15,243
  15,936
  16,668
  17,441
  18,256
  19,115
  20,019
  20,972
  21,976
  23,032
  24,144
  25,313
  26,543
Total liabilities and equity, $m
  13,578
  36,682
  37,525
  38,490
  39,573
  40,773
  42,089
  43,523
  45,074
  46,746
  48,539
  50,458
  52,507
  54,687
  57,004
  59,463
  62,070
  64,827
  67,745
  70,827
  74,081
  77,515
  81,137
  84,954
  88,975
  93,211
  97,671
  102,365
  107,305
  112,502
  117,968
Debt-to-equity ratio
  1.602
  1.970
  2.010
  2.040
  2.080
  2.120
  2.160
  2.200
  2.250
  2.290
  2.330
  2.370
  2.420
  2.460
  2.500
  2.540
  2.570
  2.610
  2.650
  2.680
  2.720
  2.750
  2.780
  2.810
  2.840
  2.870
  2.890
  2.920
  2.940
  2.960
  2.990
Adjusted equity ratio
  0.135
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -118
  2,723
  2,785
  2,857
  2,936
  3,024
  3,119
  3,223
  3,336
  3,456
  3,586
  4,041
  4,189
  4,346
  4,512
  4,689
  4,876
  5,074
  5,284
  5,505
  5,738
  5,984
  6,244
  6,518
  6,806
  7,109
  7,429
  7,765
  8,119
  8,491
  8,883
Depreciation, amort., depletion, $m
  507
  1,560
  1,586
  1,616
  1,649
  1,686
  1,726
  1,770
  1,818
  1,869
  1,924
  1,548
  1,611
  1,678
  1,749
  1,825
  1,905
  1,989
  2,079
  2,173
  2,273
  2,379
  2,490
  2,607
  2,730
  2,860
  2,997
  3,141
  3,293
  3,452
  3,620
Funds from operations, $m
  676
  4,283
  4,371
  4,472
  4,585
  4,709
  4,845
  4,993
  5,153
  5,325
  5,510
  5,590
  5,800
  6,024
  6,261
  6,514
  6,781
  7,063
  7,362
  7,678
  8,011
  8,363
  8,734
  9,124
  9,536
  9,970
  10,426
  10,906
  11,412
  11,944
  12,503
Change in working capital, $m
  100
  51
  59
  68
  76
  84
  93
  101
  109
  118
  126
  135
  144
  153
  163
  173
  183
  194
  205
  217
  229
  242
  255
  269
  283
  298
  314
  330
  348
  366
  385
Cash from operations, $m
  576
  -1,178
  4,312
  4,404
  4,509
  4,625
  4,753
  4,892
  5,044
  5,208
  5,384
  5,455
  5,656
  5,870
  6,098
  6,341
  6,597
  6,869
  7,157
  7,461
  7,782
  8,121
  8,479
  8,856
  9,253
  9,672
  10,112
  10,576
  11,064
  11,578
  12,118
Maintenance CAPEX, $m
  0
  -1,106
  -1,126
  -1,152
  -1,181
  -1,214
  -1,251
  -1,292
  -1,336
  -1,383
  -1,434
  -1,489
  -1,548
  -1,611
  -1,678
  -1,749
  -1,825
  -1,905
  -1,989
  -2,079
  -2,173
  -2,273
  -2,379
  -2,490
  -2,607
  -2,730
  -2,860
  -2,997
  -3,141
  -3,293
  -3,452
New CAPEX, $m
  -856
  -140
  -181
  -207
  -233
  -258
  -283
  -308
  -333
  -359
  -385
  -412
  -440
  -468
  -498
  -528
  -560
  -593
  -627
  -662
  -699
  -738
  -778
  -820
  -864
  -910
  -958
  -1,008
  -1,061
  -1,116
  -1,174
Cash from investing activities, $m
  -1,315
  -1,246
  -1,307
  -1,359
  -1,414
  -1,472
  -1,534
  -1,600
  -1,669
  -1,742
  -1,819
  -1,901
  -1,988
  -2,079
  -2,176
  -2,277
  -2,385
  -2,498
  -2,616
  -2,741
  -2,872
  -3,011
  -3,157
  -3,310
  -3,471
  -3,640
  -3,818
  -4,005
  -4,202
  -4,409
  -4,626
Free cash flow, $m
  -739
  -2,423
  3,005
  3,046
  3,095
  3,153
  3,219
  3,293
  3,375
  3,465
  3,564
  3,553
  3,668
  3,791
  3,923
  4,063
  4,213
  4,372
  4,541
  4,720
  4,910
  5,111
  5,322
  5,546
  5,782
  6,031
  6,294
  6,571
  6,862
  7,169
  7,492
Issuance/(repayment) of debt, $m
  1,718
  569
  654
  747
  839
  930
  1,020
  1,111
  1,203
  1,295
  1,390
  1,487
  1,587
  1,690
  1,796
  1,906
  2,020
  2,138
  2,261
  2,389
  2,522
  2,661
  2,807
  2,958
  3,117
  3,283
  3,456
  3,638
  3,828
  4,027
  4,236
Issuance/(repurchase) of shares, $m
  -170
  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  
  1,548
  569
  654
  747
  839
  930
  1,020
  1,111
  1,203
  1,295
  1,390
  1,487
  1,587
  1,690
  1,796
  1,906
  2,020
  2,138
  2,261
  2,389
  2,522
  2,661
  2,807
  2,958
  3,117
  3,283
  3,456
  3,638
  3,828
  4,027
  4,236
Total cash flow (excl. dividends), $m
  686
  -1,855
  3,659
  3,793
  3,934
  4,082
  4,239
  4,404
  4,578
  4,761
  4,954
  5,040
  5,255
  5,481
  5,719
  5,969
  6,233
  6,510
  6,802
  7,109
  7,432
  7,772
  8,129
  8,505
  8,899
  9,314
  9,750
  10,209
  10,690
  11,196
  11,728
Retained Cash Flow (-), $m
  531
  -147
  -190
  -217
  -244
  -270
  -296
  -323
  -349
  -376
  -404
  -432
  -461
  -491
  -521
  -553
  -586
  -621
  -656
  -693
  -732
  -773
  -815
  -859
  -905
  -953
  -1,003
  -1,056
  -1,111
  -1,169
  -1,230
Prev. year cash balance distribution, $m
 
  3,734
  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
 
  1,732
  3,469
  3,576
  3,690
  3,813
  3,943
  4,081
  4,229
  4,385
  4,550
  4,608
  4,794
  4,990
  5,197
  5,416
  5,646
  5,889
  6,146
  6,416
  6,700
  6,999
  7,314
  7,646
  7,994
  8,361
  8,747
  9,153
  9,579
  10,027
  10,498
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  1,608
  2,970
  2,801
  2,623
  2,437
  2,247
  2,052
  1,857
  1,663
  1,472
  1,256
  1,086
  927
  779
  645
  525
  420
  330
  254
  191
  141
  102
  71
  49
  33
  21
  13
  8
  5
  3
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

BRF S.A., together with its subsidiaries, focuses on raising, producing, and slaughtering poultry and pork in Brazil. It also engages in processing and selling fresh meat, processed foods, pasta, sauce, mayonnaise, frozen vegetables and soybean by-products. Its product portfolio consists of whole chickens and frozen cuts of chicken, turkey, and pork; ham products, bologna, sausages, frankfurters, and other smoked products; hamburgers, breaded meat products, and meatballs; lasagnas, pizzas, cheese breads, pies, and frozen vegetables; margarine, sauces and mayonnaise; and soy meal and refined soy flour, and animal feed. The company primarily sells its products under the Sadia, Perdigão, and Qualy brands, as well as Deline, Hot Pocket, Soltíssimo, Miss Daisy, Chester, Ouro, Na Brasa, Meu Menu, Sanduba, Mini Chicken, Perdix, Borella, Hilal, Unef, Confidence, Paty, Danica, Vienissima, GoodMark, Delicia, and Manty brands to supermarkets, retail stores, wholesalers, restaurants, and other institutional customers. BRF S.A. exports its products to the Middle East, Africa, Asia, Europe, and Latin America. The company was formerly known as BRF-Brasil Foods S.A. and changed its name to BRF S.A. in April 2013. BRF S.A. was founded in 1900 and is headquartered in Itajai, Brazil.

FINANCIAL RATIOS  of  BRF ADR (BRFS)

Valuation Ratios
P/E Ratio -82.3
Price to Sales 0.9
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 16.9
Price to Free Cash Flow -34.7
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 $33733 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 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 7.7%, 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 86.9%.

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 5% 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 22.9%.

Life of production assets of 7 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 7.5%. 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 - $11840 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 807.87 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 $9.8 billion.


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COMPANY NEWS

▶ Tyson Foods: Here's the Beef   [Jun-06-17 03:48PM  Barrons.com]
▶ ETFs with exposure to BRF SA : May 19, 2017   [May-19-17 01:42PM  Capital Cube]
▶ [$$] Brazil stocks: no time for Temerity   [12:20PM  Financial Times]
▶ Announcement to the Market   [Apr-25-17 10:54PM  PR Newswire]
▶ New Strong Sell Stocks for April 21st   [Apr-21-17 10:43AM  Zacks]
▶ Brazil Meat Scandal Losses Could Reach $5 Billion   [Mar-30-17 04:18PM  at Forbes]
▶ Announcement To The Market   [Mar-24-17 09:03PM  PR Newswire]
▶ Brazil GDP Could Fall Lower On Meat Scandal   [Mar-23-17 11:07AM  at Forbes]
▶ How Waters Corporation (WAT) Stacks Up Against Its Peers   [Dec-13-16 10:42AM  at Insider Monkey]
▶ Is BRF SA (ADR) (BRFS) a Good Stock to Buy?   [07:52AM  at Insider Monkey]
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▶ Hedge Funds Are Selling Coach Inc (COH)   [Nov-25-16 11:16AM  at Insider Monkey]
▶ Brazil's Ambev Has 20% Upside, J.P. Morgan Says   [Nov-10-16 12:08PM  at Barrons.com]
Stock chart of BRFS Financial statements of BRFS Annual reports 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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