Intrinsic value of Cross Timbers Royalty Trust - CRT

Previous Close

$14.41

  Intrinsic Value

$318.82

stock screener

  Rating & Target

str. buy

+999%

Previous close

$14.41

 
Intrinsic value

$318.82

 
Up/down potential

+999%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as CRT.

We calculate the intrinsic value of CRT 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 0.1

 

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, %
  -11.11
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  8
  13
  20
  30
  43
  61
  83
  112
  147
  189
  238
  296
  362
  436
  519
  610
  710
  818
  934
  1,058
  1,189
  1,328
  1,474
  1,628
  1,789
  1,957
  2,132
  2,314
  2,504
  2,701
  2,906
Variable 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
Fixed operating expenses, $m
 
  1
  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
  2
  2
  2
  2
Total operating expenses, $m
  1
  1
  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
  2
  2
  2
  2
Operating income, $m
  6
  12
  19
  28
  42
  59
  82
  111
  145
  188
  237
  295
  361
  435
  518
  609
  709
  816
  932
  1,056
  1,187
  1,326
  1,473
  1,626
  1,787
  1,955
  2,130
  2,312
  2,502
  2,699
  2,904
EBITDA, $m
  6
  12
  19
  28
  42
  59
  82
  111
  145
  188
  237
  295
  361
  435
  518
  609
  709
  816
  932
  1,056
  1,187
  1,326
  1,473
  1,626
  1,787
  1,955
  2,130
  2,312
  2,502
  2,699
  2,904
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
Earnings before tax, $m
  6
  12
  19
  28
  42
  59
  82
  110
  145
  187
  236
  294
  359
  433
  516
  607
  706
  813
  929
  1,052
  1,183
  1,321
  1,467
  1,620
  1,780
  1,947
  2,121
  2,303
  2,492
  2,688
  2,892
Tax expense, $m
  0
  3
  5
  8
  11
  16
  22
  30
  39
  50
  64
  79
  97
  117
  139
  164
  191
  220
  251
  284
  319
  357
  396
  437
  481
  526
  573
  622
  673
  726
  781
Net income, $m
  6
  9
  14
  21
  30
  43
  60
  80
  106
  136
  173
  214
  262
  316
  377
  443
  515
  594
  678
  768
  863
  964
  1,071
  1,182
  1,299
  1,421
  1,548
  1,681
  1,819
  1,962
  2,111

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  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
  11
  14
  22
  33
  48
  68
  94
  126
  165
  212
  268
  333
  407
  491
  584
  687
  799
  920
  1,050
  1,190
  1,337
  1,494
  1,658
  1,831
  2,012
  2,201
  2,398
  2,603
  2,816
  3,038
  3,269
Adjusted assets (=assets-cash), $m
  9
  14
  22
  33
  48
  68
  94
  126
  165
  212
  268
  333
  407
  491
  584
  687
  799
  920
  1,050
  1,190
  1,337
  1,494
  1,658
  1,831
  2,012
  2,201
  2,398
  2,603
  2,816
  3,038
  3,269
Revenue / Adjusted assets
  0.889
  0.929
  0.909
  0.909
  0.896
  0.897
  0.883
  0.889
  0.891
  0.892
  0.888
  0.889
  0.889
  0.888
  0.889
  0.888
  0.889
  0.889
  0.890
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
Average production assets, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Working capital, $m
  0
  -3
  -5
  -7
  -11
  -15
  -21
  -28
  -37
  -47
  -60
  -74
  -90
  -109
  -130
  -153
  -178
  -204
  -233
  -264
  -297
  -332
  -369
  -407
  -447
  -489
  -533
  -578
  -626
  -675
  -726
Total debt, $m
  0
  1
  1
  3
  4
  7
  9
  13
  17
  23
  29
  36
  44
  53
  64
  75
  88
  101
  116
  131
  147
  165
  183
  202
  222
  243
  265
  288
  312
  336
  362
Total liabilities, $m
  2
  2
  2
  4
  5
  8
  10
  14
  18
  24
  30
  37
  45
  54
  65
  76
  89
  102
  117
  132
  148
  166
  184
  203
  223
  244
  266
  289
  313
  337
  363
Total equity, $m
  10
  13
  20
  30
  43
  61
  83
  112
  147
  189
  238
  296
  362
  436
  519
  610
  710
  818
  934
  1,058
  1,189
  1,328
  1,474
  1,628
  1,789
  1,957
  2,132
  2,314
  2,504
  2,701
  2,906
Total liabilities and equity, $m
  12
  15
  22
  34
  48
  69
  93
  126
  165
  213
  268
  333
  407
  490
  584
  686
  799
  920
  1,051
  1,190
  1,337
  1,494
  1,658
  1,831
  2,012
  2,201
  2,398
  2,603
  2,817
  3,038
  3,269
Debt-to-equity ratio
  0.000
  0.050
  0.070
  0.090
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
  0.120
Adjusted equity ratio
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889
  0.889

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  9
  14
  21
  30
  43
  60
  80
  106
  136
  173
  214
  262
  316
  377
  443
  515
  594
  678
  768
  863
  964
  1,071
  1,182
  1,299
  1,421
  1,548
  1,681
  1,819
  1,962
  2,111
Depreciation, amort., depletion, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Funds from operations, $m
  6
  9
  14
  21
  30
  43
  60
  80
  106
  136
  173
  214
  262
  316
  377
  443
  515
  594
  678
  768
  863
  964
  1,071
  1,182
  1,299
  1,421
  1,548
  1,681
  1,819
  1,962
  2,111
Change in working capital, $m
  0
  -1
  -2
  -2
  -3
  -4
  -6
  -7
  -9
  -11
  -12
  -14
  -16
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -47
  -49
  -51
Cash from operations, $m
  6
  10
  15
  23
  34
  48
  65
  88
  115
  147
  185
  229
  279
  335
  397
  466
  540
  621
  707
  799
  896
  999
  1,107
  1,221
  1,339
  1,463
  1,592
  1,727
  1,866
  2,011
  2,162
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Free cash flow, $m
  6
  10
  15
  23
  34
  48
  65
  88
  115
  147
  185
  229
  279
  335
  397
  466
  540
  621
  707
  799
  896
  999
  1,107
  1,221
  1,339
  1,463
  1,592
  1,727
  1,866
  2,011
  2,162
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  5
  10
  16
  24
  35
  50
  68
  91
  119
  152
  191
  236
  287
  344
  408
  477
  553
  634
  721
  814
  913
  1,017
  1,126
  1,240
  1,359
  1,484
  1,614
  1,749
  1,890
  2,036
  2,188
Retained Cash Flow (-), $m
  1
  -5
  -7
  -10
  -13
  -18
  -23
  -28
  -35
  -42
  -50
  -58
  -66
  -74
  -83
  -91
  -100
  -108
  -116
  -124
  -131
  -139
  -146
  -154
  -161
  -168
  -175
  -182
  -190
  -197
  -205
Prev. year cash balance distribution, $m
 
  2
  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
 
  8
  9
  15
  22
  32
  46
  63
  84
  110
  141
  178
  221
  270
  325
  386
  453
  526
  605
  691
  781
  878
  979
  1,086
  1,199
  1,316
  1,439
  1,567
  1,700
  1,839
  1,983
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  7
  9
  13
  18
  25
  33
  42
  53
  63
  74
  85
  94
  103
  109
  113
  115
  115
  112
  106
  99
  91
  81
  71
  61
  51
  42
  34
  26
  20
  15
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

Cross Timbers Royalty Trust is an express trust. The net profits interests are the principal asset of the Trust. The net profits interests consist of approximately 90% net profits interests, which are carved from producing royalty and overriding royalty interest properties in Texas, Oklahoma and New Mexico, and 11.11% nonparticipating royalty interests in non-producing properties located primarily in Texas and Oklahoma. The Trust's net profits interests consist of approximately 75% net profits interests, which are carved from working interests in over four properties in Texas and three properties in Oklahoma. All underlying royalties, underlying non-producing royalties and underlying working interest properties are owned by XTO Energy Inc. The underlying properties include over 2,900 producing properties with established production histories in Texas, Oklahoma and New Mexico. The average reserve-to-production index for the underlying properties is approximately 10 years.

FINANCIAL RATIOS  of  Cross Timbers Royalty Trust (CRT)

Valuation Ratios
P/E Ratio 14.4
Price to Sales 10.8
Price to Book 8.6
Price to Tangible Book
Price to Cash Flow 14.4
Price to Free Cash Flow 14.4
Growth Rates
Sales Growth Rate -11.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 52.2%
Ret/ On Assets - 3 Yr. Avg. 82.3%
Return On Total Capital 57.1%
Ret/ On T. Cap. - 3 Yr. Avg. 89.7%
Return On Equity 57.1%
Return On Equity - 3 Yr. Avg. 89.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 75%
EBITDA Margin - 3 Yr. Avg. 88%
Operating Margin 87.5%
Oper. Margin - 3 Yr. Avg. 90%
Pre-Tax Margin 75%
Pre-Tax Margin - 3 Yr. Avg. 88%
Net Profit Margin 75%
Net Profit Margin - 3 Yr. Avg. 88%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 100%

CRT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CRT stock intrinsic value calculation we used $8 million for the last fiscal year's total revenue generated by Cross Timbers Royalty Trust. The default revenue input number comes from 2016 income statement of Cross Timbers Royalty Trust. 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 CRT stock valuation model: a) initial revenue growth rate of 60% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for CRT is calculated based on our internal credit rating of Cross Timbers Royalty Trust, 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 Cross Timbers Royalty Trust.
    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 CRT stock the variable cost ratio is equal to 0%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1 million in the base year in the intrinsic value calculation for CRT 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 Cross Timbers Royalty Trust.

Corporate tax rate of 27% is the nominal tax rate for Cross Timbers Royalty Trust. 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 CRT 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 CRT are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Cross Timbers Royalty Trust 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 CRT is equal to -25%. 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 - $10 million for Cross Timbers Royalty Trust - 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 6 million for Cross Timbers Royalty Trust 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 Cross Timbers Royalty Trust at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Microcap With 6% Yield and Monthly Distributions   [Jun-01-17 12:42PM  GuruFocus.com]
▶ Cross Timbers posts 4Q profit   [Mar-10-17 03:06PM  Associated Press]
▶ 5 Stocks Ready for Breakouts   [Jan-22-16 12:50PM  at TheStreet]
Financial statements of CRT
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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