Intrinsic value of Dominion Midstream Partners - DM

Previous Close

$25.55

  Intrinsic Value

$5.94

stock screener

  Rating & Target

str. sell

-77%

  Value-price divergence*

+110%

Previous close

$25.55

 
Intrinsic value

$5.94

 
Up/down potential

-77%

 
Rating

str. sell

 
Value-price divergence*

+110%

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

We calculate the intrinsic value of DM 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 2.1

 

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, %
  19.19
  56.60
  51.44
  46.80
  42.62
  38.85
  35.47
  32.42
  29.68
  27.21
  24.99
  22.99
  21.19
  19.57
  18.12
  16.80
  15.62
  14.56
  13.61
  12.74
  11.97
  11.27
  10.65
  10.08
  9.57
  9.12
  8.70
  8.33
  8.00
  7.70
  7.43
Revenue, $m
  441
  691
  1,046
  1,535
  2,190
  3,040
  4,119
  5,454
  7,073
  8,997
  11,246
  13,832
  16,763
  20,044
  23,675
  27,654
  31,974
  36,630
  41,614
  46,918
  52,534
  58,456
  64,679
  71,200
  78,016
  85,128
  92,538
  100,250
  108,270
  116,608
  125,272
Variable operating expenses, $m
 
  286
  391
  535
  728
  980
  1,298
  1,692
  2,170
  2,739
  3,403
  4,084
  4,950
  5,919
  6,991
  8,166
  9,442
  10,816
  12,288
  13,854
  15,512
  17,261
  19,099
  21,024
  23,037
  25,137
  27,325
  29,602
  31,971
  34,433
  36,991
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
  224
  286
  391
  535
  728
  980
  1,298
  1,692
  2,170
  2,739
  3,403
  4,084
  4,950
  5,919
  6,991
  8,166
  9,442
  10,816
  12,288
  13,854
  15,512
  17,261
  19,099
  21,024
  23,037
  25,137
  27,325
  29,602
  31,971
  34,433
  36,991
Operating income, $m
  217
  405
  655
  1,000
  1,461
  2,061
  2,821
  3,762
  4,902
  6,259
  7,843
  9,747
  11,813
  14,125
  16,684
  19,488
  22,533
  25,814
  29,326
  33,063
  37,021
  41,195
  45,580
  50,176
  54,979
  59,991
  65,213
  70,648
  76,300
  82,175
  88,281
EBITDA, $m
  274
  732
  1,109
  1,628
  2,322
  3,224
  4,367
  5,783
  7,499
  9,540
  11,924
  14,665
  17,773
  21,252
  25,102
  29,321
  33,902
  38,838
  44,122
  49,746
  55,701
  61,980
  68,578
  75,492
  82,719
  90,260
  98,116
  106,293
  114,797
  123,637
  132,824
Interest expense (income), $m
  10
  26
  112
  234
  402
  628
  921
  1,292
  1,752
  2,309
  2,972
  3,746
  4,637
  5,646
  6,776
  8,026
  9,396
  10,884
  12,488
  14,204
  16,030
  17,964
  20,003
  22,146
  24,392
  26,739
  29,188
  31,740
  34,395
  37,157
  40,028
Earnings before tax, $m
  236
  378
  544
  766
  1,059
  1,433
  1,900
  2,470
  3,151
  3,949
  4,871
  6,001
  7,176
  8,479
  9,908
  11,462
  13,136
  14,930
  16,838
  18,860
  20,991
  23,231
  25,577
  28,029
  30,587
  33,252
  36,025
  38,908
  41,904
  45,018
  48,253
Tax expense, $m
  6
  102
  147
  207
  286
  387
  513
  667
  851
  1,066
  1,315
  1,620
  1,938
  2,289
  2,675
  3,095
  3,547
  4,031
  4,546
  5,092
  5,668
  6,272
  6,906
  7,568
  8,259
  8,978
  9,727
  10,505
  11,314
  12,155
  13,028
Net income, $m
  112
  276
  397
  559
  773
  1,046
  1,387
  1,803
  2,300
  2,883
  3,556
  4,381
  5,239
  6,190
  7,233
  8,367
  9,590
  10,899
  12,292
  13,768
  15,324
  16,959
  18,671
  20,461
  22,329
  24,274
  26,298
  28,403
  30,590
  32,863
  35,225

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  40
  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
  7,187
  11,139
  16,869
  24,762
  35,315
  49,037
  66,430
  87,968
  114,077
  145,120
  181,387
  223,091
  270,370
  323,290
  381,858
  446,027
  515,714
  590,810
  671,192
  756,735
  847,319
  942,841
  1,043,216
  1,148,387
  1,258,325
  1,373,033
  1,492,547
  1,616,934
  1,746,298
  1,880,771
  2,020,520
Adjusted assets (=assets-cash), $m
  7,147
  11,139
  16,869
  24,762
  35,315
  49,037
  66,430
  87,968
  114,077
  145,120
  181,387
  223,091
  270,370
  323,290
  381,858
  446,027
  515,714
  590,810
  671,192
  756,735
  847,319
  942,841
  1,043,216
  1,148,387
  1,258,325
  1,373,033
  1,492,547
  1,616,934
  1,746,298
  1,880,771
  2,020,520
Revenue / Adjusted assets
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
  0.062
Average production assets, $m
  4,704
  7,367
  11,156
  16,377
  23,356
  32,431
  43,934
  58,178
  75,445
  95,976
  119,961
  147,542
  178,810
  213,809
  252,543
  294,982
  341,070
  390,735
  443,896
  500,470
  560,378
  623,551
  689,935
  759,490
  832,198
  908,061
  987,102
  1,069,366
  1,154,921
  1,243,855
  1,336,279
Working capital, $m
  22
  70
  107
  157
  223
  310
  420
  556
  721
  918
  1,147
  1,411
  1,710
  2,044
  2,415
  2,821
  3,261
  3,736
  4,245
  4,786
  5,358
  5,963
  6,597
  7,262
  7,958
  8,683
  9,439
  10,225
  11,044
  11,894
  12,778
Total debt, $m
  793
  3,187
  6,682
  11,497
  17,934
  26,305
  36,914
  50,053
  65,979
  84,915
  107,038
  132,478
  161,318
  193,599
  229,325
  268,468
  310,978
  356,786
  405,819
  458,000
  513,257
  571,525
  632,754
  696,908
  763,970
  833,942
  906,845
  982,722
  1,061,634
  1,143,662
  1,228,909
Total liabilities, $m
  4,401
  6,795
  10,290
  15,105
  21,542
  29,913
  40,522
  53,661
  69,587
  88,523
  110,646
  136,086
  164,926
  197,207
  232,933
  272,076
  314,586
  360,394
  409,427
  461,608
  516,865
  575,133
  636,362
  700,516
  767,578
  837,550
  910,453
  986,330
  1,065,242
  1,147,270
  1,232,517
Total equity, $m
  2,786
  4,344
  6,579
  9,657
  13,773
  19,124
  25,908
  34,308
  44,490
  56,597
  70,741
  87,006
  105,444
  126,083
  148,925
  173,950
  201,128
  230,416
  261,765
  295,127
  330,455
  367,708
  406,854
  447,871
  490,747
  535,483
  582,093
  630,604
  681,056
  733,501
  788,003
Total liabilities and equity, $m
  7,187
  11,139
  16,869
  24,762
  35,315
  49,037
  66,430
  87,969
  114,077
  145,120
  181,387
  223,092
  270,370
  323,290
  381,858
  446,026
  515,714
  590,810
  671,192
  756,735
  847,320
  942,841
  1,043,216
  1,148,387
  1,258,325
  1,373,033
  1,492,546
  1,616,934
  1,746,298
  1,880,771
  2,020,520
Debt-to-equity ratio
  0.285
  0.730
  1.020
  1.190
  1.300
  1.380
  1.420
  1.460
  1.480
  1.500
  1.510
  1.520
  1.530
  1.540
  1.540
  1.540
  1.550
  1.550
  1.550
  1.550
  1.550
  1.550
  1.560
  1.560
  1.560
  1.560
  1.560
  1.560
  1.560
  1.560
  1.560
Adjusted equity ratio
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390
  0.390

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  112
  276
  397
  559
  773
  1,046
  1,387
  1,803
  2,300
  2,883
  3,556
  4,381
  5,239
  6,190
  7,233
  8,367
  9,590
  10,899
  12,292
  13,768
  15,324
  16,959
  18,671
  20,461
  22,329
  24,274
  26,298
  28,403
  30,590
  32,863
  35,225
Depreciation, amort., depletion, $m
  57
  327
  454
  628
  860
  1,163
  1,546
  2,021
  2,597
  3,281
  4,081
  4,918
  5,960
  7,127
  8,418
  9,833
  11,369
  13,024
  14,797
  16,682
  18,679
  20,785
  22,998
  25,316
  27,740
  30,269
  32,903
  35,646
  38,497
  41,462
  44,543
Funds from operations, $m
  292
  604
  851
  1,187
  1,633
  2,209
  2,933
  3,824
  4,897
  6,164
  7,637
  9,299
  11,199
  13,317
  15,651
  18,200
  20,959
  23,923
  27,089
  30,450
  34,003
  37,744
  41,669
  45,778
  50,069
  54,543
  59,201
  64,048
  69,088
  74,325
  79,767
Change in working capital, $m
  3
  25
  36
  50
  67
  87
  110
  136
  165
  196
  229
  264
  299
  335
  370
  406
  441
  475
  508
  541
  573
  604
  635
  665
  695
  725
  756
  787
  818
  850
  884
Cash from operations, $m
  289
  578
  814
  1,137
  1,567
  2,122
  2,823
  3,688
  4,732
  5,968
  7,407
  9,035
  10,900
  12,982
  15,281
  17,794
  20,518
  23,448
  26,580
  29,909
  33,430
  37,140
  41,034
  45,113
  49,373
  53,817
  58,446
  63,262
  68,270
  73,475
  78,884
Maintenance CAPEX, $m
  0
  -157
  -246
  -372
  -546
  -779
  -1,081
  -1,464
  -1,939
  -2,515
  -3,199
  -3,999
  -4,918
  -5,960
  -7,127
  -8,418
  -9,833
  -11,369
  -13,024
  -14,797
  -16,682
  -18,679
  -20,785
  -22,998
  -25,316
  -27,740
  -30,269
  -32,903
  -35,646
  -38,497
  -41,462
New CAPEX, $m
  -1,277
  -2,663
  -3,789
  -5,221
  -6,979
  -9,075
  -11,503
  -14,244
  -17,267
  -20,530
  -23,985
  -27,581
  -31,268
  -34,999
  -38,734
  -42,438
  -46,088
  -49,665
  -53,161
  -56,574
  -59,908
  -63,173
  -66,383
  -69,555
  -72,708
  -75,863
  -79,041
  -82,264
  -85,555
  -88,934
  -92,424
Cash from investing activities, $m
  -2,123
  -2,820
  -4,035
  -5,593
  -7,525
  -9,854
  -12,584
  -15,708
  -19,206
  -23,045
  -27,184
  -31,580
  -36,186
  -40,959
  -45,861
  -50,856
  -55,921
  -61,034
  -66,185
  -71,371
  -76,590
  -81,852
  -87,168
  -92,553
  -98,024
  -103,603
  -109,310
  -115,167
  -121,201
  -127,431
  -133,886
Free cash flow, $m
  -1,834
  -2,241
  -3,221
  -4,455
  -5,959
  -7,731
  -9,761
  -12,021
  -14,475
  -17,077
  -19,777
  -22,545
  -25,286
  -27,977
  -30,580
  -33,063
  -35,403
  -37,586
  -39,605
  -41,462
  -43,160
  -44,713
  -46,134
  -47,440
  -48,651
  -49,785
  -50,864
  -51,906
  -52,931
  -53,957
  -55,002
Issuance/(repayment) of debt, $m
  57
  2,434
  3,495
  4,815
  6,437
  8,370
  10,610
  13,138
  15,927
  18,936
  22,123
  25,440
  28,840
  32,282
  35,726
  39,143
  42,509
  45,809
  49,033
  52,181
  55,256
  58,268
  61,229
  64,154
  67,062
  69,972
  72,903
  75,876
  78,912
  82,029
  85,247
Issuance/(repurchase) of shares, $m
  1,862
  1,282
  1,838
  2,519
  3,343
  4,305
  5,396
  6,597
  7,883
  9,224
  10,588
  11,884
  13,200
  14,449
  15,608
  16,659
  17,588
  18,389
  19,057
  19,594
  20,004
  20,295
  20,475
  20,555
  20,547
  20,462
  20,312
  20,108
  19,861
  19,581
  19,278
Cash from financing (excl. dividends), $m  
  1,885
  3,716
  5,333
  7,334
  9,780
  12,675
  16,006
  19,735
  23,810
  28,160
  32,711
  37,324
  42,040
  46,731
  51,334
  55,802
  60,097
  64,198
  68,090
  71,775
  75,260
  78,563
  81,704
  84,709
  87,609
  90,434
  93,215
  95,984
  98,773
  101,610
  104,525
Total cash flow (excl. dividends), $m
  51
  1,474
  2,112
  2,879
  3,821
  4,944
  6,245
  7,714
  9,334
  11,082
  12,934
  14,779
  16,754
  18,753
  20,754
  22,739
  24,695
  26,612
  28,485
  30,314
  32,100
  33,850
  35,570
  37,269
  38,958
  40,649
  42,352
  44,079
  45,842
  47,653
  49,523
Retained Cash Flow (-), $m
  -1,283
  -1,558
  -2,235
  -3,079
  -4,116
  -5,351
  -6,783
  -8,400
  -10,183
  -12,107
  -14,144
  -16,265
  -18,439
  -20,639
  -22,841
  -25,026
  -27,178
  -29,287
  -31,349
  -33,362
  -35,328
  -37,253
  -39,146
  -41,017
  -42,876
  -44,736
  -46,610
  -48,511
  -50,452
  -52,445
  -54,502
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
 
  -84
  -122
  -199
  -294
  -407
  -538
  -686
  -848
  -1,024
  -1,210
  -1,486
  -1,685
  -1,886
  -2,087
  -2,287
  -2,483
  -2,676
  -2,864
  -3,048
  -3,228
  -3,404
  -3,577
  -3,748
  -3,917
  -4,087
  -4,259
  -4,432
  -4,610
  -4,792
  -4,980
Discount rate, %
 
  5.00
  5.25
  5.51
  5.79
  6.08
  6.38
  6.70
  7.04
  7.39
  7.76
  8.14
  8.55
  8.98
  9.43
  9.90
  10.39
  10.91
  11.46
  12.03
  12.63
  13.27
  13.93
  14.63
  15.36
  16.13
  16.93
  17.78
  18.67
  19.60
  20.58
PV of cash for distribution, $m
 
  -80
  -110
  -170
  -235
  -303
  -371
  -435
  -492
  -539
  -573
  -628
  -629
  -617
  -591
  -555
  -510
  -460
  -406
  -352
  -299
  -249
  -203
  -162
  -127
  -97
  -73
  -53
  -38
  -27
  -18
Current shareholders' claim on cash, %
  100
  62.3
  40.0
  26.6
  18.3
  12.9
  9.4
  7.1
  5.4
  4.3
  3.4
  2.8
  2.3
  2.0
  1.7
  1.5
  1.3
  1.2
  1.1
  1.0
  0.9
  0.8
  0.8
  0.7
  0.7
  0.6
  0.6
  0.6
  0.6
  0.5
  0.5

Dominion Midstream Partners, LP owns liquefied natural gas (LNG) import, storage, regasification, and transportation assets. It owns and operates LNG facility located on the Chesapeake Bay in Lusby, Maryland; and has approximately 136 miles of natural gas pipeline that connects its LNG facility to interstate natural gas pipelines. The company also operates interstate pipelines in South Carolina and southeastern Georgia comprising natural gas system consisting of approximately 1,500 miles of transmission pipeline and 5 compressor stations with approximately 34,500 installed compressor horsepower. In addition, it owns and operates a 416-mile interstate natural gas pipeline from the United States-Canadian border at Waddington, New York through the state of Connecticut to South Commack, Long Island, New York and continuing on from Northport, Long Island, New York through the Long Island Sound to Hunts Point, Bronx, New York providing service to local gas distribution companies, electric utilities, and electric power generators, as well as marketers and other end users through interconnecting pipelines and exchanges. Further, the company operates 2,667 miles of natural gas transportation pipelines that interconnect with other pipelines, including 10 miles of owned by a third party; and offers wellhead automation and measurement services for Rockies oil and gas producers. Dominion Midstream GP, LLC serves as a general partner of the company. The company was founded in 2000 and is headquartered in Richmond, Virginia. Dominion Midstream Partners, LP is a subsidiary of Dominion Resources, Inc.

FINANCIAL RATIOS  of  Dominion Midstream Partners (DM)

Valuation Ratios
P/E Ratio 22.6
Price to Sales 5.7
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 8.8
Price to Free Cash Flow -2.6
Growth Rates
Sales Growth Rate 19.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -0.4%
Cap. Spend. - 3 Yr. Gr. Rate 34.1%
Financial Strength
Quick Ratio 1
Current Ratio 0.3
LT Debt to Equity 26.2%
Total Debt to Equity 28.5%
Interest Coverage 25
Management Effectiveness
Return On Assets 2.2%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 5.7%
Return On Equity 5.2%
Return On Equity - 3 Yr. Avg. 6.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 90.7%
Gross Margin - 3 Yr. Avg. 85.7%
EBITDA Margin 68.7%
EBITDA Margin - 3 Yr. Avg. 65.4%
Operating Margin 49.2%
Oper. Margin - 3 Yr. Avg. 50.5%
Pre-Tax Margin 53.5%
Pre-Tax Margin - 3 Yr. Avg. 52.7%
Net Profit Margin 25.4%
Net Profit Margin - 3 Yr. Avg. 24.8%
Effective Tax Rate 2.5%
Eff/ Tax Rate - 3 Yr. Avg. 12.1%
Payout Ratio 41.1%

DM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DM stock intrinsic value calculation we used $441 million for the last fiscal year's total revenue generated by Dominion Midstream Partners. The default revenue input number comes from 2016 income statement of Dominion Midstream Partners. 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 DM stock valuation model: a) initial revenue growth rate of 56.6% 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 5%, whose default value for DM is calculated based on our internal credit rating of Dominion Midstream Partners, 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 Dominion Midstream Partners.
    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 DM stock the variable cost ratio is equal to 48.1%.

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 DM 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 Dominion Midstream Partners.

Corporate tax rate of 27% is the nominal tax rate for Dominion Midstream Partners. 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 DM 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 DM are equal to 1066.7%.

Life of production assets of 92.3 years is the average useful life of capital assets used in Dominion Midstream Partners 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 DM is equal to 10.2%. 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 - $2786 million for Dominion Midstream Partners - 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 82.78 million for Dominion Midstream Partners 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 Dominion Midstream Partners at the current share price and the inputted number of shares is $2.1 billion.

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COMPANY NEWS

▶ Shareholders Add 'Energy' to Dominion's Name   [May-10-17 11:05AM  PR Newswire]
▶ Midstream Stocks: Which Ones Have the Most Bearish Traders?   [May-04-17 03:04PM  Market Realist]
▶ Dominion Midstream meets 1Q profit forecasts   [08:51AM  Associated Press]
▶ Short Interest: Which Midstream Stocks Could Be Bearish?   [Apr-27-17 04:35PM  Market Realist]
▶ Investors Should Watch These Midstream Stocks   [Apr-20-17 11:46AM  Market Realist]
▶ Why These Midstream Stocks Could Be Bearish   [Apr-13-17 02:35PM  Market Realist]
▶ Why These Midstream Stocks Could Mean Trouble   [Apr-06-17 09:06AM  Market Realist]
▶ How Short Interest Could Impact Midstream Stocks   [Mar-27-17 03:50PM  Market Realist]
▶ Why These Midstream Stocks Could Be Bearish   [Mar-21-17 04:48PM  Market Realist]
▶ These Midstream Stocks Have the Highest Short Interest   [Mar-14-17 01:05PM  Market Realist]
▶ These Midstream Stocks Lead in Short Interest   [Mar-07-17 02:05PM  Market Realist]
▶ Dominion Midstream Partners Submits 2016 10-K Filing   [Feb-28-17 01:00PM  PR Newswire]
▶ Do You Own These Bearish Midstream Stocks?   [12:35PM  Market Realist]
▶ [$$] Dominion Resources Warns of Lower Earnings in 2017   [08:25AM  at The Wall Street Journal]
▶ Alerian Index Series December 2016 Index Review   [Dec-09-16 08:30AM  PR Newswire]
Stock chart of DM Financial statements of DM
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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