Intrinsic value of Dorchester Minerals - DMLP

Previous Close

$14.50

  Intrinsic Value

$0.64

stock screener

  Rating & Target

str. sell

-96%

Previous close

$14.50

 
Intrinsic value

$0.64

 
Up/down potential

-96%

 
Rating

str. sell

We calculate the intrinsic value of DMLP 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 0.5

 

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, %
  18.75
  18.80
  17.42
  16.18
  15.06
  14.05
  13.15
  12.33
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
Revenue, $m
  38
  45
  53
  62
  71
  81
  91
  103
  115
  127
  140
  154
  168
  183
  199
  215
  232
  250
  268
  287
  307
  327
  348
  371
  394
  418
  443
  469
  496
  524
  554
Variable operating expenses, $m
 
  27
  32
  37
  43
  49
  55
  62
  69
  77
  85
  93
  102
  111
  120
  130
  140
  151
  162
  174
  186
  198
  211
  224
  238
  253
  268
  284
  300
  317
  335
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
  17
  27
  32
  37
  43
  49
  55
  62
  69
  77
  85
  93
  102
  111
  120
  130
  140
  151
  162
  174
  186
  198
  211
  224
  238
  253
  268
  284
  300
  317
  335
Operating income, $m
  21
  18
  21
  24
  28
  32
  36
  41
  45
  50
  55
  61
  67
  72
  79
  85
  92
  99
  106
  113
  121
  129
  138
  146
  155
  165
  175
  185
  196
  207
  219
EBITDA, $m
  30
  28
  33
  39
  45
  51
  58
  65
  72
  80
  89
  97
  106
  116
  126
  136
  147
  158
  169
  181
  194
  206
  220
  234
  248
  264
  279
  296
  313
  331
  350
Interest expense (income), $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
Earnings before tax, $m
  21
  18
  21
  24
  28
  32
  36
  41
  45
  50
  55
  61
  67
  72
  79
  85
  92
  99
  106
  113
  121
  129
  138
  146
  155
  165
  175
  185
  196
  207
  219
Tax expense, $m
  0
  5
  6
  7
  8
  9
  10
  11
  12
  14
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
Net income, $m
  21
  13
  15
  18
  20
  23
  26
  30
  33
  37
  40
  44
  49
  53
  57
  62
  67
  72
  77
  83
  88
  94
  100
  107
  114
  120
  128
  135
  143
  151
  160

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  67
  70
  82
  96
  110
  125
  142
  160
  178
  197
  218
  239
  262
  285
  309
  334
  361
  388
  416
  446
  476
  508
  541
  575
  611
  649
  687
  728
  770
  814
  860
Adjusted assets (=assets-cash), $m
  59
  70
  82
  96
  110
  125
  142
  160
  178
  197
  218
  239
  262
  285
  309
  334
  361
  388
  416
  446
  476
  508
  541
  575
  611
  649
  687
  728
  770
  814
  860
Revenue / Adjusted assets
  0.644
  0.643
  0.646
  0.646
  0.645
  0.648
  0.641
  0.644
  0.646
  0.645
  0.642
  0.644
  0.641
  0.642
  0.644
  0.644
  0.643
  0.644
  0.644
  0.643
  0.645
  0.644
  0.643
  0.645
  0.645
  0.644
  0.645
  0.644
  0.644
  0.644
  0.644
Average production assets, $m
  57
  67
  79
  92
  105
  120
  136
  153
  170
  189
  209
  229
  251
  273
  296
  320
  345
  371
  399
  427
  456
  486
  518
  551
  585
  621
  658
  697
  737
  780
  824
Working capital, $m
  15
  8
  10
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  72
  77
  81
  86
  91
  96
  102
Total debt, $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
Total liabilities, $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
Total equity, $m
  67
  70
  82
  96
  110
  125
  142
  160
  178
  197
  218
  239
  262
  285
  309
  334
  361
  388
  416
  446
  476
  508
  541
  575
  611
  649
  687
  728
  770
  814
  860
Total liabilities and equity, $m
  67
  70
  82
  96
  110
  125
  142
  160
  178
  197
  218
  239
  262
  285
  309
  334
  361
  388
  416
  446
  476
  508
  541
  575
  611
  649
  687
  728
  770
  814
  860
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  21
  13
  15
  18
  20
  23
  26
  30
  33
  37
  40
  44
  49
  53
  57
  62
  67
  72
  77
  83
  88
  94
  100
  107
  114
  120
  128
  135
  143
  151
  160
Depreciation, amort., depletion, $m
  9
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  63
  68
  72
  77
  82
  87
  93
  99
  104
  111
  117
  124
  131
Funds from operations, $m
  27
  24
  28
  32
  37
  42
  48
  54
  60
  67
  74
  81
  88
  96
  104
  113
  122
  131
  141
  150
  161
  172
  183
  194
  206
  219
  232
  246
  260
  275
  290
Change in working capital, $m
  -1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
Cash from operations, $m
  28
  22
  26
  31
  35
  41
  46
  52
  58
  64
  71
  78
  86
  93
  102
  110
  119
  128
  137
  147
  157
  168
  179
  190
  202
  215
  228
  241
  255
  270
  285
Maintenance CAPEX, $m
  0
  -9
  -11
  -13
  -15
  -17
  -19
  -22
  -24
  -27
  -30
  -33
  -36
  -40
  -43
  -47
  -51
  -55
  -59
  -63
  -68
  -72
  -77
  -82
  -87
  -93
  -99
  -104
  -111
  -117
  -124
New CAPEX, $m
  0
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
Cash from investing activities, $m
  0
  -20
  -23
  -26
  -29
  -32
  -35
  -39
  -42
  -46
  -50
  -53
  -57
  -62
  -66
  -71
  -76
  -81
  -86
  -91
  -97
  -102
  -109
  -115
  -121
  -129
  -136
  -143
  -151
  -159
  -168
Free cash flow, $m
  28
  3
  4
  5
  7
  9
  11
  13
  16
  19
  22
  25
  28
  31
  35
  39
  43
  47
  51
  56
  60
  65
  70
  75
  80
  86
  92
  98
  104
  110
  117
Issuance/(repayment) of debt, $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
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
  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 cash flow (excl. dividends), $m
  28
  3
  4
  5
  7
  9
  11
  13
  16
  19
  22
  25
  28
  31
  35
  39
  43
  47
  51
  56
  60
  65
  70
  75
  80
  86
  92
  98
  104
  110
  117
Retained Cash Flow (-), $m
  6
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
Prev. year cash balance distribution, $m
 
  8
  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
  -8
  -8
  -7
  -6
  -5
  -4
  -3
  -1
  1
  3
  6
  8
  11
  14
  17
  20
  23
  26
  30
  33
  37
  41
  45
  49
  53
  57
  62
  66
  71
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
 
  0
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  0
  1
  2
  2
  3
  4
  4
  4
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
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
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Dorchester Minerals, L.P. is a limited partnership company. The Company is engaged in the acquisition, ownership and administration of Royalty Properties and net profits interests (NPIs). As of December 31, 2016, the Royalty Properties consisted of producing and nonproducing mineral, royalty, overriding royalty, net profits and leasehold interests located in 574 counties and parishes in 25 states. The NPIs represent net profits overriding royalty interests in various properties owned by the Company. As of December 31, 2016, the Company had completed 270 wells on its Royalty Properties in seven states, and 39 new wells completed on its Properties in three states. The Company owns both a royalty interest and a net profits interest. The Company's general partner is Dorchester Minerals Management LP.

FINANCIAL RATIOS  of  Dorchester Minerals (DMLP)

Valuation Ratios
P/E Ratio 21.2
Price to Sales 11.7
Price to Book 6.6
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 15.9
Growth Rates
Sales Growth Rate 18.8%
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 29.8%
Ret/ On Assets - 3 Yr. Avg. 29.2%
Return On Total Capital 30%
Ret/ On T. Cap. - 3 Yr. Avg. 29.5%
Return On Equity 30%
Return On Equity - 3 Yr. Avg. 29.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 89.5%
Gross Margin - 3 Yr. Avg. 89.8%
EBITDA Margin 78.9%
EBITDA Margin - 3 Yr. Avg. 78.5%
Operating Margin 55.3%
Oper. Margin - 3 Yr. Avg. 54.5%
Pre-Tax Margin 55.3%
Pre-Tax Margin - 3 Yr. Avg. 55%
Net Profit Margin 55.3%
Net Profit Margin - 3 Yr. Avg. 55%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 128.6%

DMLP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DMLP stock intrinsic value calculation we used $38 million for the last fiscal year's total revenue generated by Dorchester Minerals. The default revenue input number comes from 2016 income statement of Dorchester Minerals. 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 DMLP stock valuation model: a) initial revenue growth rate of 18.8% 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 DMLP is calculated based on our internal credit rating of Dorchester Minerals, 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 Dorchester Minerals.
    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 DMLP stock the variable cost ratio is equal to 60.5%.

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 DMLP 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 Dorchester Minerals.

Corporate tax rate of 27% is the nominal tax rate for Dorchester Minerals. 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 DMLP 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 DMLP are equal to 148.7%.

Life of production assets of 6.3 years is the average useful life of capital assets used in Dorchester Minerals 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 DMLP is equal to 18.4%. 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 - $67 million for Dorchester Minerals - 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 32.28 million for Dorchester Minerals 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 Dorchester Minerals at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Should You Buy Dorchester Minerals LP (DMLP) At This PE Ratio?   [Sep-11-17 01:33PM  Simply Wall St.]
▶ Dorchester Minerals, L.P. Announces Second Quarter Results   [Aug-03-17 03:20PM  GlobeNewswire]
▶ Dorchester Minerals, L.P. Announces First Quarter Results   [May-04-17 11:45AM  GlobeNewswire]
▶ Five Unheralded Energy Plays This Hedge Fund Likes   [Dec-01-16 08:37PM  Insider Monkey]
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▶ Lucas Capital Management Bets Big on Energy in Q4   [Nov-11  09:20AM  at Insider Monkey]
▶ 10-Q for Dorchester Minerals LP   [Aug-08  08:10PM  at Company Spotlight]
▶ 10-Q for Dorchester Minerals LP   [May-09  08:09PM  at Company Spotlight]
Financial statements of DMLP
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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