Intrinsic value of Gas Natural - EGAS

Previous Close

$13.10

  Intrinsic Value

$4.47

stock screener

  Rating & Target

str. sell

-66%

  Value-price divergence*

-145%

Previous close

$13.10

 
Intrinsic value

$4.47

 
Up/down potential

-66%

 
Rating

str. sell

 
Value-price divergence*

-145%

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

We calculate the intrinsic value of EGAS 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, %
  -11.61
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  99
  104
  110
  115
  122
  128
  134
  141
  149
  156
  164
  173
  181
  191
  200
  211
  221
  232
  244
  256
  269
  283
  297
  312
  328
  344
  362
  380
  399
  419
  440
Variable operating expenses, $m
 
  88
  93
  98
  103
  108
  113
  119
  125
  132
  138
  144
  151
  159
  167
  175
  184
  193
  203
  213
  224
  235
  247
  260
  273
  286
  301
  316
  332
  348
  366
Fixed operating expenses, $m
 
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
Total operating expenses, $m
  96
  100
  106
  111
  116
  122
  127
  133
  140
  147
  153
  160
  167
  176
  184
  192
  202
  211
  222
  232
  244
  255
  268
  281
  295
  308
  324
  339
  356
  373
  391
Operating income, $m
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  13
  14
  16
  17
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  36
  38
  40
  43
  46
  49
EBITDA, $m
  11
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
Interest expense (income), $m
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
Earnings before tax, $m
  0
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
Tax expense, $m
  -1
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  9
Net income, $m
  1
  1
  1
  1
  1
  2
  2
  3
  3
  3
  4
  6
  6
  7
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  6
  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
  197
  201
  212
  223
  235
  247
  260
  273
  287
  302
  317
  333
  350
  368
  387
  406
  427
  449
  471
  495
  520
  546
  574
  603
  633
  665
  698
  733
  770
  808
  849
Adjusted assets (=assets-cash), $m
  191
  201
  212
  223
  235
  247
  260
  273
  287
  302
  317
  333
  350
  368
  387
  406
  427
  449
  471
  495
  520
  546
  574
  603
  633
  665
  698
  733
  770
  808
  849
Revenue / Adjusted assets
  0.518
  0.517
  0.519
  0.516
  0.519
  0.518
  0.515
  0.516
  0.519
  0.517
  0.517
  0.520
  0.517
  0.519
  0.517
  0.520
  0.518
  0.517
  0.518
  0.517
  0.517
  0.518
  0.517
  0.517
  0.518
  0.517
  0.519
  0.518
  0.518
  0.519
  0.518
Average production assets, $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Working capital, $m
  0
  12
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  46
  49
Total debt, $m
  69
  68
  74
  79
  85
  92
  98
  105
  112
  120
  128
  136
  145
  154
  163
  174
  184
  195
  207
  219
  232
  245
  259
  274
  290
  306
  323
  341
  360
  380
  400
Total liabilities, $m
  104
  103
  109
  114
  120
  127
  133
  140
  147
  155
  163
  171
  180
  189
  198
  209
  219
  230
  242
  254
  267
  280
  294
  309
  325
  341
  358
  376
  395
  415
  435
Total equity, $m
  93
  98
  103
  109
  114
  120
  126
  133
  140
  147
  154
  162
  171
  179
  188
  198
  208
  218
  229
  241
  253
  266
  279
  293
  308
  324
  340
  357
  375
  394
  413
Total liabilities and equity, $m
  197
  201
  212
  223
  234
  247
  259
  273
  287
  302
  317
  333
  351
  368
  386
  407
  427
  448
  471
  495
  520
  546
  573
  602
  633
  665
  698
  733
  770
  809
  848
Debt-to-equity ratio
  0.742
  0.700
  0.710
  0.730
  0.750
  0.760
  0.780
  0.790
  0.800
  0.820
  0.830
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.890
  0.900
  0.910
  0.920
  0.920
  0.930
  0.930
  0.940
  0.950
  0.950
  0.960
  0.960
  0.960
  0.970
Adjusted equity ratio
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1
  1
  1
  1
  1
  2
  2
  3
  3
  3
  4
  6
  6
  7
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23
Depreciation, amort., depletion, $m
  8
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
Funds from operations, $m
  13
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
Change in working capital, $m
  2
  1
  1
  1
  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
Cash from operations, $m
  11
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
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
  -1
  -1
  -1
  -1
  -1
New CAPEX, $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
Cash from investing activities, $m
  -6
  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
  -1
  -1
  -1
  -1
  -1
Free cash flow, $m
  5
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  16
  17
  18
  19
  21
Issuance/(repayment) of debt, $m
  3
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
Issuance/(repurchase) of shares, $m
  0
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  1
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  10
  11
  11
  12
  12
  13
  12
  13
  13
  14
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  7
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
Retained Cash Flow (-), $m
  2
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
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
 
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  16
  18
  19
  20
  22
Discount rate, %
 
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.20
  20.17
  21.17
  22.23
  23.34
  24.51
  25.74
  27.02
  28.37
  29.79
  31.28
PV of cash for distribution, $m
 
  6
  5
  5
  5
  5
  4
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  96.9
  94.1
  91.5
  89.2
  87.1
  85.1
  83.3
  81.7
  80.3
  78.9
  78.1
  77.4
  76.7
  76.2
  75.7
  75.3
  75.0
  74.7
  74.5
  74.4
  74.3
  74.3
  74.3
  74.3
  74.3
  74.3
  74.3
  74.3
  74.3
  74.3

Gas Natural Inc. distributes and sells natural gas to residential, commercial, industrial, agricultural, and transportation customers. The company operates through Natural Gas and Marketing & Production segments. It distributes approximately 21 billion cubic feet (Bcf) of natural gas to approximately 67,800 customers through regulated utilities operating in Maine, Montana, North Carolina, and Ohio. The company markets approximately 1.5 Bcf of natural gas to commercial and industrial customers in Montana, Wyoming, and Ohio; and manages midstream supply and production assets for transportation customers and utilities. It also owns approximately 160 natural gas producing wells and gas gathering assets located in Glacier and Toole Counties in Montana. The company was formerly known as Energy, Inc. and changed its name to Gas Natural Inc. in July 2010. Gas Natural Inc. was founded in 1909 and is based in Cleveland, Ohio.

FINANCIAL RATIOS  of  Gas Natural (EGAS)

Valuation Ratios
P/E Ratio 137.8
Price to Sales 1.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 12.5
Price to Free Cash Flow 45.9
Growth Rates
Sales Growth Rate -11.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -20%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 55.9%
Total Debt to Equity 74.2%
Interest Coverage 1
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. 2%
Return On Equity 1.1%
Return On Equity - 3 Yr. Avg. 3.5%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 11.1%
EBITDA Margin - 3 Yr. Avg. 10.8%
Operating Margin 3%
Oper. Margin - 3 Yr. Avg. 4.3%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 1.6%
Net Profit Margin 1%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 25%
Payout Ratio 300%

EGAS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EGAS stock intrinsic value calculation we used $99 million for the last fiscal year's total revenue generated by Gas Natural. The default revenue input number comes from 2016 income statement of Gas Natural. 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 EGAS stock valuation model: a) initial revenue growth rate of 5.3% 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 7.6%, whose default value for EGAS is calculated based on our internal credit rating of Gas Natural, 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 Gas Natural.
    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 EGAS stock the variable cost ratio is equal to 84.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12 million in the base year in the intrinsic value calculation for EGAS 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 4.5% for Gas Natural.

Corporate tax rate of 27% is the nominal tax rate for Gas Natural. 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 EGAS 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 EGAS are equal to 1.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Gas Natural 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 EGAS is equal to 11.1%. 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 - $93 million for Gas Natural - 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 10.478 million for Gas Natural 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 Gas Natural at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
NI NiSource 26.79 36.74  buy
SWX Southwest Gas 78.39 44.22  sell
NWE NorthWestern 59.24 65.08  hold
D Dominion Resou 78.69 117.91  str.buy
NWN Northwest Natu 64.10 87.86  buy
MDU MDU Resources 25.85 61.89  str.buy
NFG National Fuel 58.11 4.43  str.sell
Stock chart of EGAS Financial statements of EGAS
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.