Intrinsic value of Eco-Stim Energy Solutions - ESES

Previous Close

$1.47

  Intrinsic Value

$2.65

stock screener

  Rating & Target

str. buy

+80%

  Value-price divergence*

0%

Previous close

$1.47

 
Intrinsic value

$2.65

 
Up/down potential

+80%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of ESES 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, %
  -42.86
  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
 
  8
  12
  18
  27
  38
  52
  70
  92
  118
  149
  185
  226
  273
  324
  381
  444
  511
  584
  661
  743
  830
  921
  1,017
  1,118
  1,223
  1,332
  1,446
  1,565
  1,688
  1,816
Fixed operating expenses, $m
 
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
Total operating expenses, $m
  22
  25
  30
  36
  46
  57
  72
  90
  113
  139
  171
  207
  249
  296
  348
  406
  469
  537
  611
  688
  771
  859
  950
  1,047
  1,149
  1,255
  1,364
  1,479
  1,599
  1,723
  1,852
Operating income, $m
  -13
  -13
  -10
  -7
  -3
  3
  11
  22
  34
  50
  68
  89
  113
  140
  171
  204
  241
  281
  324
  369
  418
  469
  524
  580
  640
  702
  767
  835
  905
  978
  1,054
EBITDA, $m
  -8
  -13
  -10
  -7
  -3
  3
  11
  22
  34
  50
  68
  89
  113
  140
  171
  204
  241
  281
  324
  369
  418
  469
  524
  580
  640
  702
  767
  835
  905
  978
  1,054
Interest expense (income), $m
  3
  3
  5
  8
  12
  18
  25
  35
  47
  62
  81
  102
  127
  155
  187
  223
  262
  305
  352
  402
  455
  512
  571
  635
  701
  770
  842
  918
  996
  1,078
  1,163
Earnings before tax, $m
  -18
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -13
  -13
  -13
  -14
  -15
  -17
  -19
  -21
  -24
  -28
  -32
  -37
  -42
  -48
  -54
  -61
  -68
  -75
  -83
  -91
  -100
  -109
Tax expense, $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
Net income, $m
  -18
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -13
  -13
  -13
  -14
  -15
  -17
  -19
  -21
  -24
  -28
  -32
  -37
  -42
  -48
  -54
  -61
  -68
  -75
  -83
  -91
  -100
  -109

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
  47
  72
  111
  166
  241
  340
  468
  628
  824
  1,060
  1,339
  1,663
  2,034
  2,451
  2,916
  3,429
  3,989
  4,595
  5,246
  5,941
  6,680
  7,461
  8,283
  9,145
  10,048
  10,992
  11,975
  13,000
  14,065
  15,173
  16,325
Adjusted assets (=assets-cash), $m
  45
  72
  111
  166
  241
  340
  468
  628
  824
  1,060
  1,339
  1,663
  2,034
  2,451
  2,916
  3,429
  3,989
  4,595
  5,246
  5,941
  6,680
  7,461
  8,283
  9,145
  10,048
  10,992
  11,975
  13,000
  14,065
  15,173
  16,325
Revenue / Adjusted assets
  0.178
  0.181
  0.180
  0.181
  0.178
  0.179
  0.177
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
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
  -1
  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 debt, $m
  25
  41
  67
  104
  154
  220
  305
  412
  543
  700
  886
  1,102
  1,349
  1,628
  1,938
  2,280
  2,654
  3,058
  3,492
  3,956
  4,449
  4,969
  5,517
  6,093
  6,695
  7,324
  7,980
  8,664
  9,375
  10,114
  10,882
Total liabilities, $m
  32
  48
  74
  111
  161
  227
  312
  419
  550
  707
  893
  1,109
  1,356
  1,635
  1,945
  2,287
  2,661
  3,065
  3,499
  3,963
  4,456
  4,976
  5,524
  6,100
  6,702
  7,331
  7,987
  8,671
  9,382
  10,121
  10,889
Total equity, $m
  15
  24
  37
  55
  80
  113
  156
  209
  274
  353
  446
  554
  677
  816
  971
  1,142
  1,328
  1,530
  1,747
  1,978
  2,224
  2,484
  2,758
  3,045
  3,346
  3,660
  3,988
  4,329
  4,684
  5,053
  5,436
Total liabilities and equity, $m
  47
  72
  111
  166
  241
  340
  468
  628
  824
  1,060
  1,339
  1,663
  2,033
  2,451
  2,916
  3,429
  3,989
  4,595
  5,246
  5,941
  6,680
  7,460
  8,282
  9,145
  10,048
  10,991
  11,975
  13,000
  14,066
  15,174
  16,325
Debt-to-equity ratio
  1.667
  1.710
  1.810
  1.880
  1.920
  1.940
  1.960
  1.970
  1.980
  1.980
  1.990
  1.990
  1.990
  1.990
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
  2.000
Adjusted equity ratio
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -18
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -13
  -13
  -13
  -14
  -15
  -17
  -19
  -21
  -24
  -28
  -32
  -37
  -42
  -48
  -54
  -61
  -68
  -75
  -83
  -91
  -100
  -109
Depreciation, amort., depletion, $m
  5
  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
  2
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -13
  -13
  -13
  -14
  -15
  -17
  -19
  -21
  -24
  -28
  -32
  -37
  -42
  -48
  -54
  -61
  -68
  -75
  -83
  -91
  -100
  -109
Change in working capital, $m
  7
  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 operations, $m
  -5
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -13
  -13
  -13
  -14
  -15
  -17
  -19
  -21
  -24
  -28
  -32
  -37
  -42
  -48
  -54
  -61
  -68
  -75
  -83
  -91
  -100
  -109
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
  -5
  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
  -5
  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
  -10
  -15
  -15
  -15
  -15
  -14
  -14
  -13
  -13
  -13
  -13
  -13
  -14
  -15
  -17
  -19
  -21
  -24
  -28
  -32
  -37
  -42
  -48
  -54
  -61
  -68
  -75
  -83
  -91
  -100
  -109
Issuance/(repayment) of debt, $m
  -2
  18
  26
  37
  50
  66
  85
  107
  131
  158
  186
  216
  247
  279
  310
  342
  373
  404
  434
  464
  493
  521
  548
  575
  602
  629
  656
  683
  711
  739
  768
Issuance/(repurchase) of shares, $m
  2
  24
  28
  33
  40
  47
  56
  67
  78
  92
  106
  121
  137
  154
  171
  189
  208
  226
  245
  264
  283
  302
  322
  341
  361
  382
  403
  424
  446
  469
  493
Cash from financing (excl. dividends), $m  
  0
  42
  54
  70
  90
  113
  141
  174
  209
  250
  292
  337
  384
  433
  481
  531
  581
  630
  679
  728
  776
  823
  870
  916
  963
  1,011
  1,059
  1,107
  1,157
  1,208
  1,261
Total cash flow (excl. dividends), $m
  -10
  27
  39
  55
  75
  99
  127
  160
  196
  236
  279
  324
  370
  418
  465
  513
  560
  606
  651
  695
  738
  781
  822
  863
  903
  943
  984
  1,024
  1,066
  1,108
  1,152
Retained Cash Flow (-), $m
  16
  -24
  -28
  -33
  -40
  -47
  -56
  -67
  -78
  -92
  -106
  -121
  -137
  -154
  -171
  -189
  -208
  -226
  -245
  -264
  -283
  -302
  -322
  -341
  -361
  -382
  -403
  -424
  -446
  -469
  -493
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
 
  3
  11
  22
  35
  52
  71
  93
  118
  145
  173
  203
  233
  264
  294
  323
  352
  380
  406
  432
  456
  479
  500
  521
  542
  561
  581
  600
  619
  639
  659
Discount rate, %
 
  10.60
  11.13
  11.69
  12.27
  12.88
  13.53
  14.21
  14.92
  15.66
  16.44
  17.27
  18.13
  19.04
  19.99
  20.99
  22.04
  23.14
  24.30
  25.51
  26.79
  28.12
  29.53
  31.01
  32.56
  34.19
  35.90
  37.69
  39.57
  41.55
  43.63
PV of cash for distribution, $m
 
  2
  9
  16
  22
  28
  33
  37
  39
  39
  38
  35
  32
  27
  23
  19
  15
  11
  8
  6
  4
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  81.4
  69.8
  62.0
  56.3
  52.0
  48.6
  45.8
  43.5
  41.5
  39.8
  38.4
  37.1
  35.9
  34.9
  34.0
  33.1
  32.3
  31.6
  31.0
  30.3
  29.8
  29.2
  28.7
  28.3
  27.8
  27.4
  27.0
  26.6
  26.2
  25.9

Eco-Stim Energy Solutions, Inc. is an oilfield services company. The Company provides well stimulation, coiled tubing and field management services to the upstream oil and gas industry. The Company focuses on the active shale and unconventional oil and natural gas basins outside the United States and it has commenced operations in Argentina. The Company operates well stimulation fleets, coiled tubing units and other downhole completion equipment, as well as provides sweet spot analysis in shale resource basins using geophysical predictive modeling combined with real-time feedback from down-hole diagnostic tools. The Company offers a pumping fleet, including well-stimulation pumps, nitrogen pumping units and cranes, in both trailer-mounted and skid-mounted configurations. It provides a range of pressure-pumping services, including work-over pumping, well injection and wireline pump downs.

FINANCIAL RATIOS  of  Eco-Stim Energy Solutions (ESES)

Valuation Ratios
P/E Ratio -1.2
Price to Sales 2.7
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow -4.3
Price to Free Cash Flow -2.1
Growth Rates
Sales Growth Rate -42.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -61.5%
Cap. Spend. - 3 Yr. Gr. Rate 20.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 146.7%
Total Debt to Equity 166.7%
Interest Coverage -5
Management Effectiveness
Return On Assets -27.5%
Ret/ On Assets - 3 Yr. Avg. -23.4%
Return On Total Capital -36.7%
Ret/ On T. Cap. - 3 Yr. Avg. -32%
Return On Equity -78.3%
Return On Equity - 3 Yr. Avg. -87.2%
Asset Turnover 0.1
Profitability Ratios
Gross Margin -25%
Gross Margin - 3 Yr. Avg. -110.7%
EBITDA Margin -125%
EBITDA Margin - 3 Yr. Avg. -258.3%
Operating Margin -175%
Oper. Margin - 3 Yr. Avg. -420.2%
Pre-Tax Margin -225%
Pre-Tax Margin - 3 Yr. Avg. -339.3%
Net Profit Margin -225%
Net Profit Margin - 3 Yr. Avg. -339.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

ESES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ESES stock intrinsic value calculation we used $8 million for the last fiscal year's total revenue generated by Eco-Stim Energy Solutions. The default revenue input number comes from 2016 income statement of Eco-Stim Energy Solutions. 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 ESES 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 10.6%, whose default value for ESES is calculated based on our internal credit rating of Eco-Stim Energy Solutions, 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 Eco-Stim Energy Solutions.
    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 ESES stock the variable cost ratio is equal to 62.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $17 million in the base year in the intrinsic value calculation for ESES 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 11.5% for Eco-Stim Energy Solutions.

Corporate tax rate of 27% is the nominal tax rate for Eco-Stim Energy Solutions. 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 ESES 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 ESES are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in Eco-Stim Energy Solutions 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 ESES is equal to 0%. 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 - $15 million for Eco-Stim Energy Solutions - 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 72.281 million for Eco-Stim Energy Solutions 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 Eco-Stim Energy Solutions at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Eco-Stim Energy Solutions Announces Private Placement   [Aug-02-17 08:04PM  Marketwired]
▶ Eco-Stim Energy Solutions Provides Operational Update   [Jun-26-17 05:54PM  Marketwired]
▶ These 5 Stocks Under $10 Could Get Hot Soon   [Jan-27-17 12:17PM  TheStreet.com]
▶ Kyle Bass Makes Huge Bet Against McDonalds, Sells Off Clovis   [Sep-06-16 07:58AM  at Insider Monkey]
▶ Kyle Bass Slashes Portfolio to Short the Yuan   [Feb-22-16 12:21PM  at Insider Monkey]
Financial statements of ESES
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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