Intrinsic value of Grana y Montero ADR - GRAM

Previous Close

$2.75

  Intrinsic Value

$2.95

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  Rating & Target

hold

+7%

Previous close

$2.75

 
Intrinsic value

$2.95

 
Up/down potential

+7%

 
Rating

hold

We calculate the intrinsic value of GRAM 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 0.4

 

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, %
  -22.69
  4.60
  4.64
  4.68
  4.71
  4.74
  4.76
  4.79
  4.81
  4.83
  4.85
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
Revenue, $m
  1,837
  1,922
  2,011
  2,105
  2,204
  2,308
  2,418
  2,534
  2,656
  2,784
  2,919
  3,061
  3,210
  3,367
  3,532
  3,705
  3,887
  4,079
  4,280
  4,491
  4,714
  4,947
  5,192
  5,450
  5,720
  6,004
  6,303
  6,616
  6,946
  7,292
  7,655
Variable operating expenses, $m
 
  1,829
  1,914
  2,003
  2,097
  2,196
  2,300
  2,410
  2,526
  2,647
  2,775
  2,904
  3,046
  3,194
  3,351
  3,515
  3,688
  3,870
  4,061
  4,261
  4,472
  4,694
  4,926
  5,171
  5,427
  5,697
  5,980
  6,278
  6,590
  6,918
  7,263
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
  1,760
  1,841
  1,927
  2,016
  2,110
  2,210
  2,314
  2,424
  2,541
  2,662
  2,790
  2,920
  3,062
  3,211
  3,368
  3,532
  3,706
  3,888
  4,080
  4,280
  4,492
  4,714
  4,947
  5,192
  5,449
  5,719
  6,003
  6,301
  6,614
  6,943
  7,288
Operating income, $m
  77
  80
  84
  89
  94
  99
  104
  110
  115
  122
  128
  141
  148
  156
  164
  172
  181
  191
  200
  211
  222
  233
  245
  258
  271
  285
  300
  315
  332
  349
  367
EBITDA, $m
  165
  135
  141
  148
  156
  163
  171
  180
  189
  198
  208
  219
  230
  241
  254
  266
  280
  294
  309
  325
  341
  359
  377
  396
  417
  438
  460
  484
  508
  534
  561
Interest expense (income), $m
  52
  44
  49
  55
  61
  68
  75
  82
  89
  97
  106
  115
  124
  134
  144
  155
  166
  178
  191
  204
  218
  232
  248
  264
  281
  298
  317
  337
  357
  379
  401
Earnings before tax, $m
  35
  36
  35
  34
  33
  31
  29
  28
  26
  24
  22
  26
  24
  22
  20
  18
  15
  12
  10
  7
  4
  1
  -2
  -6
  -9
  -13
  -17
  -21
  -25
  -30
  -35
Tax expense, $m
  13
  10
  10
  9
  9
  8
  8
  8
  7
  7
  6
  7
  7
  6
  5
  5
  4
  3
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  3
  27
  26
  25
  24
  23
  22
  20
  19
  18
  16
  19
  18
  16
  15
  13
  11
  9
  7
  5
  3
  1
  -2
  -6
  -9
  -13
  -17
  -21
  -25
  -30
  -35

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  188
  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
  2,891
  2,826
  2,957
  3,095
  3,241
  3,394
  3,556
  3,726
  3,906
  4,094
  4,292
  4,501
  4,720
  4,951
  5,194
  5,449
  5,717
  5,998
  6,294
  6,605
  6,932
  7,275
  7,635
  8,014
  8,412
  8,830
  9,269
  9,730
  10,214
  10,723
  11,257
Adjusted assets (=assets-cash), $m
  2,703
  2,826
  2,957
  3,095
  3,241
  3,394
  3,556
  3,726
  3,906
  4,094
  4,292
  4,501
  4,720
  4,951
  5,194
  5,449
  5,717
  5,998
  6,294
  6,605
  6,932
  7,275
  7,635
  8,014
  8,412
  8,830
  9,269
  9,730
  10,214
  10,723
  11,257
Revenue / Adjusted assets
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
Average production assets, $m
  233
  244
  255
  267
  280
  293
  307
  322
  337
  354
  371
  389
  408
  428
  449
  471
  494
  518
  544
  570
  599
  628
  659
  692
  726
  763
  800
  840
  882
  926
  972
Working capital, $m
  555
  751
  786
  823
  862
  902
  945
  991
  1,038
  1,089
  1,141
  1,197
  1,255
  1,316
  1,381
  1,449
  1,520
  1,595
  1,673
  1,756
  1,843
  1,934
  2,030
  2,131
  2,237
  2,348
  2,464
  2,587
  2,716
  2,851
  2,993
Total debt, $m
  882
  781
  873
  971
  1,075
  1,183
  1,298
  1,418
  1,545
  1,679
  1,819
  1,967
  2,122
  2,285
  2,457
  2,638
  2,827
  3,027
  3,236
  3,456
  3,688
  3,931
  4,186
  4,454
  4,736
  5,032
  5,342
  5,669
  6,012
  6,372
  6,750
Total liabilities, $m
  2,102
  2,001
  2,093
  2,191
  2,295
  2,403
  2,518
  2,638
  2,765
  2,899
  3,039
  3,187
  3,342
  3,505
  3,677
  3,858
  4,047
  4,247
  4,456
  4,676
  4,908
  5,151
  5,406
  5,674
  5,956
  6,252
  6,562
  6,889
  7,232
  7,592
  7,970
Total equity, $m
  789
  825
  863
  904
  946
  991
  1,038
  1,088
  1,140
  1,195
  1,253
  1,314
  1,378
  1,446
  1,517
  1,591
  1,669
  1,751
  1,838
  1,929
  2,024
  2,124
  2,230
  2,340
  2,456
  2,578
  2,707
  2,841
  2,983
  3,131
  3,287
Total liabilities and equity, $m
  2,891
  2,826
  2,956
  3,095
  3,241
  3,394
  3,556
  3,726
  3,905
  4,094
  4,292
  4,501
  4,720
  4,951
  5,194
  5,449
  5,716
  5,998
  6,294
  6,605
  6,932
  7,275
  7,636
  8,014
  8,412
  8,830
  9,269
  9,730
  10,215
  10,723
  11,257
Debt-to-equity ratio
  1.118
  0.950
  1.010
  1.070
  1.140
  1.190
  1.250
  1.300
  1.350
  1.400
  1.450
  1.500
  1.540
  1.580
  1.620
  1.660
  1.690
  1.730
  1.760
  1.790
  1.820
  1.850
  1.880
  1.900
  1.930
  1.950
  1.970
  2.000
  2.020
  2.040
  2.050
Adjusted equity ratio
  0.222
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292
  0.292

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  27
  26
  25
  24
  23
  22
  20
  19
  18
  16
  19
  18
  16
  15
  13
  11
  9
  7
  5
  3
  1
  -2
  -6
  -9
  -13
  -17
  -21
  -25
  -30
  -35
Depreciation, amort., depletion, $m
  88
  55
  57
  59
  62
  65
  67
  70
  73
  77
  80
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  138
  145
  153
  160
  168
  176
  185
  194
Funds from operations, $m
  155
  81
  83
  84
  86
  87
  89
  91
  92
  94
  96
  97
  99
  102
  104
  107
  110
  113
  116
  119
  123
  126
  129
  133
  136
  139
  143
  147
  151
  155
  160
Change in working capital, $m
  28
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  135
  142
Cash from operations, $m
  127
  48
  48
  47
  47
  46
  46
  45
  45
  44
  44
  42
  41
  40
  40
  39
  39
  38
  37
  36
  36
  35
  34
  32
  30
  28
  26
  24
  22
  20
  18
Maintenance CAPEX, $m
  0
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -138
  -145
  -153
  -160
  -168
  -176
  -185
New CAPEX, $m
  -68
  -12
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
Cash from investing activities, $m
  -126
  -59
  -60
  -63
  -66
  -69
  -73
  -76
  -79
  -83
  -88
  -92
  -97
  -102
  -107
  -112
  -117
  -123
  -130
  -136
  -142
  -150
  -157
  -165
  -172
  -181
  -191
  -200
  -210
  -220
  -231
Free cash flow, $m
  1
  -10
  -12
  -16
  -19
  -23
  -27
  -31
  -35
  -39
  -44
  -51
  -56
  -61
  -67
  -73
  -79
  -85
  -92
  -99
  -107
  -114
  -123
  -133
  -143
  -153
  -164
  -176
  -188
  -200
  -213
Issuance/(repayment) of debt, $m
  4
  87
  93
  98
  103
  109
  114
  121
  127
  133
  140
  148
  155
  163
  172
  180
  190
  199
  210
  220
  231
  243
  255
  268
  282
  296
  311
  326
  343
  360
  378
Issuance/(repurchase) of shares, $m
  0
  9
  13
  16
  19
  22
  26
  29
  33
  37
  42
  42
  46
  51
  56
  62
  67
  73
  79
  86
  92
  100
  108
  116
  126
  135
  145
  156
  167
  178
  191
Cash from financing (excl. dividends), $m  
  29
  96
  106
  114
  122
  131
  140
  150
  160
  170
  182
  190
  201
  214
  228
  242
  257
  272
  289
  306
  323
  343
  363
  384
  408
  431
  456
  482
  510
  538
  569
Total cash flow (excl. dividends), $m
  29
  86
  93
  98
  103
  108
  113
  119
  125
  131
  138
  139
  146
  153
  161
  170
  178
  187
  197
  207
  217
  228
  240
  252
  265
  278
  292
  307
  322
  338
  355
Retained Cash Flow (-), $m
  16
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -108
  -116
  -126
  -135
  -145
  -156
  -167
  -178
  -191
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
 
  50
  55
  57
  60
  63
  66
  69
  73
  76
  80
  78
  82
  86
  90
  95
  100
  105
  110
  116
  122
  128
  132
  135
  139
  143
  147
  151
  155
  160
  165
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  47
  47
  45
  43
  40
  37
  35
  32
  29
  25
  21
  18
  16
  13
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.3
  96.2
  93.8
  91.1
  88.1
  85.0
  81.7
  78.3
  74.8
  71.2
  68.0
  64.8
  61.5
  58.3
  55.1
  51.9
  48.9
  45.9
  43.0
  40.3
  37.6
  35.1
  32.7
  30.3
  28.1
  26.0
  24.1
  22.2
  20.4
  18.8

Grana y Montero SAA is a Peru-based holding company primarily engaged in the four business areas: Construction and Engineering Industry, Real Estate, Oil Services, and Operation of Public Concessions and Business Support Services. Through its subsidiaries, the Company provides such services as the development and management of real estate properties and leisure facilities; the exploration, production and sale of oil, natural gas and its derivates; the storage and distribution of combustibles; information technology services; engineering consultancy; the operation and maintenance of rails and roads concessions; as well as the execution and management of projects related to the generation of electric power; among others. The Company owns such subsidiaries as GMD SA, Adexus SA, Concar SA, Survial SA, Norvial SA and Promotores Asociados de Inmobiliarios SA, among others.

FINANCIAL RATIOS  of  Grana y Montero ADR (GRAM)

Valuation Ratios
P/E Ratio 605
Price to Sales 1
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 14.3
Price to Free Cash Flow 30.8
Growth Rates
Sales Growth Rate -22.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.4%
Cap. Spend. - 3 Yr. Gr. Rate 0.3%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 67.2%
Total Debt to Equity 111.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.3%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 3.2%
Return On Equity 0.4%
Return On Equity - 3 Yr. Avg. 4.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 10.6%
Gross Margin - 3 Yr. Avg. 11.1%
EBITDA Margin 9.5%
EBITDA Margin - 3 Yr. Avg. 9.8%
Operating Margin 4.2%
Oper. Margin - 3 Yr. Avg. 5.4%
Pre-Tax Margin 1.9%
Pre-Tax Margin - 3 Yr. Avg. 4%
Net Profit Margin 0.2%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate 37.1%
Eff/ Tax Rate - 3 Yr. Avg. 33.5%
Payout Ratio 300%

GRAM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GRAM stock intrinsic value calculation we used $1837 million for the last fiscal year's total revenue generated by Grana y Montero ADR. The default revenue input number comes from 2016 income statement of Grana y Montero ADR. 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 GRAM stock valuation model: a) initial revenue growth rate of 4.6% 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 7.8%, whose default value for GRAM is calculated based on our internal credit rating of Grana y Montero ADR, 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 Grana y Montero ADR.
    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 GRAM stock the variable cost ratio is equal to 95.2%.

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 GRAM 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 6.3% for Grana y Montero ADR.

Corporate tax rate of 27% is the nominal tax rate for Grana y Montero ADR. 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 GRAM 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 GRAM are equal to 12.7%.

Life of production assets of 3.3 years is the average useful life of capital assets used in Grana y Montero ADR 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 GRAM is equal to 39.1%. 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 - $789 million for Grana y Montero ADR - 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 134.716 million for Grana y Montero ADR 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 Grana y Montero ADR at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Graña y Montero Announces Consolidated Results for 3Q2017   [Oct-30-17 10:56PM  Business Wire]
Financial statements of GRAM
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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