Intrinsic value of Grana y Montero ADR - GRAM

Previous Close

$3.17

  Intrinsic Value

$1.90

stock screener

  Rating & Target

sell

-40%

  Value-price divergence*

+113%

Previous close

$3.17

 
Intrinsic value

$1.90

 
Up/down potential

-40%

 
Rating

sell

 
Value-price divergence*

+113%

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

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 0.5

 

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, %
  -22.69
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  1,837
  1,874
  1,917
  1,966
  2,021
  2,083
  2,150
  2,223
  2,302
  2,388
  2,479
  2,577
  2,682
  2,793
  2,912
  3,037
  3,171
  3,311
  3,460
  3,618
  3,784
  3,960
  4,145
  4,339
  4,545
  4,761
  4,989
  5,229
  5,481
  5,747
  6,026
Variable operating expenses, $m
 
  1,784
  1,825
  1,871
  1,924
  1,982
  2,046
  2,115
  2,190
  2,271
  2,358
  2,445
  2,545
  2,650
  2,763
  2,882
  3,008
  3,142
  3,283
  3,433
  3,590
  3,757
  3,932
  4,117
  4,312
  4,517
  4,734
  4,961
  5,201
  5,452
  5,717
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
  1,796
  1,838
  1,884
  1,937
  1,996
  2,060
  2,129
  2,205
  2,286
  2,373
  2,461
  2,561
  2,667
  2,780
  2,899
  3,026
  3,160
  3,302
  3,452
  3,610
  3,777
  3,953
  4,138
  4,334
  4,539
  4,757
  4,984
  5,225
  5,477
  5,742
Operating income, $m
  77
  78
  80
  82
  84
  87
  90
  94
  97
  101
  106
  116
  121
  127
  132
  138
  145
  151
  158
  166
  174
  183
  192
  201
  211
  222
  233
  244
  257
  270
  283
EBITDA, $m
  165
  107
  110
  113
  116
  120
  123
  128
  133
  138
  143
  149
  155
  162
  169
  177
  185
  193
  202
  212
  222
  233
  244
  256
  269
  282
  296
  311
  326
  343
  360
Interest expense (income), $m
  52
  44
  46
  49
  52
  56
  60
  64
  69
  74
  80
  86
  92
  99
  106
  114
  122
  131
  140
  150
  160
  171
  183
  195
  208
  221
  235
  250
  266
  283
  300
Earnings before tax, $m
  35
  34
  34
  33
  32
  31
  31
  30
  28
  27
  26
  30
  29
  27
  26
  24
  22
  20
  18
  16
  14
  11
  9
  6
  3
  0
  -3
  -6
  -9
  -13
  -17
Tax expense, $m
  13
  9
  9
  9
  9
  8
  8
  8
  8
  7
  7
  8
  8
  7
  7
  6
  6
  5
  5
  4
  4
  3
  2
  2
  1
  0
  0
  0
  0
  0
  0
Net income, $m
  3
  25
  25
  24
  24
  23
  22
  22
  21
  20
  19
  22
  21
  20
  19
  18
  16
  15
  13
  12
  10
  8
  6
  4
  2
  0
  -3
  -6
  -9
  -13
  -17

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
  2,756
  2,819
  2,891
  2,973
  3,063
  3,162
  3,269
  3,386
  3,511
  3,646
  3,790
  3,944
  4,108
  4,282
  4,467
  4,663
  4,870
  5,089
  5,320
  5,565
  5,823
  6,095
  6,382
  6,684
  7,002
  7,337
  7,690
  8,061
  8,451
  8,862
Adjusted assets (=assets-cash), $m
  2,703
  2,756
  2,819
  2,891
  2,973
  3,063
  3,162
  3,269
  3,386
  3,511
  3,646
  3,790
  3,944
  4,108
  4,282
  4,467
  4,663
  4,870
  5,089
  5,320
  5,565
  5,823
  6,095
  6,382
  6,684
  7,002
  7,337
  7,690
  8,061
  8,451
  8,862
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
  238
  243
  250
  257
  265
  273
  282
  292
  303
  315
  327
  341
  355
  370
  386
  403
  421
  439
  459
  481
  503
  526
  551
  577
  605
  634
  664
  696
  730
  765
Working capital, $m
  555
  733
  749
  769
  790
  814
  841
  869
  900
  934
  969
  1,008
  1,049
  1,092
  1,139
  1,188
  1,240
  1,295
  1,353
  1,415
  1,480
  1,548
  1,621
  1,697
  1,777
  1,862
  1,951
  2,044
  2,143
  2,247
  2,356
Total debt, $m
  882
  731
  776
  827
  885
  948
  1,018
  1,095
  1,177
  1,266
  1,362
  1,464
  1,573
  1,688
  1,812
  1,943
  2,081
  2,228
  2,383
  2,547
  2,720
  2,903
  3,095
  3,298
  3,512
  3,737
  3,975
  4,224
  4,487
  4,763
  5,054
Total liabilities, $m
  2,102
  1,951
  1,996
  2,047
  2,105
  2,168
  2,238
  2,315
  2,397
  2,486
  2,582
  2,684
  2,793
  2,908
  3,032
  3,163
  3,301
  3,448
  3,603
  3,767
  3,940
  4,123
  4,315
  4,518
  4,732
  4,957
  5,195
  5,444
  5,707
  5,983
  6,274
Total equity, $m
  789
  805
  823
  844
  868
  894
  923
  955
  989
  1,025
  1,065
  1,107
  1,152
  1,200
  1,250
  1,304
  1,361
  1,422
  1,486
  1,554
  1,625
  1,700
  1,780
  1,863
  1,952
  2,045
  2,142
  2,245
  2,354
  2,468
  2,588
Total liabilities and equity, $m
  2,891
  2,756
  2,819
  2,891
  2,973
  3,062
  3,161
  3,270
  3,386
  3,511
  3,647
  3,791
  3,945
  4,108
  4,282
  4,467
  4,662
  4,870
  5,089
  5,321
  5,565
  5,823
  6,095
  6,381
  6,684
  7,002
  7,337
  7,689
  8,061
  8,451
  8,862
Debt-to-equity ratio
  1.118
  0.910
  0.940
  0.980
  1.020
  1.060
  1.100
  1.150
  1.190
  1.230
  1.280
  1.320
  1.370
  1.410
  1.450
  1.490
  1.530
  1.570
  1.600
  1.640
  1.670
  1.710
  1.740
  1.770
  1.800
  1.830
  1.860
  1.880
  1.910
  1.930
  1.950
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
  25
  25
  24
  24
  23
  22
  22
  21
  20
  19
  22
  21
  20
  19
  18
  16
  15
  13
  12
  10
  8
  6
  4
  2
  0
  -3
  -6
  -9
  -13
  -17
Depreciation, amort., depletion, $m
  88
  30
  30
  31
  32
  32
  33
  34
  35
  36
  37
  33
  34
  35
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  70
  73
  77
Funds from operations, $m
  155
  55
  55
  55
  55
  55
  55
  56
  56
  56
  56
  55
  55
  56
  56
  56
  56
  57
  57
  58
  58
  59
  59
  60
  60
  61
  61
  60
  60
  60
  60
Change in working capital, $m
  28
  14
  17
  19
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
  104
  109
Cash from operations, $m
  127
  40
  38
  36
  34
  31
  29
  27
  25
  23
  21
  17
  14
  12
  10
  7
  4
  2
  -1
  -4
  -7
  -10
  -13
  -17
  -20
  -24
  -28
  -33
  -38
  -44
  -49
Maintenance CAPEX, $m
  0
  -23
  -24
  -24
  -25
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -60
  -63
  -66
  -70
  -73
New CAPEX, $m
  -68
  -5
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
Cash from investing activities, $m
  -126
  -28
  -29
  -30
  -32
  -34
  -35
  -36
  -38
  -40
  -42
  -43
  -46
  -48
  -50
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -78
  -81
  -85
  -89
  -93
  -98
  -104
  -108
Free cash flow, $m
  1
  11
  9
  5
  2
  -2
  -6
  -10
  -13
  -17
  -21
  -27
  -32
  -36
  -41
  -46
  -51
  -56
  -62
  -68
  -74
  -80
  -87
  -94
  -101
  -109
  -118
  -127
  -137
  -147
  -158
Issuance/(repayment) of debt, $m
  4
  37
  45
  51
  58
  64
  70
  76
  83
  89
  95
  102
  109
  116
  123
  131
  139
  147
  155
  164
  173
  183
  193
  203
  214
  225
  237
  250
  263
  276
  291
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  3
  7
  10
  13
  17
  20
  20
  24
  28
  32
  36
  41
  46
  51
  56
  61
  67
  73
  79
  86
  93
  101
  109
  118
  127
  137
Cash from financing (excl. dividends), $m  
  29
  37
  45
  51
  58
  67
  77
  86
  96
  106
  115
  122
  133
  144
  155
  167
  180
  193
  206
  220
  234
  250
  266
  282
  300
  318
  338
  359
  381
  403
  428
Total cash flow (excl. dividends), $m
  29
  48
  54
  56
  59
  65
  71
  77
  82
  88
  94
  95
  101
  108
  114
  121
  128
  136
  144
  152
  160
  169
  179
  188
  198
  209
  220
  231
  244
  256
  270
Retained Cash Flow (-), $m
  16
  -16
  -19
  -21
  -24
  -26
  -29
  -31
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -71
  -75
  -79
  -84
  -88
  -93
  -101
  -109
  -118
  -127
  -137
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
 
  33
  35
  35
  36
  39
  42
  45
  48
  52
  55
  53
  56
  60
  63
  67
  71
  76
  80
  84
  89
  94
  99
  104
  110
  116
  119
  123
  126
  129
  133
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
 
  30
  30
  28
  25
  25
  24
  23
  21
  19
  18
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  99.4
  98.4
  96.9
  95.0
  92.8
  90.2
  87.9
  85.2
  82.4
  79.4
  76.2
  72.9
  69.6
  66.2
  62.8
  59.5
  56.2
  52.9
  49.8
  46.7
  43.7
  40.8
  38.1
  35.4
  32.9
  30.5

Graña y Montero S.A.A., together with its subsidiaries, provides engineering and construction, infrastructure, real estate, and technical services in Latin America. The company engages in the civil construction, management, and implementation of housing development projects; mining contracting activities, such as mining, drilling, demolition, and other activity related to construction and electro mechanics; and architectural design and installation activities. It also provides electromechanical assemblies and services to energy, oil, gas, and mining sectors; advisory and consultancy services in engineering; and supplies equipment and material to design, build, assemble, operate, and maintain various mechanical engineering, instrumentation, and civil works. In addition, the company offers concessions for constructing, operating, and maintaining the supply system of compressed natural gas in certain provinces of Peru; Section 1 of the Southern Inter-oceanic road; Ancón - Huacho - Pativilca section of the Panamericana Norte road; Buenos Aires - Canchaque road; and Via Expresa - Paseo de la República in Lima. Further, it provides concession of services for treating and selling oil, natural gas, and by-products, as well as for storing and dispatching fuel extracted from demonstrated feasible fields; operates gas processing plant of Pisco – Camisea; and develops and manages real estate projects. Additionally, the company offers information technology services; and electric and technological services for the power industry, as well as installs and maintains network and equipment for telecommunications. Graña y Montero S.A.A. was founded in 1933 and is based in Lima, Peru.

FINANCIAL RATIOS  of  Grana y Montero ADR (GRAM)

Valuation Ratios
P/E Ratio 697.5
Price to Sales 1.1
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 35.5
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 2% 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 10 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 157.517 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 $0.5 billion.

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COMPANY NEWS

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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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