Intrinsic value of InfraREIT - HIFR

Previous Close

$23.19

  Intrinsic Value

$24.34

stock screener

  Rating & Target

hold

+5%

  Value-price divergence*

-42%

Previous close

$23.19

 
Intrinsic value

$24.34

 
Up/down potential

+5%

 
Rating

hold

 
Value-price divergence*

-42%

Our model is not good at valuating stocks of financial companies, such as HIFR.

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

We calculate the intrinsic value of HIFR 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 1.4

 

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, %
  13.91
  17.60
  16.34
  15.21
  14.19
  13.27
  12.44
  11.70
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.90
  5.81
  5.73
  5.66
  5.59
Revenue, $m
  172
  202
  235
  271
  310
  351
  394
  440
  489
  540
  593
  649
  707
  768
  831
  896
  964
  1,035
  1,108
  1,185
  1,264
  1,347
  1,432
  1,522
  1,615
  1,712
  1,813
  1,918
  2,028
  2,143
  2,263
Variable operating expenses, $m
 
  139
  159
  181
  205
  230
  257
  286
  316
  347
  380
  401
  437
  474
  513
  554
  596
  639
  685
  732
  781
  832
  885
  940
  998
  1,058
  1,120
  1,185
  1,253
  1,324
  1,398
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
  69
  139
  159
  181
  205
  230
  257
  286
  316
  347
  380
  401
  437
  474
  513
  554
  596
  639
  685
  732
  781
  832
  885
  940
  998
  1,058
  1,120
  1,185
  1,253
  1,324
  1,398
Operating income, $m
  104
  64
  76
  90
  105
  120
  137
  155
  173
  193
  213
  248
  270
  293
  317
  342
  368
  396
  424
  453
  483
  515
  548
  582
  617
  654
  693
  733
  775
  819
  865
EBITDA, $m
  151
  77
  90
  104
  118
  134
  151
  168
  187
  206
  227
  248
  270
  293
  317
  342
  368
  396
  424
  453
  483
  515
  548
  582
  617
  654
  693
  733
  775
  819
  865
Interest expense (income), $m
  34
  37
  46
  55
  66
  78
  90
  103
  117
  131
  146
  162
  179
  196
  214
  233
  252
  273
  294
  316
  338
  362
  387
  412
  439
  467
  496
  526
  557
  590
  624
Earnings before tax, $m
  70
  27
  31
  34
  38
  43
  47
  52
  57
  62
  67
  86
  92
  97
  103
  110
  116
  123
  130
  137
  145
  153
  161
  169
  178
  188
  197
  208
  218
  229
  241
Tax expense, $m
  1
  7
  8
  9
  10
  12
  13
  14
  15
  17
  18
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
Net income, $m
  50
  19
  22
  25
  28
  31
  34
  38
  41
  45
  49
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  111
  117
  124
  130
  137
  144
  152
  159
  167
  176

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18
  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
  1,877
  2,175
  2,530
  2,915
  3,329
  3,770
  4,239
  4,735
  5,257
  5,805
  6,379
  6,978
  7,603
  8,254
  8,931
  9,635
  10,366
  11,127
  11,917
  12,738
  13,592
  14,479
  15,403
  16,364
  17,365
  18,408
  19,495
  20,628
  21,811
  23,045
  24,334
Adjusted assets (=assets-cash), $m
  1,859
  2,175
  2,530
  2,915
  3,329
  3,770
  4,239
  4,735
  5,257
  5,805
  6,379
  6,978
  7,603
  8,254
  8,931
  9,635
  10,366
  11,127
  11,917
  12,738
  13,592
  14,479
  15,403
  16,364
  17,365
  18,408
  19,495
  20,628
  21,811
  23,045
  24,334
Revenue / Adjusted assets
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
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
  -142
  -16
  -19
  -22
  -25
  -28
  -32
  -36
  -40
  -44
  -48
  -53
  -57
  -62
  -67
  -73
  -78
  -84
  -90
  -96
  -102
  -109
  -116
  -123
  -131
  -139
  -147
  -155
  -164
  -174
  -183
Total debt, $m
  855
  1,036
  1,260
  1,503
  1,763
  2,041
  2,337
  2,649
  2,978
  3,323
  3,685
  4,062
  4,456
  4,866
  5,292
  5,736
  6,197
  6,676
  7,174
  7,691
  8,229
  8,788
  9,370
  9,975
  10,606
  11,263
  11,948
  12,662
  13,407
  14,185
  14,997
Total liabilities, $m
  1,189
  1,370
  1,594
  1,837
  2,097
  2,375
  2,671
  2,983
  3,312
  3,657
  4,019
  4,396
  4,790
  5,200
  5,626
  6,070
  6,531
  7,010
  7,508
  8,025
  8,563
  9,122
  9,704
  10,309
  10,940
  11,597
  12,282
  12,996
  13,741
  14,519
  15,331
Total equity, $m
  688
  805
  936
  1,079
  1,232
  1,395
  1,569
  1,752
  1,945
  2,148
  2,360
  2,582
  2,813
  3,054
  3,304
  3,565
  3,836
  4,117
  4,409
  4,713
  5,029
  5,357
  5,699
  6,055
  6,425
  6,811
  7,213
  7,633
  8,070
  8,527
  9,004
Total liabilities and equity, $m
  1,877
  2,175
  2,530
  2,916
  3,329
  3,770
  4,240
  4,735
  5,257
  5,805
  6,379
  6,978
  7,603
  8,254
  8,930
  9,635
  10,367
  11,127
  11,917
  12,738
  13,592
  14,479
  15,403
  16,364
  17,365
  18,408
  19,495
  20,629
  21,811
  23,046
  24,335
Debt-to-equity ratio
  1.243
  1.290
  1.350
  1.390
  1.430
  1.460
  1.490
  1.510
  1.530
  1.550
  1.560
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.620
  1.630
  1.630
  1.640
  1.640
  1.640
  1.650
  1.650
  1.650
  1.660
  1.660
  1.660
  1.660
  1.670
Adjusted equity ratio
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370
  0.370

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  50
  19
  22
  25
  28
  31
  34
  38
  41
  45
  49
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  111
  117
  124
  130
  137
  144
  152
  159
  167
  176
Depreciation, amort., depletion, $m
  47
  14
  14
  14
  14
  14
  14
  14
  14
  14
  14
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Funds from operations, $m
  129
  33
  36
  39
  42
  45
  48
  52
  55
  59
  63
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  111
  117
  124
  130
  137
  144
  152
  159
  167
  176
Change in working capital, $m
  6
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
Cash from operations, $m
  123
  36
  39
  42
  45
  48
  52
  55
  59
  63
  67
  67
  72
  76
  81
  85
  90
  95
  101
  106
  112
  118
  124
  131
  138
  145
  152
  160
  168
  177
  186
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
  -231
  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
  -231
  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
  -108
  36
  39
  42
  45
  48
  52
  55
  59
  63
  67
  67
  72
  76
  81
  85
  90
  95
  101
  106
  112
  118
  124
  131
  138
  145
  152
  160
  168
  177
  186
Issuance/(repayment) of debt, $m
  176
  199
  224
  242
  261
  278
  295
  312
  329
  345
  361
  377
  394
  410
  427
  443
  461
  479
  498
  517
  538
  559
  582
  606
  631
  657
  685
  714
  745
  778
  812
Issuance/(repurchase) of shares, $m
  0
  97
  109
  117
  125
  132
  139
  146
  152
  158
  164
  159
  164
  170
  175
  180
  186
  192
  198
  204
  210
  217
  224
  232
  240
  249
  258
  268
  278
  289
  301
Cash from financing (excl. dividends), $m  
  116
  296
  333
  359
  386
  410
  434
  458
  481
  503
  525
  536
  558
  580
  602
  623
  647
  671
  696
  721
  748
  776
  806
  838
  871
  906
  943
  982
  1,023
  1,067
  1,113
Total cash flow (excl. dividends), $m
  8
  332
  372
  401
  430
  459
  486
  513
  540
  566
  592
  604
  630
  656
  682
  709
  737
  766
  796
  827
  860
  894
  931
  969
  1,008
  1,051
  1,095
  1,142
  1,191
  1,244
  1,299
Retained Cash Flow (-), $m
  -10
  -117
  -131
  -142
  -153
  -163
  -174
  -183
  -193
  -203
  -212
  -222
  -231
  -241
  -250
  -260
  -271
  -281
  -292
  -304
  -316
  -328
  -342
  -356
  -370
  -386
  -402
  -419
  -438
  -457
  -477
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
 
  215
  240
  259
  277
  295
  313
  330
  347
  363
  380
  382
  398
  415
  432
  449
  466
  485
  504
  524
  544
  566
  589
  613
  638
  665
  693
  723
  754
  787
  822
Discount rate, %
 
  8.90
  9.35
  9.81
  10.30
  10.82
  11.36
  11.93
  12.52
  13.15
  13.81
  14.50
  15.22
  15.98
  16.78
  17.62
  18.50
  19.43
  20.40
  21.42
  22.49
  23.61
  24.80
  26.03
  27.34
  28.70
  30.14
  31.65
  33.23
  34.89
  36.63
PV of cash for distribution, $m
 
  198
  201
  196
  187
  177
  164
  150
  135
  119
  104
  86
  73
  60
  49
  39
  31
  24
  18
  13
  9
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  93.5
  87.6
  82.6
  78.1
  74.2
  70.7
  67.6
  64.9
  62.4
  60.1
  58.2
  56.4
  54.8
  53.3
  51.9
  50.6
  49.4
  48.2
  47.2
  46.2
  45.2
  44.3
  43.4
  42.6
  41.8
  41.0
  40.3
  39.6
  38.9
  38.2

InfraREIT, Inc. is a real estate investment trust. The Company is engaged in owning and leasing rate-regulated transmission and distribution (T&D) assets in Texas. It leases its T&D assets to Sharyland Utilities, L.P. Its assets are located in the Texas Panhandle near Amarillo, the Permian Basin in and around Stanton, Central Texas around Brady, Northeast Texas in and around Celeste and South Texas near McAllen. As of December 31, 2016, its T&D assets consisted of approximately 54,000 electricity delivery points, approximately 815 circuit miles of transmission lines, approximately 40,500 circuit miles of distribution lines, 57 substations and a 300 megawatt high-voltage direct current (DC) Tie between Texas and Mexico (Railroad DC Tie). As of December 31, 2016, its T&D assets in each of its leases included S/B/C Lease, McAllen Lease, competitive renewable energy zone (CREZ) Lease, Stanton Transmission Loop Lease and Electric Reliability Council of Texas (ERCOT) Transmission Lease.

FINANCIAL RATIOS  of  InfraREIT (HIFR)

Valuation Ratios
P/E Ratio 20.3
Price to Sales 5.9
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 8.3
Price to Free Cash Flow -9.4
Growth Rates
Sales Growth Rate 13.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.3%
Cap. Spend. - 3 Yr. Gr. Rate -9.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 103.1%
Total Debt to Equity 124.3%
Interest Coverage 3
Management Effectiveness
Return On Assets 4.7%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 3.4%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 7.3%
Return On Equity - 3 Yr. Avg. 5%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 87.8%
EBITDA Margin - 3 Yr. Avg. 72.3%
Operating Margin 59.9%
Oper. Margin - 3 Yr. Avg. 50%
Pre-Tax Margin 40.7%
Pre-Tax Margin - 3 Yr. Avg. 25.9%
Net Profit Margin 29.1%
Net Profit Margin - 3 Yr. Avg. 18.3%
Effective Tax Rate 1.4%
Eff/ Tax Rate - 3 Yr. Avg. 3.1%
Payout Ratio 0%

HIFR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HIFR stock intrinsic value calculation we used $172 million for the last fiscal year's total revenue generated by InfraREIT. The default revenue input number comes from 2016 income statement of InfraREIT. 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 HIFR stock valuation model: a) initial revenue growth rate of 17.6% 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 8.9%, whose default value for HIFR is calculated based on our internal credit rating of InfraREIT, 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 InfraREIT.
    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 HIFR stock the variable cost ratio is equal to 69.8%.

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 HIFR 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 4.4% for InfraREIT.

Corporate tax rate of 27% is the nominal tax rate for InfraREIT. 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 HIFR 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 HIFR are equal to 0%.

Life of production assets of 2.9 years is the average useful life of capital assets used in InfraREIT 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 HIFR is equal to -8.1%. 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 - $688 million for InfraREIT - 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 60.306 million for InfraREIT 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 InfraREIT at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ InfraREIT Announces Quarterly Dividend   [Aug-31-17 07:00PM  PR Newswire]
▶ Is InfraREIT a Great Stock for Value Investors?   [Aug-08-17 09:30AM  Zacks]
▶ InfraREIT posts 2Q profit   [Aug-02-17 09:40PM  Associated Press]
▶ InfraREIT Announces Quarterly Dividend   [Jun-02-17 04:07PM  PR Newswire]
▶ Is InfraREIT a Great Stock for Value Investors?   [May-15-17 09:50AM  Zacks]
▶ InfraREIT posts 1Q profit   [May-04-17 08:39AM  Associated Press]
▶ InfraREIT posts 4Q profit   [09:24AM  Associated Press]
▶ InfraREIT Announces Quarterly Dividend   [Feb-27-17 04:30PM  PR Newswire]
▶ Is InfraREIT Inc (HIFR) Worthy of Your Portfolio?   [Dec-12-16 10:42AM  at Insider Monkey]
▶ InfraREIT Announces Quarterly Dividend   [Dec-02-16 04:30PM  PR Newswire]
Financial statements of HIFR
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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