Intrinsic value of Innospec - IOSP

Previous Close

$62.00

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$62.00

 
Intrinsic value

$57.85

 
Up/down potential

-7%

 
Rating

hold

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

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

We calculate the intrinsic value of IOSP 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 1.5

 

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, %
  -12.75
  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
  883
  901
  921
  945
  972
  1,001
  1,033
  1,069
  1,107
  1,148
  1,192
  1,239
  1,289
  1,343
  1,400
  1,460
  1,524
  1,592
  1,663
  1,739
  1,819
  1,903
  1,992
  2,086
  2,185
  2,289
  2,398
  2,513
  2,635
  2,762
  2,896
Variable operating expenses, $m
 
  544
  556
  569
  584
  601
  619
  639
  660
  683
  708
  697
  725
  755
  787
  821
  857
  895
  936
  978
  1,023
  1,071
  1,121
  1,173
  1,229
  1,287
  1,349
  1,414
  1,482
  1,554
  1,629
Fixed operating expenses, $m
 
  256
  263
  269
  276
  283
  290
  297
  305
  312
  320
  328
  336
  345
  353
  362
  371
  380
  390
  400
  410
  420
  430
  441
  452
  463
  475
  487
  499
  512
  524
Total operating expenses, $m
  778
  800
  819
  838
  860
  884
  909
  936
  965
  995
  1,028
  1,025
  1,061
  1,100
  1,140
  1,183
  1,228
  1,275
  1,326
  1,378
  1,433
  1,491
  1,551
  1,614
  1,681
  1,750
  1,824
  1,901
  1,981
  2,066
  2,153
Operating income, $m
  105
  100
  103
  107
  112
  118
  125
  133
  142
  152
  164
  214
  228
  243
  259
  277
  296
  316
  338
  361
  386
  413
  441
  471
  504
  538
  574
  613
  653
  697
  743
EBITDA, $m
  143
  156
  159
  163
  168
  175
  183
  192
  202
  213
  225
  239
  253
  269
  287
  306
  326
  348
  371
  396
  422
  451
  481
  513
  547
  583
  622
  663
  706
  752
  800
Interest expense (income), $m
  3
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
Earnings before tax, $m
  103
  91
  93
  97
  101
  107
  113
  121
  129
  139
  149
  199
  211
  225
  241
  257
  275
  294
  314
  336
  359
  384
  411
  440
  470
  502
  536
  573
  611
  652
  695
Tax expense, $m
  22
  25
  25
  26
  27
  29
  31
  33
  35
  37
  40
  54
  57
  61
  65
  69
  74
  79
  85
  91
  97
  104
  111
  119
  127
  136
  145
  155
  165
  176
  188
Net income, $m
  81
  67
  68
  71
  74
  78
  83
  88
  94
  101
  109
  145
  154
  165
  176
  188
  201
  214
  229
  245
  262
  281
  300
  321
  343
  366
  391
  418
  446
  476
  508

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  102
  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
  1,181
  1,101
  1,126
  1,155
  1,188
  1,224
  1,263
  1,306
  1,353
  1,403
  1,457
  1,515
  1,576
  1,641
  1,711
  1,785
  1,863
  1,946
  2,033
  2,126
  2,224
  2,327
  2,435
  2,550
  2,671
  2,798
  2,932
  3,073
  3,221
  3,377
  3,541
Adjusted assets (=assets-cash), $m
  1,079
  1,101
  1,126
  1,155
  1,188
  1,224
  1,263
  1,306
  1,353
  1,403
  1,457
  1,515
  1,576
  1,641
  1,711
  1,785
  1,863
  1,946
  2,033
  2,126
  2,224
  2,327
  2,435
  2,550
  2,671
  2,798
  2,932
  3,073
  3,221
  3,377
  3,541
Revenue / Adjusted assets
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.819
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
  0.818
Average production assets, $m
  274
  279
  286
  293
  301
  310
  320
  331
  343
  356
  369
  384
  400
  416
  434
  453
  472
  493
  516
  539
  564
  590
  618
  647
  677
  709
  743
  779
  817
  856
  898
Working capital, $m
  258
  171
  175
  180
  185
  190
  196
  203
  210
  218
  226
  235
  245
  255
  266
  277
  290
  302
  316
  330
  346
  362
  379
  396
  415
  435
  456
  478
  501
  525
  550
Total debt, $m
  273
  271
  283
  297
  313
  330
  349
  369
  391
  415
  441
  468
  498
  529
  562
  597
  635
  674
  716
  760
  807
  856
  908
  962
  1,020
  1,081
  1,144
  1,212
  1,282
  1,357
  1,435
Total liabilities, $m
  528
  525
  537
  551
  567
  584
  603
  623
  645
  669
  695
  722
  752
  783
  816
  851
  889
  928
  970
  1,014
  1,061
  1,110
  1,162
  1,216
  1,274
  1,335
  1,398
  1,466
  1,536
  1,611
  1,689
Total equity, $m
  654
  576
  589
  604
  621
  640
  661
  683
  708
  734
  762
  792
  824
  859
  895
  933
  974
  1,018
  1,063
  1,112
  1,163
  1,217
  1,274
  1,334
  1,397
  1,463
  1,533
  1,607
  1,685
  1,766
  1,852
Total liabilities and equity, $m
  1,182
  1,101
  1,126
  1,155
  1,188
  1,224
  1,264
  1,306
  1,353
  1,403
  1,457
  1,514
  1,576
  1,642
  1,711
  1,784
  1,863
  1,946
  2,033
  2,126
  2,224
  2,327
  2,436
  2,550
  2,671
  2,798
  2,931
  3,073
  3,221
  3,377
  3,541
Debt-to-equity ratio
  0.417
  0.470
  0.480
  0.490
  0.500
  0.520
  0.530
  0.540
  0.550
  0.570
  0.580
  0.590
  0.600
  0.620
  0.630
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.750
  0.760
  0.770
  0.770
Adjusted equity ratio
  0.512
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523
  0.523

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  81
  67
  68
  71
  74
  78
  83
  88
  94
  101
  109
  145
  154
  165
  176
  188
  201
  214
  229
  245
  262
  281
  300
  321
  343
  366
  391
  418
  446
  476
  508
Depreciation, amort., depletion, $m
  38
  55
  56
  56
  57
  57
  58
  59
  59
  60
  61
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
  43
  45
  48
  50
  52
  55
  58
Funds from operations, $m
  93
  122
  124
  127
  131
  135
  141
  147
  154
  162
  170
  170
  180
  191
  203
  217
  231
  246
  262
  280
  299
  318
  340
  362
  386
  412
  439
  468
  498
  531
  565
Change in working capital, $m
  -12
  3
  4
  4
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
Cash from operations, $m
  105
  147
  120
  122
  126
  130
  134
  140
  147
  154
  162
  161
  170
  181
  193
  205
  219
  233
  249
  265
  283
  302
  323
  345
  368
  392
  418
  446
  475
  507
  540
Maintenance CAPEX, $m
  0
  -18
  -18
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -48
  -50
  -52
  -55
New CAPEX, $m
  -17
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
Cash from investing activities, $m
  -209
  -24
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -60
  -62
  -66
  -69
  -72
  -75
  -79
  -84
  -88
  -92
  -97
Free cash flow, $m
  -104
  124
  96
  97
  99
  101
  105
  109
  113
  119
  125
  122
  130
  139
  148
  159
  170
  182
  195
  209
  224
  240
  257
  276
  296
  317
  339
  363
  388
  415
  443
Issuance/(repayment) of debt, $m
  137
  10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  74
  78
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  87
  10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  74
  78
Total cash flow (excl. dividends), $m
  -19
  134
  108
  111
  114
  118
  123
  129
  136
  143
  151
  150
  159
  170
  181
  194
  207
  221
  237
  253
  271
  289
  309
  331
  353
  377
  403
  430
  459
  489
  521
Retained Cash Flow (-), $m
  -49
  -12
  -13
  -15
  -17
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
Prev. year cash balance distribution, $m
 
  90
  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
 
  212
  95
  95
  97
  100
  103
  107
  111
  117
  123
  120
  127
  136
  145
  155
  166
  178
  191
  205
  220
  235
  252
  271
  290
  311
  333
  356
  381
  407
  436
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  203
  87
  83
  80
  77
  75
  72
  70
  67
  64
  57
  54
  52
  49
  46
  42
  39
  35
  32
  28
  24
  21
  18
  15
  12
  10
  8
  6
  4
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Innospec Inc. develops, manufactures, blends, markets, and supplies fuel additives, oilfield chemicals, personal care products, and other specialty chemicals to oil and gas exploration and production, oil refinery, fuel users, personal care formulation, home care, agrochemical and mining formulation, and other chemical and industrial companies worldwide. It operates through four segments: Fuel Specialties, Performance Chemicals, Oilfield Services, and Octane Additives. The Fuel Specialties segment offers a range of specialty chemical products used as additives in various fuels. This segmentÂ’s products are used in the operation of automotive, marine, and aviation engines; power station generators; and heating oil. The Performance Chemicals segment provides technology-based solutions for its customersÂ’ processes or products focused in the personal care, home care, agrochemical, and mining markets. The Oilfield Services segment develops and markets products to prevent loss of mud in drilling operations; chemical solutions for fracturing and stimulation operations; and products for oil and gas production, which enable flow assurance and asset integrity. The Octane Additives segment produces and sells tetra ethyl lead (TEL) for use in automotive gasoline. This segment is also involved in an environmental remediation business that manages the cleanup of redundant TEL plants. The company was formerly known as Octel Corp. and changed its name to Innospec Inc. in January 2006. Innospec Inc. was founded in 1938 and is headquartered in Englewood, Colorado.

FINANCIAL RATIOS  of  Innospec (IOSP)

Valuation Ratios
P/E Ratio 18.4
Price to Sales 1.7
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 14.2
Price to Free Cash Flow 17
Growth Rates
Sales Growth Rate -12.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -34.6%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 39.9%
Total Debt to Equity 41.7%
Interest Coverage 35
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 13.6%
Return On Equity 12.9%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 37.6%
Gross Margin - 3 Yr. Avg. 34.4%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 16.6%
Operating Margin 11.9%
Oper. Margin - 3 Yr. Avg. 13%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 12.7%
Net Profit Margin 9.2%
Net Profit Margin - 3 Yr. Avg. 9.9%
Effective Tax Rate 21.4%
Eff/ Tax Rate - 3 Yr. Avg. 22.2%
Payout Ratio 19.8%

IOSP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IOSP stock intrinsic value calculation we used $883 million for the last fiscal year's total revenue generated by Innospec. The default revenue input number comes from 2016 income statement of Innospec. 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 IOSP 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 4.3%, whose default value for IOSP is calculated based on our internal credit rating of Innospec, 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 Innospec.
    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 IOSP stock the variable cost ratio is equal to 60.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $250 million in the base year in the intrinsic value calculation for IOSP 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 3.5% for Innospec.

Corporate tax rate of 27% is the nominal tax rate for Innospec. 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 IOSP 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 IOSP are equal to 31%.

Life of production assets of 15.6 years is the average useful life of capital assets used in Innospec 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 IOSP is equal to 19%. 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 - $654 million for Innospec - 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 24.865 million for Innospec 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 Innospec at the current share price and the inputted number of shares is $1.5 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
NEU NewMarket 455.90 334.89  sell
GRA W.R. Grace 69.02 24.71  str.sell
CHMT Chemtura Corp. 33.50 22.98  sell
ACET Aceto 15.27 19.59  buy

COMPANY NEWS

▶ ETFs with exposure to Innospec, Inc. : April 7, 2017   [Apr-07-17 04:54PM  Capital Cube]
▶ Innospec posts 4Q profit   [Feb-14-17 05:29PM  Associated Press]
▶ Innospec Inc. (IOSP): Hedge Funds Remain Overweight   [Dec-02-16 12:43PM  at Insider Monkey]
▶ Innospec Reports Third Quarter 2016 Financial Results   [Nov-02-16 04:45PM  GlobeNewswire]
▶ Innospec Publishes 2015 Sustainability Report   [Oct-21-16 04:37AM  GlobeNewswire]
▶ *** DATA NOT AVAILABLE ***   [Sep-01-16 02:03PM  at noodls]
Stock chart of IOSP Financial statements of IOSP
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.