Intrinsic value of Knot Offshore Partners - KNOP

Previous Close

$22.50

  Intrinsic Value

$3.42

stock screener

  Rating & Target

str. sell

-85%

  Value-price divergence*

-27%

Previous close

$22.50

 
Intrinsic value

$3.42

 
Up/down potential

-85%

 
Rating

str. sell

 
Value-price divergence*

-27%

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

We calculate the intrinsic value of KNOP 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 0.9

 

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, %
  12.26
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
  5.11
  5.10
Revenue, $m
  174
  186
  199
  213
  226
  241
  256
  272
  288
  305
  323
  341
  360
  381
  402
  424
  447
  471
  496
  522
  550
  579
  609
  641
  674
  709
  745
  783
  824
  866
  910
Variable operating expenses, $m
 
  49
  53
  56
  60
  64
  68
  72
  76
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  153
  161
  169
  178
  187
  197
  207
  217
  229
  240
Fixed operating expenses, $m
 
  48
  49
  51
  52
  53
  55
  56
  57
  59
  60
  62
  63
  65
  66
  68
  70
  72
  73
  75
  77
  79
  81
  83
  85
  87
  89
  92
  94
  96
  99
Total operating expenses, $m
  92
  97
  102
  107
  112
  117
  123
  128
  133
  139
  145
  152
  158
  165
  172
  180
  188
  196
  204
  213
  222
  232
  242
  252
  263
  274
  286
  299
  311
  325
  339
Operating income, $m
  82
  89
  97
  106
  115
  124
  134
  144
  155
  166
  177
  189
  202
  215
  229
  244
  259
  275
  292
  309
  328
  347
  367
  389
  411
  434
  459
  485
  512
  541
  571
EBITDA, $m
  138
  149
  161
  174
  188
  202
  216
  231
  247
  264
  281
  299
  318
  338
  358
  380
  402
  426
  451
  477
  504
  533
  563
  595
  628
  662
  699
  737
  777
  819
  864
Interest expense (income), $m
  0
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
  99
  105
  110
  116
  122
  128
Earnings before tax, $m
  61
  64
  70
  77
  84
  91
  99
  107
  115
  124
  133
  142
  152
  163
  173
  185
  197
  209
  223
  236
  251
  266
  282
  299
  317
  335
  355
  375
  397
  419
  443
Tax expense, $m
  0
  17
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  81
  85
  90
  96
  101
  107
  113
  120
Net income, $m
  61
  47
  51
  56
  61
  67
  72
  78
  84
  90
  97
  104
  111
  119
  127
  135
  144
  153
  162
  173
  183
  194
  206
  218
  231
  245
  259
  274
  290
  306
  323

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  28
  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
  1,292
  1,350
  1,443
  1,540
  1,641
  1,745
  1,854
  1,968
  2,086
  2,209
  2,337
  2,471
  2,611
  2,757
  2,910
  3,069
  3,236
  3,411
  3,593
  3,784
  3,984
  4,193
  4,413
  4,642
  4,883
  5,135
  5,400
  5,677
  5,968
  6,273
  6,593
Adjusted assets (=assets-cash), $m
  1,264
  1,350
  1,443
  1,540
  1,641
  1,745
  1,854
  1,968
  2,086
  2,209
  2,337
  2,471
  2,611
  2,757
  2,910
  3,069
  3,236
  3,411
  3,593
  3,784
  3,984
  4,193
  4,413
  4,642
  4,883
  5,135
  5,400
  5,677
  5,968
  6,273
  6,593
Revenue / Adjusted assets
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
  0.138
Average production assets, $m
  1,225
  1,312
  1,402
  1,496
  1,594
  1,696
  1,801
  1,912
  2,026
  2,146
  2,271
  2,401
  2,537
  2,679
  2,827
  2,982
  3,144
  3,313
  3,491
  3,676
  3,870
  4,074
  4,287
  4,510
  4,744
  4,989
  5,246
  5,516
  5,798
  6,094
  6,405
Working capital, $m
  -47
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
Total debt, $m
  742
  765
  819
  876
  935
  997
  1,060
  1,127
  1,196
  1,269
  1,344
  1,423
  1,505
  1,591
  1,680
  1,774
  1,872
  1,974
  2,081
  2,193
  2,311
  2,433
  2,562
  2,697
  2,838
  2,986
  3,142
  3,305
  3,475
  3,654
  3,842
Total liabilities, $m
  771
  793
  847
  904
  963
  1,025
  1,088
  1,155
  1,224
  1,297
  1,372
  1,451
  1,533
  1,619
  1,708
  1,802
  1,900
  2,002
  2,109
  2,221
  2,339
  2,461
  2,590
  2,725
  2,866
  3,014
  3,170
  3,333
  3,503
  3,682
  3,870
Total equity, $m
  522
  558
  596
  636
  678
  721
  766
  813
  861
  912
  965
  1,021
  1,078
  1,139
  1,202
  1,268
  1,337
  1,409
  1,484
  1,563
  1,645
  1,732
  1,822
  1,917
  2,017
  2,121
  2,230
  2,345
  2,465
  2,591
  2,723
Total liabilities and equity, $m
  1,293
  1,351
  1,443
  1,540
  1,641
  1,746
  1,854
  1,968
  2,085
  2,209
  2,337
  2,472
  2,611
  2,758
  2,910
  3,070
  3,237
  3,411
  3,593
  3,784
  3,984
  4,193
  4,412
  4,642
  4,883
  5,135
  5,400
  5,678
  5,968
  6,273
  6,593
Debt-to-equity ratio
  1.421
  1.370
  1.370
  1.380
  1.380
  1.380
  1.380
  1.390
  1.390
  1.390
  1.390
  1.390
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
  1.410
Adjusted equity ratio
  0.391
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413
  0.413

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  61
  47
  51
  56
  61
  67
  72
  78
  84
  90
  97
  104
  111
  119
  127
  135
  144
  153
  162
  173
  183
  194
  206
  218
  231
  245
  259
  274
  290
  306
  323
Depreciation, amort., depletion, $m
  56
  60
  64
  68
  73
  77
  82
  87
  93
  98
  104
  110
  116
  122
  129
  136
  144
  151
  159
  168
  177
  186
  196
  206
  217
  228
  240
  252
  265
  278
  292
Funds from operations, $m
  106
  107
  115
  125
  134
  144
  154
  165
  177
  188
  201
  214
  227
  241
  256
  271
  287
  304
  322
  340
  360
  380
  402
  424
  448
  472
  498
  526
  554
  584
  616
Change in working capital, $m
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
Cash from operations, $m
  108
  108
  117
  126
  135
  145
  156
  167
  178
  190
  202
  215
  229
  243
  258
  273
  289
  306
  324
  343
  362
  383
  404
  427
  451
  476
  502
  529
  558
  588
  620
Maintenance CAPEX, $m
  0
  -56
  -60
  -64
  -68
  -73
  -77
  -82
  -87
  -93
  -98
  -104
  -110
  -116
  -122
  -129
  -136
  -144
  -151
  -159
  -168
  -177
  -186
  -196
  -206
  -217
  -228
  -240
  -252
  -265
  -278
New CAPEX, $m
  -1
  -87
  -90
  -94
  -98
  -102
  -106
  -110
  -115
  -120
  -125
  -130
  -136
  -142
  -148
  -155
  -162
  -169
  -177
  -186
  -194
  -203
  -213
  -223
  -234
  -245
  -257
  -269
  -283
  -296
  -311
Cash from investing activities, $m
  -14
  -143
  -150
  -158
  -166
  -175
  -183
  -192
  -202
  -213
  -223
  -234
  -246
  -258
  -270
  -284
  -298
  -313
  -328
  -345
  -362
  -380
  -399
  -419
  -440
  -462
  -485
  -509
  -535
  -561
  -589
Free cash flow, $m
  94
  -35
  -34
  -32
  -31
  -29
  -27
  -26
  -24
  -22
  -20
  -19
  -17
  -15
  -13
  -11
  -9
  -7
  -4
  -2
  0
  3
  5
  8
  11
  14
  17
  20
  24
  27
  31
Issuance/(repayment) of debt, $m
  -30
  51
  55
  57
  59
  61
  64
  67
  69
  72
  75
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  141
  148
  155
  163
  171
  179
  188
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -30
  51
  55
  57
  59
  61
  64
  67
  69
  72
  75
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  141
  148
  155
  163
  171
  179
  188
Total cash flow (excl. dividends), $m
  64
  16
  21
  25
  28
  32
  37
  41
  45
  50
  55
  60
  65
  71
  77
  83
  89
  96
  103
  110
  118
  126
  134
  143
  152
  162
  172
  183
  194
  206
  219
Retained Cash Flow (-), $m
  -1
  -36
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
  -86
  -91
  -95
  -99
  -104
  -109
  -115
  -120
  -126
  -132
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
 
  -20
  -17
  -15
  -13
  -11
  -8
  -6
  -3
  -1
  2
  5
  8
  11
  14
  17
  20
  24
  27
  31
  35
  39
  44
  48
  53
  58
  63
  68
  74
  80
  87
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  -18
  -15
  -12
  -9
  -6
  -4
  -3
  -1
  0
  1
  1
  1
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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

KNOT Offshore Partners LP owns and operates shuttle tankers under long-term charters in the North Sea and Brazil. The company provides crude oil loading, transportation, and storage services under time charters and bareboat charters. As of March 18, 2016, it had a fleet of 10 shuttle tankers. KNOT Offshore Partners GP LLC serves as the general partner of the company. The company was founded in 2013 and is headquartered in Aberdeen, the United Kingdom. KNOT Offshore Partners LP is a subsidiary of Knutsen NYK Offshore Tankers AS.

FINANCIAL RATIOS  of  Knot Offshore Partners (KNOP)

Valuation Ratios
P/E Ratio 10
Price to Sales 3.5
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 5.7
Price to Free Cash Flow 5.7
Growth Rates
Sales Growth Rate 12.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 130.8%
Total Debt to Equity 142.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 3.8%
Return On Total Capital 5%
Ret/ On T. Cap. - 3 Yr. Avg. 3.9%
Return On Equity 11.7%
Return On Equity - 3 Yr. Avg. 9.3%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 82.2%
Gross Margin - 3 Yr. Avg. 81%
EBITDA Margin 67.2%
EBITDA Margin - 3 Yr. Avg. 59.5%
Operating Margin 47.1%
Oper. Margin - 3 Yr. Avg. 45.1%
Pre-Tax Margin 35.1%
Pre-Tax Margin - 3 Yr. Avg. 28.3%
Net Profit Margin 35.1%
Net Profit Margin - 3 Yr. Avg. 28.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 98.4%

KNOP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KNOP stock intrinsic value calculation we used $174 million for the last fiscal year's total revenue generated by Knot Offshore Partners. The default revenue input number comes from 2016 income statement of Knot Offshore Partners. 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 KNOP stock valuation model: a) initial revenue growth rate of 7.1% 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 9%, whose default value for KNOP is calculated based on our internal credit rating of Knot Offshore Partners, 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 Knot Offshore Partners.
    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 KNOP stock the variable cost ratio is equal to 26.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $47 million in the base year in the intrinsic value calculation for KNOP 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 Knot Offshore Partners.

Corporate tax rate of 27% is the nominal tax rate for Knot Offshore Partners. 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 KNOP 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 KNOP are equal to 704%.

Life of production assets of 21.9 years is the average useful life of capital assets used in Knot Offshore Partners 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 KNOP is equal to -9.2%. 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 - $522 million for Knot Offshore Partners - 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 38.214 million for Knot Offshore Partners 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 Knot Offshore Partners at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Knot Offshore posts 2Q profit   [Aug-09-17 09:17PM  Associated Press]
▶ KNOT Offshore Partners LP Announces 2017 Annual Meeting   [Jun-28-17 06:00PM  Business Wire]
▶ 3 Top Dividend Stocks in Shipping   [May-18-17 05:15PM  Motley Fool]
▶ Knot Offshore posts 1Q profit   [May-16-17 10:40AM  Associated Press]
Stock chart of KNOP Financial statements of KNOP
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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