Intrinsic value of Layne Christensen - LAYN

Previous Close

$13.02

  Intrinsic Value

$0.87

stock screener

  Rating & Target

str. sell

-93%

  Value-price divergence*

-82%

Previous close

$13.02

 
Intrinsic value

$0.87

 
Up/down potential

-93%

 
Rating

str. sell

 
Value-price divergence*

-82%

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

We calculate the intrinsic value of LAYN 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 2017), $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 0.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -11.86
  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
  602
  614
  628
  644
  662
  683
  705
  729
  755
  782
  813
  845
  879
  915
  954
  995
  1,039
  1,085
  1,134
  1,186
  1,240
  1,298
  1,358
  1,422
  1,489
  1,560
  1,635
  1,714
  1,796
  1,883
  1,975
Variable operating expenses, $m
 
  583
  597
  612
  629
  648
  669
  692
  717
  743
  772
  801
  834
  868
  905
  944
  986
  1,029
  1,076
  1,125
  1,176
  1,231
  1,288
  1,349
  1,413
  1,480
  1,551
  1,625
  1,704
  1,786
  1,873
Fixed operating expenses, $m
 
  76
  78
  80
  82
  84
  86
  88
  90
  92
  95
  97
  100
  102
  105
  107
  110
  113
  115
  118
  121
  124
  127
  131
  134
  137
  141
  144
  148
  151
  155
Total operating expenses, $m
  644
  659
  675
  692
  711
  732
  755
  780
  807
  835
  867
  898
  934
  970
  1,010
  1,051
  1,096
  1,142
  1,191
  1,243
  1,297
  1,355
  1,415
  1,480
  1,547
  1,617
  1,692
  1,769
  1,852
  1,937
  2,028
Operating income, $m
  -42
  -45
  -46
  -47
  -48
  -49
  -50
  -51
  -52
  -53
  -54
  -54
  -54
  -55
  -55
  -56
  -56
  -57
  -57
  -57
  -57
  -57
  -57
  -57
  -57
  -57
  -56
  -56
  -55
  -54
  -54
EBITDA, $m
  -15
  -23
  -23
  -24
  -24
  -25
  -25
  -25
  -25
  -25
  -24
  -24
  -23
  -23
  -22
  -21
  -20
  -19
  -17
  -16
  -14
  -12
  -10
  -7
  -5
  -2
  1
  4
  8
  12
  16
Interest expense (income), $m
  12
  12
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  60
  63
Earnings before tax, $m
  -51
  -57
  -57
  -59
  -61
  -62
  -64
  -66
  -68
  -70
  -72
  -73
  -75
  -77
  -79
  -81
  -83
  -85
  -87
  -90
  -92
  -94
  -96
  -99
  -101
  -104
  -106
  -109
  -111
  -114
  -117
Tax expense, $m
  1
  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
Net income, $m
  -52
  -57
  -57
  -59
  -61
  -62
  -64
  -66
  -68
  -70
  -72
  -73
  -75
  -77
  -79
  -81
  -83
  -85
  -87
  -90
  -92
  -94
  -96
  -99
  -101
  -104
  -106
  -109
  -111
  -114
  -117

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  69
  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
  436
  374
  383
  393
  404
  416
  430
  444
  460
  477
  495
  515
  536
  558
  582
  607
  634
  662
  691
  723
  756
  791
  828
  867
  908
  951
  997
  1,045
  1,095
  1,148
  1,204
Adjusted assets (=assets-cash), $m
  367
  374
  383
  393
  404
  416
  430
  444
  460
  477
  495
  515
  536
  558
  582
  607
  634
  662
  691
  723
  756
  791
  828
  867
  908
  951
  997
  1,045
  1,095
  1,148
  1,204
Revenue / Adjusted assets
  1.640
  1.642
  1.640
  1.639
  1.639
  1.642
  1.640
  1.642
  1.641
  1.639
  1.642
  1.641
  1.640
  1.640
  1.639
  1.639
  1.639
  1.639
  1.641
  1.640
  1.640
  1.641
  1.640
  1.640
  1.640
  1.640
  1.640
  1.640
  1.640
  1.640
  1.640
Average production assets, $m
  106
  108
  111
  113
  117
  120
  124
  128
  133
  138
  143
  149
  155
  161
  168
  175
  183
  191
  200
  209
  218
  228
  239
  250
  262
  275
  288
  302
  316
  331
  348
Working capital, $m
  105
  37
  38
  39
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  81
  85
  89
  94
  98
  103
  108
  113
  118
Total debt, $m
  162
  145
  153
  162
  172
  183
  195
  208
  222
  237
  254
  272
  290
  310
  332
  354
  378
  404
  430
  459
  489
  520
  553
  588
  625
  664
  705
  748
  794
  841
  892
Total liabilities, $m
  354
  337
  345
  354
  364
  375
  387
  400
  414
  429
  446
  464
  482
  502
  524
  546
  570
  596
  622
  651
  681
  712
  745
  780
  817
  856
  897
  940
  986
  1,033
  1,084
Total equity, $m
  82
  37
  38
  39
  40
  42
  43
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  104
  110
  115
  120
Total liabilities and equity, $m
  436
  374
  383
  393
  404
  417
  430
  444
  460
  477
  496
  516
  536
  558
  582
  607
  633
  662
  691
  723
  757
  791
  828
  867
  908
  951
  997
  1,044
  1,096
  1,148
  1,204
Debt-to-equity ratio
  1.976
  3.870
  3.990
  4.110
  4.250
  4.390
  4.530
  4.680
  4.830
  4.980
  5.120
  5.270
  5.420
  5.560
  5.700
  5.840
  5.970
  6.100
  6.220
  6.340
  6.460
  6.570
  6.680
  6.790
  6.890
  6.980
  7.070
  7.160
  7.250
  7.330
  7.410
Adjusted equity ratio
  0.035
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -52
  -57
  -57
  -59
  -61
  -62
  -64
  -66
  -68
  -70
  -72
  -73
  -75
  -77
  -79
  -81
  -83
  -85
  -87
  -90
  -92
  -94
  -96
  -99
  -101
  -104
  -106
  -109
  -111
  -114
  -117
Depreciation, amort., depletion, $m
  27
  23
  23
  24
  24
  25
  26
  27
  27
  28
  30
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  58
  60
  63
  66
  70
Funds from operations, $m
  36
  -35
  -34
  -35
  -36
  -37
  -38
  -39
  -40
  -41
  -42
  -43
  -44
  -44
  -45
  -46
  -46
  -47
  -47
  -48
  -48
  -48
  -49
  -49
  -49
  -49
  -49
  -48
  -48
  -48
  -47
Change in working capital, $m
  23
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
Cash from operations, $m
  13
  -35
  -35
  -36
  -37
  -39
  -40
  -41
  -42
  -43
  -44
  -45
  -46
  -47
  -47
  -48
  -49
  -50
  -50
  -51
  -51
  -52
  -52
  -53
  -53
  -53
  -53
  -53
  -53
  -53
  -53
Maintenance CAPEX, $m
  0
  -21
  -22
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -66
New CAPEX, $m
  -22
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
Cash from investing activities, $m
  -8
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -64
  -68
  -72
  -75
  -78
  -82
Free cash flow, $m
  5
  -59
  -59
  -61
  -63
  -65
  -68
  -70
  -72
  -74
  -77
  -79
  -82
  -84
  -86
  -89
  -92
  -94
  -97
  -100
  -103
  -106
  -109
  -112
  -115
  -118
  -121
  -125
  -128
  -131
  -135
Issuance/(repayment) of debt, $m
  0
  -17
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
  48
  50
Issuance/(repurchase) of shares, $m
  0
  82
  58
  60
  62
  64
  65
  67
  69
  71
  73
  75
  77
  79
  81
  83
  86
  88
  90
  93
  95
  98
  100
  103
  105
  108
  111
  114
  116
  119
  122
Cash from financing (excl. dividends), $m  
  0
  65
  66
  69
  72
  75
  77
  80
  83
  86
  89
  93
  96
  99
  102
  106
  110
  113
  117
  121
  125
  130
  133
  138
  142
  147
  152
  157
  161
  167
  172
Total cash flow (excl. dividends), $m
  3
  6
  7
  8
  8
  9
  10
  11
  12
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
Retained Cash Flow (-), $m
  47
  -82
  -58
  -60
  -62
  -64
  -65
  -67
  -69
  -71
  -73
  -75
  -77
  -79
  -81
  -83
  -86
  -88
  -90
  -93
  -95
  -98
  -100
  -103
  -105
  -108
  -111
  -114
  -116
  -119
  -122
Prev. year cash balance distribution, $m
 
  69
  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
 
  -7
  -51
  -52
  -53
  -54
  -56
  -57
  -58
  -59
  -60
  -61
  -63
  -64
  -65
  -66
  -68
  -69
  -70
  -72
  -73
  -74
  -75
  -77
  -78
  -79
  -80
  -81
  -83
  -84
  -85
Discount rate, %
 
  8.70
  9.14
  9.59
  10.07
  10.57
  11.10
  11.66
  12.24
  12.85
  13.50
  14.17
  14.88
  15.62
  16.41
  17.23
  18.09
  18.99
  19.94
  20.94
  21.98
  23.08
  24.24
  25.45
  26.72
  28.06
  29.46
  30.93
  32.48
  34.11
  35.81
PV of cash for distribution, $m
 
  -6
  -43
  -40
  -36
  -33
  -30
  -26
  -23
  -20
  -17
  -14
  -12
  -10
  -8
  -6
  -5
  -4
  -3
  -2
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  34.5
  23.5
  16.0
  10.9
  7.4
  5.0
  3.4
  2.3
  1.6
  1.1
  0.7
  0.5
  0.4
  0.2
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Layne Christensen Company (Layne) is a water management, construction and drilling company. The Company provides drilling solutions for water management, mineral services and specialty drilling needs. The Company operates through three segments: Water Resources, Inliner and Mineral Services. Its Water Resources segment provides its customers with solutions for various aspects of water supply system development and technology throughout the United States. Its Inliner segment is a service rehabilitation company offering a range of solutions for wastewater, storm water and process sewer pipeline networks. Its Mineral Services conducts ground drilling activities, including core drilling, reverse circulation, dual tube, hammer and rotary air-blast methods.

FINANCIAL RATIOS  of  Layne Christensen (LAYN)

Valuation Ratios
P/E Ratio -5
Price to Sales 0.4
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 19.8
Price to Free Cash Flow -28.6
Growth Rates
Sales Growth Rate -11.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -15.4%
Cap. Spend. - 3 Yr. Gr. Rate -8.3%
Financial Strength
Quick Ratio NaN
Current Ratio 0.7
LT Debt to Equity 197.6%
Total Debt to Equity 197.6%
Interest Coverage -3
Management Effectiveness
Return On Assets -8.6%
Ret/ On Assets - 3 Yr. Avg. -10.9%
Return On Total Capital -19.5%
Ret/ On T. Cap. - 3 Yr. Avg. -21.9%
Return On Equity -49.3%
Return On Equity - 3 Yr. Avg. -41.7%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 16.6%
Gross Margin - 3 Yr. Avg. 16.1%
EBITDA Margin -2%
EBITDA Margin - 3 Yr. Avg. -1.4%
Operating Margin -7%
Oper. Margin - 3 Yr. Avg. -6.6%
Pre-Tax Margin -8.5%
Pre-Tax Margin - 3 Yr. Avg. -8.6%
Net Profit Margin -8.6%
Net Profit Margin - 3 Yr. Avg. -10.2%
Effective Tax Rate -2%
Eff/ Tax Rate - 3 Yr. Avg. 2.6%
Payout Ratio 0%

LAYN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LAYN stock intrinsic value calculation we used $602 million for the last fiscal year's total revenue generated by Layne Christensen. The default revenue input number comes from 2017 income statement of Layne Christensen. 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 LAYN 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 8.7%, whose default value for LAYN is calculated based on our internal credit rating of Layne Christensen, 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 Layne Christensen.
    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 LAYN stock the variable cost ratio is equal to 95%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $74 million in the base year in the intrinsic value calculation for LAYN 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 7.5% for Layne Christensen.

Corporate tax rate of 27% is the nominal tax rate for Layne Christensen. 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 LAYN 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 LAYN are equal to 17.6%.

Life of production assets of 4.3 years is the average useful life of capital assets used in Layne Christensen 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 LAYN is equal to 6%. 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 - $82 million for Layne Christensen - 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 20.887 million for Layne Christensen 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 Layne Christensen at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Why Layne Christensen Company (LAYN) Could Be A Buy   [Oct-12-17 09:55AM  Simply Wall St.]
▶ Layne Christensen reports 2Q loss   [Sep-11-17 07:54PM  Associated Press]
▶ 5 Breakout Stocks Offering Phenomenal Returns   [Jul-07-17 08:41AM  Zacks]
▶ Layne Christensen reports 1Q loss   [Jun-08-17 04:40PM  Associated Press]
▶ ETFs with exposure to Layne Christensen Co. : May 2, 2017   [May-02-17 04:16PM  Capital Cube]
▶ New Strong Sell Stocks for April 18th   [Apr-18-17 10:30AM  Zacks]
▶ Layne Christensen reports 4Q loss   [Apr-10-17 04:54PM  Associated Press]
▶ [$$] Making the Long-Term Bet on Water   [Sep-03-16 12:01AM  at Barrons.com]
▶ Layne Christensen Joins Russell Indexes   [07:00AM  PR Newswire]
Financial statements of LAYN
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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