Intrinsic value of Contango Oil&Gas - MCF

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$7.29

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$7.29

 
Intrinsic value

$2.32

 
Up/down potential

-68%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of MCF 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 0.2

 

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, %
  -33.33
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
  4.99
  4.99
  4.99
  4.99
Revenue, $m
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  125
  132
  138
  145
  152
  160
  168
  176
  185
  194
  204
  214
  224
  235
  247
  260
  272
  286
  300
  315
  331
Variable operating expenses, $m
 
  346
  363
  380
  399
  418
  438
  460
  482
  506
  531
  557
  585
  614
  644
  676
  709
  744
  781
  820
  861
  904
  949
  996
  1,046
  1,098
  1,153
  1,210
  1,271
  1,334
  1,401
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
  132
  346
  363
  380
  399
  418
  438
  460
  482
  506
  531
  557
  585
  614
  644
  676
  709
  744
  781
  820
  861
  904
  949
  996
  1,046
  1,098
  1,153
  1,210
  1,271
  1,334
  1,401
Operating income, $m
  -53
  -264
  -277
  -290
  -304
  -319
  -335
  -351
  -368
  -386
  -405
  -425
  -446
  -469
  -492
  -516
  -542
  -569
  -597
  -626
  -658
  -690
  -725
  -761
  -799
  -838
  -880
  -924
  -970
  -1,019
  -1,070
EBITDA, $m
  10
  -198
  -207
  -218
  -228
  -239
  -251
  -263
  -276
  -290
  -304
  -319
  -335
  -351
  -368
  -387
  -406
  -426
  -447
  -469
  -493
  -517
  -543
  -570
  -599
  -628
  -660
  -693
  -727
  -763
  -802
Interest expense (income), $m
  4
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
Earnings before tax, $m
  -58
  -267
  -280
  -293
  -308
  -323
  -339
  -356
  -373
  -392
  -412
  -432
  -454
  -476
  -500
  -525
  -551
  -579
  -608
  -638
  -670
  -703
  -739
  -776
  -815
  -855
  -898
  -943
  -990
  -1,040
  -1,092
Tax expense, $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
Net income, $m
  -58
  -267
  -280
  -293
  -308
  -323
  -339
  -356
  -373
  -392
  -412
  -432
  -454
  -476
  -500
  -525
  -551
  -579
  -608
  -638
  -670
  -703
  -739
  -776
  -815
  -855
  -898
  -943
  -990
  -1,040
  -1,092

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  377
  395
  414
  434
  455
  477
  500
  525
  551
  578
  606
  636
  668
  701
  735
  772
  810
  850
  892
  937
  983
  1,032
  1,083
  1,137
  1,194
  1,254
  1,316
  1,382
  1,451
  1,523
  1,599
Adjusted assets (=assets-cash), $m
  377
  395
  414
  434
  455
  477
  500
  525
  551
  578
  606
  636
  668
  701
  735
  772
  810
  850
  892
  937
  983
  1,032
  1,083
  1,137
  1,194
  1,254
  1,316
  1,382
  1,451
  1,523
  1,599
Revenue / Adjusted assets
  0.207
  0.208
  0.208
  0.207
  0.207
  0.208
  0.208
  0.208
  0.207
  0.208
  0.206
  0.208
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.208
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
  0.207
Average production assets, $m
  360
  377
  395
  415
  435
  456
  478
  502
  526
  552
  579
  608
  638
  669
  702
  737
  774
  812
  852
  895
  939
  986
  1,035
  1,087
  1,141
  1,198
  1,257
  1,320
  1,386
  1,455
  1,528
Working capital, $m
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -109
  -115
  -120
  -126
  -133
  -139
  -146
  -154
  -161
  -169
  -178
  -187
Total debt, $m
  54
  61
  68
  75
  83
  91
  100
  109
  119
  129
  140
  151
  163
  175
  188
  202
  216
  231
  247
  263
  281
  299
  318
  338
  360
  382
  405
  430
  456
  483
  511
Total liabilities, $m
  140
  148
  155
  162
  170
  178
  187
  196
  206
  216
  227
  238
  250
  262
  275
  289
  303
  318
  334
  350
  368
  386
  405
  425
  447
  469
  492
  517
  543
  570
  598
Total equity, $m
  236
  247
  259
  272
  285
  299
  313
  329
  345
  362
  379
  398
  418
  439
  460
  483
  507
  532
  559
  586
  615
  646
  678
  712
  748
  785
  824
  865
  908
  953
  1,001
Total liabilities and equity, $m
  376
  395
  414
  434
  455
  477
  500
  525
  551
  578
  606
  636
  668
  701
  735
  772
  810
  850
  893
  936
  983
  1,032
  1,083
  1,137
  1,195
  1,254
  1,316
  1,382
  1,451
  1,523
  1,599
Debt-to-equity ratio
  0.229
  0.250
  0.260
  0.280
  0.290
  0.310
  0.320
  0.330
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.430
  0.440
  0.450
  0.460
  0.460
  0.470
  0.480
  0.480
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
Adjusted equity ratio
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626
  0.626

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -58
  -267
  -280
  -293
  -308
  -323
  -339
  -356
  -373
  -392
  -412
  -432
  -454
  -476
  -500
  -525
  -551
  -579
  -608
  -638
  -670
  -703
  -739
  -776
  -815
  -855
  -898
  -943
  -990
  -1,040
  -1,092
Depreciation, amort., depletion, $m
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
  102
  107
  112
  117
  123
  129
  136
  142
  150
  157
  165
  173
  182
  191
  200
  210
  221
  232
  243
  255
  268
Funds from operations, $m
  40
  -200
  -210
  -221
  -232
  -243
  -255
  -268
  -281
  -295
  -310
  -325
  -342
  -359
  -377
  -396
  -415
  -436
  -458
  -481
  -505
  -531
  -557
  -585
  -614
  -645
  -678
  -712
  -747
  -785
  -824
Change in working capital, $m
  8
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Cash from operations, $m
  32
  -217
  -208
  -218
  -229
  -240
  -252
  -265
  -278
  -292
  -307
  -322
  -338
  -355
  -373
  -391
  -411
  -432
  -453
  -476
  -500
  -525
  -551
  -579
  -608
  -638
  -670
  -704
  -739
  -776
  -815
Maintenance CAPEX, $m
  0
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
  -112
  -117
  -123
  -129
  -136
  -142
  -150
  -157
  -165
  -173
  -182
  -191
  -200
  -210
  -221
  -232
  -243
  -255
New CAPEX, $m
  -25
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
Cash from investing activities, $m
  -20
  -80
  -84
  -88
  -93
  -97
  -102
  -107
  -113
  -118
  -124
  -131
  -137
  -144
  -150
  -158
  -166
  -174
  -182
  -192
  -201
  -212
  -222
  -234
  -245
  -257
  -270
  -284
  -298
  -312
  -328
Free cash flow, $m
  12
  -298
  -292
  -307
  -322
  -338
  -355
  -372
  -391
  -410
  -431
  -452
  -475
  -498
  -523
  -549
  -577
  -606
  -636
  -668
  -701
  -736
  -773
  -812
  -853
  -895
  -940
  -987
  -1,037
  -1,089
  -1,143
Issuance/(repayment) of debt, $m
  -61
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
Issuance/(repurchase) of shares, $m
  50
  302
  297
  312
  327
  344
  361
  378
  397
  417
  438
  460
  483
  507
  532
  559
  586
  616
  647
  679
  713
  749
  786
  826
  867
  910
  956
  1,004
  1,054
  1,107
  1,162
Cash from financing (excl. dividends), $m  
  -12
  309
  304
  319
  335
  352
  370
  387
  407
  427
  449
  471
  495
  519
  545
  573
  600
  631
  663
  696
  730
  767
  805
  846
  888
  932
  979
  1,029
  1,080
  1,134
  1,190
Total cash flow (excl. dividends), $m
  0
  -291
  -285
  -299
  -314
  -330
  -346
  -363
  -381
  -400
  -420
  -441
  -463
  -486
  -510
  -536
  -562
  -591
  -620
  -651
  -684
  -718
  -754
  -792
  -831
  -873
  -917
  -963
  -1,011
  -1,062
  -1,115
Retained Cash Flow (-), $m
  2
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
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
 
  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
Discount rate, %
 
  4.70
  4.94
  5.18
  5.44
  5.71
  6.00
  6.30
  6.61
  6.94
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.77
  11.31
  11.88
  12.47
  13.09
  13.75
  14.44
  15.16
  15.92
  16.71
  17.55
  18.42
  19.35
PV of cash for 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
Current shareholders' claim on cash, %
  100
  38.1
  15.1
  6.0
  2.4
  0.9
  0.4
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Contango Oil & Gas Company, an independent oil and natural gas company, acquires, explores, develops, exploits, and produces crude oil and natural gas properties in the offshore shallow waters of the Gulf of Mexico, and in the onshore Texas Gulf Coast and Rocky Mountain regions in the United States. As of December 31, 2015, it had proved reserves of approximately 187.2 billion cubic feet equivalent, including 126.1 billion cubic feet of natural gas, 4.8 million barrels of crude oil and condensate, and 5.4 million barrels of natural gas liquids. The company was founded in 1986 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Contango Oil&Gas (MCF)

Valuation Ratios
P/E Ratio -3.2
Price to Sales 2.4
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 5.7
Price to Free Cash Flow 26.3
Growth Rates
Sales Growth Rate -33.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -67.9%
Cap. Spend. - 3 Yr. Gr. Rate -14%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 22.9%
Total Debt to Equity 22.9%
Interest Coverage -14
Management Effectiveness
Return On Assets -13.6%
Ret/ On Assets - 3 Yr. Avg. -22.9%
Return On Total Capital -18%
Ret/ On T. Cap. - 3 Yr. Avg. -29.9%
Return On Equity -24.5%
Return On Equity - 3 Yr. Avg. -37.2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 62.8%
Gross Margin - 3 Yr. Avg. 71.1%
EBITDA Margin 11.5%
EBITDA Margin - 3 Yr. Avg. -59.6%
Operating Margin -69.2%
Oper. Margin - 3 Yr. Avg. -135.8%
Pre-Tax Margin -74.4%
Pre-Tax Margin - 3 Yr. Avg. -146.2%
Net Profit Margin -74.4%
Net Profit Margin - 3 Yr. Avg. -122.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 20.1%
Payout Ratio 0%

MCF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MCF stock intrinsic value calculation we used $78 million for the last fiscal year's total revenue generated by Contango Oil&Gas. The default revenue input number comes from 2016 income statement of Contango Oil&Gas. 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 MCF stock valuation model: a) initial revenue growth rate of 4.8% 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 4.7%, whose default value for MCF is calculated based on our internal credit rating of Contango Oil&Gas, 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 Contango Oil&Gas.
    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 MCF stock the variable cost ratio is equal to 423.1%.

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 MCF 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 4.7% for Contango Oil&Gas.

Corporate tax rate of 27% is the nominal tax rate for Contango Oil&Gas. 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 MCF 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 MCF are equal to 461.5%.

Life of production assets of 5.7 years is the average useful life of capital assets used in Contango Oil&Gas 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 MCF is equal to -56.4%. 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 - $236 million for Contango Oil&Gas - 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 25.489 million for Contango Oil&Gas 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 Contango Oil&Gas at the current share price and the inputted number of shares is $0.2 billion.


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COMPANY NEWS

▶ Will Russias Oil Production Fall in the Coming Months?   [Apr-18-17 07:39AM  Market Realist]
▶ Contango to Present at Upcoming Conference   [Mar-27-17 10:17AM  GlobeNewswire]
▶ Contango reports 4Q loss   [Mar-15-17 05:36PM  Associated Press]
▶ Webcast-OGIS New York for Contango Oil & Gas Co.   [Mar-08-17 05:56PM  at Company Spotlight]
▶ Contango Announces Initial Southern Delaware Basin Success   [Mar-07-17 12:42PM  GlobeNewswire]
▶ IIROC Trading Halt - MCF   [Feb-14-17 01:54PM  PR Newswire]
▶ Contango Completes Colorado Property Sale   [Dec-22-16 12:24PM  Business Wire]
▶ Contango Announces Pricing of Common Stock Offering   [Jul-22-16 08:49AM  Business Wire]
Stock chart of MCF Financial statements of MCF
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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