Intrinsic value of MGP Ingredients - MGPI

Previous Close

$72.96

  Intrinsic Value

$12.65

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  Rating & Target

str. sell

-83%

Previous close

$72.96

 
Intrinsic value

$12.65

 
Up/down potential

-83%

 
Rating

str. sell

We calculate the intrinsic value of MGPI 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 1.2

 

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, %
  -3.05
  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
  318
  324
  332
  340
  350
  361
  372
  385
  399
  413
  429
  446
  464
  484
  504
  526
  549
  573
  599
  626
  655
  685
  717
  751
  787
  824
  864
  905
  949
  995
  1,043
Variable operating expenses, $m
 
  292
  298
  306
  315
  324
  335
  346
  358
  372
  386
  401
  417
  435
  453
  473
  493
  515
  539
  563
  589
  616
  645
  675
  707
  741
  776
  814
  853
  894
  938
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
  276
  292
  298
  306
  315
  324
  335
  346
  358
  372
  386
  401
  417
  435
  453
  473
  493
  515
  539
  563
  589
  616
  645
  675
  707
  741
  776
  814
  853
  894
  938
Operating income, $m
  42
  33
  34
  34
  35
  36
  38
  39
  40
  42
  43
  45
  47
  49
  51
  53
  55
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  100
  105
EBITDA, $m
  53
  44
  45
  46
  48
  49
  51
  52
  54
  56
  58
  61
  63
  66
  68
  71
  75
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
  135
  142
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
Earnings before tax, $m
  45
  32
  32
  33
  34
  35
  36
  37
  39
  40
  41
  43
  45
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  71
  75
  78
  82
  86
  90
  94
  98
Tax expense, $m
  14
  9
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  27
Net income, $m
  31
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
  57
  60
  62
  65
  69
  72

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  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
  225
  227
  233
  239
  245
  253
  261
  270
  279
  290
  301
  313
  326
  339
  353
  369
  385
  402
  420
  439
  459
  481
  503
  527
  552
  578
  606
  635
  665
  698
  732
Adjusted assets (=assets-cash), $m
  223
  227
  233
  239
  245
  253
  261
  270
  279
  290
  301
  313
  326
  339
  353
  369
  385
  402
  420
  439
  459
  481
  503
  527
  552
  578
  606
  635
  665
  698
  732
Revenue / Adjusted assets
  1.426
  1.427
  1.425
  1.423
  1.429
  1.427
  1.425
  1.426
  1.430
  1.424
  1.425
  1.425
  1.423
  1.428
  1.428
  1.425
  1.426
  1.425
  1.426
  1.426
  1.427
  1.424
  1.425
  1.425
  1.426
  1.426
  1.426
  1.425
  1.427
  1.426
  1.425
Average production assets, $m
  89
  90
  92
  95
  97
  100
  103
  107
  111
  115
  119
  124
  129
  134
  140
  146
  153
  159
  167
  174
  182
  191
  199
  209
  219
  229
  240
  252
  264
  277
  290
Working capital, $m
  74
  78
  79
  81
  84
  86
  89
  92
  95
  99
  103
  107
  111
  116
  120
  126
  131
  137
  143
  150
  157
  164
  171
  180
  188
  197
  206
  216
  227
  238
  249
Total debt, $m
  36
  35
  37
  39
  42
  44
  47
  50
  53
  57
  61
  65
  69
  74
  79
  84
  90
  96
  102
  109
  115
  123
  131
  139
  147
  156
  166
  176
  187
  198
  209
Total liabilities, $m
  79
  78
  80
  82
  85
  87
  90
  93
  96
  100
  104
  108
  112
  117
  122
  127
  133
  139
  145
  152
  158
  166
  174
  182
  190
  199
  209
  219
  230
  241
  252
Total equity, $m
  146
  149
  152
  156
  161
  166
  171
  177
  183
  190
  197
  205
  213
  222
  232
  242
  252
  263
  275
  288
  301
  315
  330
  345
  361
  379
  397
  416
  436
  457
  479
Total liabilities and equity, $m
  225
  227
  232
  238
  246
  253
  261
  270
  279
  290
  301
  313
  325
  339
  354
  369
  385
  402
  420
  440
  459
  481
  504
  527
  551
  578
  606
  635
  666
  698
  731
Debt-to-equity ratio
  0.247
  0.240
  0.240
  0.250
  0.260
  0.270
  0.280
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.330
  0.340
  0.350
  0.360
  0.360
  0.370
  0.380
  0.380
  0.390
  0.400
  0.400
  0.410
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
Adjusted equity ratio
  0.646
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655
  0.655

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  31
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
  57
  60
  62
  65
  69
  72
Depreciation, amort., depletion, $m
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
Funds from operations, $m
  -4
  34
  35
  36
  37
  38
  39
  41
  42
  43
  45
  47
  49
  51
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  82
  86
  90
  94
  98
  103
  108
Change in working capital, $m
  -24
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
Cash from operations, $m
  20
  33
  33
  34
  35
  36
  36
  38
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
Maintenance CAPEX, $m
  0
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
New CAPEX, $m
  -18
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
Cash from investing activities, $m
  -18
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -18
  -20
  -21
  -21
  -23
  -24
  -24
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -40
  -42
  -43
  -46
  -48
Free cash flow, $m
  2
  20
  20
  20
  20
  20
  21
  21
  21
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
Issuance/(repayment) of debt, $m
  2
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
Issuance/(repurchase) of shares, $m
  -2
  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  
  1
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
Total cash flow (excl. dividends), $m
  3
  22
  22
  22
  22
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  60
Retained Cash Flow (-), $m
  -30
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
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
 
  19
  18
  18
  18
  18
  18
  18
  19
  19
  19
  19
  20
  20
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
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
 
  18
  17
  16
  15
  14
  13
  12
  12
  11
  10
  9
  8
  8
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  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

MGP Ingredients, Inc. is a producer and supplier of distilled spirits, and specialty wheat protein and starch food ingredients. The Company's distilled spirits include bourbon and rye whiskeys, and grain neutral spirits, including vodka and gin. The Company's segments include distillery products and ingredient solutions. The distillery products segment consists of food grade alcohol and distillery co-products, such as distillers feed and fuel grade alcohol. The ingredient solutions segment consists of specialty starches and proteins, commodity starches and commodity proteins. The distillery products segment also includes warehouse services, including barrel put away, barrel storage, and barrel retrieval services. It is also a producer of industrial alcohol for use in both food and non-food applications. The Company's distillery products are derived from corn and other grains (including rye, barley, wheat, barley malt and milo), and its ingredient products are derived from wheat flour.

FINANCIAL RATIOS  of  MGP Ingredients (MGPI)

Valuation Ratios
P/E Ratio 39.2
Price to Sales 3.8
Price to Book 8.3
Price to Tangible Book
Price to Cash Flow 60.8
Price to Free Cash Flow 607.8
Growth Rates
Sales Growth Rate -3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -41.9%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 21.9%
Total Debt to Equity 24.7%
Interest Coverage 46
Management Effectiveness
Return On Assets 15.1%
Ret/ On Assets - 3 Yr. Avg. 15.4%
Return On Total Capital 18.7%
Ret/ On T. Cap. - 3 Yr. Avg. 20.1%
Return On Equity 23.7%
Return On Equity - 3 Yr. Avg. 24.4%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 20.4%
Gross Margin - 3 Yr. Avg. 15.8%
EBITDA Margin 17.9%
EBITDA Margin - 3 Yr. Avg. 15.3%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 9.5%
Pre-Tax Margin 14.2%
Pre-Tax Margin - 3 Yr. Avg. 11.3%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 8.4%
Effective Tax Rate 31.1%
Eff/ Tax Rate - 3 Yr. Avg. 23.5%
Payout Ratio 6.5%

MGPI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MGPI stock intrinsic value calculation we used $318 million for the last fiscal year's total revenue generated by MGP Ingredients. The default revenue input number comes from 2016 income statement of MGP Ingredients. 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 MGPI 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 MGPI is calculated based on our internal credit rating of MGP Ingredients, 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 MGP Ingredients.
    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 MGPI stock the variable cost ratio is equal to 89.9%.

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 MGPI 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 MGP Ingredients.

Corporate tax rate of 27% is the nominal tax rate for MGP Ingredients. 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 MGPI 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 MGPI are equal to 27.8%.

Life of production assets of 8 years is the average useful life of capital assets used in MGP Ingredients 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 MGPI is equal to 23.9%. 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 - $146 million for MGP Ingredients - 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 16.693 million for MGP Ingredients 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 MGP Ingredients at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

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▶ MGP posts 3Q profit   [Nov-02-17 10:15AM  Associated Press]
▶ 3 Signs You Should Sell This 17-Bagger Stock   [Oct-21-17 09:12AM  Motley Fool]
▶ Should You Sell MGP Ingredients Inc (MGPI) At $60.63?   [Oct-02-17 12:32PM  Simply Wall St.]
▶ 2 Stocks You'll Brag About Owning Someday   [Sep-30-17 03:30PM  Motley Fool]
▶ MGP posts 2Q profit   [03:48PM  Associated Press]
▶ MGP Declares $0.85 Special Dividend   [Aug-02-17 07:30AM  GlobeNewswire]
▶ MGP Ingredients to Webcast Annual Meeting on June 1, 2017   [May-25-17 08:30AM  GlobeNewswire]
▶ MGP posts 1Q profit   [May-04-17 09:28AM  Associated Press]
▶ 2 Alcohol Stocks That Could Drive Stellar Gains   [Apr-08-17 11:13AM  TheStreet.com]
▶ MGP Ingredients to Webcast Analyst Day   [Mar-16-17 01:00PM  GlobeNewswire]
▶ MGP posts 4Q profit   [07:44AM  Associated Press]
▶ MGP Board Chair Adopts 10b5-1 Share Trading Plan   [Dec-21-16 08:00AM  GlobeNewswire]
▶ Should You Buy MGP Ingredients Inc (MGPI)?   [Dec-14-16 05:44AM  at Insider Monkey]
▶ MGP acquires whiskey named after 'King of the Bootleggers'   [Nov-08-16 03:10PM  at bizjournals.com]
▶ MGP Announces Acquisition of George Remus Whiskey Brand   [Nov-07-16 03:07PM  GlobeNewswire]
Financial statements of MGPI
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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