Intrinsic value of Natural Gas Services Group - NGS

Previous Close

$25.10

  Intrinsic Value

$4.31

stock screener

  Rating & Target

str. sell

-83%

Previous close

$25.10

 
Intrinsic value

$4.31

 
Up/down potential

-83%

 
Rating

str. sell

We calculate the intrinsic value of NGS 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 0.3

 

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, %
  -25.00
  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
  72
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  187
  196
  205
  215
  225
  236
Variable operating expenses, $m
 
  55
  56
  58
  59
  61
  63
  65
  67
  70
  73
  74
  77
  81
  84
  88
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
Fixed operating expenses, $m
 
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  18
  18
  18
  19
Total operating expenses, $m
  63
  64
  65
  68
  69
  71
  73
  76
  78
  81
  85
  86
  89
  93
  97
  101
  104
  110
  114
  118
  124
  129
  135
  141
  147
  154
  161
  169
  176
  184
  193
Operating income, $m
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  15
  16
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  31
  33
  34
  37
  39
  41
  43
EBITDA, $m
  30
  31
  32
  33
  34
  35
  36
  37
  39
  41
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  71
  74
  78
  82
  86
  91
  96
  101
  106
  112
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
Earnings before tax, $m
  8
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  37
  39
Tax expense, $m
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
Net income, $m
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  64
  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
  294
  235
  240
  246
  253
  261
  269
  278
  288
  299
  310
  323
  336
  350
  365
  380
  397
  415
  433
  453
  474
  496
  519
  543
  569
  596
  625
  655
  686
  720
  755
Adjusted assets (=assets-cash), $m
  230
  235
  240
  246
  253
  261
  269
  278
  288
  299
  310
  323
  336
  350
  365
  380
  397
  415
  433
  453
  474
  496
  519
  543
  569
  596
  625
  655
  686
  720
  755
Revenue / Adjusted assets
  0.313
  0.311
  0.313
  0.313
  0.312
  0.314
  0.312
  0.313
  0.313
  0.314
  0.313
  0.313
  0.313
  0.311
  0.312
  0.313
  0.312
  0.313
  0.314
  0.313
  0.312
  0.313
  0.312
  0.313
  0.313
  0.314
  0.314
  0.313
  0.313
  0.313
  0.313
Average production assets, $m
  194
  197
  202
  207
  213
  219
  227
  234
  243
  252
  261
  272
  283
  294
  307
  320
  334
  349
  365
  381
  399
  417
  437
  457
  479
  502
  526
  551
  577
  605
  635
Working capital, $m
  93
  30
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  65
  69
  72
  75
  79
  83
  87
  91
  95
Total debt, $m
  0
  1
  3
  4
  6
  8
  10
  13
  15
  18
  21
  25
  28
  32
  36
  40
  44
  49
  54
  59
  65
  70
  77
  83
  90
  97
  105
  113
  121
  130
  139
Total liabilities, $m
  61
  62
  64
  65
  67
  69
  71
  74
  76
  79
  82
  86
  89
  93
  97
  101
  105
  110
  115
  120
  126
  131
  138
  144
  151
  158
  166
  174
  182
  191
  200
Total equity, $m
  233
  172
  176
  181
  186
  192
  198
  205
  212
  220
  228
  237
  247
  257
  268
  280
  292
  305
  318
  333
  348
  364
  381
  399
  418
  438
  459
  481
  504
  529
  555
Total liabilities and equity, $m
  294
  234
  240
  246
  253
  261
  269
  279
  288
  299
  310
  323
  336
  350
  365
  381
  397
  415
  433
  453
  474
  495
  519
  543
  569
  596
  625
  655
  686
  720
  755
Debt-to-equity ratio
  0.000
  0.010
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.180
  0.190
  0.190
  0.200
  0.210
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.250
Adjusted equity ratio
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
Depreciation, amort., depletion, $m
  22
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  29
  30
  32
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
  62
  65
  68
Funds from operations, $m
  37
  29
  30
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
  92
  97
Change in working capital, $m
  4
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Cash from operations, $m
  33
  28
  29
  29
  30
  31
  32
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  54
  57
  59
  62
  65
  69
  72
  76
  79
  84
  88
  92
Maintenance CAPEX, $m
  0
  -21
  -21
  -22
  -22
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -57
  -59
  -62
  -65
New CAPEX, $m
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
Cash from investing activities, $m
  -4
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -61
  -64
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
Free cash flow, $m
  29
  4
  3
  3
  2
  2
  1
  1
  1
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Issuance/(repayment) of debt, $m
  0
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  0
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
Total cash flow (excl. dividends), $m
  29
  5
  5
  4
  4
  4
  4
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
Retained Cash Flow (-), $m
  -9
  -3
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
Prev. year cash balance distribution, $m
 
  64
  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
 
  65
  1
  0
  -1
  -2
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
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
 
  63
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  -1
  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
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Natural Gas Services Group, Inc. is a provider of small to medium horsepower compression equipment to the natural gas industry. The Company focuses primarily on the non-conventional natural gas and oil production business in the United States, such as coal bed methane, gas shale, tight gas and oil shales. The Company manufactures, fabricates and rents natural gases compressors that enhance the production of natural gas wells and provides maintenance services for its natural gas compressors. In addition, it sells custom fabricated natural gas compressors to meet customer specifications dictated by well pressures, production characteristics and particular applications. It also manufactures and sells flare systems for oil and gas plant and production facilities. The Company's operating units include Gas Compressor Rental, Engineered Equipment Sales, Service and Maintenance, and Corporate.

FINANCIAL RATIOS  of  Natural Gas Services Group (NGS)

Valuation Ratios
P/E Ratio 53.4
Price to Sales 4.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 9.7
Price to Free Cash Flow 11
Growth Rates
Sales Growth Rate -25%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -69.2%
Cap. Spend. - 3 Yr. Gr. Rate -37.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.1%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital 2.6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.7%
Return On Equity 2.6%
Return On Equity - 3 Yr. Avg. 4.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 55.6%
Gross Margin - 3 Yr. Avg. 55.5%
EBITDA Margin 41.7%
EBITDA Margin - 3 Yr. Avg. 42.2%
Operating Margin 12.5%
Oper. Margin - 3 Yr. Avg. 16.9%
Pre-Tax Margin 11.1%
Pre-Tax Margin - 3 Yr. Avg. 16.5%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. 11.1%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 31.6%
Payout Ratio 0%

NGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NGS stock intrinsic value calculation we used $72 million for the last fiscal year's total revenue generated by Natural Gas Services Group. The default revenue input number comes from 2016 income statement of Natural Gas Services Group. 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 NGS 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 NGS is calculated based on our internal credit rating of Natural Gas Services Group, 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 Natural Gas Services Group.
    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 NGS stock the variable cost ratio is equal to 75%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9 million in the base year in the intrinsic value calculation for NGS 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 Natural Gas Services Group.

Corporate tax rate of 27% is the nominal tax rate for Natural Gas Services Group. 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 NGS 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 NGS are equal to 268.8%.

Life of production assets of 9.3 years is the average useful life of capital assets used in Natural Gas Services Group 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 NGS is equal to 40.3%. 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 - $233 million for Natural Gas Services Group - 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 12.937 million for Natural Gas Services Group 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 Natural Gas Services Group at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Natural Gas Services Group, Inc. to Host Earnings Call   [Nov-02-17 09:10AM  ACCESSWIRE]
▶ Natural Gas Services misses Street 3Q forecasts   [08:58AM  Associated Press]
▶ Natural Gas Services posts 2Q profit   [03:50PM  Associated Press]
▶ Natural Gas Services posts 2Q profit   [10:34AM  Associated Press]
▶ Natural Gas Services misses 1Q profit forecasts   [May-04-17 09:49AM  Associated Press]
▶ Natural Gas Services meets 4Q profit forecasts   [08:58AM  Associated Press]
▶ Is Natural Gas Services Group, Inc. (NGS) A Good Stock To Buy?   [Dec-14-16 08:02PM  at Insider Monkey]
Financial statements of NGS
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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