Intrinsic value of Ingevity - NGVT

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$58.15

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$58.15

 
Intrinsic value

$6.06

 
Up/down potential

-90%

 
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 NGVT 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 2.5

 

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, %
  -6.20
  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
  908
  926
  947
  972
  999
  1,029
  1,063
  1,099
  1,138
  1,180
  1,226
  1,274
  1,326
  1,381
  1,439
  1,501
  1,567
  1,637
  1,710
  1,788
  1,870
  1,957
  2,049
  2,145
  2,246
  2,353
  2,466
  2,585
  2,709
  2,840
  2,978
Variable operating expenses, $m
 
  169
  173
  178
  183
  188
  194
  201
  208
  216
  224
  233
  243
  253
  263
  275
  287
  300
  313
  327
  342
  358
  375
  393
  411
  431
  451
  473
  496
  520
  545
Fixed operating expenses, $m
 
  688
  705
  723
  741
  759
  778
  798
  818
  838
  859
  880
  902
  925
  948
  972
  996
  1,021
  1,047
  1,073
  1,100
  1,127
  1,155
  1,184
  1,214
  1,244
  1,275
  1,307
  1,340
  1,373
  1,407
Total operating expenses, $m
  815
  857
  878
  901
  924
  947
  972
  999
  1,026
  1,054
  1,083
  1,113
  1,145
  1,178
  1,211
  1,247
  1,283
  1,321
  1,360
  1,400
  1,442
  1,485
  1,530
  1,577
  1,625
  1,675
  1,726
  1,780
  1,836
  1,893
  1,952
Operating income, $m
  93
  69
  69
  71
  76
  82
  90
  100
  112
  126
  142
  160
  181
  203
  228
  255
  284
  316
  351
  388
  429
  472
  519
  568
  622
  679
  740
  805
  874
  948
  1,026
EBITDA, $m
  132
  92
  93
  96
  101
  108
  117
  128
  141
  156
  173
  193
  214
  238
  264
  293
  324
  358
  394
  434
  476
  521
  570
  623
  679
  738
  802
  870
  942
  1,019
  1,101
Interest expense (income), $m
  15
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
Earnings before tax, $m
  87
  52
  52
  53
  57
  63
  70
  79
  90
  103
  118
  135
  154
  175
  198
  224
  251
  282
  314
  350
  388
  429
  473
  521
  572
  626
  684
  746
  812
  882
  957
Tax expense, $m
  43
  14
  14
  14
  15
  17
  19
  21
  24
  28
  32
  36
  42
  47
  54
  60
  68
  76
  85
  94
  105
  116
  128
  141
  154
  169
  185
  201
  219
  238
  258
Net income, $m
  35
  38
  38
  39
  42
  46
  51
  58
  66
  75
  86
  99
  112
  128
  145
  163
  184
  206
  230
  255
  283
  313
  346
  380
  417
  457
  499
  544
  593
  644
  699

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  31
  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
  833
  818
  837
  858
  883
  909
  939
  971
  1,005
  1,043
  1,083
  1,125
  1,171
  1,220
  1,271
  1,326
  1,384
  1,446
  1,511
  1,580
  1,652
  1,729
  1,810
  1,895
  1,985
  2,079
  2,178
  2,283
  2,393
  2,509
  2,631
Adjusted assets (=assets-cash), $m
  802
  818
  837
  858
  883
  909
  939
  971
  1,005
  1,043
  1,083
  1,125
  1,171
  1,220
  1,271
  1,326
  1,384
  1,446
  1,511
  1,580
  1,652
  1,729
  1,810
  1,895
  1,985
  2,079
  2,178
  2,283
  2,393
  2,509
  2,631
Revenue / Adjusted assets
  1.132
  1.132
  1.131
  1.133
  1.131
  1.132
  1.132
  1.132
  1.132
  1.131
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
  1.131
  1.132
  1.132
  1.132
  1.132
  1.132
  1.132
Average production assets, $m
  450
  234
  240
  246
  253
  260
  269
  278
  288
  299
  310
  322
  335
  349
  364
  380
  396
  414
  433
  452
  473
  495
  518
  543
  568
  595
  624
  654
  685
  719
  754
Working capital, $m
  158
  130
  133
  136
  140
  144
  149
  154
  159
  165
  172
  178
  186
  193
  201
  210
  219
  229
  239
  250
  262
  274
  287
  300
  315
  329
  345
  362
  379
  398
  417
Total debt, $m
  489
  495
  511
  530
  551
  574
  600
  628
  658
  690
  725
  762
  802
  844
  889
  937
  987
  1,041
  1,098
  1,157
  1,221
  1,287
  1,357
  1,431
  1,510
  1,592
  1,678
  1,769
  1,865
  1,966
  2,072
Total liabilities, $m
  706
  712
  728
  747
  768
  791
  817
  845
  875
  907
  942
  979
  1,019
  1,061
  1,106
  1,154
  1,204
  1,258
  1,315
  1,374
  1,438
  1,504
  1,574
  1,648
  1,727
  1,809
  1,895
  1,986
  2,082
  2,183
  2,289
Total equity, $m
  127
  106
  109
  112
  115
  118
  122
  126
  131
  136
  141
  146
  152
  159
  165
  172
  180
  188
  196
  205
  215
  225
  235
  246
  258
  270
  283
  297
  311
  326
  342
Total liabilities and equity, $m
  833
  818
  837
  859
  883
  909
  939
  971
  1,006
  1,043
  1,083
  1,125
  1,171
  1,220
  1,271
  1,326
  1,384
  1,446
  1,511
  1,579
  1,653
  1,729
  1,809
  1,894
  1,985
  2,079
  2,178
  2,283
  2,393
  2,509
  2,631
Debt-to-equity ratio
  3.850
  4.650
  4.700
  4.750
  4.800
  4.860
  4.910
  4.970
  5.030
  5.090
  5.150
  5.210
  5.270
  5.320
  5.380
  5.430
  5.490
  5.540
  5.590
  5.640
  5.680
  5.730
  5.770
  5.810
  5.850
  5.890
  5.930
  5.960
  5.990
  6.030
  6.060
Adjusted equity ratio
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130
  0.130

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  38
  38
  39
  42
  46
  51
  58
  66
  75
  86
  99
  112
  128
  145
  163
  184
  206
  230
  255
  283
  313
  346
  380
  417
  457
  499
  544
  593
  644
  699
Depreciation, amort., depletion, $m
  39
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  62
  65
  69
  72
  75
Funds from operations, $m
  133
  61
  62
  64
  67
  72
  78
  86
  95
  105
  117
  131
  146
  163
  181
  201
  223
  247
  273
  301
  331
  363
  397
  434
  474
  516
  562
  610
  661
  716
  774
Change in working capital, $m
  5
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
Cash from operations, $m
  128
  -171
  59
  60
  63
  67
  73
  81
  89
  99
  111
  124
  139
  155
  173
  193
  214
  237
  263
  290
  319
  351
  385
  421
  460
  501
  546
  593
  644
  698
  755
Maintenance CAPEX, $m
  0
  -23
  -23
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -60
  -62
  -65
  -69
  -72
New CAPEX, $m
  -57
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -32
  -33
  -35
Cash from investing activities, $m
  -126
  -28
  -28
  -30
  -32
  -33
  -34
  -36
  -38
  -40
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
Free cash flow, $m
  2
  -198
  30
  30
  32
  35
  39
  44
  51
  60
  70
  81
  93
  108
  123
  140
  159
  180
  202
  227
  253
  281
  312
  345
  380
  418
  458
  501
  547
  596
  648
Issuance/(repayment) of debt, $m
  403
  14
  16
  19
  21
  23
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
Issuance/(repurchase) of shares, $m
  0
  156
  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  
  -3
  170
  16
  19
  21
  23
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
Total cash flow (excl. dividends), $m
  -2
  -185
  46
  49
  53
  58
  64
  72
  82
  92
  104
  118
  133
  150
  168
  188
  210
  234
  259
  287
  316
  348
  382
  419
  458
  500
  544
  592
  643
  697
  754
Retained Cash Flow (-), $m
  387
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
Prev. year cash balance distribution, $m
 
  31
  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
  44
  46
  50
  54
  61
  68
  77
  87
  99
  112
  127
  144
  161
  181
  202
  226
  251
  278
  307
  338
  372
  408
  446
  488
  531
  578
  628
  682
  738
Discount rate, %
 
  12.40
  13.02
  13.67
  14.35
  15.07
  15.83
  16.62
  17.45
  18.32
  19.24
  20.20
  21.21
  22.27
  23.38
  24.55
  25.78
  27.07
  28.42
  29.84
  31.33
  32.90
  34.55
  36.27
  38.09
  39.99
  41.99
  44.09
  46.29
  48.61
  51.04
PV of cash for distribution, $m
 
  0
  34
  31
  29
  27
  25
  23
  21
  19
  17
  15
  13
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0
  87.0

Ingevity Corporation manufactures and sells specialty chemicals and carbon materials in the United States and internationally. It operates through two segments, Performance Chemicals and Performance Materials. The Performance Chemicals segment develops, manufactures, and sells a range of specialty chemicals derived from co-products of the kraft pulping process. This segmentÂ’s products are used in various applications, including asphalt paving, adhesives, agrochemical dispersants, printing inks, lubricants, petroleum, and other diverse industries. The Performance Materials segment engineers, manufactures, and sells wood-based chemically activated carbon products used in gasoline vapor emission control systems. This segment also produces other activated carbon products for the food, water, beverage, and chemical purification industries. The company was incorporated in 2015 and is based in North Charleston, South Carolina. Ingevity Corporation (NYSE:NGVT) operates independently of WestRock Company as of May 16, 2016.

FINANCIAL RATIOS  of  Ingevity (NGVT)

Valuation Ratios
P/E Ratio 70
Price to Sales 2.7
Price to Book 19.3
Price to Tangible Book
Price to Cash Flow 19.1
Price to Free Cash Flow 34.5
Growth Rates
Sales Growth Rate -6.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -44.1%
Cap. Spend. - 3 Yr. Gr. Rate -2%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 378.7%
Total Debt to Equity 385%
Interest Coverage 7
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 12.3%
Return On Total Capital 5.7%
Ret/ On T. Cap. - 3 Yr. Avg. 16.1%
Return On Equity 10.9%
Return On Equity - 3 Yr. Avg. 20.9%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 30.2%
Gross Margin - 3 Yr. Avg. 30.1%
EBITDA Margin 15.5%
EBITDA Margin - 3 Yr. Avg. 19.2%
Operating Margin 10.2%
Oper. Margin - 3 Yr. Avg. 14.5%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 14.4%
Net Profit Margin 3.9%
Net Profit Margin - 3 Yr. Avg. 8.2%
Effective Tax Rate 49.4%
Eff/ Tax Rate - 3 Yr. Avg. 40.8%
Payout Ratio 0%

NGVT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NGVT stock intrinsic value calculation we used $908 million for the last fiscal year's total revenue generated by Ingevity. The default revenue input number comes from 2016 income statement of Ingevity. 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 NGVT 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 12.4%, whose default value for NGVT is calculated based on our internal credit rating of Ingevity, 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 Ingevity.
    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 NGVT stock the variable cost ratio is equal to 18.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $671 million in the base year in the intrinsic value calculation for NGVT 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 Ingevity.

Corporate tax rate of 27% is the nominal tax rate for Ingevity. 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 NGVT 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 NGVT are equal to 25.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Ingevity 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 NGVT is equal to 14%. 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 - $135 million for Ingevity - 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 42.792 million for Ingevity 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 Ingevity at the current share price and the inputted number of shares is $2.5 billion.


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COMPANY NEWS

▶ Ingevity Corp. Value Analysis (NYSE:NGVT) : May 8, 2017   [May-08-17 06:03PM  Capital Cube]
▶ Ingevity reports first quarter 2017 financial results   [May-03-17 04:15PM  Business Wire]
▶ ETFs with exposure to Ingevity Corp. : April 5, 2017   [Apr-05-17 05:10PM  Capital Cube]
▶ The Top 15 Spin-Offs Of 2016   [03:48PM  at Forbes]
▶ Ingevity Reports Third Quarter 2016 Financial Results   [Nov-02-16 06:22PM  Business Wire]
▶ Hedge Funds Are Betting Big on These Q2 IPOs   [Aug-24-16 09:15AM  at Insider Monkey]
▶ Ingevity Reports Second Quarter 2016 Financial Results   [Aug-03-16 04:15PM  Business Wire]
Stock chart of NGVT Financial statements of NGVT Annual reports of NGVT
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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