Intrinsic value of Ingevity - NGVT

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$62.00

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$62.00

 
Intrinsic value

$9.70

 
Up/down potential

-84%

 
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 2.6

 

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
 
  262
  268
  275
  283
  291
  301
  311
  322
  334
  346
  359
  373
  389
  405
  423
  441
  461
  482
  504
  527
  551
  577
  604
  633
  663
  695
  728
  763
  800
  839
Fixed operating expenses, $m
 
  586
  601
  616
  631
  647
  663
  680
  697
  714
  732
  751
  769
  789
  808
  828
  849
  870
  892
  914
  937
  961
  985
  1,009
  1,035
  1,060
  1,087
  1,114
  1,142
  1,171
  1,200
Total operating expenses, $m
  815
  848
  869
  891
  914
  938
  964
  991
  1,019
  1,048
  1,078
  1,110
  1,142
  1,178
  1,213
  1,251
  1,290
  1,331
  1,374
  1,418
  1,464
  1,512
  1,562
  1,613
  1,668
  1,723
  1,782
  1,842
  1,905
  1,971
  2,039
Operating income, $m
  93
  78
  78
  81
  85
  91
  99
  108
  119
  132
  147
  165
  183
  203
  226
  250
  277
  305
  337
  370
  406
  445
  487
  531
  579
  630
  684
  742
  804
  870
  940
EBITDA, $m
  132
  118
  119
  123
  128
  135
  145
  156
  168
  183
  200
  218
  239
  261
  286
  313
  342
  374
  408
  445
  485
  527
  573
  621
  673
  729
  788
  851
  918
  989
  1,065
Interest expense (income), $m
  15
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  67
  71
  74
  78
  83
  87
  92
  97
  102
Earnings before tax, $m
  87
  53
  53
  54
  58
  62
  69
  77
  87
  98
  111
  127
  143
  162
  182
  204
  228
  254
  282
  313
  346
  382
  420
  461
  505
  552
  602
  655
  712
  773
  837
Tax expense, $m
  43
  14
  14
  15
  16
  17
  19
  21
  23
  26
  30
  34
  39
  44
  49
  55
  62
  69
  76
  85
  93
  103
  113
  124
  136
  149
  162
  177
  192
  209
  226
Net income, $m
  35
  39
  38
  40
  42
  46
  50
  56
  63
  72
  81
  93
  105
  118
  133
  149
  166
  185
  206
  229
  253
  279
  306
  336
  368
  403
  439
  478
  520
  564
  611

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
  458
  469
  481
  495
  510
  526
  544
  563
  584
  607
  631
  656
  683
  712
  743
  776
  810
  847
  885
  926
  969
  1,014
  1,062
  1,112
  1,165
  1,221
  1,279
  1,341
  1,406
  1,474
Working capital, $m
  158
  138
  141
  145
  149
  153
  158
  164
  170
  176
  183
  190
  198
  206
  214
  224
  234
  244
  255
  266
  279
  292
  305
  320
  335
  351
  367
  385
  404
  423
  444
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
  39
  38
  40
  42
  46
  50
  56
  63
  72
  81
  93
  105
  118
  133
  149
  166
  185
  206
  229
  253
  279
  306
  336
  368
  403
  439
  478
  520
  564
  611
Depreciation, amort., depletion, $m
  39
  40
  41
  42
  43
  44
  46
  47
  49
  51
  53
  53
  56
  58
  60
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
Funds from operations, $m
  133
  79
  79
  82
  85
  90
  96
  104
  112
  122
  134
  146
  160
  176
  193
  212
  232
  254
  278
  304
  331
  361
  392
  426
  463
  501
  543
  587
  634
  683
  736
Change in working capital, $m
  5
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
Cash from operations, $m
  128
  66
  76
  78
  81
  85
  91
  98
  106
  116
  127
  139
  153
  168
  184
  202
  222
  244
  267
  292
  319
  348
  379
  412
  448
  485
  526
  569
  615
  664
  716
Maintenance CAPEX, $m
  0
  -38
  -39
  -40
  -41
  -42
  -43
  -45
  -46
  -48
  -50
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -114
  -119
New CAPEX, $m
  -57
  -9
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -34
  -36
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
Cash from investing activities, $m
  -126
  -47
  -50
  -52
  -55
  -57
  -59
  -63
  -65
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -121
  -127
  -134
  -140
  -147
  -155
  -162
  -170
  -179
  -187
Free cash flow, $m
  2
  19
  27
  26
  27
  29
  32
  36
  41
  47
  55
  63
  74
  85
  97
  111
  127
  144
  162
  182
  203
  226
  251
  278
  307
  338
  371
  407
  445
  485
  528
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
  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  
  -3
  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
Total cash flow (excl. dividends), $m
  -2
  33
  43
  45
  48
  52
  57
  63
  71
  80
  90
  101
  113
  127
  142
  159
  177
  197
  218
  241
  266
  293
  322
  352
  385
  420
  458
  498
  541
  586
  634
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
 
  23
  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
 
  54
  41
  42
  45
  48
  53
  59
  67
  75
  85
  95
  107
  121
  136
  152
  170
  189
  210
  233
  257
  283
  311
  341
  374
  408
  445
  484
  526
  571
  618
Discount rate, %
 
  9.60
  10.08
  10.58
  11.11
  11.67
  12.25
  12.86
  13.51
  14.18
  14.89
  15.64
  16.42
  17.24
  18.10
  19.01
  19.96
  20.96
  22.00
  23.10
  24.26
  25.47
  26.75
  28.08
  29.49
  30.96
  32.51
  34.13
  35.84
  37.63
  39.51
PV of cash for distribution, $m
 
  49
  34
  31
  29
  28
  27
  25
  24
  23
  21
  19
  17
  15
  13
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  0
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

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 74.6
Price to Sales 2.9
Price to Book 20.6
Price to Tangible Book
Price to Cash Flow 20.4
Price to Free Cash Flow 36.8
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 9.6%, 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 28.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $572 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 5.2% 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 49.5%.

Life of production assets of 11.8 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 14.9%. 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 - $127 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 41.742 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 $2.6 billion.


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COMPANY NEWS

▶ 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
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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