Intrinsic value of Newpark Resources - NR

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$8.05

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$8.05

 
Intrinsic value

$1.40

 
Up/down potential

-83%

 
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 NR 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 0.7

 

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, %
  -30.28
  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
  472
  481
  493
  505
  519
  535
  552
  571
  592
  614
  637
  662
  689
  718
  748
  780
  815
  851
  889
  930
  972
  1,017
  1,065
  1,115
  1,168
  1,223
  1,282
  1,344
  1,408
  1,477
  1,548
Variable operating expenses, $m
 
  552
  564
  579
  595
  613
  633
  654
  677
  702
  729
  756
  787
  820
  854
  891
  930
  971
  1,015
  1,061
  1,110
  1,162
  1,216
  1,273
  1,333
  1,397
  1,464
  1,534
  1,608
  1,686
  1,768
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
  527
  552
  564
  579
  595
  613
  633
  654
  677
  702
  729
  756
  787
  820
  854
  891
  930
  971
  1,015
  1,061
  1,110
  1,162
  1,216
  1,273
  1,333
  1,397
  1,464
  1,534
  1,608
  1,686
  1,768
Operating income, $m
  -56
  -70
  -72
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -92
  -94
  -98
  -102
  -106
  -111
  -115
  -121
  -126
  -132
  -138
  -144
  -151
  -158
  -166
  -173
  -182
  -190
  -200
  -209
  -219
EBITDA, $m
  -18
  -32
  -33
  -33
  -34
  -35
  -37
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
  -89
  -93
  -98
  -102
Interest expense (income), $m
  9
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
Earnings before tax, $m
  -65
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -92
  -96
  -100
  -102
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
  -176
  -185
  -194
  -204
  -214
  -225
  -236
  -248
Tax expense, $m
  -24
  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
  -41
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -92
  -96
  -100
  -102
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
  -176
  -185
  -194
  -204
  -214
  -225
  -236
  -248

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  88
  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
  798
  724
  741
  760
  781
  805
  831
  859
  890
  923
  958
  996
  1,036
  1,079
  1,125
  1,174
  1,225
  1,279
  1,337
  1,398
  1,462
  1,530
  1,601
  1,677
  1,756
  1,840
  1,928
  2,020
  2,118
  2,220
  2,328
Adjusted assets (=assets-cash), $m
  710
  724
  741
  760
  781
  805
  831
  859
  890
  923
  958
  996
  1,036
  1,079
  1,125
  1,174
  1,225
  1,279
  1,337
  1,398
  1,462
  1,530
  1,601
  1,677
  1,756
  1,840
  1,928
  2,020
  2,118
  2,220
  2,328
Revenue / Adjusted assets
  0.665
  0.664
  0.665
  0.664
  0.665
  0.665
  0.664
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.664
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
  0.665
Average production assets, $m
  315
  321
  328
  336
  346
  356
  368
  380
  394
  409
  424
  441
  459
  478
  498
  520
  543
  567
  592
  619
  648
  678
  709
  743
  778
  815
  854
  895
  938
  983
  1,031
Working capital, $m
  283
  241
  246
  253
  260
  268
  276
  286
  296
  307
  319
  331
  345
  359
  374
  390
  407
  425
  445
  465
  486
  509
  532
  557
  584
  612
  641
  672
  704
  738
  774
Total debt, $m
  156
  77
  82
  88
  94
  101
  109
  118
  127
  137
  147
  159
  171
  184
  198
  212
  228
  244
  261
  280
  299
  319
  341
  364
  388
  413
  439
  467
  496
  527
  560
Total liabilities, $m
  298
  218
  223
  229
  235
  242
  250
  259
  268
  278
  288
  300
  312
  325
  339
  353
  369
  385
  402
  421
  440
  460
  482
  505
  529
  554
  580
  608
  637
  668
  701
Total equity, $m
  501
  506
  518
  531
  546
  562
  581
  600
  622
  645
  670
  696
  724
  754
  786
  820
  856
  894
  935
  977
  1,022
  1,069
  1,119
  1,172
  1,227
  1,286
  1,347
  1,412
  1,480
  1,552
  1,627
Total liabilities and equity, $m
  799
  724
  741
  760
  781
  804
  831
  859
  890
  923
  958
  996
  1,036
  1,079
  1,125
  1,173
  1,225
  1,279
  1,337
  1,398
  1,462
  1,529
  1,601
  1,677
  1,756
  1,840
  1,927
  2,020
  2,117
  2,220
  2,328
Debt-to-equity ratio
  0.311
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.200
  0.200
  0.210
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
  0.290
  0.300
  0.300
  0.310
  0.320
  0.320
  0.330
  0.330
  0.340
  0.340
  0.340
Adjusted equity ratio
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699
  0.699

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -41
  -74
  -76
  -78
  -80
  -83
  -86
  -89
  -92
  -96
  -100
  -102
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
  -176
  -185
  -194
  -204
  -214
  -225
  -236
  -248
Depreciation, amort., depletion, $m
  38
  38
  39
  40
  41
  42
  44
  45
  47
  48
  50
  50
  52
  54
  57
  59
  62
  64
  67
  70
  74
  77
  81
  84
  88
  93
  97
  102
  107
  112
  117
Funds from operations, $m
  -1
  -36
  -37
  -38
  -39
  -40
  -42
  -44
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -69
  -72
  -76
  -79
  -83
  -88
  -92
  -97
  -102
  -107
  -112
  -118
  -124
  -131
Change in working capital, $m
  -12
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
Cash from operations, $m
  11
  -45
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -64
  -68
  -71
  -75
  -78
  -82
  -87
  -91
  -96
  -101
  -106
  -111
  -117
  -123
  -130
  -136
  -143
  -151
  -158
  -167
Maintenance CAPEX, $m
  0
  -36
  -36
  -37
  -38
  -39
  -40
  -42
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -64
  -67
  -70
  -74
  -77
  -81
  -84
  -88
  -93
  -97
  -102
  -107
  -112
New CAPEX, $m
  -38
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
Cash from investing activities, $m
  -28
  -42
  -43
  -45
  -47
  -49
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -89
  -94
  -98
  -104
  -109
  -114
  -119
  -125
  -132
  -138
  -145
  -152
  -160
Free cash flow, $m
  -17
  -87
  -86
  -90
  -94
  -98
  -103
  -107
  -112
  -118
  -123
  -129
  -136
  -142
  -149
  -156
  -164
  -172
  -181
  -190
  -200
  -210
  -220
  -231
  -243
  -255
  -268
  -281
  -296
  -310
  -326
Issuance/(repayment) of debt, $m
  5
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  31
  32
Issuance/(repurchase) of shares, $m
  -1
  88
  93
  97
  102
  108
  113
  119
  125
  131
  137
  144
  152
  159
  167
  176
  185
  194
  204
  214
  225
  236
  248
  261
  274
  288
  303
  318
  334
  351
  369
Cash from financing (excl. dividends), $m  
  -1
  92
  98
  103
  108
  115
  121
  128
  134
  141
  148
  155
  164
  172
  181
  191
  200
  210
  221
  232
  244
  256
  270
  284
  298
  313
  329
  346
  363
  382
  401
Total cash flow (excl. dividends), $m
  -19
  -83
  -81
  -84
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -123
  -129
  -135
  -142
  -149
  -156
  -164
  -172
  -180
  -189
  -199
  -208
  -219
  -230
  -241
  -253
  -266
  -280
  -294
Retained Cash Flow (-), $m
  19
  -10
  -12
  -13
  -15
  -17
  -18
  -20
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -53
  -55
  -58
  -62
  -65
  -68
  -72
  -75
Prev. year cash balance distribution, $m
 
  5
  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, %
 
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
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
  88.6
  78.2
  68.8
  60.4
  52.8
  46.1
  40.2
  34.9
  30.3
  26.2
  22.7
  19.6
  16.9
  14.6
  12.5
  10.8
  9.2
  7.9
  6.8
  5.8
  5.0
  4.3
  3.7
  3.1
  2.7
  2.3
  1.9
  1.7
  1.4
  1.2

Newpark Resources, Inc., together with its subsidiaries, provides products and services primarily to the oil and gas exploration and production industry. The company operates through two segments, Fluids Systems and Mats and Integrated Services. The Fluids Systems segment offers drilling fluids products and technical services for technical drilling projects involving complex subsurface conditions, including horizontal, directional, geologically deep, or deep water drilling. This segment also grinds barite and other industrial minerals. The Mats and Integrated Services segment provides composite mat rentals, well site construction, and related site services to oil and gas customers at well, production, transportation, and refinery locations. The company operates in North America, Europe, the Middle East, Africa, Latin America, and the Asia Pacific. Newpark Resources, Inc. was founded in 1932 and is based in The Woodlands, Texas.

FINANCIAL RATIOS  of  Newpark Resources (NR)

Valuation Ratios
P/E Ratio -16.6
Price to Sales 1.4
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 62
Price to Free Cash Flow -25.2
Growth Rates
Sales Growth Rate -30.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -44.9%
Cap. Spend. - 3 Yr. Gr. Rate -11%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 14.6%
Total Debt to Equity 31.1%
Interest Coverage -6
Management Effectiveness
Return On Assets -4.3%
Ret/ On Assets - 3 Yr. Avg. -0.8%
Return On Total Capital -6%
Ret/ On T. Cap. - 3 Yr. Avg. -1.7%
Return On Equity -8%
Return On Equity - 3 Yr. Avg. -2.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 7.2%
Gross Margin - 3 Yr. Avg. 13.4%
EBITDA Margin -3.8%
EBITDA Margin - 3 Yr. Avg. 0.9%
Operating Margin -11.7%
Oper. Margin - 3 Yr. Avg. -4.9%
Pre-Tax Margin -13.8%
Pre-Tax Margin - 3 Yr. Avg. -6.5%
Net Profit Margin -8.7%
Net Profit Margin - 3 Yr. Avg. -4.3%
Effective Tax Rate 36.9%
Eff/ Tax Rate - 3 Yr. Avg. 29.9%
Payout Ratio 0%

NR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NR stock intrinsic value calculation we used $472 million for the last fiscal year's total revenue generated by Newpark Resources. The default revenue input number comes from 2016 income statement of Newpark Resources. 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 NR 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 4.8%, whose default value for NR is calculated based on our internal credit rating of Newpark Resources, 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 Newpark Resources.
    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 NR stock the variable cost ratio is equal to 114.6%.

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 NR 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 5.4% for Newpark Resources.

Corporate tax rate of 27% is the nominal tax rate for Newpark Resources. 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 NR 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 NR are equal to 66.6%.

Life of production assets of 8.8 years is the average useful life of capital assets used in Newpark Resources 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 NR is equal to 50%. 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 - $501 million for Newpark Resources - 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 85.805 million for Newpark Resources 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 Newpark Resources at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ Newpark reports 1Q loss   [Apr-27-17 06:52PM  Associated Press]
▶ Newpark beats Street 4Q forecasts   [Feb-09-17 06:59PM  Associated Press]
▶ Newpark Resources Sets 2017 Annual Meeting Date   [Jan-24-17 06:00AM  PR Newswire]
▶ Is Newpark Resources Inc (NR) a Good Stock To Buy?   [Dec-12-16 01:24PM  at Insider Monkey]
▶ Broadcom Rising: Outlook Rebuts iPhone Worries   [Dec-09-16 03:08PM  at Barrons.com]
▶ Intel Drops 5%: Silver Lining in the Cloud?   [Oct-19-16 10:43AM  at Barrons.com]
▶ Newpark reports 1Q loss   [Apr-28-16 07:01PM  AP]
Stock chart of NR Financial statements of NR Annual reports of NR
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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