Intrinsic value of Plains GP Holdings - PAGP

Previous Close

$27.53

  Intrinsic Value

$486.80

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+128%

Previous close

$27.53

 
Intrinsic value

$486.80

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+128%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PAGP 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 6.7

 

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, %
  -12.83
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  20,182
  32,291
  49,890
  74,610
  108,256
  152,733
  209,973
  281,845
  370,081
  476,204
  601,485
  746,907
  913,166
  1,100,672
  1,309,582
  1,539,836
  1,791,199
  2,063,311
  2,355,733
  2,667,990
  2,999,613
  3,350,169
  3,719,292
  4,106,703
  4,512,224
  4,935,793
  5,377,469
  5,837,436
  6,316,003
  6,813,604
  7,330,795
Variable operating expenses, $m
 
  29,244
  45,055
  67,263
  97,490
  137,448
  188,871
  253,440
  332,710
  428,049
  540,600
  671,011
  820,375
  988,828
  1,176,510
  1,383,367
  1,609,188
  1,853,649
  2,116,357
  2,396,884
  2,694,809
  3,009,744
  3,341,359
  3,689,403
  4,053,717
  4,434,246
  4,831,042
  5,244,269
  5,674,207
  6,121,244
  6,585,882
Fixed operating expenses, $m
 
  873
  895
  918
  940
  964
  988
  1,013
  1,038
  1,064
  1,091
  1,118
  1,146
  1,174
  1,204
  1,234
  1,265
  1,296
  1,329
  1,362
  1,396
  1,431
  1,467
  1,503
  1,541
  1,580
  1,619
  1,660
  1,701
  1,744
  1,787
Total operating expenses, $m
  19,192
  30,117
  45,950
  68,181
  98,430
  138,412
  189,859
  254,453
  333,748
  429,113
  541,691
  672,129
  821,521
  990,002
  1,177,714
  1,384,601
  1,610,453
  1,854,945
  2,117,686
  2,398,246
  2,696,205
  3,011,175
  3,342,826
  3,690,906
  4,055,258
  4,435,826
  4,832,661
  5,245,929
  5,675,908
  6,122,988
  6,587,669
Operating income, $m
  990
  2,174
  3,940
  6,430
  9,825
  14,322
  20,114
  27,392
  36,333
  47,091
  59,794
  74,779
  91,645
  110,670
  131,868
  155,235
  180,747
  208,366
  238,047
  269,744
  303,407
  338,994
  376,467
  415,796
  456,965
  499,968
  544,809
  591,508
  640,095
  690,616
  743,127
EBITDA, $m
  1,485
  3,176
  5,362
  8,440
  12,636
  18,191
  25,346
  34,335
  45,375
  58,659
  74,344
  92,555
  113,378
  136,866
  163,036
  191,884
  223,377
  257,472
  294,114
  333,242
  374,798
  418,728
  464,986
  513,536
  564,356
  617,440
  672,793
  730,439
  790,416
  852,780
  917,600
Interest expense (income), $m
  462
  462
  978
  1,777
  2,899
  4,427
  6,447
  9,046
  12,309
  16,316
  21,135
  26,823
  33,427
  40,976
  49,490
  58,976
  69,432
  80,845
  93,201
  106,479
  120,658
  135,716
  151,634
  168,395
  185,987
  204,400
  223,633
  243,689
  264,575
  286,305
  308,900
Earnings before tax, $m
  738
  1,712
  2,962
  4,653
  6,926
  9,894
  13,667
  18,347
  24,024
  30,775
  38,660
  47,955
  58,218
  69,693
  82,378
  96,259
  111,315
  127,520
  144,846
  163,265
  182,749
  203,278
  224,832
  247,401
  270,979
  295,567
  321,175
  347,819
  375,520
  404,311
  434,226
Tax expense, $m
  78
  462
  800
  1,256
  1,870
  2,672
  3,690
  4,954
  6,486
  8,309
  10,438
  12,948
  15,719
  18,817
  22,242
  25,990
  30,055
  34,430
  39,108
  44,081
  49,342
  54,885
  60,705
  66,798
  73,164
  79,803
  86,717
  93,911
  101,391
  109,164
  117,241
Net income, $m
  94
  1,250
  2,162
  3,397
  5,056
  7,223
  9,977
  13,393
  17,537
  22,466
  28,222
  35,007
  42,499
  50,876
  60,136
  70,269
  81,260
  93,090
  105,738
  119,183
  133,407
  148,393
  164,128
  180,603
  197,815
  215,764
  234,458
  253,908
  274,130
  295,147
  316,985

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  394
  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
  26,103
  41,774
  64,541
  96,521
  140,046
  197,585
  271,634
  364,612
  478,759
  616,047
  778,117
  966,245
  1,181,327
  1,423,896
  1,694,156
  1,992,026
  2,317,205
  2,669,225
  3,047,520
  3,451,475
  3,880,482
  4,333,983
  4,811,503
  5,312,681
  5,837,288
  6,385,243
  6,956,623
  7,551,664
  8,170,767
  8,814,494
  9,483,565
Adjusted assets (=assets-cash), $m
  25,709
  41,774
  64,541
  96,521
  140,046
  197,585
  271,634
  364,612
  478,759
  616,047
  778,117
  966,245
  1,181,327
  1,423,896
  1,694,156
  1,992,026
  2,317,205
  2,669,225
  3,047,520
  3,451,475
  3,880,482
  4,333,983
  4,811,503
  5,312,681
  5,837,288
  6,385,243
  6,956,623
  7,551,664
  8,170,767
  8,814,494
  9,483,565
Revenue / Adjusted assets
  0.785
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
Average production assets, $m
  14,402
  23,056
  35,621
  53,272
  77,295
  109,052
  149,921
  201,238
  264,238
  340,010
  429,460
  533,292
  652,000
  785,880
  935,042
  1,099,443
  1,278,916
  1,473,204
  1,681,993
  1,904,945
  2,141,724
  2,392,021
  2,655,575
  2,932,186
  3,221,728
  3,524,156
  3,839,513
  4,167,930
  4,509,626
  4,864,913
  5,234,188
Working capital, $m
  -391
  1,485
  2,295
  3,432
  4,980
  7,026
  9,659
  12,965
  17,024
  21,905
  27,668
  34,358
  42,006
  50,631
  60,241
  70,832
  82,395
  94,912
  108,364
  122,728
  137,982
  154,108
  171,087
  188,908
  207,562
  227,046
  247,364
  268,522
  290,536
  313,426
  337,217
Total debt, $m
  11,839
  25,069
  45,560
  74,341
  113,515
  165,300
  231,944
  315,624
  418,356
  541,915
  687,778
  857,093
  1,050,667
  1,268,980
  1,512,213
  1,780,296
  2,072,957
  2,389,776
  2,730,241
  3,093,800
  3,479,907
  3,888,058
  4,317,826
  4,768,886
  5,241,032
  5,734,192
  6,248,434
  6,783,971
  7,341,164
  7,920,518
  8,522,681
Total liabilities, $m
  24,366
  37,596
  58,087
  86,868
  126,042
  177,827
  244,471
  328,151
  430,883
  554,442
  700,305
  869,620
  1,063,194
  1,281,507
  1,524,740
  1,792,823
  2,085,484
  2,402,303
  2,742,768
  3,106,327
  3,492,434
  3,900,585
  4,330,353
  4,781,413
  5,253,559
  5,746,719
  6,260,961
  6,796,498
  7,353,691
  7,933,045
  8,535,208
Total equity, $m
  1,737
  4,177
  6,454
  9,652
  14,005
  19,759
  27,163
  36,461
  47,876
  61,605
  77,812
  96,624
  118,133
  142,390
  169,416
  199,203
  231,720
  266,923
  304,752
  345,147
  388,048
  433,398
  481,150
  531,268
  583,729
  638,524
  695,662
  755,166
  817,077
  881,449
  948,356
Total liabilities and equity, $m
  26,103
  41,773
  64,541
  96,520
  140,047
  197,586
  271,634
  364,612
  478,759
  616,047
  778,117
  966,244
  1,181,327
  1,423,897
  1,694,156
  1,992,026
  2,317,204
  2,669,226
  3,047,520
  3,451,474
  3,880,482
  4,333,983
  4,811,503
  5,312,681
  5,837,288
  6,385,243
  6,956,623
  7,551,664
  8,170,768
  8,814,494
  9,483,564
Debt-to-equity ratio
  6.816
  6.000
  7.060
  7.700
  8.110
  8.370
  8.540
  8.660
  8.740
  8.800
  8.840
  8.870
  8.890
  8.910
  8.930
  8.940
  8.950
  8.950
  8.960
  8.960
  8.970
  8.970
  8.970
  8.980
  8.980
  8.980
  8.980
  8.980
  8.980
  8.990
  8.990
Adjusted equity ratio
  0.068
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  94
  1,250
  2,162
  3,397
  5,056
  7,223
  9,977
  13,393
  17,537
  22,466
  28,222
  35,007
  42,499
  50,876
  60,136
  70,269
  81,260
  93,090
  105,738
  119,183
  133,407
  148,393
  164,128
  180,603
  197,815
  215,764
  234,458
  253,908
  274,130
  295,147
  316,985
Depreciation, amort., depletion, $m
  495
  1,003
  1,422
  2,010
  2,811
  3,869
  5,232
  6,942
  9,042
  11,568
  14,550
  17,776
  21,733
  26,196
  31,168
  36,648
  42,631
  49,107
  56,066
  63,498
  71,391
  79,734
  88,519
  97,740
  107,391
  117,472
  127,984
  138,931
  150,321
  162,164
  174,473
Funds from operations, $m
  440
  2,253
  3,584
  5,407
  7,867
  11,092
  15,209
  20,335
  26,580
  34,034
  42,771
  52,784
  64,233
  77,072
  91,304
  106,917
  123,891
  142,197
  161,804
  182,681
  204,798
  228,127
  252,647
  278,342
  305,206
  333,236
  362,442
  392,839
  424,451
  457,311
  491,458
Change in working capital, $m
  -271
  557
  810
  1,137
  1,548
  2,046
  2,633
  3,306
  4,059
  4,882
  5,763
  6,689
  7,648
  8,625
  9,610
  10,592
  11,563
  12,517
  13,451
  14,364
  15,255
  16,126
  16,980
  17,821
  18,654
  19,484
  20,317
  21,158
  22,014
  22,890
  23,791
Cash from operations, $m
  711
  1,696
  2,775
  4,269
  6,319
  9,046
  12,576
  17,029
  22,521
  29,152
  37,008
  46,094
  56,585
  68,447
  81,694
  96,326
  112,328
  129,679
  148,353
  168,317
  189,543
  212,001
  235,667
  260,521
  286,552
  313,752
  342,125
  371,680
  402,437
  434,421
  467,667
Maintenance CAPEX, $m
  0
  -480
  -769
  -1,187
  -1,776
  -2,576
  -3,635
  -4,997
  -6,708
  -8,808
  -11,334
  -14,315
  -17,776
  -21,733
  -26,196
  -31,168
  -36,648
  -42,631
  -49,107
  -56,066
  -63,498
  -71,391
  -79,734
  -88,519
  -97,740
  -107,391
  -117,472
  -127,984
  -138,931
  -150,321
  -162,164
New CAPEX, $m
  -1,334
  -8,654
  -12,565
  -17,650
  -24,023
  -31,757
  -40,869
  -51,317
  -63,000
  -75,772
  -89,450
  -103,832
  -118,709
  -133,879
  -149,162
  -164,401
  -179,473
  -194,288
  -208,789
  -222,952
  -236,779
  -250,297
  -263,554
  -276,611
  -289,542
  -302,429
  -315,357
  -328,416
  -341,697
  -355,287
  -369,275
Cash from investing activities, $m
  -1,273
  -9,134
  -13,334
  -18,837
  -25,799
  -34,333
  -44,504
  -56,314
  -69,708
  -84,580
  -100,784
  -118,147
  -136,485
  -155,612
  -175,358
  -195,569
  -216,121
  -236,919
  -257,896
  -279,018
  -300,277
  -321,688
  -343,288
  -365,130
  -387,282
  -409,820
  -432,829
  -456,400
  -480,628
  -505,608
  -531,439
Free cash flow, $m
  -562
  -7,438
  -10,559
  -14,568
  -19,479
  -25,287
  -31,929
  -39,285
  -47,187
  -55,428
  -63,775
  -72,053
  -79,900
  -87,166
  -93,664
  -99,244
  -103,793
  -107,239
  -109,543
  -110,701
  -110,734
  -109,687
  -107,621
  -104,609
  -100,730
  -96,068
  -90,704
  -84,720
  -78,191
  -71,187
  -63,771
Issuance/(repayment) of debt, $m
  -103
  13,230
  20,490
  28,782
  39,173
  51,785
  66,644
  83,680
  102,732
  123,559
  145,863
  169,315
  193,574
  218,312
  243,233
  268,083
  292,661
  316,819
  340,465
  363,560
  386,107
  408,151
  429,768
  451,060
  472,146
  493,160
  514,242
  535,537
  557,193
  579,354
  602,163
Issuance/(repurchase) of shares, $m
  2,365
  1,191
  114
  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  
  812
  14,421
  20,604
  28,782
  39,173
  51,785
  66,644
  83,680
  102,732
  123,559
  145,863
  169,315
  193,574
  218,312
  243,233
  268,083
  292,661
  316,819
  340,465
  363,560
  386,107
  408,151
  429,768
  451,060
  472,146
  493,160
  514,242
  535,537
  557,193
  579,354
  602,163
Total cash flow (excl. dividends), $m
  254
  6,983
  10,045
  14,214
  19,694
  26,498
  34,715
  44,396
  55,545
  68,131
  82,088
  97,262
  113,674
  131,147
  149,570
  168,840
  188,867
  209,580
  230,922
  252,859
  275,373
  298,464
  322,147
  346,451
  371,416
  397,092
  423,537
  450,817
  479,002
  508,167
  538,392
Retained Cash Flow (-), $m
  25
  -2,440
  -2,277
  -3,198
  -4,353
  -5,754
  -7,405
  -9,298
  -11,415
  -13,729
  -16,207
  -18,813
  -21,508
  -24,257
  -27,026
  -29,787
  -32,518
  -35,202
  -37,829
  -40,396
  -42,901
  -45,350
  -47,752
  -50,118
  -52,461
  -54,796
  -57,138
  -59,504
  -61,910
  -64,373
  -66,907
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
 
  4,542
  7,768
  11,016
  15,341
  20,744
  27,311
  35,098
  44,130
  54,402
  65,881
  78,449
  92,166
  106,890
  122,544
  139,053
  156,349
  174,377
  193,092
  212,463
  232,472
  253,114
  274,395
  296,333
  318,955
  342,297
  366,399
  391,313
  417,092
  443,795
  471,485
Discount rate, %
 
  12.80
  13.44
  14.11
  14.82
  15.56
  16.34
  17.15
  18.01
  18.91
  19.86
  20.85
  21.89
  22.99
  24.14
  25.34
  26.61
  27.94
  29.34
  30.80
  32.34
  33.96
  35.66
  37.44
  39.32
  41.28
  43.35
  45.51
  47.79
  50.18
  52.69
PV of cash for distribution, $m
 
  4,027
  6,037
  7,413
  8,827
  10,067
  11,016
  11,588
  11,732
  11,445
  10,768
  9,770
  8,567
  7,257
  5,939
  4,695
  3,586
  2,644
  1,882
  1,293
  856
  545
  335
  197
  112
  61
  31
  16
  7
  3
  1
Current shareholders' claim on cash, %
  100
  84.9
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3
  84.3

Plains GP Holdings, L.P. together with its subsidiaries, owns and operates midstream energy infrastructure in the United States and Canada. It operates through three segments: Transportation, Facilities, and Supply and Logistics. The Transportation segment engages in the transportation of crude oil and NGL on pipelines, gathering systems, trucks, and barges. As of December 31, 2015, this segment owned and leased assets comprising 18,100 miles of active crude oil and NGL pipelines and gathering systems; 30 million barrels of active, above-ground tank capacity; 830 trailers; 142 transport and storage barges; and 64 transport tugs. The Facilities segment is involved in the provision of storage, terminalling, and throughput services for crude oil, refined products, NGL, and natural gas; NGL fractionation and isomerization services; and natural gas and condensate processing services. As of December 31, 2015, this segment owned and operated approximately 80 million barrels of crude oil and refined products storage capacity; 25 million barrels of NGL storage capacity; 97 billion cubic feet of natural gas storage working capacity; 31 billion cubic feet of base gas; 10 natural gas processing plants; a condensate processing facility; 7 fractionation plants; 23 crude oil and NGL rail terminals; 6 marine facilities; and 1,100 miles of active pipelines. The Supply and Logistics segment engages in merchant-related activities, including purchase of crude oil, cargos, and NGL; storage of inventory, and NGL and natural gas; and resale or exchange, and transport of crude oil and NGL. As of December 31, 2015, it owned 13 million barrels of crude oil and NGL line fill; 990 trucks and 1,100 trailers; and 10,100 crude oil and NGL railcars. The company offers logistics services for crude oil, natural gas liquids, natural gas, and refined products. PAA GP Holdings LLC operates as a general partner of the company. Plains GP Holdings, L.P. was founded in 2013 and is based in Houston, Texas.

FINANCIAL RATIOS  of  Plains GP Holdings (PAGP)

Valuation Ratios
P/E Ratio 29.6
Price to Sales 0.1
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow -4.5
Growth Rates
Sales Growth Rate -12.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -35.8%
Cap. Spend. - 3 Yr. Gr. Rate -3.7%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 582.8%
Total Debt to Equity 681.6%
Interest Coverage 3
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 1.8%
Return On Total Capital 0.7%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. 5.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 14.6%
Gross Margin - 3 Yr. Avg. 12.8%
EBITDA Margin 8.4%
EBITDA Margin - 3 Yr. Avg. 7.2%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 4.8%
Pre-Tax Margin 3.7%
Pre-Tax Margin - 3 Yr. Avg. 3.8%
Net Profit Margin 0.5%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate 10.6%
Eff/ Tax Rate - 3 Yr. Avg. 14.2%
Payout Ratio 248.9%

PAGP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PAGP stock intrinsic value calculation we used $20182 million for the last fiscal year's total revenue generated by Plains GP Holdings. The default revenue input number comes from 2016 income statement of Plains GP Holdings. 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 PAGP stock valuation model: a) initial revenue growth rate of 60% 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 12.8%, whose default value for PAGP is calculated based on our internal credit rating of Plains GP Holdings, 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 Plains GP Holdings.
    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 PAGP stock the variable cost ratio is equal to 91%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $852 million in the base year in the intrinsic value calculation for PAGP 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 3.9% for Plains GP Holdings.

Corporate tax rate of 27% is the nominal tax rate for Plains GP Holdings. 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 PAGP 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 PAGP are equal to 71.4%.

Life of production assets of 33.9 years is the average useful life of capital assets used in Plains GP Holdings 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 PAGP is equal to 4.6%. 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 - $1737 million for Plains GP Holdings - 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 243.844 million for Plains GP Holdings 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 Plains GP Holdings at the current share price and the inputted number of shares is $6.7 billion.

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COMPANY NEWS

▶ ETE, PAGP, WGP, and ENLC: How Do Their Valuations Compare?   [May-31-17 07:37AM  Market Realist]
▶ Why PAGP Has the Highest Distribution Yield among Its Peers   [May-30-17 09:06AM  Market Realist]
▶ ETE, PAGP, WGP, and ENLC: Analyzing MLPs General Partners   [May-29-17 02:47PM  Market Realist]
▶ Plains GP misses 1Q profit forecasts   [May-08-17 05:48PM  Associated Press]
▶ [$$] Tortoise Wins the Race   [Mar-04-17 12:01AM  at Barrons.com]
▶ MLPs Issue Equity; Tailwind or Headwind for Sector?   [Mar-03-17 04:13PM  at Barrons.com]
▶ Insider Invests in Plains GP Holdings   [10:43AM  GuruFocus.com]
▶ PAGP Completes Public Offering of Class A Shares   [Mar-01-17 04:06PM  Business Wire]
▶ PAGP Prices Upsized Public Offering of Class A Shares   [Feb-23-17 09:55PM  Business Wire]
▶ 4 Cheap Stocks Among Recent Economic Moat Changes   [Jan-10-17 06:00AM  at Morningstar]
▶ Breakouts Expected in Oil & Gas Pipeline Stocks (TRP, WPZ)   [Dec-19-16 01:00PM  at Investopedia]
▶ Alerian Index Series December 2016 Index Review   [Dec-09-16 08:30AM  PR Newswire]
▶ 3 Cheap Growth Stocks You Can Buy Right Now   [Oct-14-16 01:01PM  at Motley Fool]
Stock chart of PAGP Financial statements of PAGP Annual reports of PAGP
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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