Intrinsic value of Plains GP Holdings - PAGP

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$30.07

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$30.07

 
Intrinsic value

$65.78

 
Up/down potential

+119%

 
Rating

str. buy

 
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 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 7.3

 

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, %
  -12.83
  19.10
  17.69
  16.42
  15.28
  14.25
  13.33
  12.49
  11.74
  11.07
  10.46
  9.92
  9.42
  8.98
  8.58
  8.23
  7.90
  7.61
  7.35
  7.12
  6.90
  6.71
  6.54
  6.39
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
Revenue, $m
  20,182
  24,037
  28,289
  32,934
  37,966
  43,377
  49,157
  55,298
  61,793
  68,633
  75,814
  83,332
  91,185
  99,376
  107,906
  116,782
  126,012
  135,605
  145,574
  155,933
  166,700
  177,892
  189,532
  201,640
  214,242
  227,363
  241,033
  255,281
  270,138
  285,638
  301,817
Variable operating expenses, $m
 
  21,829
  25,649
  29,822
  34,343
  39,203
  44,396
  49,914
  55,748
  61,893
  68,344
  74,864
  81,920
  89,278
  96,942
  104,916
  113,207
  121,825
  130,781
  140,088
  149,761
  159,816
  170,272
  181,150
  192,472
  204,260
  216,541
  229,340
  242,688
  256,613
  271,148
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
  22,702
  26,544
  30,740
  35,283
  40,167
  45,384
  50,927
  56,786
  62,957
  69,435
  75,982
  83,066
  90,452
  98,146
  106,150
  114,472
  123,121
  132,110
  141,450
  151,157
  161,247
  171,739
  182,653
  194,013
  205,840
  218,160
  231,000
  244,389
  258,357
  272,935
Operating income, $m
  990
  1,335
  1,745
  2,195
  2,683
  3,209
  3,773
  4,372
  5,007
  5,676
  6,379
  7,350
  8,120
  8,924
  9,761
  10,633
  11,540
  12,483
  13,464
  14,483
  15,543
  16,645
  17,792
  18,986
  20,229
  21,524
  22,873
  24,281
  25,749
  27,281
  28,882
EBITDA, $m
  1,485
  2,141
  2,653
  3,213
  3,821
  4,476
  5,177
  5,922
  6,712
  7,544
  8,417
  9,333
  10,290
  11,289
  12,329
  13,412
  14,539
  15,710
  16,928
  18,194
  19,510
  20,879
  22,303
  23,785
  25,328
  26,935
  28,610
  30,356
  32,178
  34,080
  36,065
Interest expense (income), $m
  462
  446
  586
  776
  984
  1,209
  1,451
  1,709
  1,984
  2,274
  2,580
  2,901
  3,237
  3,589
  3,955
  4,336
  4,733
  5,146
  5,575
  6,021
  6,484
  6,965
  7,466
  7,986
  8,527
  9,091
  9,678
  10,289
  10,926
  11,590
  12,283
Earnings before tax, $m
  738
  888
  1,159
  1,418
  1,699
  2,000
  2,322
  2,663
  3,023
  3,401
  3,798
  4,448
  4,882
  5,335
  5,806
  6,297
  6,807
  7,337
  7,889
  8,462
  9,059
  9,680
  10,327
  11,000
  11,702
  12,433
  13,196
  13,992
  14,823
  15,691
  16,598
Tax expense, $m
  78
  240
  313
  383
  459
  540
  627
  719
  816
  918
  1,026
  1,201
  1,318
  1,440
  1,568
  1,700
  1,838
  1,981
  2,130
  2,285
  2,446
  2,614
  2,788
  2,970
  3,159
  3,357
  3,563
  3,778
  4,002
  4,237
  4,482
Net income, $m
  94
  649
  846
  1,035
  1,240
  1,460
  1,695
  1,944
  2,206
  2,483
  2,773
  3,247
  3,564
  3,894
  4,238
  4,596
  4,969
  5,356
  5,759
  6,178
  6,613
  7,067
  7,539
  8,030
  8,542
  9,076
  9,633
  10,214
  10,821
  11,455
  12,117

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
  30,620
  36,037
  41,954
  48,365
  55,257
  62,620
  70,444
  78,717
  87,430
  96,578
  106,155
  116,160
  126,593
  137,460
  148,767
  160,524
  172,745
  185,444
  198,641
  212,356
  226,615
  241,442
  256,866
  272,919
  289,635
  307,048
  325,198
  344,124
  363,870
  384,480
Adjusted assets (=assets-cash), $m
  25,709
  30,620
  36,037
  41,954
  48,365
  55,257
  62,620
  70,444
  78,717
  87,430
  96,578
  106,155
  116,160
  126,593
  137,460
  148,767
  160,524
  172,745
  185,444
  198,641
  212,356
  226,615
  241,442
  256,866
  272,919
  289,635
  307,048
  325,198
  344,124
  363,870
  384,480
Revenue / Adjusted assets
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
Average production assets, $m
  14,402
  17,162
  20,198
  23,515
  27,108
  30,971
  35,098
  39,483
  44,120
  49,004
  54,131
  59,499
  65,106
  70,954
  77,045
  83,383
  89,972
  96,822
  103,940
  111,336
  119,024
  127,015
  135,326
  143,971
  152,969
  162,337
  172,098
  182,270
  192,878
  203,945
  215,497
Working capital, $m
  -391
  1,106
  1,301
  1,515
  1,746
  1,995
  2,261
  2,544
  2,842
  3,157
  3,487
  3,833
  4,195
  4,571
  4,964
  5,372
  5,797
  6,238
  6,696
  7,173
  7,668
  8,183
  8,718
  9,275
  9,855
  10,459
  11,088
  11,743
  12,426
  13,139
  13,884
Total debt, $m
  11,839
  15,031
  19,906
  25,232
  31,001
  37,204
  43,831
  50,872
  58,318
  66,160
  74,393
  83,012
  92,017
  101,407
  111,187
  121,364
  131,945
  142,943
  154,373
  166,250
  178,594
  191,426
  204,770
  218,652
  233,100
  248,144
  263,817
  280,151
  297,185
  314,956
  333,505
Total liabilities, $m
  24,366
  27,558
  32,433
  37,759
  43,528
  49,731
  56,358
  63,399
  70,845
  78,687
  86,920
  95,539
  104,544
  113,934
  123,714
  133,891
  144,472
  155,470
  166,900
  178,777
  191,121
  203,953
  217,297
  231,179
  245,627
  260,671
  276,344
  292,678
  309,712
  327,483
  346,032
Total equity, $m
  1,737
  3,062
  3,604
  4,195
  4,836
  5,526
  6,262
  7,044
  7,872
  8,743
  9,658
  10,615
  11,616
  12,659
  13,746
  14,877
  16,052
  17,274
  18,544
  19,864
  21,236
  22,661
  24,144
  25,687
  27,292
  28,963
  30,705
  32,520
  34,412
  36,387
  38,448
Total liabilities and equity, $m
  26,103
  30,620
  36,037
  41,954
  48,364
  55,257
  62,620
  70,443
  78,717
  87,430
  96,578
  106,154
  116,160
  126,593
  137,460
  148,768
  160,524
  172,744
  185,444
  198,641
  212,357
  226,614
  241,441
  256,866
  272,919
  289,634
  307,049
  325,198
  344,124
  363,870
  384,480
Debt-to-equity ratio
  6.816
  4.910
  5.520
  6.010
  6.410
  6.730
  7.000
  7.220
  7.410
  7.570
  7.700
  7.820
  7.920
  8.010
  8.090
  8.160
  8.220
  8.270
  8.320
  8.370
  8.410
  8.450
  8.480
  8.510
  8.540
  8.570
  8.590
  8.610
  8.640
  8.660
  8.670
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
  649
  846
  1,035
  1,240
  1,460
  1,695
  1,944
  2,206
  2,483
  2,773
  3,247
  3,564
  3,894
  4,238
  4,596
  4,969
  5,356
  5,759
  6,178
  6,613
  7,067
  7,539
  8,030
  8,542
  9,076
  9,633
  10,214
  10,821
  11,455
  12,117
Depreciation, amort., depletion, $m
  495
  806
  908
  1,018
  1,138
  1,267
  1,404
  1,551
  1,705
  1,868
  2,039
  1,983
  2,170
  2,365
  2,568
  2,779
  2,999
  3,227
  3,465
  3,711
  3,967
  4,234
  4,511
  4,799
  5,099
  5,411
  5,737
  6,076
  6,429
  6,798
  7,183
Funds from operations, $m
  440
  1,455
  1,754
  2,054
  2,378
  2,727
  3,099
  3,494
  3,911
  4,351
  4,812
  5,231
  5,734
  6,260
  6,807
  7,376
  7,968
  8,583
  9,223
  9,889
  10,581
  11,300
  12,049
  12,829
  13,641
  14,487
  15,369
  16,290
  17,250
  18,253
  19,300
Change in working capital, $m
  -271
  177
  196
  214
  231
  249
  266
  283
  299
  315
  330
  346
  361
  377
  392
  408
  425
  441
  459
  477
  495
  515
  535
  557
  580
  604
  629
  655
  683
  713
  744
Cash from operations, $m
  711
  1,904
  1,558
  1,840
  2,147
  2,478
  2,833
  3,212
  3,613
  4,036
  4,481
  4,885
  5,373
  5,883
  6,414
  6,968
  7,543
  8,142
  8,765
  9,412
  10,085
  10,786
  11,514
  12,272
  13,061
  13,884
  14,741
  15,634
  16,567
  17,540
  18,556
Maintenance CAPEX, $m
  0
  -480
  -572
  -673
  -784
  -904
  -1,032
  -1,170
  -1,316
  -1,471
  -1,633
  -1,804
  -1,983
  -2,170
  -2,365
  -2,568
  -2,779
  -2,999
  -3,227
  -3,465
  -3,711
  -3,967
  -4,234
  -4,511
  -4,799
  -5,099
  -5,411
  -5,737
  -6,076
  -6,429
  -6,798
New CAPEX, $m
  -1,334
  -2,760
  -3,036
  -3,317
  -3,593
  -3,863
  -4,127
  -4,385
  -4,637
  -4,884
  -5,127
  -5,368
  -5,608
  -5,848
  -6,091
  -6,337
  -6,590
  -6,849
  -7,118
  -7,397
  -7,687
  -7,992
  -8,310
  -8,645
  -8,998
  -9,369
  -9,760
  -10,173
  -10,608
  -11,067
  -11,552
Cash from investing activities, $m
  -1,273
  -3,240
  -3,608
  -3,990
  -4,377
  -4,767
  -5,159
  -5,555
  -5,953
  -6,355
  -6,760
  -7,172
  -7,591
  -8,018
  -8,456
  -8,905
  -9,369
  -9,848
  -10,345
  -10,862
  -11,398
  -11,959
  -12,544
  -13,156
  -13,797
  -14,468
  -15,171
  -15,910
  -16,684
  -17,496
  -18,350
Free cash flow, $m
  -562
  -1,337
  -2,050
  -2,150
  -2,230
  -2,289
  -2,326
  -2,343
  -2,340
  -2,318
  -2,279
  -2,287
  -2,218
  -2,135
  -2,042
  -1,938
  -1,826
  -1,706
  -1,580
  -1,449
  -1,313
  -1,173
  -1,030
  -884
  -735
  -584
  -431
  -275
  -117
  43
  206
Issuance/(repayment) of debt, $m
  -103
  3,586
  4,875
  5,326
  5,769
  6,203
  6,627
  7,041
  7,446
  7,842
  8,233
  8,619
  9,004
  9,390
  9,780
  10,176
  10,581
  10,998
  11,429
  11,877
  12,344
  12,832
  13,344
  13,882
  14,448
  15,044
  15,672
  16,335
  17,034
  17,771
  18,549
Issuance/(repurchase) of shares, $m
  2,365
  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  
  812
  3,586
  4,875
  5,326
  5,769
  6,203
  6,627
  7,041
  7,446
  7,842
  8,233
  8,619
  9,004
  9,390
  9,780
  10,176
  10,581
  10,998
  11,429
  11,877
  12,344
  12,832
  13,344
  13,882
  14,448
  15,044
  15,672
  16,335
  17,034
  17,771
  18,549
Total cash flow (excl. dividends), $m
  254
  2,249
  2,825
  3,176
  3,539
  3,915
  4,301
  4,698
  5,105
  5,524
  5,954
  6,332
  6,787
  7,255
  7,738
  8,238
  8,756
  9,292
  9,849
  10,428
  11,031
  11,659
  12,314
  12,998
  13,713
  14,460
  15,241
  16,060
  16,917
  17,814
  18,755
Retained Cash Flow (-), $m
  25
  -1,325
  -542
  -592
  -641
  -689
  -736
  -782
  -827
  -871
  -915
  -958
  -1,000
  -1,043
  -1,087
  -1,131
  -1,176
  -1,222
  -1,270
  -1,320
  -1,372
  -1,426
  -1,483
  -1,542
  -1,605
  -1,672
  -1,741
  -1,815
  -1,893
  -1,975
  -2,061
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
 
  924
  2,283
  2,584
  2,898
  3,225
  3,565
  3,915
  4,278
  4,652
  5,039
  5,374
  5,786
  6,212
  6,652
  7,108
  7,580
  8,070
  8,579
  9,108
  9,659
  10,233
  10,831
  11,456
  12,107
  12,788
  13,500
  14,245
  15,024
  15,840
  16,694
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
 
  820
  1,774
  1,739
  1,668
  1,565
  1,438
  1,293
  1,137
  979
  824
  669
  538
  422
  322
  240
  174
  122
  84
  55
  36
  22
  13
  8
  4
  2
  1
  1
  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

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 32.4
Price to Sales 0.2
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 4.3
Price to Free Cash Flow -4.9
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 19.1% 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 242.482 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 $7.3 billion.


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Stock chart of PAGP Financial statements 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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