Intrinsic value of Phibro Animal Health - PAHC

Previous Close

$35.70

  Intrinsic Value

$20.29

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  Rating & Target

sell

-43%

Previous close

$35.70

 
Intrinsic value

$20.29

 
Up/down potential

-43%

 
Rating

sell

We calculate the intrinsic value of PAHC 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  1.60
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  764
  785
  808
  833
  861
  891
  923
  958
  995
  1,035
  1,078
  1,123
  1,171
  1,222
  1,276
  1,333
  1,393
  1,457
  1,524
  1,595
  1,670
  1,749
  1,832
  1,920
  2,012
  2,108
  2,210
  2,318
  2,430
  2,549
  2,674
Variable operating expenses, $m
 
  196
  202
  208
  215
  222
  230
  239
  248
  258
  268
  277
  289
  302
  315
  329
  344
  360
  376
  394
  412
  432
  452
  474
  497
  521
  546
  572
  600
  629
  660
Fixed operating expenses, $m
 
  502
  515
  528
  541
  554
  568
  582
  597
  612
  627
  643
  659
  675
  692
  710
  727
  746
  764
  783
  803
  823
  844
  865
  886
  908
  931
  954
  978
  1,003
  1,028
Total operating expenses, $m
  669
  698
  717
  736
  756
  776
  798
  821
  845
  870
  895
  920
  948
  977
  1,007
  1,039
  1,071
  1,106
  1,140
  1,177
  1,215
  1,255
  1,296
  1,339
  1,383
  1,429
  1,477
  1,526
  1,578
  1,632
  1,688
Operating income, $m
  95
  86
  91
  97
  105
  114
  125
  137
  150
  165
  182
  203
  223
  245
  269
  294
  322
  352
  384
  418
  455
  494
  536
  581
  629
  680
  734
  791
  852
  917
  986
EBITDA, $m
  121
  112
  118
  125
  133
  143
  155
  168
  183
  199
  217
  237
  258
  282
  307
  334
  364
  396
  430
  466
  505
  547
  591
  639
  689
  743
  800
  861
  925
  994
  1,066
Interest expense (income), $m
  15
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  56
  60
  63
Earnings before tax, $m
  81
  72
  77
  82
  89
  98
  107
  118
  131
  145
  161
  180
  199
  220
  242
  266
  293
  321
  351
  384
  418
  456
  495
  538
  583
  631
  683
  738
  796
  857
  923
Tax expense, $m
  16
  20
  21
  22
  24
  26
  29
  32
  35
  39
  43
  49
  54
  59
  65
  72
  79
  87
  95
  104
  113
  123
  134
  145
  157
  170
  184
  199
  215
  232
  249
Net income, $m
  65
  53
  56
  60
  65
  71
  78
  86
  96
  106
  117
  132
  146
  161
  177
  195
  214
  234
  256
  280
  305
  333
  362
  393
  426
  461
  499
  538
  581
  626
  674

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  56
  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
  623
  583
  600
  618
  639
  661
  685
  711
  739
  769
  800
  834
  869
  907
  947
  990
  1,034
  1,082
  1,132
  1,184
  1,240
  1,298
  1,360
  1,425
  1,493
  1,565
  1,641
  1,721
  1,804
  1,892
  1,985
Adjusted assets (=assets-cash), $m
  567
  583
  600
  618
  639
  661
  685
  711
  739
  769
  800
  834
  869
  907
  947
  990
  1,034
  1,082
  1,132
  1,184
  1,240
  1,298
  1,360
  1,425
  1,493
  1,565
  1,641
  1,721
  1,804
  1,892
  1,985
Revenue / Adjusted assets
  1.347
  1.346
  1.347
  1.348
  1.347
  1.348
  1.347
  1.347
  1.346
  1.346
  1.348
  1.347
  1.348
  1.347
  1.347
  1.346
  1.347
  1.347
  1.346
  1.347
  1.347
  1.347
  1.347
  1.347
  1.348
  1.347
  1.347
  1.347
  1.347
  1.347
  1.347
Average production assets, $m
  185
  189
  195
  201
  207
  215
  222
  231
  240
  249
  260
  271
  282
  295
  308
  321
  336
  351
  367
  384
  403
  422
  442
  463
  485
  508
  533
  559
  586
  614
  644
Working capital, $m
  248
  203
  209
  216
  223
  231
  239
  248
  258
  268
  279
  291
  303
  317
  330
  345
  361
  377
  395
  413
  433
  453
  475
  497
  521
  546
  573
  600
  629
  660
  693
Total debt, $m
  313
  320
  334
  349
  366
  385
  404
  426
  448
  473
  499
  526
  556
  587
  620
  655
  691
  730
  771
  815
  860
  908
  959
  1,012
  1,069
  1,128
  1,190
  1,255
  1,324
  1,397
  1,473
Total liabilities, $m
  472
  479
  493
  508
  525
  544
  563
  585
  607
  632
  658
  685
  715
  746
  779
  814
  850
  889
  930
  974
  1,019
  1,067
  1,118
  1,171
  1,228
  1,287
  1,349
  1,414
  1,483
  1,556
  1,632
Total equity, $m
  151
  104
  107
  110
  114
  118
  122
  127
  132
  137
  142
  148
  155
  161
  169
  176
  184
  193
  201
  211
  221
  231
  242
  254
  266
  279
  292
  306
  321
  337
  353
Total liabilities and equity, $m
  623
  583
  600
  618
  639
  662
  685
  712
  739
  769
  800
  833
  870
  907
  948
  990
  1,034
  1,082
  1,131
  1,185
  1,240
  1,298
  1,360
  1,425
  1,494
  1,566
  1,641
  1,720
  1,804
  1,893
  1,985
Debt-to-equity ratio
  2.073
  3.080
  3.130
  3.170
  3.220
  3.270
  3.310
  3.360
  3.410
  3.460
  3.500
  3.550
  3.590
  3.630
  3.680
  3.720
  3.750
  3.790
  3.830
  3.860
  3.900
  3.930
  3.960
  3.990
  4.020
  4.050
  4.070
  4.100
  4.120
  4.150
  4.170
Adjusted equity ratio
  0.168
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178
  0.178

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  65
  53
  56
  60
  65
  71
  78
  86
  96
  106
  117
  132
  146
  161
  177
  195
  214
  234
  256
  280
  305
  333
  362
  393
  426
  461
  499
  538
  581
  626
  674
Depreciation, amort., depletion, $m
  26
  26
  27
  27
  28
  29
  30
  31
  32
  34
  35
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
  81
Funds from operations, $m
  99
  79
  83
  88
  93
  100
  109
  118
  128
  140
  152
  166
  181
  197
  215
  235
  256
  278
  302
  328
  356
  385
  417
  450
  486
  524
  565
  608
  654
  703
  754
Change in working capital, $m
  1
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  31
  32
Cash from operations, $m
  98
  74
  77
  81
  86
  93
  100
  109
  118
  129
  141
  154
  168
  184
  201
  220
  240
  262
  285
  310
  336
  365
  395
  428
  462
  499
  539
  580
  625
  672
  722
Maintenance CAPEX, $m
  0
  -23
  -24
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
New CAPEX, $m
  -21
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
Cash from investing activities, $m
  -22
  -28
  -30
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -46
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -89
  -93
  -97
  -102
  -107
Free cash flow, $m
  76
  46
  48
  51
  55
  59
  65
  72
  81
  90
  100
  110
  123
  137
  151
  168
  185
  204
  225
  247
  270
  296
  323
  352
  382
  415
  451
  488
  528
  570
  615
Issuance/(repayment) of debt, $m
  -40
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
Issuance/(repurchase) of shares, $m
  6
  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  
  -38
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
  62
  65
  69
  72
  76
Total cash flow (excl. dividends), $m
  38
  59
  62
  66
  71
  78
  85
  94
  103
  114
  126
  138
  152
  168
  184
  203
  222
  243
  266
  290
  316
  344
  373
  405
  439
  475
  513
  553
  597
  643
  691
Retained Cash Flow (-), $m
  -61
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
Prev. year cash balance distribution, $m
 
  50
  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
 
  106
  59
  63
  68
  74
  81
  89
  98
  109
  120
  132
  146
  161
  177
  195
  214
  235
  257
  281
  306
  333
  362
  393
  426
  462
  499
  539
  582
  627
  675
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  99
  51
  50
  50
  49
  48
  48
  46
  45
  43
  40
  38
  35
  31
  28
  24
  21
  18
  15
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Phibro Animal Health Corporation (Phibro) is a global diversified animal health and mineral nutrition company. The Company operates in three segments, which include Animal Health, Mineral Nutrition and Performance Products. The Company offers various products, which include Animal health products, such as antibacterials, anticoccidials, vaccines, nutritional specialty products and mineral nutrition products. The Company also manufactures and markets specific ingredients for use in the personal care, automotive, industrial chemical and chemical catalyst industries. The Company's Medicated Feed Additives (MFAs) and other business consist of concentrated medicated products, which are administered through animal feeds. The Company's MFAs and other business consists of the production and sale of antibacterials, including Stafac, Terramycin, Neo-Terramycin and Mecadox and anticoccidials, including Nicarb, Aviax, Aviax Plus, Coxistac and amprolium.

FINANCIAL RATIOS  of  Phibro Animal Health (PAHC)

Valuation Ratios
P/E Ratio 21.9
Price to Sales 1.9
Price to Book 9.4
Price to Tangible Book
Price to Cash Flow 14.5
Price to Free Cash Flow 18.5
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -41.7%
Cap. Spend. - 3 Yr. Gr. Rate 1%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 203.3%
Total Debt to Equity 207.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 12.5%
Ret/ On Assets - 3 Yr. Avg. 14.9%
Return On Total Capital 14.4%
Ret/ On T. Cap. - 3 Yr. Avg. 18.5%
Return On Equity 53.9%
Return On Equity - 3 Yr. Avg. 153%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 32.5%
Gross Margin - 3 Yr. Avg. 31.8%
EBITDA Margin 16%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 10.6%
Pre-Tax Margin - 3 Yr. Avg. 10.5%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 9.2%
Effective Tax Rate 19.8%
Eff/ Tax Rate - 3 Yr. Avg. 12%
Payout Ratio 24.6%

PAHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PAHC stock intrinsic value calculation we used $764 million for the last fiscal year's total revenue generated by Phibro Animal Health. The default revenue input number comes from 2017 income statement of Phibro Animal Health. 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 PAHC stock valuation model: a) initial revenue growth rate of 2.7% 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 7%, whose default value for PAHC is calculated based on our internal credit rating of Phibro Animal Health, 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 Phibro Animal Health.
    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 PAHC stock the variable cost ratio is equal to 25%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $490 million in the base year in the intrinsic value calculation for PAHC 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 4.5% for Phibro Animal Health.

Corporate tax rate of 27% is the nominal tax rate for Phibro Animal Health. 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 PAHC 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 PAHC are equal to 24.1%.

Life of production assets of 8 years is the average useful life of capital assets used in Phibro Animal Health 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 PAHC is equal to 25.9%. 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 - $151 million for Phibro Animal Health - 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 40.597 million for Phibro Animal Health 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 Phibro Animal Health at the current share price and the inputted number of shares is $1.4 billion.

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COMPANY NEWS

▶ Phibro beats 1Q profit forecasts   [Nov-06-17 05:49PM  Associated Press]
▶ Phibro beats 4Q profit forecasts   [08:04PM  Associated Press]
▶ Phibro posts 3Q profit   [May-08-17 05:00PM  Associated Press]
▶ 7 Stocks Trending Up With Unusual Volume   [Feb-08-17 09:10AM  TheStreet.com]
Financial statements of PAHC
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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