Intrinsic value of Phibro Animal Health - PAHC

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$38.15

  Intrinsic Value

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  Value-price divergence*

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

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

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 1.5

 

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, %
  0.40
  3.80
  3.92
  4.03
  4.13
  4.21
  4.29
  4.36
  4.43
  4.48
  4.54
  4.58
  4.62
  4.66
  4.69
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
Revenue, $m
  752
  781
  811
  844
  879
  916
  955
  997
  1,041
  1,087
  1,137
  1,189
  1,244
  1,302
  1,363
  1,427
  1,495
  1,567
  1,642
  1,721
  1,804
  1,892
  1,984
  2,081
  2,182
  2,289
  2,402
  2,520
  2,644
  2,775
  2,912
Variable operating expenses, $m
 
  689
  716
  745
  776
  808
  843
  879
  918
  959
  1,003
  1,046
  1,095
  1,146
  1,200
  1,256
  1,316
  1,379
  1,445
  1,515
  1,588
  1,665
  1,746
  1,831
  1,921
  2,015
  2,114
  2,218
  2,328
  2,443
  2,563
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
  666
  689
  716
  745
  776
  808
  843
  879
  918
  959
  1,003
  1,046
  1,095
  1,146
  1,200
  1,256
  1,316
  1,379
  1,445
  1,515
  1,588
  1,665
  1,746
  1,831
  1,921
  2,015
  2,114
  2,218
  2,328
  2,443
  2,563
Operating income, $m
  86
  91
  95
  99
  103
  108
  112
  117
  123
  128
  134
  142
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
  249
  261
  274
  288
  302
  317
  332
  349
EBITDA, $m
  109
  104
  108
  112
  117
  122
  127
  133
  139
  145
  151
  158
  166
  173
  182
  190
  199
  209
  219
  229
  240
  252
  264
  277
  291
  305
  320
  336
  352
  370
  388
Interest expense (income), $m
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  50
  52
  55
  58
  62
  65
  69
  72
  76
Earnings before tax, $m
  77
  76
  79
  82
  85
  88
  92
  96
  100
  104
  109
  116
  121
  126
  131
  137
  143
  150
  157
  164
  172
  180
  188
  197
  206
  216
  226
  237
  248
  260
  273
Tax expense, $m
  -6
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  33
  34
  35
  37
  39
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  70
  74
Net income, $m
  83
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  150
  158
  165
  173
  181
  190
  199

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  34
  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
  608
  628
  653
  679
  707
  737
  769
  802
  838
  876
  915
  957
  1,001
  1,048
  1,097
  1,149
  1,204
  1,261
  1,322
  1,386
  1,453
  1,523
  1,597
  1,675
  1,757
  1,843
  1,934
  2,029
  2,129
  2,234
  2,345
Adjusted assets (=assets-cash), $m
  574
  628
  653
  679
  707
  737
  769
  802
  838
  876
  915
  957
  1,001
  1,048
  1,097
  1,149
  1,204
  1,261
  1,322
  1,386
  1,453
  1,523
  1,597
  1,675
  1,757
  1,843
  1,934
  2,029
  2,129
  2,234
  2,345
Revenue / Adjusted assets
  1.310
  1.244
  1.242
  1.243
  1.243
  1.243
  1.242
  1.243
  1.242
  1.241
  1.243
  1.242
  1.243
  1.242
  1.242
  1.242
  1.242
  1.243
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
  1.242
Average production assets, $m
  101
  105
  109
  113
  118
  123
  128
  134
  139
  146
  152
  159
  167
  174
  183
  191
  200
  210
  220
  231
  242
  253
  266
  279
  292
  307
  322
  338
  354
  372
  390
Working capital, $m
  234
  211
  219
  228
  237
  247
  258
  269
  281
  294
  307
  321
  336
  351
  368
  385
  404
  423
  443
  465
  487
  511
  536
  562
  589
  618
  649
  680
  714
  749
  786
Total debt, $m
  350
  367
  388
  410
  434
  459
  486
  515
  545
  577
  611
  647
  684
  724
  766
  810
  856
  905
  957
  1,011
  1,068
  1,128
  1,191
  1,258
  1,327
  1,401
  1,478
  1,559
  1,644
  1,733
  1,827
Total liabilities, $m
  517
  535
  556
  578
  602
  627
  654
  683
  713
  745
  779
  815
  852
  892
  934
  978
  1,024
  1,073
  1,125
  1,179
  1,236
  1,296
  1,359
  1,426
  1,495
  1,569
  1,646
  1,727
  1,812
  1,901
  1,995
Total equity, $m
  90
  94
  97
  101
  105
  110
  115
  120
  125
  130
  136
  143
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
  250
  262
  275
  288
  302
  317
  333
  349
Total liabilities and equity, $m
  607
  629
  653
  679
  707
  737
  769
  803
  838
  875
  915
  958
  1,001
  1,048
  1,097
  1,149
  1,203
  1,261
  1,322
  1,385
  1,452
  1,523
  1,597
  1,676
  1,757
  1,844
  1,934
  2,029
  2,129
  2,234
  2,344
Debt-to-equity ratio
  3.889
  3.920
  3.990
  4.050
  4.120
  4.180
  4.250
  4.310
  4.370
  4.420
  4.480
  4.530
  4.590
  4.640
  4.680
  4.730
  4.770
  4.820
  4.860
  4.900
  4.940
  4.970
  5.010
  5.040
  5.070
  5.100
  5.130
  5.160
  5.180
  5.210
  5.230
Adjusted equity ratio
  0.098
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149
  0.149

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  83
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  84
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  150
  158
  165
  173
  181
  190
  199
Depreciation, amort., depletion, $m
  23
  13
  13
  13
  14
  14
  15
  15
  16
  17
  17
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
Funds from operations, $m
  -9
  68
  71
  73
  76
  79
  82
  85
  89
  93
  97
  100
  105
  109
  114
  119
  125
  130
  136
  143
  149
  156
  164
  172
  180
  188
  197
  207
  217
  227
  238
Change in working capital, $m
  -46
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  34
  35
  37
Cash from operations, $m
  37
  60
  62
  64
  67
  69
  72
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  121
  127
  133
  139
  145
  152
  159
  167
  175
  183
  192
  201
Maintenance CAPEX, $m
  0
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
New CAPEX, $m
  -36
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
Cash from investing activities, $m
  -83
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -20
  -22
  -22
  -23
  -25
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -40
  -42
  -43
  -46
  -48
  -51
  -52
  -55
Free cash flow, $m
  -46
  46
  48
  49
  51
  52
  54
  56
  58
  60
  62
  64
  67
  69
  72
  75
  78
  82
  85
  89
  93
  97
  101
  106
  111
  116
  121
  127
  133
  139
  145
Issuance/(repayment) of debt, $m
  62
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
Issuance/(repurchase) of shares, $m
  4
  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  
  66
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  94
Total cash flow (excl. dividends), $m
  20
  66
  69
  72
  74
  78
  81
  84
  88
  92
  96
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  164
  172
  180
  189
  198
  208
  218
  228
  239
Retained Cash Flow (-), $m
  -60
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
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
 
  62
  65
  68
  70
  73
  76
  79
  83
  86
  90
  93
  98
  102
  107
  111
  117
  122
  128
  134
  140
  146
  153
  161
  168
  176
  185
  194
  203
  213
  223
Discount rate, %
 
  9.40
  9.87
  10.36
  10.88
  11.43
  12.00
  12.60
  13.23
  13.89
  14.58
  15.31
  16.08
  16.88
  17.73
  18.61
  19.54
  20.52
  21.54
  22.62
  23.75
  24.94
  26.19
  27.50
  28.87
  30.32
  31.83
  33.42
  35.09
  36.85
  38.69
PV of cash for distribution, $m
 
  57
  54
  50
  47
  43
  39
  35
  31
  27
  23
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  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

Phibro Animal Health Corporation operates as a diversified animal health and mineral nutrition company primarily in the United States. It operates through three segments: Animal Health, Mineral Nutrition, and Performance Products. The company develops, manufactures, and markets products for a range of food animals comprising poultry, swine, beef and dairy cattle, and aquaculture. Its animal health products also include antibacterials that are biological or chemical products used in the animal health industry to treat or to prevent diseases; anticoccidials primarily used to prevent and control the disease coccidiosis in poultry and cattle; anthelmintics to treat infestations of parasitic intestinal worms; and anti-bloat treatment products for cattle to control bloat in animals grazing on legume or wheat-pasture. In addition, the company offers nutritional specialty products, which enhance nutrition to help improve health and performance; and vaccines to prevent diseases primarily for the poultry and swine markets. Further, it manufactures and markets formulations and concentrations of trace minerals, such as zinc, manganese, copper, iron, and other compounds; and various specialty ingredients for use in the personal care, automotive, industrial chemical, and chemical catalyst industries. The company sells its animal health and mineral nutrition products through local sales offices to integrated poultry, swine, and cattle integrators, as well as through commercial animal feed manufacturers, wholesalers, and distributors. It also operates in Israel, Latin America, Canada, Europe, Africa, and the Asia/Pacific. The company was formerly known as Philipp Brothers Chemicals, Inc. and changed its name to Phibro Animal Health Corporation in July 2003. Phibro Animal Health Corporation is headquartered in Teaneck, New Jersey.

FINANCIAL RATIOS  of  Phibro Animal Health (PAHC)

Valuation Ratios
P/E Ratio 18.1
Price to Sales 2
Price to Book 16.7
Price to Tangible Book
Price to Cash Flow 40.6
Price to Free Cash Flow 1503.5
Growth Rates
Sales Growth Rate 0.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 80%
Cap. Spend. - 3 Yr. Gr. Rate 12.5%
Financial Strength
Quick Ratio 11
Current Ratio 0.2
LT Debt to Equity 385.6%
Total Debt to Equity 388.9%
Interest Coverage 7
Management Effectiveness
Return On Assets 17.8%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 21.8%
Ret/ On T. Cap. - 3 Yr. Avg. 13.4%
Return On Equity 138.3%
Return On Equity - 3 Yr. Avg. 138.7%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 31.8%
Gross Margin - 3 Yr. Avg. 30.8%
EBITDA Margin 15.2%
EBITDA Margin - 3 Yr. Avg. 13.6%
Operating Margin 11.4%
Oper. Margin - 3 Yr. Avg. 9.7%
Pre-Tax Margin 10.2%
Pre-Tax Margin - 3 Yr. Avg. 7.2%
Net Profit Margin 11%
Net Profit Margin - 3 Yr. Avg. 6.2%
Effective Tax Rate -7.8%
Eff/ Tax Rate - 3 Yr. Avg. 55.4%
Payout Ratio 19.3%

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 $752 million for the last fiscal year's total revenue generated by Phibro Animal Health. The default revenue input number comes from 2016 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 3.8% 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 9.4%, 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 88.3%.

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 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 4.4% 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 13.4%.

Life of production assets of 10 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 27%. 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 - $90 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 38.596 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 $1.5 billion.


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COMPANY NEWS

▶ 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]
▶ Is Phibro Animal Health Corp (PAHC) A Good Stock To Buy?   [Dec-11-16 09:52AM  at Insider Monkey]
Stock chart of PAHC Financial statements of PAHC Annual reports 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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