Intrinsic value of Phibro Animal Health - PAHC

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$28.45

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$28.45

 
Intrinsic value

$11.43

 
Up/down potential

-60%

 
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 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 1.1

 

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
  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
  752
  767
  785
  805
  827
  853
  880
  910
  943
  977
  1,015
  1,055
  1,098
  1,144
  1,192
  1,243
  1,298
  1,356
  1,417
  1,481
  1,549
  1,621
  1,697
  1,776
  1,861
  1,949
  2,042
  2,141
  2,244
  2,352
  2,467
Variable operating expenses, $m
 
  677
  693
  711
  730
  753
  777
  803
  832
  862
  895
  929
  966
  1,007
  1,049
  1,094
  1,142
  1,193
  1,247
  1,304
  1,364
  1,427
  1,493
  1,564
  1,638
  1,716
  1,798
  1,884
  1,975
  2,071
  2,171
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
  677
  693
  711
  730
  753
  777
  803
  832
  862
  895
  929
  966
  1,007
  1,049
  1,094
  1,142
  1,193
  1,247
  1,304
  1,364
  1,427
  1,493
  1,564
  1,638
  1,716
  1,798
  1,884
  1,975
  2,071
  2,171
Operating income, $m
  86
  90
  92
  94
  97
  100
  103
  107
  111
  115
  119
  126
  132
  137
  143
  149
  155
  162
  170
  177
  186
  194
  203
  213
  223
  233
  245
  256
  269
  282
  296
EBITDA, $m
  109
  112
  115
  118
  121
  125
  129
  133
  138
  143
  148
  154
  160
  167
  174
  182
  190
  198
  207
  216
  226
  237
  248
  259
  272
  285
  298
  313
  328
  344
  360
Interest expense (income), $m
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  63
Earnings before tax, $m
  77
  75
  76
  78
  80
  82
  85
  88
  91
  94
  97
  103
  107
  111
  116
  120
  125
  131
  136
  142
  148
  155
  162
  169
  177
  185
  193
  202
  212
  222
  232
Tax expense, $m
  -6
  20
  21
  21
  22
  22
  23
  24
  25
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
Net income, $m
  83
  54
  56
  57
  59
  60
  62
  64
  66
  69
  71
  75
  78
  81
  84
  88
  92
  95
  99
  104
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162
  169

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
  586
  599
  614
  632
  651
  672
  695
  719
  746
  775
  805
  838
  873
  910
  949
  991
  1,035
  1,081
  1,131
  1,183
  1,237
  1,295
  1,356
  1,420
  1,488
  1,559
  1,634
  1,713
  1,796
  1,883
Adjusted assets (=assets-cash), $m
  574
  586
  599
  614
  632
  651
  672
  695
  719
  746
  775
  805
  838
  873
  910
  949
  991
  1,035
  1,081
  1,131
  1,183
  1,237
  1,295
  1,356
  1,420
  1,488
  1,559
  1,634
  1,713
  1,796
  1,883
Revenue / Adjusted assets
  1.310
  1.309
  1.311
  1.311
  1.309
  1.310
  1.310
  1.309
  1.312
  1.310
  1.310
  1.311
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
  1.311
  1.309
  1.309
  1.310
  1.310
  1.310
  1.311
  1.310
  1.310
  1.310
  1.310
  1.310
  1.310
Average production assets, $m
  101
  103
  105
  108
  111
  114
  118
  122
  126
  131
  136
  141
  147
  153
  160
  167
  174
  182
  190
  198
  208
  217
  227
  238
  249
  261
  274
  287
  301
  315
  331
Working capital, $m
  234
  207
  212
  217
  223
  230
  238
  246
  254
  264
  274
  285
  296
  309
  322
  336
  350
  366
  382
  400
  418
  438
  458
  480
  502
  526
  551
  578
  606
  635
  666
Total debt, $m
  350
  357
  369
  383
  399
  416
  435
  455
  477
  501
  527
  554
  584
  615
  648
  683
  721
  760
  802
  846
  893
  942
  994
  1,048
  1,106
  1,167
  1,230
  1,298
  1,368
  1,443
  1,521
Total liabilities, $m
  517
  525
  537
  551
  567
  584
  603
  623
  645
  669
  695
  722
  752
  783
  816
  851
  889
  928
  970
  1,014
  1,061
  1,110
  1,162
  1,216
  1,274
  1,335
  1,398
  1,466
  1,536
  1,611
  1,689
Total equity, $m
  90
  60
  62
  63
  65
  67
  69
  72
  74
  77
  80
  83
  86
  90
  94
  98
  102
  107
  111
  116
  122
  127
  133
  140
  146
  153
  161
  168
  176
  185
  194
Total liabilities and equity, $m
  607
  585
  599
  614
  632
  651
  672
  695
  719
  746
  775
  805
  838
  873
  910
  949
  991
  1,035
  1,081
  1,130
  1,183
  1,237
  1,295
  1,356
  1,420
  1,488
  1,559
  1,634
  1,712
  1,796
  1,883
Debt-to-equity ratio
  3.889
  5.920
  5.990
  6.050
  6.130
  6.200
  6.280
  6.360
  6.440
  6.520
  6.600
  6.680
  6.760
  6.840
  6.920
  6.990
  7.060
  7.130
  7.200
  7.270
  7.330
  7.390
  7.450
  7.510
  7.560
  7.610
  7.660
  7.710
  7.760
  7.800
  7.840
Adjusted equity ratio
  0.098
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  83
  54
  56
  57
  59
  60
  62
  64
  66
  69
  71
  75
  78
  81
  84
  88
  92
  95
  99
  104
  108
  113
  118
  123
  129
  135
  141
  148
  155
  162
  169
Depreciation, amort., depletion, $m
  23
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
Funds from operations, $m
  -9
  77
  78
  80
  82
  85
  87
  90
  93
  96
  100
  103
  107
  111
  116
  121
  126
  131
  137
  143
  149
  156
  163
  170
  178
  186
  195
  204
  213
  224
  234
Change in working capital, $m
  -46
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  29
  31
Cash from operations, $m
  37
  32
  74
  75
  76
  78
  80
  82
  84
  87
  90
  92
  95
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  149
  155
  162
  170
  177
  186
  194
  203
Maintenance CAPEX, $m
  0
  -20
  -20
  -21
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
New CAPEX, $m
  -36
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
Cash from investing activities, $m
  -83
  -22
  -22
  -24
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -58
  -61
  -63
  -67
  -70
  -74
  -77
Free cash flow, $m
  -46
  10
  51
  51
  52
  53
  54
  55
  56
  58
  59
  60
  62
  64
  66
  68
  71
  74
  76
  79
  83
  86
  90
  93
  97
  101
  106
  111
  116
  121
  126
Issuance/(repayment) of debt, $m
  62
  10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  74
  78
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
  10
  12
  14
  16
  17
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  74
  78
Total cash flow (excl. dividends), $m
  20
  20
  63
  65
  68
  70
  73
  75
  78
  81
  85
  88
  91
  95
  99
  104
  108
  113
  118
  124
  129
  135
  141
  148
  155
  162
  170
  178
  186
  195
  204
Retained Cash Flow (-), $m
  -60
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
Prev. year cash balance distribution, $m
 
  31
  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
 
  50
  62
  64
  66
  68
  70
  73
  76
  79
  82
  85
  88
  92
  96
  100
  104
  109
  113
  118
  124
  129
  135
  142
  148
  155
  162
  170
  178
  187
  195
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
 
  46
  51
  47
  44
  40
  36
  32
  28
  24
  21
  18
  15
  12
  10
  8
  6
  5
  3
  2
  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 13.5
Price to Sales 1.5
Price to Book 12.5
Price to Tangible Book
Price to Cash Flow 30.3
Price to Free Cash Flow 1121.2
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 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 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 5.1 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 39.502 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 $1.1 billion.


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Stock chart of PAHC Financial statements of PAHC
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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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