Intrinsic value of Petroleo Brasileiro ADR - PBR

Previous Close

$8.65

  Intrinsic Value

$3.08

stock screener

  Rating & Target

str. sell

-64%

  Value-price divergence*

+35%

Previous close

$8.65

 
Intrinsic value

$3.08

 
Up/down potential

-64%

 
Rating

str. sell

 
Value-price divergence*

+35%

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

We calculate the intrinsic value of PBR 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 55.5

 

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, %
  -12.14
  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
  89,347
  91,134
  93,230
  95,626
  98,316
  101,297
  104,567
  108,128
  111,983
  116,136
  120,593
  125,361
  130,449
  135,866
  141,624
  147,733
  154,207
  161,060
  168,307
  175,965
  184,050
  192,581
  201,578
  211,061
  221,053
  231,577
  242,657
  254,320
  266,592
  279,503
  293,083
Variable operating expenses, $m
 
  94,870
  97,051
  99,545
  102,345
  105,447
  108,850
  112,557
  116,569
  120,891
  125,530
  130,469
  135,765
  141,402
  147,394
  153,752
  160,490
  167,623
  175,165
  183,135
  191,549
  200,428
  209,792
  219,661
  230,060
  241,013
  252,544
  264,682
  277,454
  290,892
  305,025
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
  83,937
  94,870
  97,051
  99,545
  102,345
  105,447
  108,850
  112,557
  116,569
  120,891
  125,530
  130,469
  135,765
  141,402
  147,394
  153,752
  160,490
  167,623
  175,165
  183,135
  191,549
  200,428
  209,792
  219,661
  230,060
  241,013
  252,544
  264,682
  277,454
  290,892
  305,025
Operating income, $m
  5,410
  -3,736
  -3,821
  -3,919
  -4,029
  -4,150
  -4,283
  -4,428
  -4,586
  -4,755
  -4,936
  -5,108
  -5,315
  -5,536
  -5,771
  -6,020
  -6,283
  -6,563
  -6,858
  -7,170
  -7,499
  -7,847
  -8,213
  -8,600
  -9,007
  -9,436
  -9,887
  -10,362
  -10,863
  -11,389
  -11,942
EBITDA, $m
  20,758
  11,931
  12,206
  12,519
  12,872
  13,262
  13,690
  14,156
  14,661
  15,205
  15,788
  16,412
  17,079
  17,788
  18,541
  19,341
  20,189
  21,086
  22,035
  23,037
  24,096
  25,213
  26,391
  27,632
  28,940
  30,318
  31,769
  33,296
  34,902
  36,593
  38,371
Interest expense (income), $m
  8,082
  6,602
  6,806
  7,037
  7,301
  7,598
  7,927
  8,288
  8,681
  9,106
  9,564
  10,056
  10,582
  11,144
  11,741
  12,377
  13,051
  13,765
  14,521
  15,321
  16,166
  17,058
  17,999
  18,992
  20,038
  21,141
  22,302
  23,525
  24,811
  26,165
  27,590
Earnings before tax, $m
  -3,384
  -10,338
  -10,627
  -10,956
  -11,330
  -11,748
  -12,210
  -12,716
  -13,266
  -13,861
  -14,501
  -15,164
  -15,898
  -16,680
  -17,512
  -18,396
  -19,334
  -20,328
  -21,379
  -22,491
  -23,665
  -24,905
  -26,213
  -27,592
  -29,045
  -30,577
  -32,189
  -33,887
  -35,674
  -37,554
  -39,532
Tax expense, $m
  740
  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
Net income, $m
  -4,687
  -10,338
  -10,627
  -10,956
  -11,330
  -11,748
  -12,210
  -12,716
  -13,266
  -13,861
  -14,501
  -15,164
  -15,898
  -16,680
  -17,512
  -18,396
  -19,334
  -20,328
  -21,379
  -22,491
  -23,665
  -24,905
  -26,213
  -27,592
  -29,045
  -30,577
  -32,189
  -33,887
  -35,674
  -37,554
  -39,532

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  22,658
  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
  254,502
  236,712
  242,156
  248,379
  255,366
  263,108
  271,603
  280,853
  290,865
  301,652
  313,229
  325,614
  338,829
  352,900
  367,854
  383,722
  400,538
  418,338
  437,162
  457,051
  478,052
  500,211
  523,579
  548,212
  574,165
  601,499
  630,278
  660,570
  692,447
  725,982
  761,255
Adjusted assets (=assets-cash), $m
  231,844
  236,712
  242,156
  248,379
  255,366
  263,108
  271,603
  280,853
  290,865
  301,652
  313,229
  325,614
  338,829
  352,900
  367,854
  383,722
  400,538
  418,338
  437,162
  457,051
  478,052
  500,211
  523,579
  548,212
  574,165
  601,499
  630,278
  660,570
  692,447
  725,982
  761,255
Revenue / Adjusted assets
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
Average production assets, $m
  193,278
  197,123
  201,657
  206,839
  212,657
  219,105
  226,178
  233,881
  242,220
  251,202
  260,843
  271,157
  282,162
  293,879
  306,332
  319,546
  333,550
  348,373
  364,049
  380,612
  398,100
  416,553
  436,013
  456,526
  478,138
  500,901
  524,867
  550,093
  576,638
  604,565
  633,939
Working capital, $m
  20,469
  6,379
  6,526
  6,694
  6,882
  7,091
  7,320
  7,569
  7,839
  8,130
  8,442
  8,775
  9,131
  9,511
  9,914
  10,341
  10,794
  11,274
  11,782
  12,318
  12,883
  13,481
  14,110
  14,774
  15,474
  16,210
  16,986
  17,802
  18,661
  19,565
  20,516
Total debt, $m
  120,306
  115,352
  119,272
  123,753
  128,784
  134,358
  140,474
  147,134
  154,343
  162,110
  170,445
  179,362
  188,877
  199,008
  209,775
  221,200
  233,307
  246,123
  259,677
  273,997
  289,117
  305,072
  321,897
  339,632
  358,318
  377,999
  398,720
  420,531
  443,482
  467,627
  493,024
Total liabilities, $m
  175,386
  170,432
  174,352
  178,833
  183,864
  189,438
  195,554
  202,214
  209,423
  217,190
  225,525
  234,442
  243,957
  254,088
  264,855
  276,280
  288,387
  301,203
  314,757
  329,077
  344,197
  360,152
  376,977
  394,712
  413,398
  433,079
  453,800
  475,611
  498,562
  522,707
  548,104
Total equity, $m
  79,116
  66,279
  67,804
  69,546
  71,503
  73,670
  76,049
  78,639
  81,442
  84,463
  87,704
  91,172
  94,872
  98,812
  102,999
  107,442
  112,151
  117,135
  122,405
  127,974
  133,855
  140,059
  146,602
  153,499
  160,766
  168,420
  176,478
  184,960
  193,885
  203,275
  213,151
Total liabilities and equity, $m
  254,502
  236,711
  242,156
  248,379
  255,367
  263,108
  271,603
  280,853
  290,865
  301,653
  313,229
  325,614
  338,829
  352,900
  367,854
  383,722
  400,538
  418,338
  437,162
  457,051
  478,052
  500,211
  523,579
  548,211
  574,164
  601,499
  630,278
  660,571
  692,447
  725,982
  761,255
Debt-to-equity ratio
  1.521
  1.740
  1.760
  1.780
  1.800
  1.820
  1.850
  1.870
  1.900
  1.920
  1.940
  1.970
  1.990
  2.010
  2.040
  2.060
  2.080
  2.100
  2.120
  2.140
  2.160
  2.180
  2.200
  2.210
  2.230
  2.240
  2.260
  2.270
  2.290
  2.300
  2.310
Adjusted equity ratio
  0.245
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -4,687
  -10,338
  -10,627
  -10,956
  -11,330
  -11,748
  -12,210
  -12,716
  -13,266
  -13,861
  -14,501
  -15,164
  -15,898
  -16,680
  -17,512
  -18,396
  -19,334
  -20,328
  -21,379
  -22,491
  -23,665
  -24,905
  -26,213
  -27,592
  -29,045
  -30,577
  -32,189
  -33,887
  -35,674
  -37,554
  -39,532
Depreciation, amort., depletion, $m
  15,348
  15,667
  16,027
  16,439
  16,900
  17,412
  17,973
  18,585
  19,246
  19,959
  20,725
  21,520
  22,394
  23,324
  24,312
  25,361
  26,472
  27,649
  28,893
  30,207
  31,595
  33,060
  34,604
  36,232
  37,947
  39,754
  41,656
  43,658
  45,765
  47,981
  50,313
Funds from operations, $m
  25,403
  5,329
  5,400
  5,482
  5,570
  5,664
  5,763
  5,868
  5,980
  6,098
  6,224
  6,356
  6,496
  6,644
  6,800
  6,965
  7,138
  7,321
  7,514
  7,717
  7,930
  8,155
  8,392
  8,640
  8,902
  9,177
  9,467
  9,771
  10,091
  10,427
  10,781
Change in working capital, $m
  -2,961
  125
  147
  168
  188
  209
  229
  249
  270
  291
  312
  334
  356
  379
  403
  428
  453
  480
  507
  536
  566
  597
  630
  664
  699
  737
  776
  816
  859
  904
  951
Cash from operations, $m
  28,364
  5,204
  5,253
  5,315
  5,382
  5,455
  5,534
  5,619
  5,710
  5,808
  5,912
  6,022
  6,140
  6,265
  6,397
  6,537
  6,685
  6,841
  7,006
  7,181
  7,364
  7,558
  7,762
  7,977
  8,203
  8,441
  8,691
  8,955
  9,232
  9,524
  9,830
Maintenance CAPEX, $m
  0
  -15,340
  -15,645
  -16,004
  -16,416
  -16,878
  -17,389
  -17,951
  -18,562
  -19,224
  -19,937
  -20,702
  -21,520
  -22,394
  -23,324
  -24,312
  -25,361
  -26,472
  -27,649
  -28,893
  -30,207
  -31,595
  -33,060
  -34,604
  -36,232
  -37,947
  -39,754
  -41,656
  -43,658
  -45,765
  -47,981
New CAPEX, $m
  -15,584
  -3,845
  -4,534
  -5,183
  -5,818
  -6,447
  -7,074
  -7,703
  -8,338
  -8,983
  -9,640
  -10,314
  -11,005
  -11,717
  -12,453
  -13,214
  -14,004
  -14,823
  -15,676
  -16,563
  -17,488
  -18,453
  -19,460
  -20,513
  -21,612
  -22,763
  -23,966
  -25,226
  -26,545
  -27,927
  -29,374
Cash from investing activities, $m
  -12,667
  -19,185
  -20,179
  -21,187
  -22,234
  -23,325
  -24,463
  -25,654
  -26,900
  -28,207
  -29,577
  -31,016
  -32,525
  -34,111
  -35,777
  -37,526
  -39,365
  -41,295
  -43,325
  -45,456
  -47,695
  -50,048
  -52,520
  -55,117
  -57,844
  -60,710
  -63,720
  -66,882
  -70,203
  -73,692
  -77,355
Free cash flow, $m
  15,697
  -13,980
  -14,925
  -15,872
  -16,852
  -17,870
  -18,929
  -20,035
  -21,190
  -22,399
  -23,666
  -24,993
  -26,385
  -27,846
  -29,380
  -30,989
  -32,679
  -34,454
  -36,318
  -38,275
  -40,331
  -42,490
  -44,758
  -47,140
  -49,642
  -52,269
  -55,029
  -57,927
  -60,971
  -64,168
  -67,525
Issuance/(repayment) of debt, $m
  -12,978
  3,449
  3,920
  4,481
  5,031
  5,574
  6,116
  6,660
  7,209
  7,767
  8,335
  8,917
  9,515
  10,131
  10,767
  11,425
  12,107
  12,816
  13,553
  14,321
  15,120
  15,954
  16,825
  17,735
  18,686
  19,681
  20,721
  21,810
  22,951
  24,145
  25,397
Issuance/(repurchase) of shares, $m
  0
  11,757
  12,152
  12,699
  13,286
  13,916
  14,589
  15,306
  16,070
  16,881
  17,742
  18,632
  19,598
  20,620
  21,699
  22,839
  24,043
  25,312
  26,650
  28,060
  29,545
  31,109
  32,756
  34,489
  36,312
  38,230
  40,247
  42,369
  44,599
  46,944
  49,408
Cash from financing (excl. dividends), $m  
  -21,097
  15,206
  16,072
  17,180
  18,317
  19,490
  20,705
  21,966
  23,279
  24,648
  26,077
  27,549
  29,113
  30,751
  32,466
  34,264
  36,150
  38,128
  40,203
  42,381
  44,665
  47,063
  49,581
  52,224
  54,998
  57,911
  60,968
  64,179
  67,550
  71,089
  74,805
Total cash flow (excl. dividends), $m
  -9,086
  1,226
  1,146
  1,307
  1,465
  1,621
  1,776
  1,932
  2,089
  2,249
  2,412
  2,556
  2,727
  2,904
  3,086
  3,275
  3,471
  3,674
  3,885
  4,105
  4,334
  4,573
  4,823
  5,084
  5,356
  5,641
  5,940
  6,252
  6,579
  6,921
  7,280
Retained Cash Flow (-), $m
  1,423
  -11,757
  -12,152
  -12,699
  -13,286
  -13,916
  -14,589
  -15,306
  -16,070
  -16,881
  -17,742
  -18,632
  -19,598
  -20,620
  -21,699
  -22,839
  -24,043
  -25,312
  -26,650
  -28,060
  -29,545
  -31,109
  -32,756
  -34,489
  -36,312
  -38,230
  -40,247
  -42,369
  -44,599
  -46,944
  -49,408
Prev. year cash balance distribution, $m
 
  14,255
  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
 
  3,724
  -11,005
  -11,392
  -11,822
  -12,296
  -12,813
  -13,375
  -13,981
  -14,632
  -15,330
  -16,076
  -16,870
  -17,716
  -18,613
  -19,564
  -20,572
  -21,638
  -22,765
  -23,955
  -25,211
  -26,536
  -27,933
  -29,405
  -30,956
  -32,589
  -34,308
  -36,117
  -38,020
  -40,023
  -42,129
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
 
  3,480
  -9,550
  -9,114
  -8,656
  -8,174
  -7,668
  -7,140
  -6,594
  -6,034
  -5,468
  -4,902
  -4,343
  -3,800
  -3,281
  -2,792
  -2,340
  -1,929
  -1,563
  -1,244
  -970
  -742
  -554
  -405
  -289
  -201
  -136
  -89
  -57
  -35
  -21
Current shareholders' claim on cash, %
  100
  79.5
  63.0
  49.7
  39.1
  30.6
  23.8
  18.5
  14.3
  11.1
  8.5
  6.5
  5.0
  3.8
  2.9
  2.2
  1.7
  1.3
  1.0
  0.7
  0.5
  0.4
  0.3
  0.2
  0.2
  0.1
  0.1
  0.1
  0.1
  0.0
  0.0

Petróleo Brasileiro S.A. – Petrobras operates as an integrated energy company in Brazil and internationally. Its Exploration and Production segment engages in the exploration, development, and production of crude oil, natural gas liquids, and natural gas; and sale of crude oil and oil products produced at natural gas processing plants in domestic and foreign markets. The company’s Refining, Transportation and Marketing segment is involved in the refining, logistics, transport, and trading of crude oil and oil products, as well as exports ethanol and invests in petrochemical companies. This segment also engages in the extraction and processing of shale. The company’s Gas and Power segment engages in the transportation and trade of natural gas and liquid natural gas; generation and trade of electricity; holding interests in natural gas transportation and distribution, and thermoelectric power plants; and fertilizer business. Its Biofuels segment is involved in the production of biodiesel and its co-products, as well as in the investment, production, and trading of ethanol, sugar, and the electric power generated from sugarcane bagasse. The company’s Distribution segment distributes oil products, ethanol, and vehicle natural gas in Brazil to retail, commercial, and industrial customers, as well as other fuel wholesalers. The company was founded in 1953 and is headquartered in Rio de Janeiro, Brazil.

FINANCIAL RATIOS  of  Petroleo Brasileiro ADR (PBR)

Valuation Ratios
P/E Ratio -24.1
Price to Sales 1.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 4
Price to Free Cash Flow 8.8
Growth Rates
Sales Growth Rate -12.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -30.9%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio 3
Current Ratio 0.3
LT Debt to Equity 141.4%
Total Debt to Equity 152.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. -0.2%
Return On Total Capital -2.2%
Ret/ On T. Cap. - 3 Yr. Avg. -3.2%
Return On Equity -5.9%
Return On Equity - 3 Yr. Avg. -7.5%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 31.8%
Gross Margin - 3 Yr. Avg. 28.8%
EBITDA Margin 22.4%
EBITDA Margin - 3 Yr. Avg. 11.7%
Operating Margin 6.1%
Oper. Margin - 3 Yr. Avg. -1%
Pre-Tax Margin -3.8%
Pre-Tax Margin - 3 Yr. Avg. -7.6%
Net Profit Margin -5.2%
Net Profit Margin - 3 Yr. Avg. -7.1%
Effective Tax Rate -21.9%
Eff/ Tax Rate - 3 Yr. Avg. 2.6%
Payout Ratio 0%

PBR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PBR stock intrinsic value calculation we used $89347 million for the last fiscal year's total revenue generated by Petroleo Brasileiro ADR. The default revenue input number comes from 2016 income statement of Petroleo Brasileiro ADR. 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 PBR 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 7%, whose default value for PBR is calculated based on our internal credit rating of Petroleo Brasileiro ADR, 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 Petroleo Brasileiro ADR.
    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 PBR stock the variable cost ratio is equal to 104.1%.

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 PBR 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 5.9% for Petroleo Brasileiro ADR.

Corporate tax rate of 27% is the nominal tax rate for Petroleo Brasileiro ADR. 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 PBR 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 PBR are equal to 216.3%.

Life of production assets of 12.6 years is the average useful life of capital assets used in Petroleo Brasileiro ADR 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 PBR is equal to 7%. 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 - $79116 million for Petroleo Brasileiro ADR - 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 6413.04 million for Petroleo Brasileiro ADR 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 Petroleo Brasileiro ADR at the current share price and the inputted number of shares is $55.5 billion.

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COMPANY NEWS

▶ Brazils Pre-Salt Extraction Costs Fall To $8 Per Barrel   [Aug-13-17 03:00PM  Oilprice.com]
▶ Petrobras misses 2Q profit forecasts   [Aug-11-17 08:08PM  Associated Press]
▶ [$$] Petrobras Net Profit Falls 68%   [07:23PM  The Wall Street Journal]
▶ Petrobras to Report 2nd Quarter Thursday   [01:03PM  GuruFocus.com]
▶ Brazil: Temer WinsWhat Now?   [10:18AM  Barrons.com]
▶ Against All Odds: The Return Of An Oil Giant   [Aug-01-17 06:00PM  Oilprice.com]
▶ [$$] Former Petrobras CEO Arrested in Corruption Probe   [Jul-27-17 07:39PM  The Wall Street Journal]
▶ Could Brazil Derail The OPEC Deal?   [01:00PM  Oilprice.com]
▶ 2 Experts: Why Saudis Cut U.S. Oil Shipments   [Jul-21-17 09:51AM  Barrons.com]
▶ How Chevron Stock Has Performed ahead of 2Q17 Earnings   [Jul-20-17 06:06PM  Market Realist]
▶ Short Sellers Back Off Major Oil   [08:45AM  24/7 Wall St.]
▶ AP Explains: 'Car Wash' probe upending Brazilian politics   [Jul-12-17 10:30PM  Associated Press]
▶ Not All Energy Stocks Fall in Conjunction With Oil Prices   [Jun-28-17 02:48PM  InvestorPlace]
▶ UPDATED: Brazil ETF In Flux: Would Temer Step Aside?   [Jun-27-17 12:09PM  Barrons.com]
▶ Short Sellers Hike Bets in Major Oil   [08:40AM  24/7 Wall St.]
▶ Why Teekay Offshores Performance Has Slumped   [09:09AM  Market Realist]
Stock chart of PBR Financial statements of PBR
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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