Intrinsic value of SandRidge Mississippian Trust II - SDR

Previous Close

$1.06

  Intrinsic Value

$0.92

stock screener

  Rating & Target

hold

-13%

Previous close

$1.06

 
Intrinsic value

$0.92

 
Up/down potential

-13%

 
Rating

hold

We calculate the intrinsic value of SDR 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 0.1

 

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, %
  -57.45
  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
  20
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
Variable operating expenses, $m
 
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
Fixed operating expenses, $m
 
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
Total operating expenses, $m
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  7
  9
  9
  9
  9
  9
  9
Operating income, $m
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
EBITDA, $m
  16
  29
  30
  31
  32
  33
  34
  35
  36
  37
  39
  41
  42
  44
  46
  48
  50
  53
  55
  58
  60
  63
  66
  70
  73
  77
  80
  84
  89
  93
  98
Interest expense (income), $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
  0
Earnings before tax, $m
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
Tax expense, $m
  0
  4
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
Net income, $m
  16
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  2
  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
  122
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  375
  393
Adjusted assets (=assets-cash), $m
  120
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  375
  393
Revenue / Adjusted assets
  0.167
  0.164
  0.168
  0.164
  0.167
  0.169
  0.164
  0.166
  0.167
  0.167
  0.167
  0.167
  0.166
  0.165
  0.168
  0.167
  0.169
  0.167
  0.168
  0.165
  0.166
  0.167
  0.167
  0.166
  0.166
  0.168
  0.166
  0.167
  0.168
  0.168
  0.168
Average production assets, $m
  127
  130
  133
  136
  140
  144
  149
  154
  159
  165
  171
  178
  185
  193
  201
  210
  219
  229
  239
  250
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  417
Working capital, $m
  2
  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 debt, $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
  0
Total liabilities, $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
  0
Total equity, $m
  122
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  375
  393
Total liabilities and equity, $m
  122
  122
  125
  128
  132
  136
  140
  145
  150
  156
  162
  168
  175
  182
  190
  198
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  341
  357
  375
  393
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41
Depreciation, amort., depletion, $m
  0
  13
  13
  14
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  40
  42
Funds from operations, $m
  2
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  79
  83
Change in working capital, $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
  0
Cash from operations, $m
  2
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  79
  83
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
New CAPEX, $m
  0
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
Cash from investing activities, $m
  0
  -16
  -16
  -16
  -18
  -18
  -19
  -20
  -20
  -22
  -23
  -24
  -25
  -27
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
Free cash flow, $m
  2
  10
  9
  9
  9
  9
  10
  10
  10
  10
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
Issuance/(repayment) of debt, $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
  0
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $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
  0
Total cash flow (excl. dividends), $m
  2
  10
  9
  9
  9
  9
  10
  10
  10
  10
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
Retained Cash Flow (-), $m
  14
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
Prev. year cash balance distribution, $m
 
  2
  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
 
  9
  7
  6
  6
  5
  5
  5
  5
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  9
  6
  5
  5
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  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

SandRidge Mississippian Trust II is a statutory trust. The royalty interests conveyed by SandRidge Energy, Inc. (SandRidge) from its interests in certain properties in the Mississippian formation in northern Oklahoma and southern Kansas and held by the Trust are referred to as the Royalty Interests. The Trust holds Royalty Interests in specified oil and natural gas properties. The Royalty Interests entitle the Trust to receive approximately 80% of the proceeds from the sale of oil, natural gas and natural gas liquids (NGLs) production attributable to SandRidge's net revenue interest in approximately 50 wells producing and over 10 additional wells awaiting (together, the Initial Wells), and over 70% of the proceeds from the sale of oil, natural gas and NGL production attributable to SandRidge's net revenue interest in approximately 200 horizontal oil and natural gas development wells drilled (the Trust Development Wells) within an area of mutual interest (AMI).

FINANCIAL RATIOS  of  SandRidge Mississippian Trust II (SDR)

Valuation Ratios
P/E Ratio 3.3
Price to Sales 2.6
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 26.4
Price to Free Cash Flow 26.4
Growth Rates
Sales Growth Rate -57.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.4%
Ret/ On Assets - 3 Yr. Avg. 16.5%
Return On Total Capital 12.4%
Ret/ On T. Cap. - 3 Yr. Avg. 16.5%
Return On Equity 12.4%
Return On Equity - 3 Yr. Avg. 16.5%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 100%
Gross Margin - 3 Yr. Avg. 99.6%
EBITDA Margin 80%
EBITDA Margin - 3 Yr. Avg. 87.4%
Operating Margin 80%
Oper. Margin - 3 Yr. Avg. 87.4%
Pre-Tax Margin 80%
Pre-Tax Margin - 3 Yr. Avg. 87.4%
Net Profit Margin 80%
Net Profit Margin - 3 Yr. Avg. 87.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 100%

SDR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SDR stock intrinsic value calculation we used $20 million for the last fiscal year's total revenue generated by SandRidge Mississippian Trust II. The default revenue input number comes from 2016 income statement of SandRidge Mississippian Trust II. 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 SDR 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 4.3%, whose default value for SDR is calculated based on our internal credit rating of SandRidge Mississippian Trust II, 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 SandRidge Mississippian Trust II.
    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 SDR stock the variable cost ratio is equal to 5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $3 million in the base year in the intrinsic value calculation for SDR 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 3.5% for SandRidge Mississippian Trust II.

Corporate tax rate of 27% is the nominal tax rate for SandRidge Mississippian Trust II. 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 SDR 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 SDR are equal to 635%.

Life of production assets of 10 years is the average useful life of capital assets used in SandRidge Mississippian Trust II 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 SDR is equal to 0%. 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 - $122 million for SandRidge Mississippian Trust II - 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 62.153 million for SandRidge Mississippian Trust II 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 SandRidge Mississippian Trust II at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Best Cheap Stock in November   [Nov-25-17 08:02AM  Simply Wall St.]
▶ Best-In-Class Undervalued Stocks   [Nov-15-17 08:02AM  Simply Wall St.]
▶ When Should You Buy SandRidge Mississippian Trust I (SDT)?   [Oct-12-17 12:14PM  Simply Wall St.]
▶ When Should You Buy Sandridge Mississippian Trust II (SDR)?   [Sep-28-17 02:45PM  Simply Wall St.]
▶ SandRidge Mississippian Trust I posts 2Q profit   [Aug-09-17 04:03PM  Associated Press]
▶ SandRidge Mississippian Trust posts 2Q profit   [03:55PM  Associated Press]
Financial statements of SDR
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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