Intrinsic value of Spectra Energy Partners - SEP

Previous Close

$43.44

  Intrinsic Value

$6.97

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

+62%

Previous close

$43.44

 
Intrinsic value

$6.97

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

+62%

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

We calculate the intrinsic value of SEP 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 13.8

 

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, %
  3.18
  12.20
  11.48
  10.83
  10.25
  9.72
  9.25
  8.83
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  2,533
  2,842
  3,168
  3,511
  3,871
  4,248
  4,641
  5,050
  5,477
  5,920
  6,382
  6,861
  7,359
  7,877
  8,415
  8,974
  9,556
  10,161
  10,791
  11,447
  12,131
  12,843
  13,587
  14,363
  15,172
  16,018
  16,902
  17,825
  18,791
  19,802
  20,859
Variable operating expenses, $m
 
  1,330
  1,446
  1,568
  1,695
  1,829
  1,968
  2,113
  2,264
  2,421
  2,585
  2,431
  2,607
  2,791
  2,981
  3,180
  3,386
  3,600
  3,823
  4,056
  4,298
  4,551
  4,814
  5,089
  5,376
  5,676
  5,989
  6,316
  6,658
  7,016
  7,391
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
  1,305
  1,330
  1,446
  1,568
  1,695
  1,829
  1,968
  2,113
  2,264
  2,421
  2,585
  2,431
  2,607
  2,791
  2,981
  3,180
  3,386
  3,600
  3,823
  4,056
  4,298
  4,551
  4,814
  5,089
  5,376
  5,676
  5,989
  6,316
  6,658
  7,016
  7,391
Operating income, $m
  1,228
  1,512
  1,722
  1,944
  2,176
  2,419
  2,673
  2,938
  3,213
  3,499
  3,797
  4,430
  4,752
  5,086
  5,433
  5,794
  6,170
  6,561
  6,967
  7,391
  7,833
  8,293
  8,773
  9,274
  9,796
  10,342
  10,913
  11,509
  12,133
  12,785
  13,468
EBITDA, $m
  1,548
  2,395
  2,670
  2,959
  3,262
  3,579
  3,910
  4,256
  4,615
  4,989
  5,377
  5,781
  6,201
  6,637
  7,090
  7,561
  8,052
  8,562
  9,093
  9,645
  10,221
  10,822
  11,448
  12,102
  12,784
  13,497
  14,242
  15,020
  15,834
  16,685
  17,576
Interest expense (income), $m
  209
  245
  286
  328
  372
  419
  468
  518
  571
  627
  684
  744
  806
  870
  937
  1,006
  1,079
  1,154
  1,232
  1,314
  1,399
  1,487
  1,579
  1,675
  1,776
  1,880
  1,990
  2,104
  2,223
  2,348
  2,479
Earnings before tax, $m
  1,257
  1,267
  1,437
  1,616
  1,804
  2,000
  2,205
  2,419
  2,641
  2,873
  3,113
  3,686
  3,946
  4,216
  4,496
  4,788
  5,091
  5,407
  5,735
  6,077
  6,434
  6,806
  7,193
  7,598
  8,021
  8,462
  8,923
  9,405
  9,910
  10,437
  10,989
Tax expense, $m
  18
  342
  388
  436
  487
  540
  595
  653
  713
  776
  841
  995
  1,065
  1,138
  1,214
  1,293
  1,375
  1,460
  1,548
  1,641
  1,737
  1,838
  1,942
  2,052
  2,166
  2,285
  2,409
  2,539
  2,676
  2,818
  2,967
Net income, $m
  1,161
  925
  1,049
  1,180
  1,317
  1,460
  1,610
  1,766
  1,928
  2,097
  2,273
  2,691
  2,881
  3,078
  3,282
  3,495
  3,716
  3,947
  4,187
  4,436
  4,697
  4,968
  5,251
  5,547
  5,855
  6,177
  6,514
  6,866
  7,234
  7,619
  8,022

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  216
  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
  21,606
  24,085
  26,850
  29,758
  32,808
  35,998
  39,329
  42,800
  46,414
  50,173
  54,082
  58,143
  62,364
  66,751
  71,310
  76,050
  80,980
  86,109
  91,448
  97,009
  102,803
  108,843
  115,143
  121,716
  128,579
  135,746
  143,235
  151,063
  159,249
  167,811
  176,771
Adjusted assets (=assets-cash), $m
  21,390
  24,085
  26,850
  29,758
  32,808
  35,998
  39,329
  42,800
  46,414
  50,173
  54,082
  58,143
  62,364
  66,751
  71,310
  76,050
  80,980
  86,109
  91,448
  97,009
  102,803
  108,843
  115,143
  121,716
  128,579
  135,746
  143,235
  151,063
  159,249
  167,811
  176,771
Revenue / Adjusted assets
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
  0.118
Average production assets, $m
  14,965
  16,791
  18,718
  20,746
  22,872
  25,096
  27,418
  29,838
  32,357
  34,978
  37,703
  40,534
  43,477
  46,535
  49,713
  53,018
  56,454
  60,030
  63,753
  67,629
  71,669
  75,879
  80,271
  84,854
  89,638
  94,635
  99,856
  105,313
  111,019
  116,989
  123,235
Working capital, $m
  -1,119
  -284
  -317
  -351
  -387
  -425
  -464
  -505
  -548
  -592
  -638
  -686
  -736
  -788
  -841
  -897
  -956
  -1,016
  -1,079
  -1,145
  -1,213
  -1,284
  -1,359
  -1,436
  -1,517
  -1,602
  -1,690
  -1,783
  -1,879
  -1,980
  -2,086
Total debt, $m
  7,213
  8,165
  9,371
  10,639
  11,968
  13,359
  14,811
  16,325
  17,901
  19,540
  21,244
  23,014
  24,855
  26,767
  28,755
  30,822
  32,971
  35,208
  37,536
  39,960
  42,486
  45,120
  47,866
  50,732
  53,724
  56,849
  60,115
  63,528
  67,097
  70,830
  74,736
Total liabilities, $m
  9,549
  10,501
  11,707
  12,975
  14,304
  15,695
  17,147
  18,661
  20,237
  21,876
  23,580
  25,350
  27,191
  29,103
  31,091
  33,158
  35,307
  37,544
  39,872
  42,296
  44,822
  47,456
  50,202
  53,068
  56,060
  59,185
  62,451
  65,864
  69,433
  73,166
  77,072
Total equity, $m
  12,057
  13,584
  15,143
  16,784
  18,504
  20,303
  22,181
  24,139
  26,178
  28,298
  30,502
  32,793
  35,173
  37,647
  40,219
  42,892
  45,673
  48,565
  51,577
  54,713
  57,981
  61,388
  64,941
  68,648
  72,518
  76,561
  80,785
  85,200
  89,816
  94,646
  99,699
Total liabilities and equity, $m
  21,606
  24,085
  26,850
  29,759
  32,808
  35,998
  39,328
  42,800
  46,415
  50,174
  54,082
  58,143
  62,364
  66,750
  71,310
  76,050
  80,980
  86,109
  91,449
  97,009
  102,803
  108,844
  115,143
  121,716
  128,578
  135,746
  143,236
  151,064
  159,249
  167,812
  176,771
Debt-to-equity ratio
  0.598
  0.600
  0.620
  0.630
  0.650
  0.660
  0.670
  0.680
  0.680
  0.690
  0.700
  0.700
  0.710
  0.710
  0.710
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.750
Adjusted equity ratio
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,161
  925
  1,049
  1,180
  1,317
  1,460
  1,610
  1,766
  1,928
  2,097
  2,273
  2,691
  2,881
  3,078
  3,282
  3,495
  3,716
  3,947
  4,187
  4,436
  4,697
  4,968
  5,251
  5,547
  5,855
  6,177
  6,514
  6,866
  7,234
  7,619
  8,022
Depreciation, amort., depletion, $m
  320
  883
  947
  1,015
  1,086
  1,160
  1,237
  1,318
  1,402
  1,489
  1,580
  1,351
  1,449
  1,551
  1,657
  1,767
  1,882
  2,001
  2,125
  2,254
  2,389
  2,529
  2,676
  2,828
  2,988
  3,154
  3,329
  3,510
  3,701
  3,900
  4,108
Funds from operations, $m
  1,378
  1,808
  1,996
  2,195
  2,403
  2,620
  2,847
  3,084
  3,330
  3,586
  3,853
  4,042
  4,330
  4,629
  4,939
  5,262
  5,598
  5,948
  6,312
  6,691
  7,086
  7,497
  7,927
  8,375
  8,843
  9,332
  9,843
  10,376
  10,935
  11,519
  12,130
Change in working capital, $m
  -84
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
  -78
  -81
  -85
  -88
  -92
  -97
  -101
  -106
Cash from operations, $m
  1,462
  1,839
  2,029
  2,229
  2,439
  2,658
  2,887
  3,125
  3,373
  3,631
  3,899
  4,090
  4,380
  4,680
  4,993
  5,318
  5,656
  6,008
  6,375
  6,756
  7,154
  7,569
  8,001
  8,453
  8,924
  9,416
  9,931
  10,469
  11,031
  11,620
  12,236
Maintenance CAPEX, $m
  0
  -499
  -560
  -624
  -692
  -762
  -837
  -914
  -995
  -1,079
  -1,166
  -1,257
  -1,351
  -1,449
  -1,551
  -1,657
  -1,767
  -1,882
  -2,001
  -2,125
  -2,254
  -2,389
  -2,529
  -2,676
  -2,828
  -2,988
  -3,154
  -3,329
  -3,510
  -3,701
  -3,900
New CAPEX, $m
  -2,414
  -1,826
  -1,928
  -2,028
  -2,126
  -2,224
  -2,322
  -2,420
  -2,519
  -2,621
  -2,725
  -2,832
  -2,943
  -3,058
  -3,178
  -3,304
  -3,437
  -3,576
  -3,722
  -3,877
  -4,039
  -4,211
  -4,392
  -4,583
  -4,784
  -4,997
  -5,221
  -5,457
  -5,707
  -5,969
  -6,246
Cash from investing activities, $m
  -2,754
  -2,325
  -2,488
  -2,652
  -2,818
  -2,986
  -3,159
  -3,334
  -3,514
  -3,700
  -3,891
  -4,089
  -4,294
  -4,507
  -4,729
  -4,961
  -5,204
  -5,458
  -5,723
  -6,002
  -6,293
  -6,600
  -6,921
  -7,259
  -7,612
  -7,985
  -8,375
  -8,786
  -9,217
  -9,670
  -10,146
Free cash flow, $m
  -1,292
  -486
  -459
  -423
  -379
  -329
  -272
  -209
  -141
  -68
  8
  2
  86
  173
  264
  357
  452
  551
  651
  755
  861
  969
  1,080
  1,194
  1,311
  1,432
  1,556
  1,683
  1,814
  1,950
  2,090
Issuance/(repayment) of debt, $m
  618
  1,168
  1,206
  1,268
  1,330
  1,391
  1,452
  1,513
  1,576
  1,639
  1,704
  1,771
  1,840
  1,912
  1,988
  2,067
  2,149
  2,236
  2,328
  2,424
  2,526
  2,633
  2,747
  2,866
  2,992
  3,125
  3,265
  3,413
  3,569
  3,733
  3,906
Issuance/(repurchase) of shares, $m
  1,080
  602
  511
  461
  403
  339
  268
  192
  110
  23
  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  
  2,401
  1,770
  1,717
  1,729
  1,733
  1,730
  1,720
  1,705
  1,686
  1,662
  1,704
  1,771
  1,840
  1,912
  1,988
  2,067
  2,149
  2,236
  2,328
  2,424
  2,526
  2,633
  2,747
  2,866
  2,992
  3,125
  3,265
  3,413
  3,569
  3,733
  3,906
Total cash flow (excl. dividends), $m
  1,109
  1,284
  1,258
  1,306
  1,354
  1,401
  1,449
  1,496
  1,545
  1,594
  1,712
  1,773
  1,926
  2,086
  2,251
  2,423
  2,602
  2,787
  2,979
  3,179
  3,387
  3,602
  3,827
  4,060
  4,303
  4,557
  4,821
  5,096
  5,383
  5,683
  5,996
Retained Cash Flow (-), $m
  -1,244
  -1,527
  -1,559
  -1,640
  -1,720
  -1,799
  -1,878
  -1,958
  -2,038
  -2,120
  -2,204
  -2,291
  -2,381
  -2,474
  -2,571
  -2,673
  -2,780
  -2,893
  -3,011
  -3,136
  -3,268
  -3,407
  -3,553
  -3,707
  -3,870
  -4,042
  -4,224
  -4,415
  -4,617
  -4,829
  -5,053
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
 
  -243
  -302
  -334
  -366
  -398
  -430
  -461
  -494
  -527
  -492
  -518
  -454
  -388
  -320
  -250
  -179
  -106
  -32
  43
  119
  196
  274
  353
  433
  514
  597
  681
  767
  854
  943
Discount rate, %
 
  6.80
  7.14
  7.50
  7.87
  8.27
  8.68
  9.11
  9.57
  10.05
  10.55
  11.08
  11.63
  12.21
  12.82
  13.46
  14.14
  14.84
  15.59
  16.37
  17.18
  18.04
  18.94
  19.89
  20.89
  21.93
  23.03
  24.18
  25.39
  26.66
  27.99
PV of cash for distribution, $m
 
  -227
  -263
  -269
  -270
  -268
  -261
  -251
  -238
  -222
  -180
  -163
  -121
  -87
  -59
  -38
  -22
  -10
  -2
  2
  5
  6
  6
  5
  5
  4
  3
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  95.8
  92.7
  90.3
  88.5
  87.1
  86.1
  85.4
  85.1
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0

Spectra Energy Partners, LP operates as an investment arm of Spectra Energy Corp. Spectra Energy Partners, LP, through its subsidiaries, engages in the transportation of natural gas through interstate pipeline systems, and the storage of natural gas in underground facilities in the United States. As of December 31, 2007, it owned and operated 100% of the approximately 1,400-mile East Tennessee interstate natural gas transportation system that extends from central Tennessee eastward into southwest Virginia and northern North Carolina, and southward into northern Georgia; and a liquefied natural gas storage facility in Kingsport, Tennessee with working gas storage capacity of approximately 1.1 billion cubic feet (Bcf) and re-gasification capability of 150 million cubic feet per day. The company also owned a 24.5% interest in the approximate 700-mile Gulfstream interstate natural gas transportation system, which extends from Pascagoula, Mississippi, and Mobile, Alabama across the Gulf of Mexico and into Florida; a 50% interest in Market Hub, which owns and operates 2 salt cavern natural gas storage facilities, the Egan storage facility with gas capacity of approximately 20 Bcf, and the Moss Bluff storage facility with working gas capacity of 15 Bcf. The company transports and stores natural gas for local gas distribution companies, municipal utilities, interstate and intrastate pipelines, direct industrial users, electric power generators, marketers, and producers. Spectra Energy Partners (DE) GP, LP, operates as the general partner to Spectra Energy Partners, LP. The company is based in Houston, Texas.

FINANCIAL RATIOS  of  Spectra Energy Partners (SEP)

Valuation Ratios
P/E Ratio 11.5
Price to Sales 5.3
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 9.2
Price to Free Cash Flow -14.1
Growth Rates
Sales Growth Rate 3.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 28.2%
Cap. Spend. - 3 Yr. Gr. Rate 18.8%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 51.6%
Total Debt to Equity 59.8%
Interest Coverage 7
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 7.2%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 10.2%
Return On Equity - 3 Yr. Avg. 10.4%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 67.5%
Gross Margin - 3 Yr. Avg. 68.9%
EBITDA Margin 70.5%
EBITDA Margin - 3 Yr. Avg. 71.3%
Operating Margin 48.5%
Oper. Margin - 3 Yr. Avg. 50.1%
Pre-Tax Margin 49.6%
Pre-Tax Margin - 3 Yr. Avg. 49.5%
Net Profit Margin 45.8%
Net Profit Margin - 3 Yr. Avg. 46.7%
Effective Tax Rate 1.4%
Eff/ Tax Rate - 3 Yr. Avg. 1.9%
Payout Ratio 91.4%

SEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SEP stock intrinsic value calculation we used $2533 million for the last fiscal year's total revenue generated by Spectra Energy Partners. The default revenue input number comes from 2016 income statement of Spectra Energy Partners. 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 SEP stock valuation model: a) initial revenue growth rate of 12.2% 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 6.8%, whose default value for SEP is calculated based on our internal credit rating of Spectra Energy Partners, 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 Spectra Energy Partners.
    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 SEP stock the variable cost ratio is equal to 48.2%.

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 SEP 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 Spectra Energy Partners.

Corporate tax rate of 27% is the nominal tax rate for Spectra Energy Partners. 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 SEP 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 SEP are equal to 590.8%.

Life of production assets of 56.9 years is the average useful life of capital assets used in Spectra Energy Partners 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 SEP is equal to -10%. 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 - $12057 million for Spectra Energy Partners - 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 316.629 million for Spectra Energy Partners 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 Spectra Energy Partners at the current share price and the inputted number of shares is $13.8 billion.

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Stock chart of SEP Financial statements of SEP
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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