Intrinsic value of Star Gas Partners - SGU

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$9.98

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$9.98

 
Intrinsic value

$33.75

 
Up/down potential

+238%

 
Rating

str. buy

 
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 SGU 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 0.6

 

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, %
  -30.65
  15.20
  14.18
  13.26
  12.44
  11.69
  11.02
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
Revenue, $m
  1,161
  1,337
  1,527
  1,730
  1,945
  2,172
  2,412
  2,663
  2,926
  3,201
  3,487
  3,786
  4,096
  4,419
  4,754
  5,103
  5,465
  5,842
  6,233
  6,640
  7,064
  7,505
  7,964
  8,442
  8,940
  9,460
  10,002
  10,568
  11,160
  11,777
  12,423
Variable operating expenses, $m
 
  1,265
  1,441
  1,629
  1,829
  2,041
  2,263
  2,497
  2,741
  2,997
  3,263
  3,519
  3,808
  4,108
  4,420
  4,744
  5,081
  5,431
  5,795
  6,173
  6,567
  6,977
  7,404
  7,848
  8,311
  8,795
  9,299
  9,825
  10,375
  10,949
  11,549
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
  1,074
  1,265
  1,441
  1,629
  1,829
  2,041
  2,263
  2,497
  2,741
  2,997
  3,263
  3,519
  3,808
  4,108
  4,420
  4,744
  5,081
  5,431
  5,795
  6,173
  6,567
  6,977
  7,404
  7,848
  8,311
  8,795
  9,299
  9,825
  10,375
  10,949
  11,549
Operating income, $m
  87
  73
  86
  100
  116
  132
  148
  166
  185
  204
  224
  266
  288
  311
  334
  359
  384
  411
  438
  467
  497
  528
  560
  594
  629
  665
  704
  743
  785
  828
  874
EBITDA, $m
  115
  109
  124
  140
  158
  176
  196
  216
  237
  260
  283
  307
  332
  359
  386
  414
  444
  474
  506
  539
  573
  609
  646
  685
  726
  768
  812
  858
  906
  956
  1,008
Interest expense (income), $m
  8
  6
  11
  16
  22
  27
  33
  40
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  132
  142
  153
  165
  176
  189
  202
  215
  229
  243
  259
  274
  291
Earnings before tax, $m
  79
  66
  75
  84
  94
  104
  115
  126
  138
  150
  163
  198
  211
  226
  241
  256
  272
  289
  307
  325
  344
  363
  384
  405
  427
  451
  475
  500
  527
  554
  583
Tax expense, $m
  34
  18
  20
  23
  25
  28
  31
  34
  37
  41
  44
  53
  57
  61
  65
  69
  74
  78
  83
  88
  93
  98
  104
  109
  115
  122
  128
  135
  142
  150
  157
Net income, $m
  45
  49
  55
  62
  69
  76
  84
  92
  101
  110
  119
  144
  154
  165
  176
  187
  199
  211
  224
  237
  251
  265
  280
  296
  312
  329
  347
  365
  384
  404
  426

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  139
  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
  692
  637
  728
  824
  927
  1,035
  1,149
  1,269
  1,394
  1,525
  1,661
  1,804
  1,951
  2,105
  2,265
  2,431
  2,604
  2,783
  2,970
  3,164
  3,365
  3,575
  3,794
  4,022
  4,259
  4,507
  4,765
  5,035
  5,317
  5,611
  5,918
Adjusted assets (=assets-cash), $m
  553
  637
  728
  824
  927
  1,035
  1,149
  1,269
  1,394
  1,525
  1,661
  1,804
  1,951
  2,105
  2,265
  2,431
  2,604
  2,783
  2,970
  3,164
  3,365
  3,575
  3,794
  4,022
  4,259
  4,507
  4,765
  5,035
  5,317
  5,611
  5,918
Revenue / Adjusted assets
  2.099
  2.099
  2.098
  2.100
  2.098
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
  2.099
Average production assets, $m
  172
  198
  226
  256
  288
  321
  357
  394
  433
  474
  516
  560
  606
  654
  704
  755
  809
  865
  923
  983
  1,045
  1,111
  1,179
  1,249
  1,323
  1,400
  1,480
  1,564
  1,652
  1,743
  1,839
Working capital, $m
  5
  -136
  -156
  -176
  -198
  -222
  -246
  -272
  -298
  -326
  -356
  -386
  -418
  -451
  -485
  -521
  -557
  -596
  -636
  -677
  -721
  -765
  -812
  -861
  -912
  -965
  -1,020
  -1,078
  -1,138
  -1,201
  -1,267
Total debt, $m
  92
  133
  194
  260
  329
  403
  480
  561
  646
  735
  827
  924
  1,024
  1,128
  1,237
  1,349
  1,466
  1,588
  1,714
  1,846
  1,983
  2,125
  2,273
  2,428
  2,589
  2,757
  2,932
  3,115
  3,306
  3,505
  3,714
Total liabilities, $m
  391
  432
  493
  559
  628
  702
  779
  860
  945
  1,034
  1,126
  1,223
  1,323
  1,427
  1,536
  1,648
  1,765
  1,887
  2,013
  2,145
  2,282
  2,424
  2,572
  2,727
  2,888
  3,056
  3,231
  3,414
  3,605
  3,804
  4,013
Total equity, $m
  301
  205
  234
  265
  298
  333
  370
  409
  449
  491
  535
  581
  628
  678
  729
  783
  838
  896
  956
  1,019
  1,084
  1,151
  1,222
  1,295
  1,372
  1,451
  1,534
  1,621
  1,712
  1,807
  1,906
Total liabilities and equity, $m
  692
  637
  727
  824
  926
  1,035
  1,149
  1,269
  1,394
  1,525
  1,661
  1,804
  1,951
  2,105
  2,265
  2,431
  2,603
  2,783
  2,969
  3,164
  3,366
  3,575
  3,794
  4,022
  4,260
  4,507
  4,765
  5,035
  5,317
  5,611
  5,919
Debt-to-equity ratio
  0.306
  0.650
  0.830
  0.980
  1.100
  1.210
  1.300
  1.370
  1.440
  1.500
  1.550
  1.590
  1.630
  1.660
  1.700
  1.720
  1.750
  1.770
  1.790
  1.810
  1.830
  1.850
  1.860
  1.870
  1.890
  1.900
  1.910
  1.920
  1.930
  1.940
  1.950
Adjusted equity ratio
  0.293
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  45
  49
  55
  62
  69
  76
  84
  92
  101
  110
  119
  144
  154
  165
  176
  187
  199
  211
  224
  237
  251
  265
  280
  296
  312
  329
  347
  365
  384
  404
  426
Depreciation, amort., depletion, $m
  28
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  41
  44
  48
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  97
  102
  108
  114
  121
  127
  134
Funds from operations, $m
  140
  84
  93
  101
  111
  121
  131
  142
  154
  166
  178
  185
  199
  213
  227
  242
  258
  274
  291
  309
  327
  346
  366
  387
  409
  431
  455
  479
  505
  532
  560
Change in working capital, $m
  38
  -18
  -19
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
Cash from operations, $m
  102
  99
  112
  122
  133
  144
  156
  168
  180
  194
  207
  216
  230
  246
  261
  278
  295
  313
  331
  350
  370
  391
  413
  436
  459
  484
  510
  537
  565
  595
  626
Maintenance CAPEX, $m
  0
  -13
  -14
  -16
  -19
  -21
  -23
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -72
  -76
  -81
  -86
  -91
  -97
  -102
  -108
  -114
  -121
  -127
New CAPEX, $m
  -10
  -26
  -28
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -87
  -91
  -96
Cash from investing activities, $m
  -20
  -39
  -42
  -46
  -51
  -55
  -58
  -63
  -68
  -73
  -77
  -82
  -87
  -92
  -98
  -103
  -109
  -115
  -121
  -127
  -135
  -141
  -149
  -157
  -165
  -174
  -182
  -192
  -201
  -212
  -223
Free cash flow, $m
  82
  60
  69
  76
  82
  89
  97
  105
  113
  121
  130
  134
  143
  154
  164
  175
  186
  198
  210
  223
  236
  250
  264
  279
  294
  311
  328
  345
  364
  383
  403
Issuance/(repayment) of debt, $m
  -8
  57
  61
  65
  69
  73
  77
  81
  85
  89
  93
  96
  100
  104
  108
  113
  117
  122
  126
  131
  137
  142
  148
  154
  161
  168
  175
  183
  191
  199
  208
Issuance/(repurchase) of shares, $m
  -12
  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  
  -21
  57
  61
  65
  69
  73
  77
  81
  85
  89
  93
  96
  100
  104
  108
  113
  117
  122
  126
  131
  137
  142
  148
  154
  161
  168
  175
  183
  191
  199
  208
Total cash flow (excl. dividends), $m
  62
  117
  131
  141
  152
  163
  174
  186
  198
  210
  223
  230
  244
  258
  272
  287
  303
  320
  337
  354
  373
  392
  412
  433
  455
  479
  503
  528
  554
  582
  611
Retained Cash Flow (-), $m
  -11
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -51
  -53
  -56
  -58
  -60
  -62
  -65
  -68
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -95
  -99
Prev. year cash balance distribution, $m
 
  123
  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
 
  213
  102
  110
  119
  128
  137
  147
  157
  168
  179
  184
  196
  208
  221
  234
  248
  262
  277
  292
  308
  325
  342
  360
  379
  399
  420
  441
  464
  488
  512
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
 
  204
  93
  96
  98
  99
  100
  99
  98
  96
  94
  88
  84
  79
  74
  69
  63
  57
  51
  45
  39
  34
  28
  24
  19
  16
  12
  9
  7
  5
  4
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

Star Gas Partners, L.P. operates as a home heating oil and propane distributor and services provider to residential and commercial customers in the United States. The company also sells home heating oil, gasoline, and diesel fuel to approximately 71,000 customers on a delivery only basis. In addition, it installs, maintains, and repairs heating and air conditioning equipment, as well as offers ancillary home services, including home security and plumbing. The company was founded in 1995 and is headquartered in Stamford, Connecticut.

FINANCIAL RATIOS  of  Star Gas Partners (SGU)

Valuation Ratios
P/E Ratio 12.5
Price to Sales 0.5
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 5.5
Price to Free Cash Flow 6.1
Growth Rates
Sales Growth Rate -30.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 25.2%
Total Debt to Equity 30.6%
Interest Coverage 11
Management Effectiveness
Return On Assets 7.2%
Ret/ On Assets - 3 Yr. Avg. 7%
Return On Total Capital 11.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.1%
Return On Equity 15.2%
Return On Equity - 3 Yr. Avg. 14.1%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 33.9%
Gross Margin - 3 Yr. Avg. 27.6%
EBITDA Margin 9.9%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 5.6%
Pre-Tax Margin 6.8%
Pre-Tax Margin - 3 Yr. Avg. 4.7%
Net Profit Margin 3.9%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 43%
Eff/ Tax Rate - 3 Yr. Avg. 43.2%
Payout Ratio 51.1%

SGU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SGU stock intrinsic value calculation we used $1161 million for the last fiscal year's total revenue generated by Star Gas Partners. The default revenue input number comes from 2016 income statement of Star Gas 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 SGU stock valuation model: a) initial revenue growth rate of 15.2% 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 SGU is calculated based on our internal credit rating of Star Gas 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 Star Gas 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 SGU stock the variable cost ratio is equal to 94.8%.

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 SGU 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 8.3% for Star Gas Partners.

Corporate tax rate of 27% is the nominal tax rate for Star Gas 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 SGU 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 SGU are equal to 14.8%.

Life of production assets of 13.7 years is the average useful life of capital assets used in Star Gas 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 SGU is equal to -10.2%. 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 - $301 million for Star Gas 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 56.055 million for Star Gas 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 Star Gas Partners at the current share price and the inputted number of shares is $0.6 billion.


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