Intrinsic value of Star Group - SGU

Previous Close

$9.92

  Intrinsic Value

$14.79

stock screener

  Rating & Target

buy

+49%

Previous close

$9.92

 
Intrinsic value

$14.79

 
Up/down potential

+49%

 
Rating

buy

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  14.04
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
Revenue, $m
  1,324
  1,509
  1,707
  1,917
  2,138
  2,372
  2,616
  2,872
  3,140
  3,418
  3,708
  4,010
  4,324
  4,650
  4,989
  5,341
  5,707
  6,087
  6,483
  6,895
  7,323
  7,770
  8,235
  8,719
  9,225
  9,752
  10,303
  10,878
  11,479
  12,107
  12,764
Variable operating expenses, $m
 
  1,416
  1,597
  1,789
  1,992
  2,206
  2,430
  2,664
  2,909
  3,164
  3,430
  3,673
  3,961
  4,259
  4,570
  4,892
  5,228
  5,576
  5,939
  6,316
  6,708
  7,117
  7,543
  7,987
  8,450
  8,933
  9,438
  9,964
  10,515
  11,090
  11,692
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
  1,268
  1,416
  1,597
  1,789
  1,992
  2,206
  2,430
  2,664
  2,909
  3,164
  3,430
  3,673
  3,961
  4,259
  4,570
  4,892
  5,228
  5,576
  5,939
  6,316
  6,708
  7,117
  7,543
  7,987
  8,450
  8,933
  9,438
  9,964
  10,515
  11,090
  11,692
Operating income, $m
  55
  94
  110
  128
  147
  166
  187
  208
  231
  254
  278
  337
  363
  391
  419
  449
  479
  511
  545
  579
  615
  653
  692
  732
  775
  819
  865
  914
  964
  1,017
  1,072
EBITDA, $m
  84
  172
  194
  218
  244
  270
  298
  327
  358
  389
  422
  457
  492
  530
  568
  608
  650
  693
  738
  785
  834
  885
  938
  993
  1,051
  1,111
  1,174
  1,239
  1,307
  1,379
  1,454
Interest expense (income), $m
  8
  6
  8
  15
  23
  31
  40
  49
  58
  68
  78
  89
  100
  112
  124
  137
  150
  163
  177
  192
  207
  223
  240
  257
  275
  294
  314
  334
  355
  378
  401
Earnings before tax, $m
  47
  88
  103
  113
  124
  135
  147
  160
  172
  186
  200
  248
  263
  279
  295
  312
  330
  348
  367
  387
  408
  429
  452
  475
  500
  525
  552
  580
  609
  639
  671
Tax expense, $m
  20
  24
  28
  31
  33
  37
  40
  43
  47
  50
  54
  67
  71
  75
  80
  84
  89
  94
  99
  104
  110
  116
  122
  128
  135
  142
  149
  157
  164
  173
  181
Net income, $m
  27
  64
  75
  82
  90
  99
  107
  116
  126
  136
  146
  181
  192
  203
  215
  228
  241
  254
  268
  282
  298
  313
  330
  347
  365
  383
  403
  423
  445
  467
  490

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  52
  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
  674
  769
  869
  976
  1,089
  1,208
  1,332
  1,462
  1,599
  1,740
  1,888
  2,042
  2,202
  2,368
  2,540
  2,719
  2,906
  3,099
  3,301
  3,511
  3,729
  3,956
  4,193
  4,440
  4,697
  4,966
  5,246
  5,539
  5,845
  6,164
  6,499
Adjusted assets (=assets-cash), $m
  622
  769
  869
  976
  1,089
  1,208
  1,332
  1,462
  1,599
  1,740
  1,888
  2,042
  2,202
  2,368
  2,540
  2,719
  2,906
  3,099
  3,301
  3,511
  3,729
  3,956
  4,193
  4,440
  4,697
  4,966
  5,246
  5,539
  5,845
  6,164
  6,499
Revenue / Adjusted assets
  2.129
  1.962
  1.964
  1.964
  1.963
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
  1.964
Average production assets, $m
  176
  451
  510
  573
  639
  709
  782
  859
  939
  1,022
  1,109
  1,199
  1,293
  1,390
  1,492
  1,597
  1,706
  1,820
  1,938
  2,062
  2,190
  2,323
  2,462
  2,607
  2,758
  2,916
  3,081
  3,253
  3,432
  3,620
  3,816
Working capital, $m
  -31
  38
  43
  48
  53
  59
  65
  72
  78
  85
  93
  100
  108
  116
  125
  134
  143
  152
  162
  172
  183
  194
  206
  218
  231
  244
  258
  272
  287
  303
  319
Total debt, $m
  76
  93
  184
  280
  382
  489
  601
  718
  840
  968
  1,101
  1,239
  1,383
  1,533
  1,688
  1,849
  2,017
  2,191
  2,373
  2,561
  2,758
  2,962
  3,175
  3,397
  3,629
  3,871
  4,123
  4,387
  4,662
  4,950
  5,251
Total liabilities, $m
  368
  692
  782
  878
  980
  1,087
  1,199
  1,316
  1,439
  1,566
  1,699
  1,838
  1,981
  2,131
  2,286
  2,447
  2,615
  2,790
  2,971
  3,160
  3,356
  3,560
  3,774
  3,996
  4,227
  4,469
  4,721
  4,985
  5,260
  5,548
  5,849
Total equity, $m
  306
  77
  87
  98
  109
  121
  133
  146
  160
  174
  189
  204
  220
  237
  254
  272
  291
  310
  330
  351
  373
  396
  419
  444
  470
  497
  525
  554
  584
  616
  650
Total liabilities and equity, $m
  674
  769
  869
  976
  1,089
  1,208
  1,332
  1,462
  1,599
  1,740
  1,888
  2,042
  2,201
  2,368
  2,540
  2,719
  2,906
  3,100
  3,301
  3,511
  3,729
  3,956
  4,193
  4,440
  4,697
  4,966
  5,246
  5,539
  5,844
  6,164
  6,499
Debt-to-equity ratio
  0.248
  1.220
  2.120
  2.870
  3.510
  4.050
  4.510
  4.910
  5.260
  5.560
  5.830
  6.070
  6.280
  6.470
  6.640
  6.800
  6.940
  7.070
  7.190
  7.300
  7.400
  7.490
  7.570
  7.650
  7.730
  7.800
  7.860
  7.920
  7.980
  8.030
  8.080
Adjusted equity ratio
  0.408
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  64
  75
  82
  90
  99
  107
  116
  126
  136
  146
  181
  192
  203
  215
  228
  241
  254
  268
  282
  298
  313
  330
  347
  365
  383
  403
  423
  445
  467
  490
Depreciation, amort., depletion, $m
  29
  78
  84
  90
  97
  104
  111
  119
  127
  135
  144
  120
  129
  139
  149
  160
  171
  182
  194
  206
  219
  232
  246
  261
  276
  292
  308
  325
  343
  362
  382
Funds from operations, $m
  -24
  142
  159
  173
  187
  203
  219
  235
  253
  271
  290
  301
  321
  342
  364
  387
  411
  436
  462
  489
  517
  546
  576
  608
  641
  675
  711
  749
  788
  829
  872
Change in working capital, $m
  -45
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
Cash from operations, $m
  21
  138
  154
  168
  182
  197
  213
  229
  246
  264
  283
  293
  313
  334
  356
  379
  402
  427
  452
  478
  506
  535
  564
  596
  628
  662
  697
  734
  773
  813
  855
Maintenance CAPEX, $m
  0
  -40
  -45
  -51
  -57
  -64
  -71
  -78
  -86
  -94
  -102
  -111
  -120
  -129
  -139
  -149
  -160
  -171
  -182
  -194
  -206
  -219
  -232
  -246
  -261
  -276
  -292
  -308
  -325
  -343
  -362
New CAPEX, $m
  -12
  -55
  -59
  -63
  -66
  -70
  -73
  -77
  -80
  -83
  -87
  -90
  -94
  -98
  -101
  -105
  -109
  -114
  -118
  -123
  -128
  -133
  -139
  -145
  -151
  -158
  -165
  -172
  -180
  -188
  -196
Cash from investing activities, $m
  -66
  -95
  -104
  -114
  -123
  -134
  -144
  -155
  -166
  -177
  -189
  -201
  -214
  -227
  -240
  -254
  -269
  -285
  -300
  -317
  -334
  -352
  -371
  -391
  -412
  -434
  -457
  -480
  -505
  -531
  -558
Free cash flow, $m
  -45
  42
  50
  54
  58
  63
  69
  74
  80
  87
  94
  92
  100
  107
  116
  124
  133
  142
  152
  161
  172
  182
  193
  204
  216
  228
  241
  254
  268
  282
  297
Issuance/(repayment) of debt, $m
  -16
  18
  91
  96
  102
  107
  112
  117
  122
  128
  133
  138
  144
  149
  155
  161
  168
  174
  181
  189
  196
  205
  213
  222
  232
  242
  252
  264
  275
  288
  301
Issuance/(repurchase) of shares, $m
  0
  13
  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  
  -17
  31
  91
  96
  102
  107
  112
  117
  122
  128
  133
  138
  144
  149
  155
  161
  168
  174
  181
  189
  196
  205
  213
  222
  232
  242
  252
  264
  275
  288
  301
Total cash flow (excl. dividends), $m
  -62
  73
  141
  150
  160
  170
  181
  192
  203
  215
  227
  230
  243
  257
  271
  286
  301
  316
  333
  350
  368
  387
  406
  426
  448
  470
  493
  518
  543
  570
  598
Retained Cash Flow (-), $m
  -5
  -77
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
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
 
  -4
  130
  139
  149
  158
  168
  179
  189
  200
  212
  215
  227
  240
  254
  268
  282
  297
  313
  329
  346
  364
  382
  402
  422
  443
  465
  488
  513
  538
  564
Discount rate, %
 
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
 
  -4
  117
  118
  117
  116
  114
  110
  106
  102
  96
  86
  80
  74
  67
  60
  53
  46
  40
  34
  28
  23
  18
  15
  11
  9
  6
  5
  3
  2
  2
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Star Group, L.P., formerly Star Gas Partners, L.P., is a service energy provider. The Company is a home heating oil and propane distributor and services provider. It also sells gasoline and diesel fuel to customers on a delivery only basis. The Company installs, maintains and repairs heating and air conditioning equipment, and provides these services outside its customer base, including service contracts for natural gas and other heating systems. In addition, it provides home security and plumbing services. The Company provides home heating equipment repair service and natural gas service. The Company provides services to residential and commercial customers to heat homes and buildings in the Northeast, Central and Southeast United States regions. The Company operates in Maine, New York, New Jersey, Tennessee, New Hampshire, North Carolina, Massachusetts, Rhode Island, Pennsylvania, South Carolina, Connecticut, Maryland, Georgia, Delaware, Virginia and West Virginia, among others.

FINANCIAL RATIOS  of  Star Group (SGU)

Valuation Ratios
P/E Ratio 20.7
Price to Sales 0.4
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 26.6
Price to Free Cash Flow 62
Growth Rates
Sales Growth Rate 14%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 5.9%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 21.6%
Total Debt to Equity 24.8%
Interest Coverage 7
Management Effectiveness
Return On Assets 4.6%
Ret/ On Assets - 3 Yr. Avg. 6.2%
Return On Total Capital 7%
Ret/ On T. Cap. - 3 Yr. Avg. 9.4%
Return On Equity 8.9%
Return On Equity - 3 Yr. Avg. 12.5%
Asset Turnover 1.9
Profitability Ratios
Gross Margin 31.3%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 6.3%
EBITDA Margin - 3 Yr. Avg. 7.7%
Operating Margin 4.2%
Oper. Margin - 3 Yr. Avg. 6%
Pre-Tax Margin 3.5%
Pre-Tax Margin - 3 Yr. Avg. 4.8%
Net Profit Margin 2%
Net Profit Margin - 3 Yr. Avg. 2.7%
Effective Tax Rate 42.6%
Eff/ Tax Rate - 3 Yr. Avg. 43.8%
Payout Ratio 88.9%

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 $1324 million for the last fiscal year's total revenue generated by Star Group. The default revenue input number comes from 2017 income statement of Star Group. 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 14% 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 5.3%, whose default value for SGU is calculated based on our internal credit rating of Star Group, 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 Group.
    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 94.1%.

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 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 8.1% for Star Group.

Corporate tax rate of 27% is the nominal tax rate for Star Group. 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 29.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Star Group 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 2.5%. 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 - $0 million for Star Group - 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 million for Star Group 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 Group at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Star Group, L.P. Announces New Credit Facility   [Jul-02-18 04:43PM  GlobeNewswire]
▶ Star Group, L.P. Reports Fiscal 2018 Second Quarter Results   [May-02-18 04:15PM  GlobeNewswire]
▶ Star Group LP to Host Earnings Call   [08:55AM  ACCESSWIRE]
▶ Star Group, L.P. Reports Fiscal 2018 First Quarter Results   [Jan-31-18 04:15PM  GlobeNewswire]
▶ Who Were the Top MLP Losers Last Week?   [Dec-04-17 11:14AM  Market Realist]
▶ Top MLP Losers in the Week Ending September 22   [Sep-26-17 10:22AM  Market Realist]
▶ Can Suburban Propane Partners Grow in the Long Term?   [Sep-21-17 04:06PM  Market Realist]
▶ How Wall Street Analysts View Propane MLPs   [Sep-12-17 07:36AM  Market Realist]
▶ SGU, SPH, FGP: Are Institutional Investors Bullish?   [Sep-11-17 10:36AM  Market Realist]
▶ Factors behind the Propane MLPs High Yields   [Sep-08-17 10:37AM  Market Realist]
▶ Ferrellgas Partners Leverage: A Key Concern   [07:37AM  Market Realist]
▶ These MLPs Took June in Stride   [Jul-07-17 09:09AM  Market Realist]
▶ Undervalued Stocks With Positive Performances   [Feb-01-17 04:48PM  GuruFocus.com]
Financial statements of SGU
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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