Intrinsic value of Star Group - SGU

Previous Close

$9.43

  Intrinsic Value

$35.75

stock screener

  Rating & Target

str. buy

+279%

Previous close

$9.43

 
Intrinsic value

$35.75

 
Up/down potential

+279%

 
Rating

str. 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
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.55
  7.29
  7.06
  6.86
  6.67
  6.50
  6.35
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
Revenue, $m
  1,324
  1,487
  1,659
  1,840
  2,030
  2,229
  2,436
  2,652
  2,878
  3,112
  3,355
  3,609
  3,872
  4,145
  4,429
  4,725
  5,032
  5,352
  5,684
  6,031
  6,392
  6,768
  7,161
  7,570
  7,998
  8,444
  8,911
  9,398
  9,908
  10,441
  10,999
Variable operating expenses, $m
 
  1,373
  1,529
  1,693
  1,866
  2,046
  2,234
  2,431
  2,635
  2,848
  3,069
  3,276
  3,515
  3,764
  4,022
  4,290
  4,569
  4,859
  5,161
  5,476
  5,803
  6,145
  6,501
  6,873
  7,261
  7,667
  8,090
  8,533
  8,996
  9,480
  9,987
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
  1,373
  1,529
  1,693
  1,866
  2,046
  2,234
  2,431
  2,635
  2,848
  3,069
  3,276
  3,515
  3,764
  4,022
  4,290
  4,569
  4,859
  5,161
  5,476
  5,803
  6,145
  6,501
  6,873
  7,261
  7,667
  8,090
  8,533
  8,996
  9,480
  9,987
Operating income, $m
  55
  114
  130
  147
  164
  183
  202
  222
  242
  264
  286
  332
  356
  382
  408
  435
  463
  493
  523
  555
  589
  623
  659
  697
  736
  777
  820
  865
  912
  961
  1,013
EBITDA, $m
  84
  151
  169
  187
  207
  227
  248
  270
  293
  317
  342
  368
  394
  422
  451
  481
  513
  545
  579
  614
  651
  689
  729
  771
  815
  860
  908
  957
  1,009
  1,063
  1,120
Interest expense (income), $m
  8
  6
  10
  15
  20
  24
  30
  35
  40
  46
  52
  59
  65
  72
  79
  86
  94
  102
  110
  118
  127
  137
  146
  156
  167
  178
  189
  201
  214
  227
  241
Earnings before tax, $m
  47
  108
  120
  132
  145
  158
  172
  187
  202
  218
  234
  274
  291
  310
  329
  349
  370
  391
  414
  437
  461
  487
  513
  541
  570
  600
  631
  664
  698
  734
  772
Tax expense, $m
  20
  29
  32
  36
  39
  43
  46
  50
  55
  59
  63
  74
  79
  84
  89
  94
  100
  106
  112
  118
  125
  131
  139
  146
  154
  162
  170
  179
  189
  198
  208
Net income, $m
  27
  79
  87
  96
  106
  115
  126
  136
  147
  159
  171
  200
  213
  226
  240
  255
  270
  286
  302
  319
  337
  355
  375
  395
  416
  438
  461
  485
  510
  536
  564

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
  698
  779
  864
  953
  1,047
  1,144
  1,246
  1,352
  1,462
  1,576
  1,695
  1,819
  1,947
  2,080
  2,219
  2,364
  2,514
  2,670
  2,833
  3,002
  3,179
  3,363
  3,556
  3,757
  3,966
  4,185
  4,414
  4,654
  4,904
  5,166
Adjusted assets (=assets-cash), $m
  622
  698
  779
  864
  953
  1,047
  1,144
  1,246
  1,352
  1,462
  1,576
  1,695
  1,819
  1,947
  2,080
  2,219
  2,364
  2,514
  2,670
  2,833
  3,002
  3,179
  3,363
  3,556
  3,757
  3,966
  4,185
  4,414
  4,654
  4,904
  5,166
Revenue / Adjusted assets
  2.129
  2.130
  2.130
  2.130
  2.130
  2.129
  2.129
  2.128
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
  2.129
Average production assets, $m
  176
  198
  221
  245
  270
  296
  324
  353
  383
  414
  446
  480
  515
  551
  589
  628
  669
  712
  756
  802
  850
  900
  952
  1,007
  1,064
  1,123
  1,185
  1,250
  1,318
  1,389
  1,463
Working capital, $m
  -31
  -82
  -91
  -101
  -112
  -123
  -134
  -146
  -158
  -171
  -185
  -198
  -213
  -228
  -244
  -260
  -277
  -294
  -313
  -332
  -352
  -372
  -394
  -416
  -440
  -464
  -490
  -517
  -545
  -574
  -605
Total debt, $m
  76
  110
  157
  206
  257
  311
  367
  426
  487
  550
  616
  684
  755
  829
  906
  986
  1,069
  1,156
  1,246
  1,340
  1,437
  1,539
  1,645
  1,756
  1,872
  1,993
  2,119
  2,251
  2,389
  2,533
  2,684
Total liabilities, $m
  368
  402
  449
  498
  549
  603
  659
  718
  779
  842
  908
  976
  1,047
  1,121
  1,198
  1,278
  1,361
  1,448
  1,538
  1,632
  1,729
  1,831
  1,937
  2,048
  2,164
  2,285
  2,411
  2,543
  2,681
  2,825
  2,976
Total equity, $m
  306
  296
  330
  366
  404
  444
  485
  528
  573
  620
  668
  719
  771
  826
  882
  941
  1,002
  1,066
  1,132
  1,201
  1,273
  1,348
  1,426
  1,508
  1,593
  1,682
  1,775
  1,872
  1,973
  2,079
  2,191
Total liabilities and equity, $m
  674
  698
  779
  864
  953
  1,047
  1,144
  1,246
  1,352
  1,462
  1,576
  1,695
  1,818
  1,947
  2,080
  2,219
  2,363
  2,514
  2,670
  2,833
  3,002
  3,179
  3,363
  3,556
  3,757
  3,967
  4,186
  4,415
  4,654
  4,904
  5,167
Debt-to-equity ratio
  0.248
  0.370
  0.470
  0.560
  0.640
  0.700
  0.760
  0.810
  0.850
  0.890
  0.920
  0.950
  0.980
  1.000
  1.030
  1.050
  1.070
  1.080
  1.100
  1.120
  1.130
  1.140
  1.150
  1.160
  1.180
  1.180
  1.190
  1.200
  1.210
  1.220
  1.230
Adjusted equity ratio
  0.408
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  79
  87
  96
  106
  115
  126
  136
  147
  159
  171
  200
  213
  226
  240
  255
  270
  286
  302
  319
  337
  355
  375
  395
  416
  438
  461
  485
  510
  536
  564
Depreciation, amort., depletion, $m
  29
  37
  39
  41
  42
  44
  46
  49
  51
  53
  55
  35
  38
  41
  43
  46
  49
  52
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
Funds from operations, $m
  -24
  116
  126
  137
  148
  160
  172
  185
  198
  212
  226
  235
  251
  267
  283
  301
  319
  338
  357
  378
  399
  421
  445
  469
  494
  520
  548
  577
  607
  638
  671
Change in working capital, $m
  -45
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
Cash from operations, $m
  21
  125
  136
  147
  159
  171
  184
  197
  211
  225
  240
  249
  265
  282
  299
  317
  336
  355
  376
  397
  419
  442
  466
  491
  517
  545
  574
  603
  635
  668
  702
Maintenance CAPEX, $m
  0
  -13
  -15
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -33
  -35
  -38
  -41
  -43
  -46
  -49
  -52
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
New CAPEX, $m
  -12
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -74
Cash from investing activities, $m
  -66
  -35
  -38
  -40
  -43
  -46
  -50
  -53
  -56
  -59
  -62
  -67
  -70
  -74
  -79
  -82
  -87
  -92
  -96
  -102
  -107
  -113
  -118
  -124
  -131
  -137
  -145
  -152
  -160
  -168
  -176
Free cash flow, $m
  -45
  90
  98
  107
  115
  124
  134
  144
  155
  166
  177
  183
  195
  208
  221
  235
  249
  264
  279
  295
  312
  330
  348
  367
  387
  407
  429
  451
  475
  500
  526
Issuance/(repayment) of debt, $m
  -16
  44
  47
  49
  51
  54
  56
  59
  61
  63
  66
  68
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
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  
  -17
  44
  47
  49
  51
  54
  56
  59
  61
  63
  66
  68
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
Total cash flow (excl. dividends), $m
  -62
  135
  145
  156
  167
  178
  190
  203
  216
  229
  243
  251
  266
  282
  298
  314
  332
  350
  369
  389
  410
  431
  454
  478
  502
  528
  555
  583
  613
  644
  677
Retained Cash Flow (-), $m
  -5
  -32
  -34
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -50
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -85
  -89
  -93
  -97
  -102
  -106
  -111
Prev. year cash balance distribution, $m
 
  42
  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
 
  144
  110
  119
  129
  139
  149
  160
  171
  182
  194
  201
  214
  227
  241
  256
  271
  287
  303
  320
  338
  356
  376
  396
  417
  439
  462
  486
  511
  538
  565
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
 
  138
  101
  104
  106
  107
  108
  108
  107
  105
  102
  95
  91
  86
  81
  75
  69
  62
  56
  49
  43
  37
  31
  26
  21
  17
  13
  10
  8
  6
  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 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 19.6
Price to Sales 0.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 25.2
Price to Free Cash Flow 58.9
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 12.3% 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 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 92.5%.

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 9.5% 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 13.3%.

Life of production assets of 13.6 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 -5.5%. 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 - $306 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 55.316 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 $0.5 billion.

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COMPANY NEWS

▶ Star Group LP to Host Earnings Call   [Feb-01-18 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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