Intrinsic value of Star Gas Partners - SGU

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$9.33

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$9.33

 
Intrinsic value

$45.24

 
Up/down potential

+385%

 
Rating

str. buy

 
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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 0.5

 

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
  20.40
  18.86
  17.47
  16.23
  15.10
  14.09
  13.18
  12.37
  11.63
  10.97
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
  6.36
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  1,161
  1,398
  1,661
  1,952
  2,269
  2,611
  2,979
  3,372
  3,789
  4,230
  4,693
  5,180
  5,689
  6,221
  6,776
  7,353
  7,954
  8,579
  9,228
  9,903
  10,604
  11,333
  12,090
  12,878
  13,698
  14,551
  15,440
  16,365
  17,330
  18,336
  19,386
Variable operating expenses, $m
 
  1,321
  1,566
  1,836
  2,130
  2,449
  2,791
  3,156
  3,544
  3,953
  4,384
  4,816
  5,289
  5,784
  6,299
  6,836
  7,395
  7,975
  8,579
  9,206
  9,858
  10,536
  11,240
  11,972
  12,734
  13,527
  14,353
  15,214
  16,111
  17,046
  18,022
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
  1,321
  1,566
  1,836
  2,130
  2,449
  2,791
  3,156
  3,544
  3,953
  4,384
  4,816
  5,289
  5,784
  6,299
  6,836
  7,395
  7,975
  8,579
  9,206
  9,858
  10,536
  11,240
  11,972
  12,734
  13,527
  14,353
  15,214
  16,111
  17,046
  18,022
Operating income, $m
  87
  77
  96
  116
  138
  162
  188
  216
  245
  276
  309
  364
  400
  438
  477
  517
  560
  603
  649
  697
  746
  797
  851
  906
  964
  1,024
  1,086
  1,151
  1,219
  1,290
  1,364
EBITDA, $m
  115
  113
  135
  158
  184
  212
  242
  274
  307
  343
  381
  420
  462
  505
  550
  597
  645
  696
  749
  804
  861
  920
  981
  1,045
  1,112
  1,181
  1,253
  1,328
  1,406
  1,488
  1,573
Interest expense (income), $m
  8
  6
  13
  20
  28
  36
  45
  55
  66
  77
  89
  101
  114
  128
  142
  157
  172
  188
  205
  223
  241
  259
  279
  299
  320
  342
  365
  389
  414
  440
  467
Earnings before tax, $m
  79
  71
  83
  96
  111
  126
  143
  161
  180
  199
  220
  263
  286
  310
  335
  360
  387
  415
  444
  474
  505
  538
  571
  607
  643
  681
  721
  762
  805
  850
  897
Tax expense, $m
  34
  19
  22
  26
  30
  34
  39
  43
  49
  54
  59
  71
  77
  84
  90
  97
  105
  112
  120
  128
  136
  145
  154
  164
  174
  184
  195
  206
  217
  230
  242
Net income, $m
  45
  52
  61
  70
  81
  92
  104
  117
  131
  146
  161
  192
  209
  226
  244
  263
  283
  303
  324
  346
  369
  393
  417
  443
  470
  497
  526
  556
  588
  621
  655

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
  666
  792
  930
  1,081
  1,244
  1,419
  1,606
  1,805
  2,015
  2,236
  2,468
  2,711
  2,964
  3,228
  3,503
  3,790
  4,087
  4,396
  4,718
  5,052
  5,399
  5,760
  6,135
  6,526
  6,932
  7,356
  7,797
  8,256
  8,736
  9,236
Adjusted assets (=assets-cash), $m
  553
  666
  792
  930
  1,081
  1,244
  1,419
  1,606
  1,805
  2,015
  2,236
  2,468
  2,711
  2,964
  3,228
  3,503
  3,790
  4,087
  4,396
  4,718
  5,052
  5,399
  5,760
  6,135
  6,526
  6,932
  7,356
  7,797
  8,256
  8,736
  9,236
Revenue / Adjusted assets
  2.099
  2.099
  2.097
  2.099
  2.099
  2.099
  2.099
  2.100
  2.099
  2.099
  2.099
  2.099
  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
Average production assets, $m
  172
  207
  246
  289
  336
  386
  441
  499
  561
  626
  695
  767
  842
  921
  1,003
  1,088
  1,177
  1,270
  1,366
  1,466
  1,569
  1,677
  1,789
  1,906
  2,027
  2,154
  2,285
  2,422
  2,565
  2,714
  2,869
Working capital, $m
  5
  -143
  -169
  -199
  -231
  -266
  -304
  -344
  -386
  -431
  -479
  -528
  -580
  -635
  -691
  -750
  -811
  -875
  -941
  -1,010
  -1,082
  -1,156
  -1,233
  -1,314
  -1,397
  -1,484
  -1,575
  -1,669
  -1,768
  -1,870
  -1,977
Total debt, $m
  92
  153
  238
  331
  434
  544
  663
  790
  925
  1,067
  1,217
  1,374
  1,539
  1,711
  1,890
  2,076
  2,270
  2,472
  2,682
  2,900
  3,126
  3,362
  3,606
  3,861
  4,126
  4,401
  4,688
  4,987
  5,299
  5,624
  5,963
Total liabilities, $m
  391
  452
  537
  630
  733
  843
  962
  1,089
  1,224
  1,366
  1,516
  1,673
  1,838
  2,010
  2,189
  2,375
  2,569
  2,771
  2,981
  3,199
  3,425
  3,661
  3,905
  4,160
  4,425
  4,700
  4,987
  5,286
  5,598
  5,923
  6,262
Total equity, $m
  301
  214
  255
  299
  348
  401
  457
  517
  581
  649
  720
  795
  873
  954
  1,039
  1,128
  1,220
  1,316
  1,416
  1,519
  1,627
  1,739
  1,855
  1,976
  2,101
  2,232
  2,369
  2,511
  2,659
  2,813
  2,974
Total liabilities and equity, $m
  692
  666
  792
  929
  1,081
  1,244
  1,419
  1,606
  1,805
  2,015
  2,236
  2,468
  2,711
  2,964
  3,228
  3,503
  3,789
  4,087
  4,397
  4,718
  5,052
  5,400
  5,760
  6,136
  6,526
  6,932
  7,356
  7,797
  8,257
  8,736
  9,236
Debt-to-equity ratio
  0.306
  0.710
  0.930
  1.110
  1.250
  1.360
  1.450
  1.530
  1.590
  1.640
  1.690
  1.730
  1.760
  1.790
  1.820
  1.840
  1.860
  1.880
  1.890
  1.910
  1.920
  1.930
  1.940
  1.950
  1.960
  1.970
  1.980
  1.990
  1.990
  2.000
  2.010
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
  52
  61
  70
  81
  92
  104
  117
  131
  146
  161
  192
  209
  226
  244
  263
  283
  303
  324
  346
  369
  393
  417
  443
  470
  497
  526
  556
  588
  621
  655
Depreciation, amort., depletion, $m
  28
  36
  39
  42
  46
  50
  53
  58
  62
  67
  72
  56
  61
  67
  73
  79
  86
  93
  100
  107
  115
  122
  131
  139
  148
  157
  167
  177
  187
  198
  209
Funds from operations, $m
  140
  88
  100
  113
  127
  142
  158
  175
  193
  213
  233
  248
  270
  293
  318
  343
  369
  396
  424
  453
  483
  515
  548
  582
  617
  654
  693
  733
  775
  819
  864
Change in working capital, $m
  38
  -24
  -27
  -30
  -32
  -35
  -38
  -40
  -43
  -45
  -47
  -50
  -52
  -54
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -74
  -77
  -80
  -84
  -87
  -91
  -94
  -98
  -103
  -107
Cash from operations, $m
  102
  109
  127
  142
  159
  177
  195
  215
  236
  258
  280
  298
  322
  348
  374
  401
  430
  459
  490
  522
  555
  589
  625
  662
  701
  741
  784
  828
  873
  921
  971
Maintenance CAPEX, $m
  0
  -13
  -15
  -18
  -21
  -25
  -28
  -32
  -36
  -41
  -46
  -51
  -56
  -61
  -67
  -73
  -79
  -86
  -93
  -100
  -107
  -115
  -122
  -131
  -139
  -148
  -157
  -167
  -177
  -187
  -198
New CAPEX, $m
  -10
  -35
  -39
  -43
  -47
  -51
  -54
  -58
  -62
  -65
  -69
  -72
  -75
  -79
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -108
  -112
  -117
  -121
  -126
  -131
  -137
  -143
  -149
  -155
Cash from investing activities, $m
  -20
  -48
  -54
  -61
  -68
  -76
  -82
  -90
  -98
  -106
  -115
  -123
  -131
  -140
  -149
  -158
  -168
  -178
  -189
  -200
  -211
  -223
  -234
  -248
  -260
  -274
  -288
  -304
  -320
  -336
  -353
Free cash flow, $m
  82
  61
  73
  81
  91
  101
  113
  125
  138
  151
  166
  175
  191
  208
  225
  243
  262
  281
  301
  322
  344
  367
  391
  415
  441
  467
  495
  524
  554
  585
  618
Issuance/(repayment) of debt, $m
  -8
  77
  85
  94
  102
  111
  119
  127
  135
  142
  150
  157
  165
  172
  179
  187
  194
  202
  210
  218
  226
  235
  245
  254
  265
  276
  287
  299
  312
  325
  339
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
  77
  85
  94
  102
  111
  119
  127
  135
  142
  150
  157
  165
  172
  179
  187
  194
  202
  210
  218
  226
  235
  245
  254
  265
  276
  287
  299
  312
  325
  339
Total cash flow (excl. dividends), $m
  62
  137
  158
  175
  193
  212
  232
  252
  272
  294
  316
  332
  355
  379
  404
  429
  456
  483
  511
  540
  571
  602
  635
  670
  705
  743
  782
  823
  865
  910
  957
Retained Cash Flow (-), $m
  -11
  -36
  -40
  -45
  -49
  -53
  -56
  -60
  -64
  -68
  -71
  -75
  -78
  -82
  -85
  -89
  -92
  -96
  -100
  -104
  -108
  -112
  -116
  -121
  -126
  -131
  -136
  -142
  -148
  -154
  -161
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
 
  224
  117
  131
  145
  160
  175
  192
  208
  226
  244
  258
  277
  298
  319
  341
  363
  387
  411
  437
  463
  490
  519
  549
  580
  612
  646
  681
  717
  756
  796
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
 
  215
  107
  114
  119
  124
  127
  129
  130
  130
  128
  122
  118
  113
  107
  100
  92
  84
  76
  67
  59
  51
  43
  36
  30
  24
  19
  15
  11
  8
  6
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 11.7
Price to Sales 0.5
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 5.1
Price to Free Cash Flow 5.7
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 20.4% 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 55.646 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 $0.5 billion.


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Stock chart of SGU Financial statements of SGU
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