Intrinsic value of Shell Midstream Partners - SHLX

Previous Close

$26.20

  Intrinsic Value

$6.25

stock screener

  Rating & Target

str. sell

-76%

  Value-price divergence*

-80%

Previous close

$26.20

 
Intrinsic value

$6.25

 
Up/down potential

-76%

 
Rating

str. sell

 
Value-price divergence*

-80%

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

We calculate the intrinsic value of SHLX 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 4.7

 

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, %
  -11.01
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  291
  297
  304
  311
  320
  330
  341
  352
  365
  378
  393
  408
  425
  443
  461
  481
  502
  525
  548
  573
  599
  627
  657
  687
  720
  754
  790
  828
  868
  910
  955
Variable operating expenses, $m
 
  117
  120
  123
  126
  130
  135
  139
  144
  149
  155
  161
  168
  175
  182
  190
  198
  207
  217
  226
  237
  248
  259
  272
  284
  298
  312
  327
  343
  360
  377
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
  131
  117
  120
  123
  126
  130
  135
  139
  144
  149
  155
  161
  168
  175
  182
  190
  198
  207
  217
  226
  237
  248
  259
  272
  284
  298
  312
  327
  343
  360
  377
Operating income, $m
  161
  180
  184
  188
  194
  200
  206
  213
  221
  229
  238
  247
  257
  268
  279
  291
  304
  317
  332
  347
  363
  379
  397
  416
  436
  456
  478
  501
  525
  551
  578
EBITDA, $m
  185
  204
  209
  214
  220
  227
  234
  242
  251
  260
  270
  281
  292
  304
  317
  331
  345
  361
  377
  394
  412
  431
  451
  473
  495
  518
  543
  569
  597
  626
  656
Interest expense (income), $m
  0
  25
  25
  26
  27
  28
  28
  29
  31
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  62
  65
  68
  71
  75
  78
  82
Earnings before tax, $m
  265
  155
  158
  162
  167
  172
  178
  184
  190
  197
  205
  213
  221
  230
  240
  250
  261
  273
  285
  298
  312
  326
  341
  357
  374
  392
  410
  430
  451
  473
  495
Tax expense, $m
  0
  42
  43
  44
  45
  46
  48
  50
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
Net income, $m
  245
  113
  116
  119
  122
  126
  130
  134
  139
  144
  149
  155
  162
  168
  175
  183
  191
  199
  208
  218
  228
  238
  249
  261
  273
  286
  300
  314
  329
  345
  362

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  122
  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
  866
  883
  904
  927
  953
  982
  1,014
  1,048
  1,085
  1,126
  1,169
  1,215
  1,264
  1,317
  1,373
  1,432
  1,495
  1,561
  1,631
  1,706
  1,784
  1,867
  1,954
  2,046
  2,143
  2,245
  2,352
  2,465
  2,584
  2,709
  2,841
Adjusted assets (=assets-cash), $m
  744
  883
  904
  927
  953
  982
  1,014
  1,048
  1,085
  1,126
  1,169
  1,215
  1,264
  1,317
  1,373
  1,432
  1,495
  1,561
  1,631
  1,706
  1,784
  1,867
  1,954
  2,046
  2,143
  2,245
  2,352
  2,465
  2,584
  2,709
  2,841
Revenue / Adjusted assets
  0.391
  0.336
  0.336
  0.335
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
Average production assets, $m
  396
  403
  413
  423
  435
  448
  463
  479
  496
  514
  534
  555
  577
  601
  627
  654
  683
  713
  745
  779
  815
  852
  892
  934
  978
  1,025
  1,074
  1,126
  1,180
  1,237
  1,297
Working capital, $m
  134
  12
  12
  13
  13
  14
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  21
  22
  22
  23
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
Total debt, $m
  711
  727
  745
  765
  788
  814
  842
  873
  906
  942
  980
  1,021
  1,065
  1,111
  1,161
  1,213
  1,269
  1,328
  1,390
  1,456
  1,525
  1,599
  1,676
  1,758
  1,844
  1,934
  2,029
  2,130
  2,235
  2,346
  2,463
Total liabilities, $m
  767
  784
  802
  822
  845
  871
  899
  930
  963
  999
  1,037
  1,078
  1,122
  1,168
  1,218
  1,270
  1,326
  1,385
  1,447
  1,513
  1,582
  1,656
  1,733
  1,815
  1,901
  1,991
  2,086
  2,187
  2,292
  2,403
  2,520
Total equity, $m
  98
  100
  102
  105
  108
  111
  115
  118
  123
  127
  132
  137
  143
  149
  155
  162
  169
  176
  184
  193
  202
  211
  221
  231
  242
  254
  266
  279
  292
  306
  321
Total liabilities and equity, $m
  865
  884
  904
  927
  953
  982
  1,014
  1,048
  1,086
  1,126
  1,169
  1,215
  1,265
  1,317
  1,373
  1,432
  1,495
  1,561
  1,631
  1,706
  1,784
  1,867
  1,954
  2,046
  2,143
  2,245
  2,352
  2,466
  2,584
  2,709
  2,841
Debt-to-equity ratio
  7.255
  7.280
  7.290
  7.310
  7.320
  7.340
  7.350
  7.370
  7.380
  7.400
  7.420
  7.430
  7.450
  7.470
  7.480
  7.500
  7.510
  7.530
  7.540
  7.550
  7.570
  7.580
  7.590
  7.600
  7.610
  7.620
  7.640
  7.640
  7.650
  7.660
  7.670
Adjusted equity ratio
  -0.032
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113
  0.113

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  245
  113
  116
  119
  122
  126
  130
  134
  139
  144
  149
  155
  162
  168
  175
  183
  191
  199
  208
  218
  228
  238
  249
  261
  273
  286
  300
  314
  329
  345
  362
Depreciation, amort., depletion, $m
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
  68
  72
  75
  79
Funds from operations, $m
  292
  137
  141
  144
  148
  153
  158
  163
  169
  175
  182
  189
  197
  205
  213
  222
  232
  242
  253
  265
  277
  290
  303
  317
  332
  348
  365
  382
  401
  420
  440
Change in working capital, $m
  -1
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
Cash from operations, $m
  293
  137
  140
  144
  148
  152
  157
  163
  168
  175
  181
  188
  196
  204
  213
  222
  231
  242
  252
  264
  276
  289
  302
  316
  331
  347
  363
  381
  399
  418
  438
Maintenance CAPEX, $m
  0
  -24
  -24
  -25
  -26
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -72
  -75
New CAPEX, $m
  -28
  -8
  -9
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -20
  -21
  -23
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
Cash from investing activities, $m
  -228
  -32
  -33
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -51
  -53
  -57
  -59
  -61
  -65
  -69
  -71
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -117
  -122
  -129
  -135
Free cash flow, $m
  65
  105
  107
  108
  110
  113
  116
  119
  122
  126
  130
  135
  140
  145
  151
  157
  163
  170
  177
  185
  193
  201
  210
  220
  230
  241
  252
  264
  276
  290
  303
Issuance/(repayment) of debt, $m
  229
  16
  18
  21
  23
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  82
  86
  90
  95
  100
  106
  111
  117
Issuance/(repurchase) of shares, $m
  10
  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  
  144
  16
  18
  21
  23
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  82
  86
  90
  95
  100
  106
  111
  117
Total cash flow (excl. dividends), $m
  209
  121
  125
  129
  133
  138
  144
  149
  155
  162
  169
  176
  183
  192
  200
  209
  219
  229
  239
  251
  262
  275
  288
  302
  316
  331
  347
  364
  382
  401
  420
Retained Cash Flow (-), $m
  1
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
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
 
  119
  122
  126
  131
  135
  140
  145
  151
  157
  164
  171
  178
  186
  194
  202
  212
  221
  231
  242
  254
  265
  278
  291
  305
  320
  335
  351
  368
  386
  405
Discount rate, %
 
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
 
  111
  105
  100
  94
  88
  82
  75
  68
  62
  55
  49
  43
  37
  31
  26
  21
  17
  14
  11
  8
  6
  4
  3
  2
  2
  1
  1
  0
  0
  0
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

Shell Midstream Partners, L.P. owns, operates, develops, and acquires pipelines and other midstream assets in the United States. The company owns interests in four crude oil pipeline systems and two refined products pipeline systems, as well as a crude tank storage and terminal system. Its crude oil pipeline systems include approximately 350 miles of Zydeco pipeline system from Houston to St. James and Clovelly, Louisiana; and Mars pipeline system originating approximately 95 miles offshore in the deepwater Mississippi Canyon and in salt dome caverns in Clovelly, Louisiana. The company’s refined products pipeline systems consist of 158-mile Bengal pipeline system connecting four refineries in southern Louisiana to long-haul transportation pipelines; and approximately 5,500 miles of pipeline connecting refineries along the Gulf Coast to approximately 265 marketing terminals between Houston, Texas and Linden, New Jersey. Shell Midstream Partners GP LLC serves as the general partner of Shell Midstream Partners, L.P. The company was founded in 2014 and is based in Houston, Texas. Shell Midstream Partners, L.P. is a subsidiary of Shell Midstream LP Holdings LLC.

FINANCIAL RATIOS  of  Shell Midstream Partners (SHLX)

Valuation Ratios
P/E Ratio 11.7
Price to Sales 9.9
Price to Book 29.4
Price to Tangible Book
Price to Cash Flow 9.8
Price to Free Cash Flow 10.9
Growth Rates
Sales Growth Rate -11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 75%
Cap. Spend. - 3 Yr. Gr. Rate -23.2%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 725.5%
Total Debt to Equity 725.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 31%
Ret/ On Assets - 3 Yr. Avg. 19.6%
Return On Total Capital 35.3%
Ret/ On T. Cap. - 3 Yr. Avg. 24.3%
Return On Equity 248.7%
Return On Equity - 3 Yr. Avg. 105.9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 99.3%
EBITDA Margin - 3 Yr. Avg. 85.4%
Operating Margin 55%
Oper. Margin - 3 Yr. Avg. 57.3%
Pre-Tax Margin 91.1%
Pre-Tax Margin - 3 Yr. Avg. 78.1%
Net Profit Margin 84.2%
Net Profit Margin - 3 Yr. Avg. 46.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 73.5%

SHLX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SHLX stock intrinsic value calculation we used $291 million for the last fiscal year's total revenue generated by Shell Midstream Partners. The default revenue input number comes from 2016 income statement of Shell Midstream 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 SHLX stock valuation model: a) initial revenue growth rate of 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 7.4%, whose default value for SHLX is calculated based on our internal credit rating of Shell Midstream 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 Shell Midstream 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 SHLX stock the variable cost ratio is equal to 39.5%.

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 SHLX 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 Shell Midstream Partners.

Corporate tax rate of 27% is the nominal tax rate for Shell Midstream 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 SHLX 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 SHLX are equal to 135.9%.

Life of production assets of 16.5 years is the average useful life of capital assets used in Shell Midstream 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 SHLX is equal to 4.1%. 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 - $98 million for Shell Midstream 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 178.711 million for Shell Midstream 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 Shell Midstream Partners at the current share price and the inputted number of shares is $4.7 billion.

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COMPANY NEWS

▶ Shell Midstream misses 2Q profit forecasts   [Aug-03-17 09:42AM  Associated Press]
▶ BP plc (ADR) (BP) Could Make a Big Income Announcement   [Jul-19-17 12:55PM  InvestorPlace]
▶ Shell's MLP acquires pipelines in $630M drop-down deal   [May-05-17 02:05PM  American City Business Journals]
▶ Shell Midstream misses 1Q profit forecasts   [08:10AM  Associated Press]
▶ Shell Midstream Partners, L.P. Tax Packages Now Available   [Mar-09-17 09:00AM  GlobeNewswire]
▶ Shell Midstream misses 4Q profit forecasts   [09:11AM  Associated Press]
▶ Is Shell Midstream Partners LP (SHLX) a Good Stock to Buy?   [Dec-13-16 08:31AM  at Insider Monkey]
Stock chart of SHLX Financial statements of SHLX
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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