Intrinsic value of Shire ADR - SHPG

Previous Close

$147.95

  Intrinsic Value

$222.54

stock screener

  Rating & Target

str. buy

+50%

  Value-price divergence*

-36%

Previous close

$147.95

 
Intrinsic value

$222.54

 
Up/down potential

+50%

 
Rating

str. buy

 
Value-price divergence*

-36%

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

We calculate the intrinsic value of SHPG 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 44.2

 

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, %
  77.61
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  11,397
  18,235
  28,173
  42,133
  61,133
  86,250
  118,574
  159,161
  208,989
  268,918
  339,665
  421,787
  515,675
  621,562
  739,536
  869,563
  1,011,510
  1,165,175
  1,330,309
  1,506,644
  1,693,915
  1,891,878
  2,100,326
  2,319,101
  2,548,103
  2,787,297
  3,036,717
  3,296,465
  3,566,717
  3,847,718
  4,139,782
Variable operating expenses, $m
 
  13,132
  19,314
  27,998
  39,817
  55,440
  75,547
  100,794
  131,790
  169,068
  213,076
  262,371
  320,774
  386,640
  460,026
  540,908
  629,206
  724,793
  827,514
  937,202
  1,053,694
  1,176,836
  1,306,500
  1,442,588
  1,585,038
  1,733,828
  1,888,979
  2,050,554
  2,218,664
  2,393,459
  2,575,136
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
  10,434
  13,132
  19,314
  27,998
  39,817
  55,440
  75,547
  100,794
  131,790
  169,068
  213,076
  262,371
  320,774
  386,640
  460,026
  540,908
  629,206
  724,793
  827,514
  937,202
  1,053,694
  1,176,836
  1,306,500
  1,442,588
  1,585,038
  1,733,828
  1,888,979
  2,050,554
  2,218,664
  2,393,459
  2,575,136
Operating income, $m
  963
  5,103
  8,859
  14,136
  21,317
  30,810
  43,027
  58,367
  77,199
  99,850
  126,589
  159,416
  194,901
  234,921
  279,510
  328,654
  382,304
  440,382
  502,795
  569,441
  640,221
  715,042
  793,826
  876,512
  963,065
  1,053,469
  1,147,738
  1,245,911
  1,348,054
  1,454,259
  1,564,645
EBITDA, $m
  2,429
  8,530
  13,178
  19,708
  28,595
  40,344
  55,464
  74,448
  97,755
  125,787
  158,880
  197,292
  241,209
  290,738
  345,920
  406,741
  473,137
  545,015
  622,257
  704,738
  792,335
  884,933
  982,435
  1,084,768
  1,191,884
  1,303,768
  1,420,435
  1,541,933
  1,668,345
  1,799,784
  1,936,398
Interest expense (income), $m
  284
  785
  1,580
  2,729
  4,343
  6,540
  9,445
  13,183
  17,877
  23,639
  30,569
  38,751
  48,248
  59,105
  71,350
  84,993
  100,030
  116,445
  134,215
  153,312
  173,704
  195,361
  218,254
  242,359
  267,659
  294,142
  321,803
  350,647
  380,685
  411,938
  444,434
Earnings before tax, $m
  486
  4,318
  7,280
  11,407
  16,973
  24,269
  33,582
  45,184
  59,322
  76,211
  96,019
  120,665
  146,654
  175,816
  208,160
  243,661
  282,274
  323,937
  368,579
  416,129
  466,517
  519,681
  575,572
  634,153
  695,405
  759,327
  825,935
  895,264
  967,369
  1,042,321
  1,120,212
Tax expense, $m
  -126
  1,166
  1,966
  3,080
  4,583
  6,553
  9,067
  12,200
  16,017
  20,577
  25,925
  32,580
  39,596
  47,470
  56,203
  65,789
  76,214
  87,463
  99,516
  112,355
  125,960
  140,314
  155,404
  171,221
  187,759
  205,018
  223,002
  241,721
  261,190
  281,427
  302,457
Net income, $m
  327
  3,152
  5,314
  8,327
  12,391
  17,717
  24,515
  32,984
  43,305
  55,634
  70,094
  88,085
  107,057
  128,346
  151,957
  177,873
  206,060
  236,474
  269,063
  303,774
  340,557
  379,367
  420,167
  462,932
  507,646
  554,309
  602,933
  653,543
  706,179
  760,894
  817,755

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  542
  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
  67,035
  106,639
  164,757
  246,394
  357,505
  504,387
  693,416
  930,768
  1,222,157
  1,572,619
  1,986,345
  2,466,590
  3,015,643
  3,634,863
  4,324,770
  5,085,161
  5,915,264
  6,813,887
  7,779,582
  8,810,782
  9,905,934
  11,063,612
  12,282,606
  13,561,992
  14,901,187
  16,299,984
  17,758,578
  19,277,575
  20,857,996
  22,501,275
  24,209,250
Adjusted assets (=assets-cash), $m
  66,493
  106,639
  164,757
  246,394
  357,505
  504,387
  693,416
  930,768
  1,222,157
  1,572,619
  1,986,345
  2,466,590
  3,015,643
  3,634,863
  4,324,770
  5,085,161
  5,915,264
  6,813,887
  7,779,582
  8,810,782
  9,905,934
  11,063,612
  12,282,606
  13,561,992
  14,901,187
  16,299,984
  17,758,578
  19,277,575
  20,857,996
  22,501,275
  24,209,250
Revenue / Adjusted assets
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
  0.171
Average production assets, $m
  25,585
  40,938
  63,249
  94,589
  137,244
  193,632
  266,199
  357,317
  469,180
  603,720
  762,548
  946,912
  1,157,690
  1,395,406
  1,660,258
  1,952,168
  2,270,840
  2,615,817
  2,986,543
  3,382,415
  3,802,839
  4,247,266
  4,715,231
  5,206,381
  5,720,491
  6,257,482
  6,817,429
  7,400,565
  8,007,280
  8,638,127
  9,293,810
Working capital, $m
  -203
  3,720
  5,747
  8,595
  12,471
  17,595
  24,189
  32,469
  42,634
  54,859
  69,292
  86,045
  105,198
  126,799
  150,865
  177,391
  206,348
  237,696
  271,383
  307,355
  345,559
  385,943
  428,466
  473,097
  519,813
  568,609
  619,490
  672,479
  727,610
  784,934
  844,515
Total debt, $m
  22,968
  45,132
  77,968
  124,093
  186,871
  269,860
  376,661
  510,765
  675,400
  873,411
  1,107,166
  1,378,504
  1,688,719
  2,038,579
  2,428,376
  2,857,997
  3,327,005
  3,834,727
  4,380,345
  4,962,973
  5,581,734
  6,235,822
  6,924,554
  7,647,406
  8,404,051
  9,194,372
  10,018,478
  10,876,711
  11,769,649
  12,698,101
  13,663,107
Total liabilities, $m
  38,087
  60,251
  93,087
  139,212
  201,990
  284,979
  391,780
  525,884
  690,519
  888,530
  1,122,285
  1,393,623
  1,703,838
  2,053,698
  2,443,495
  2,873,116
  3,342,124
  3,849,846
  4,395,464
  4,978,092
  5,596,853
  6,250,941
  6,939,673
  7,662,525
  8,419,170
  9,209,491
  10,033,597
  10,891,830
  11,784,768
  12,713,220
  13,678,226
Total equity, $m
  28,948
  46,388
  71,669
  107,181
  155,515
  219,408
  301,636
  404,884
  531,638
  684,089
  864,060
  1,072,967
  1,311,805
  1,581,166
  1,881,275
  2,212,045
  2,573,140
  2,964,041
  3,384,118
  3,832,690
  4,309,081
  4,812,671
  5,342,934
  5,899,466
  6,482,016
  7,090,493
  7,724,981
  8,385,745
  9,073,228
  9,788,055
  10,531,024
Total liabilities and equity, $m
  67,035
  106,639
  164,756
  246,393
  357,505
  504,387
  693,416
  930,768
  1,222,157
  1,572,619
  1,986,345
  2,466,590
  3,015,643
  3,634,864
  4,324,770
  5,085,161
  5,915,264
  6,813,887
  7,779,582
  8,810,782
  9,905,934
  11,063,612
  12,282,607
  13,561,991
  14,901,186
  16,299,984
  17,758,578
  19,277,575
  20,857,996
  22,501,275
  24,209,250
Debt-to-equity ratio
  0.793
  0.970
  1.090
  1.160
  1.200
  1.230
  1.250
  1.260
  1.270
  1.280
  1.280
  1.280
  1.290
  1.290
  1.290
  1.290
  1.290
  1.290
  1.290
  1.290
  1.300
  1.300
  1.300
  1.300
  1.300
  1.300
  1.300
  1.300
  1.300
  1.300
  1.300
Adjusted equity ratio
  0.427
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435
  0.435

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  327
  3,152
  5,314
  8,327
  12,391
  17,717
  24,515
  32,984
  43,305
  55,634
  70,094
  88,085
  107,057
  128,346
  151,957
  177,873
  206,060
  236,474
  269,063
  303,774
  340,557
  379,367
  420,167
  462,932
  507,646
  554,309
  602,933
  653,543
  706,179
  760,894
  817,755
Depreciation, amort., depletion, $m
  1,466
  3,426
  4,319
  5,572
  7,279
  9,534
  12,437
  16,081
  20,556
  25,938
  32,291
  37,876
  46,308
  55,816
  66,410
  78,087
  90,834
  104,633
  119,462
  135,297
  152,114
  169,891
  188,609
  208,255
  228,820
  250,299
  272,697
  296,023
  320,291
  345,525
  371,752
Funds from operations, $m
  2,413
  6,579
  9,633
  13,899
  19,669
  27,251
  36,951
  49,066
  63,861
  81,571
  102,385
  125,962
  153,365
  184,162
  218,367
  255,959
  296,894
  341,107
  388,525
  439,071
  492,671
  549,258
  608,777
  671,187
  736,466
  804,608
  875,630
  949,565
  1,026,470
  1,106,419
  1,189,507
Change in working capital, $m
  -246
  1,395
  2,027
  2,848
  3,876
  5,124
  6,594
  8,280
  10,165
  12,226
  14,432
  16,753
  19,153
  21,601
  24,067
  26,525
  28,957
  31,348
  33,687
  35,972
  38,203
  40,384
  42,523
  44,630
  46,716
  48,796
  50,882
  52,989
  55,131
  57,324
  59,581
Cash from operations, $m
  2,659
  5,184
  7,606
  11,051
  15,793
  22,127
  30,357
  40,786
  53,697
  69,346
  87,952
  109,209
  134,212
  162,561
  194,300
  229,434
  267,936
  309,759
  354,837
  403,099
  454,468
  508,874
  566,253
  626,557
  689,749
  755,812
  824,748
  896,577
  971,339
  1,049,095
  1,129,926
Maintenance CAPEX, $m
  0
  -1,023
  -1,638
  -2,530
  -3,784
  -5,490
  -7,745
  -10,648
  -14,293
  -18,767
  -24,149
  -30,502
  -37,876
  -46,308
  -55,816
  -66,410
  -78,087
  -90,834
  -104,633
  -119,462
  -135,297
  -152,114
  -169,891
  -188,609
  -208,255
  -228,820
  -250,299
  -272,697
  -296,023
  -320,291
  -345,525
New CAPEX, $m
  -649
  -15,354
  -22,311
  -31,340
  -42,655
  -56,387
  -72,567
  -91,118
  -111,863
  -134,541
  -158,828
  -184,364
  -210,779
  -237,716
  -264,852
  -291,910
  -318,672
  -344,977
  -370,725
  -395,872
  -420,424
  -444,427
  -467,966
  -491,150
  -514,110
  -536,991
  -559,947
  -583,135
  -606,716
  -630,847
  -655,683
Cash from investing activities, $m
  -18,092
  -16,377
  -23,949
  -33,870
  -46,439
  -61,877
  -80,312
  -101,766
  -126,156
  -153,308
  -182,977
  -214,866
  -248,655
  -284,024
  -320,668
  -358,320
  -396,759
  -435,811
  -475,358
  -515,334
  -555,721
  -596,541
  -637,857
  -679,759
  -722,365
  -765,811
  -810,246
  -855,832
  -902,739
  -951,138
  -1,001,208
Free cash flow, $m
  -15,433
  -11,193
  -16,343
  -22,819
  -30,645
  -39,750
  -49,955
  -60,980
  -72,459
  -83,962
  -95,024
  -105,656
  -114,444
  -121,462
  -126,368
  -128,887
  -128,823
  -126,052
  -120,521
  -112,235
  -101,252
  -87,667
  -71,603
  -53,202
  -32,616
  -9,998
  14,502
  40,744
  68,601
  97,958
  128,718
Issuance/(repayment) of debt, $m
  16,039
  22,706
  32,837
  46,125
  62,778
  82,989
  106,801
  134,103
  164,635
  198,011
  233,755
  271,338
  310,215
  349,860
  389,797
  429,621
  469,008
  507,722
  545,618
  582,628
  618,761
  654,088
  688,731
  722,853
  756,645
  790,321
  824,106
  858,233
  892,938
  928,453
  965,006
Issuance/(repurchase) of shares, $m
  129
  14,287
  19,967
  27,185
  35,943
  46,177
  57,713
  70,264
  83,449
  96,817
  109,877
  120,821
  131,781
  141,015
  148,153
  152,898
  155,035
  154,428
  151,014
  144,797
  135,834
  124,223
  110,095
  93,601
  74,904
  54,168
  31,556
  7,221
  0
  0
  0
Cash from financing (excl. dividends), $m  
  15,997
  36,993
  52,804
  73,310
  98,721
  129,166
  164,514
  204,367
  248,084
  294,828
  343,632
  392,159
  441,996
  490,875
  537,950
  582,519
  624,043
  662,150
  696,632
  727,425
  754,595
  778,311
  798,826
  816,454
  831,549
  844,489
  855,662
  865,454
  892,938
  928,453
  965,006
Total cash flow (excl. dividends), $m
  564
  25,800
  36,461
  50,491
  68,075
  89,416
  114,559
  143,387
  175,625
  210,866
  248,608
  286,503
  327,552
  369,413
  411,582
  453,632
  495,220
  536,098
  576,111
  615,190
  653,342
  690,644
  727,223
  763,252
  798,932
  834,490
  870,163
  906,198
  961,539
  1,026,410
  1,093,724
Retained Cash Flow (-), $m
  -19,119
  -17,440
  -25,281
  -35,512
  -48,333
  -63,894
  -82,228
  -103,248
  -126,754
  -152,451
  -179,971
  -208,907
  -238,838
  -269,361
  -300,109
  -330,770
  -361,095
  -390,901
  -420,077
  -448,572
  -476,391
  -503,590
  -530,262
  -556,533
  -582,550
  -608,477
  -634,488
  -660,764
  -687,483
  -714,826
  -742,969
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
 
  8,360
  11,179
  14,979
  19,742
  25,522
  32,331
  40,139
  48,871
  58,415
  68,637
  77,596
  88,714
  100,052
  111,473
  122,862
  134,125
  145,197
  156,034
  166,618
  176,951
  187,054
  196,961
  206,719
  216,383
  226,013
  235,675
  245,435
  274,055
  311,584
  350,755
Discount rate, %
 
  8.00
  8.40
  8.82
  9.26
  9.72
  10.21
  10.72
  11.26
  11.82
  12.41
  13.03
  13.68
  14.37
  15.09
  15.84
  16.63
  17.46
  18.34
  19.25
  20.22
  21.23
  22.29
  23.40
  24.57
  25.80
  27.09
  28.45
  29.87
  31.36
  32.93
PV of cash for distribution, $m
 
  7,741
  9,514
  11,624
  13,852
  16,047
  18,042
  19,677
  20,818
  21,373
  21,305
  20,168
  19,040
  17,471
  15,592
  13,538
  11,441
  9,411
  7,535
  5,872
  4,453
  3,284
  2,355
  1,640
  1,109
  728
  463
  285
  182
  114
  69
Current shareholders' claim on cash, %
  100
  75.6
  59.0
  47.2
  38.7
  32.4
  27.7
  24.0
  21.1
  18.9
  17.1
  15.7
  14.5
  13.5
  12.8
  12.1
  11.6
  11.1
  10.8
  10.5
  10.3
  10.1
  9.9
  9.8
  9.7
  9.7
  9.6
  9.6
  9.6
  9.6
  9.6

Shire plc, a biotechnology company, focused on serving people with rare diseases and other specialized conditions worldwide. The company offers products in therapeutic areas, including hematology, genetic diseases, neuroscience, immunology, internal medicine, ophthalmology, and oncology. Its marketed products include ADVATE and ADYNOVATE/ADYNOVI for hemophilia A; RIXUBIS to treat hemophilia B; VONVENDI for the treatment of von willebrand Disease; FEIBA to treat hemophilia A and B patients with inhibitors; CINRYZE and FIRAZYR for hereditary angioedema; ELAPRASE to treat hunter syndrome; REPLAGAL for Fabry disease; and VPRIV to treat type 1 Gaucher disease. The company marketed products also comprise of VYVANSE/VENVANSE/ELVANSE/TYVENSE/VUXEN/ADUVANZ for the treatment of attention-deficit/hyperactivity disorder (ADHD) and binge eating disorder; ADDERALL XR to treat ADHD; GAMMAGARD LIQUID/KIOVIG, GAMMAGARD S/D, HYQVIA, and CUVITRU for the treatment of primary immunodeficiency; and FLEXBUMIN to treat hypovolemia and hypoalbuminemia. In addition, its marketed products consists of LIALDA/MEZAVANT for ulcerative colitis; GATTEX/REVESTIVE to treat short bowel syndrome; NATPARA for the control of hypocalcemia in patients with hypoparathyroidism; ONCASPAR to treat acute lymphoblastic leukemia; ONYVIDE for metastatic adenocarcinoma of the pancreas; and XIIDRA to treat dry eye disease. The company markets its products through wholesalers, distribution centers, and pharmacies. It has collaborative and other licensing arrangements with Pfizer Inc.; Precision BioSciences; Symphogen; Merrimack Pharmaceuticals, Inc.; Coherus Biosciences, Inc.; Momenta Pharmaceuticals, Inc.; and SFJ Pharmaceuticals Group. Shire plc was founded in 1986 and is based in Dublin, Ireland.

FINANCIAL RATIOS  of  Shire ADR (SHPG)

Valuation Ratios
P/E Ratio 412.7
Price to Sales 11.8
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 50.8
Price to Free Cash Flow 67.1
Growth Rates
Sales Growth Rate 77.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 464.3%
Cap. Spend. - 3 Yr. Gr. Rate 32.8%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 68.7%
Total Debt to Equity 79.3%
Interest Coverage 3
Management Effectiveness
Return On Assets 1.6%
Ret/ On Assets - 3 Yr. Avg. 13.8%
Return On Total Capital 1%
Ret/ On T. Cap. - 3 Yr. Avg. 19.8%
Return On Equity 1.7%
Return On Equity - 3 Yr. Avg. 21.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 66.6%
Gross Margin - 3 Yr. Avg. 78.9%
EBITDA Margin 19.6%
EBITDA Margin - 3 Yr. Avg. 38%
Operating Margin 8.4%
Oper. Margin - 3 Yr. Avg. 28.6%
Pre-Tax Margin 4.3%
Pre-Tax Margin - 3 Yr. Avg. 27.1%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. 26.6%
Effective Tax Rate -25.9%
Eff/ Tax Rate - 3 Yr. Avg. -7%
Payout Ratio 52.3%

SHPG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SHPG stock intrinsic value calculation we used $11397 million for the last fiscal year's total revenue generated by Shire ADR. The default revenue input number comes from 2016 income statement of Shire ADR. 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 SHPG stock valuation model: a) initial revenue growth rate of 60% 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 8%, whose default value for SHPG is calculated based on our internal credit rating of Shire ADR, 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 Shire ADR.
    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 SHPG stock the variable cost ratio is equal to 77.9%.

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 SHPG 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 Shire ADR.

Corporate tax rate of 27% is the nominal tax rate for Shire ADR. 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 SHPG 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 SHPG are equal to 224.5%.

Life of production assets of 25 years is the average useful life of capital assets used in Shire ADR 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 SHPG is equal to 20.4%. 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 - $28948 million for Shire ADR - 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 298.783 million for Shire ADR 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 Shire ADR at the current share price and the inputted number of shares is $44.2 billion.

RELATED COMPANIES Price Int.Val. Rating
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AMGN Amgen 167.81 182.48  hold
PFE Pfizer 32.95 28.58  hold

COMPANY NEWS

▶ Shire applies for European approval of potential blockbuster eye drop   [Aug-15-17 06:00AM  American City Business Journals]
▶ Shire plc : Director/PDMR Shareholding   [Aug-09-17 09:17AM  GlobeNewswire]
▶ Shire plc : Half-yearly report   [02:52AM  GlobeNewswire]
▶ Shire's ADHD Spinoff Idea Is Shaky   [Aug-03-17 02:29PM  Bloomberg]
▶ [$$] Shire Mulls Spinning-off or Selling Neuroscience Unit   [09:58AM  The Wall Street Journal]
▶ Shire tops Street 2Q forecasts   [09:42AM  Associated Press]
▶ Shire plc : Total voting rights   [Aug-01-17 07:02AM  GlobeNewswire]
▶ Shire Stock Rising on Takeover Talks   [Jul-26-17 04:29PM  TheStreet.com]
▶ New Strong Sell Stocks for July 20th   [Jul-20-17 11:08AM  Zacks]
▶ Shire plc : Notice of Results   [Jul-18-17 07:02AM  GlobeNewswire]
▶ [$$] Shire boss says share price at odds with drugs pipeline   [Jul-16-17 08:18AM  Financial Times]
▶ Shire plc : Additional Listing   [02:02AM  GlobeNewswire]
▶ Shire plc : Director/PDMR Shareholding   [Jul-03-17 08:32AM  GlobeNewswire]
▶ Shire plc : Total voting rights   [07:01AM  GlobeNewswire]
▶ Biotech Movers: Shire, Bellicum, Organovo   [09:36AM  TheStreet.com]
▶ Shire wins FDA approval for new ADHD drug   [10:25AM  American City Business Journals]
▶ Shire's long-acting ADHD drug wins U.S. approval   [Jun-20-17 07:19PM  Reuters]
▶ Valeant: Stop Looking in the Rearview Mirror!   [Jun-16-17 10:54AM  Barrons.com]
▶ 10 High-Quality Foreign-Stock Bargains   [Jun-14-17 06:00AM  Morningstar]
▶ Down 24.6%, is BioCryst Pharmaceuticals Stock Now a Buy?   [Jun-06-17 12:03PM  Motley Fool]
▶ Key FDA Events to Watch Out for in Jun 2017   [Jun-05-17 07:47AM  Zacks]
▶ Paulson & Co. Hedge Fund Cuts Back on Health Care in Q1   [May-30-17 12:13PM  Investopedia]
▶ Why BioCryst Pharmaceuticals Stock Caught Fire Today   [May-25-17 03:06PM  Motley Fool]
▶ Shire and tiny Lexington biotech say hemophilia drug trial misses mark   [May-22-17 01:05PM  American City Business Journals]
▶ Biotech And Pharma Industry And Stock News   [12:48PM  Investor's Business Daily]
▶ Company News for May 19, 2017   [10:17AM  Zacks]
▶ Drugmaker Leads Industry Gains Thursday On Rare Disease Trial   [May-18-17 05:27PM  Investor's Business Daily]
▶ [$$] Health-Care Investor Agent Capital Seeks $100 Million Fund   [May-16-17 04:55PM  The Wall Street Journal]
▶ ETFs with exposure to Shire Plc : May 15, 2017   [May-15-17 04:37PM  Capital Cube]
▶ ETFs with exposure to Shire Plc : May 5, 2017   [May-05-17 04:33PM  Capital Cube]
▶ [$$] Shire Profit Pressured by Baxalta Takeover Costs   [May-02-17 09:23AM  The Wall Street Journal]
▶ Durham CEO on deal with Shire valued at up to $535M   [09:10AM  American City Business Journals]
▶ Shire tops Street 1Q forecasts   [07:27AM  Associated Press]
▶ ETFs with exposure to Shire Plc : April 25, 2017   [Apr-25-17 03:48PM  Capital Cube]
▶ Novartis Licenses ECF843 Eye Drops From Lubris   [Apr-06-17 08:22AM  Investopedia]
▶ Shire: Can It Pay Down Debt?   [Mar-27-17 01:32PM  Barrons.com]
▶ Shire hTTP Drug Secures Fast Track Designation   [Mar-22-17 10:27AM  Investopedia]
Stock chart of SHPG Financial statements of SHPG
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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