Intrinsic value of Sprague Resources - SRLP

Previous Close

$24.05

  Intrinsic Value

$35.79

stock screener

  Rating & Target

buy

+49%

Previous close

$24.05

 
Intrinsic value

$35.79

 
Up/down potential

+49%

 
Rating

buy

We calculate the intrinsic value of SRLP 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
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, %
  -31.36
  16.10
  14.99
  13.99
  13.09
  12.28
  11.55
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
Revenue, $m
  2,390
  2,775
  3,191
  3,637
  4,113
  4,619
  5,152
  5,714
  6,303
  6,919
  7,563
  8,233
  8,932
  9,658
  10,414
  11,199
  12,015
  12,863
  13,744
  14,660
  15,613
  16,604
  17,636
  18,711
  19,830
  20,998
  22,215
  23,485
  24,811
  26,195
  27,642
Variable operating expenses, $m
 
  2,602
  2,991
  3,408
  3,853
  4,326
  4,825
  5,350
  5,900
  6,477
  7,078
  7,698
  8,352
  9,031
  9,737
  10,471
  11,234
  12,027
  12,851
  13,708
  14,599
  15,526
  16,490
  17,495
  18,542
  19,633
  20,771
  21,959
  23,199
  24,493
  25,846
Fixed operating expenses, $m
 
  113
  116
  118
  121
  124
  128
  131
  134
  137
  141
  144
  148
  152
  155
  159
  163
  167
  172
  176
  180
  185
  189
  194
  199
  204
  209
  214
  220
  225
  231
Total operating expenses, $m
  2,350
  2,715
  3,107
  3,526
  3,974
  4,450
  4,953
  5,481
  6,034
  6,614
  7,219
  7,842
  8,500
  9,183
  9,892
  10,630
  11,397
  12,194
  13,023
  13,884
  14,779
  15,711
  16,679
  17,689
  18,741
  19,837
  20,980
  22,173
  23,419
  24,718
  26,077
Operating income, $m
  40
  60
  85
  111
  139
  169
  200
  233
  268
  305
  343
  391
  432
  476
  521
  568
  617
  668
  721
  777
  834
  894
  956
  1,022
  1,089
  1,160
  1,234
  1,312
  1,392
  1,477
  1,565
EBITDA, $m
  65
  88
  115
  144
  175
  209
  244
  282
  321
  362
  405
  450
  497
  546
  596
  649
  704
  761
  820
  882
  947
  1,014
  1,084
  1,156
  1,232
  1,312
  1,394
  1,481
  1,571
  1,666
  1,764
Interest expense (income), $m
  24
  23
  29
  35
  42
  49
  57
  65
  73
  82
  92
  101
  111
  122
  133
  145
  156
  169
  182
  195
  209
  223
  238
  254
  270
  287
  305
  323
  343
  363
  384
Earnings before tax, $m
  12
  38
  56
  76
  97
  120
  143
  169
  195
  223
  252
  289
  321
  354
  388
  424
  461
  500
  540
  582
  625
  671
  718
  768
  819
  873
  929
  988
  1,050
  1,114
  1,181
Tax expense, $m
  2
  10
  15
  20
  26
  32
  39
  46
  53
  60
  68
  78
  87
  96
  105
  114
  124
  135
  146
  157
  169
  181
  194
  207
  221
  236
  251
  267
  283
  301
  319
Net income, $m
  10
  27
  41
  55
  71
  87
  105
  123
  142
  163
  184
  211
  234
  258
  283
  309
  336
  365
  394
  425
  456
  490
  524
  560
  598
  637
  678
  721
  766
  813
  862

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  3
  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
  1,012
  1,171
  1,347
  1,535
  1,736
  1,950
  2,175
  2,412
  2,661
  2,921
  3,192
  3,475
  3,770
  4,077
  4,396
  4,727
  5,072
  5,430
  5,802
  6,188
  6,591
  7,009
  7,445
  7,898
  8,371
  8,863
  9,377
  9,913
  10,473
  11,058
  11,668
Adjusted assets (=assets-cash), $m
  1,009
  1,171
  1,347
  1,535
  1,736
  1,950
  2,175
  2,412
  2,661
  2,921
  3,192
  3,475
  3,770
  4,077
  4,396
  4,727
  5,072
  5,430
  5,802
  6,188
  6,591
  7,009
  7,445
  7,898
  8,371
  8,863
  9,377
  9,913
  10,473
  11,058
  11,668
Revenue / Adjusted assets
  2.369
  2.370
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
  2.369
Average production assets, $m
  148
  172
  198
  226
  255
  286
  319
  354
  391
  429
  469
  510
  554
  599
  646
  694
  745
  797
  852
  909
  968
  1,029
  1,093
  1,160
  1,229
  1,302
  1,377
  1,456
  1,538
  1,624
  1,714
Working capital, $m
  203
  413
  475
  542
  613
  688
  768
  851
  939
  1,031
  1,127
  1,227
  1,331
  1,439
  1,552
  1,669
  1,790
  1,917
  2,048
  2,184
  2,326
  2,474
  2,628
  2,788
  2,955
  3,129
  3,310
  3,499
  3,697
  3,903
  4,119
Total debt, $m
  561
  700
  854
  1,019
  1,195
  1,382
  1,579
  1,787
  2,005
  2,233
  2,470
  2,719
  2,977
  3,245
  3,525
  3,815
  4,117
  4,430
  4,756
  5,095
  5,447
  5,814
  6,195
  6,593
  7,007
  7,438
  7,889
  8,358
  8,848
  9,360
  9,895
Total liabilities, $m
  887
  1,026
  1,180
  1,345
  1,521
  1,708
  1,905
  2,113
  2,331
  2,559
  2,796
  3,045
  3,303
  3,571
  3,851
  4,141
  4,443
  4,756
  5,082
  5,421
  5,773
  6,140
  6,521
  6,919
  7,333
  7,764
  8,215
  8,684
  9,174
  9,686
  10,221
Total equity, $m
  125
  145
  167
  190
  215
  242
  270
  299
  330
  362
  396
  431
  468
  506
  545
  586
  629
  673
  719
  767
  817
  869
  923
  979
  1,038
  1,099
  1,163
  1,229
  1,299
  1,371
  1,447
Total liabilities and equity, $m
  1,012
  1,171
  1,347
  1,535
  1,736
  1,950
  2,175
  2,412
  2,661
  2,921
  3,192
  3,476
  3,771
  4,077
  4,396
  4,727
  5,072
  5,429
  5,801
  6,188
  6,590
  7,009
  7,444
  7,898
  8,371
  8,863
  9,378
  9,913
  10,473
  11,057
  11,668
Debt-to-equity ratio
  4.488
  4.820
  5.110
  5.350
  5.550
  5.720
  5.860
  5.970
  6.080
  6.160
  6.240
  6.310
  6.370
  6.420
  6.470
  6.510
  6.550
  6.580
  6.610
  6.640
  6.670
  6.690
  6.710
  6.730
  6.750
  6.770
  6.780
  6.800
  6.810
  6.830
  6.840
Adjusted equity ratio
  0.121
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10
  27
  41
  55
  71
  87
  105
  123
  142
  163
  184
  211
  234
  258
  283
  309
  336
  365
  394
  425
  456
  490
  524
  560
  598
  637
  678
  721
  766
  813
  862
Depreciation, amort., depletion, $m
  25
  27
  30
  33
  37
  40
  44
  48
  53
  57
  62
  59
  64
  70
  75
  81
  87
  93
  99
  106
  113
  120
  127
  135
  143
  151
  160
  169
  179
  189
  199
Funds from operations, $m
  224
  55
  71
  89
  108
  128
  149
  171
  195
  220
  246
  271
  299
  328
  358
  390
  423
  457
  493
  530
  569
  609
  651
  695
  741
  789
  839
  891
  945
  1,002
  1,062
Change in working capital, $m
  92
  57
  62
  67
  71
  75
  80
  84
  88
  92
  96
  100
  104
  108
  113
  117
  122
  126
  131
  137
  142
  148
  154
  160
  167
  174
  181
  189
  198
  206
  216
Cash from operations, $m
  132
  -3
  9
  22
  37
  52
  69
  88
  107
  128
  150
  171
  195
  220
  246
  273
  302
  331
  362
  394
  427
  462
  498
  535
  574
  615
  657
  701
  748
  796
  846
Maintenance CAPEX, $m
  0
  -17
  -20
  -23
  -26
  -30
  -33
  -37
  -41
  -45
  -50
  -55
  -59
  -64
  -70
  -75
  -81
  -87
  -93
  -99
  -106
  -113
  -120
  -127
  -135
  -143
  -151
  -160
  -169
  -179
  -189
New CAPEX, $m
  -16
  -24
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -67
  -69
  -72
  -75
  -79
  -82
  -86
  -90
Cash from investing activities, $m
  -45
  -41
  -46
  -51
  -56
  -61
  -66
  -72
  -78
  -83
  -90
  -97
  -102
  -109
  -117
  -124
  -132
  -140
  -148
  -156
  -165
  -174
  -184
  -194
  -204
  -215
  -226
  -239
  -251
  -265
  -279
Free cash flow, $m
  87
  -44
  -37
  -29
  -19
  -9
  3
  16
  29
  44
  60
  74
  92
  110
  129
  149
  170
  192
  214
  238
  262
  288
  314
  341
  370
  399
  430
  463
  496
  531
  568
Issuance/(repayment) of debt, $m
  -62
  142
  154
  165
  176
  187
  197
  208
  218
  228
  238
  248
  258
  269
  279
  290
  302
  314
  326
  339
  352
  367
  382
  397
  414
  432
  450
  470
  490
  512
  535
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  
  -67
  142
  154
  165
  176
  187
  197
  208
  218
  228
  238
  248
  258
  269
  279
  290
  302
  314
  326
  339
  352
  367
  382
  397
  414
  432
  450
  470
  490
  512
  535
Total cash flow (excl. dividends), $m
  20
  98
  117
  136
  157
  178
  200
  223
  247
  272
  298
  323
  350
  379
  409
  440
  472
  505
  540
  577
  615
  654
  695
  739
  784
  831
  880
  932
  986
  1,043
  1,103
Retained Cash Flow (-), $m
  32
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -76
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
 
  78
  95
  113
  132
  152
  172
  194
  216
  240
  264
  287
  314
  341
  369
  399
  429
  461
  494
  529
  565
  602
  641
  682
  725
  770
  817
  866
  917
  971
  1,027
Discount rate, %
 
  12.60
  13.23
  13.89
  14.59
  15.32
  16.08
  16.89
  17.73
  18.62
  19.55
  20.52
  21.55
  22.63
  23.76
  24.95
  26.19
  27.50
  28.88
  30.32
  31.84
  33.43
  35.10
  36.86
  38.70
  40.64
  42.67
  44.80
  47.04
  49.39
  51.86
PV of cash for distribution, $m
 
  69
  74
  77
  77
  74
  70
  65
  59
  52
  44
  37
  30
  24
  19
  14
  10
  7
  5
  3
  2
  1
  1
  1
  0
  0
  0
  0
  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

Sprague Resources LP is engaged in the purchase, storage, distribution and sale of refined products and natural gas, and provides storage and handling services for a range of materials. The Company operates through four segments: refined products, which purchases a range of refined products, such as heating oil, diesel fuel, residual fuel oil, asphalt, kerosene, jet fuel and gasoline from refining companies, trading organizations and producers; natural gas, which purchases natural gas from natural gas producers and trading companies, and sells and distributes natural gas to commercial and industrial customers in the Northeast and Mid-Atlantic United States; materials handling, which offloads, stores and prepares for delivery a range of customer-owned products, including asphalt, clay slurry, coal and heavy equipment, and other operations, which include the purchase and distribution of coal, certain commercial trucking activities and the heating equipment service business.

FINANCIAL RATIOS  of  Sprague Resources (SRLP)

Valuation Ratios
P/E Ratio 51.3
Price to Sales 0.2
Price to Book 4.1
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow 4.4
Growth Rates
Sales Growth Rate -31.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.7%
Cap. Spend. - 3 Yr. Gr. Rate -10.6%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 324.8%
Total Debt to Equity 448.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 3%
Ret/ On Assets - 3 Yr. Avg. 7.9%
Return On Total Capital 1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 7.1%
Return On Equity - 3 Yr. Avg. 65.3%
Asset Turnover 2.4
Profitability Ratios
Gross Margin 8.8%
Gross Margin - 3 Yr. Avg. 7.8%
EBITDA Margin 2.6%
EBITDA Margin - 3 Yr. Avg. 3.2%
Operating Margin 1.7%
Oper. Margin - 3 Yr. Avg. 2.6%
Pre-Tax Margin 0.5%
Pre-Tax Margin - 3 Yr. Avg. 1.8%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. 1.7%
Effective Tax Rate 16.7%
Eff/ Tax Rate - 3 Yr. Avg. 7.7%
Payout Ratio 480%

SRLP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SRLP stock intrinsic value calculation we used $2390 million for the last fiscal year's total revenue generated by Sprague Resources. The default revenue input number comes from 2016 income statement of Sprague Resources. 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 SRLP stock valuation model: a) initial revenue growth rate of 16.1% 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 12.6%, whose default value for SRLP is calculated based on our internal credit rating of Sprague Resources, 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 Sprague Resources.
    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 SRLP stock the variable cost ratio is equal to 93.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $110 million in the base year in the intrinsic value calculation for SRLP 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 4.1% for Sprague Resources.

Corporate tax rate of 27% is the nominal tax rate for Sprague Resources. 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 SRLP 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 SRLP are equal to 6.2%.

Life of production assets of 8.6 years is the average useful life of capital assets used in Sprague Resources 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 SRLP is equal to 14.9%. 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 - $125 million for Sprague Resources - 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 22.823 million for Sprague Resources 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 Sprague Resources at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Sprague Resources reports 3Q loss   [Nov-07-17 06:09AM  Associated Press]
▶ Sprague Resources LP Announces the closing of Coen Energy   [Oct-03-17 06:00AM  GlobeNewswire]
▶ Sprague Resources LP Announces Acquisition of Coen Energy   [Sep-19-17 06:00AM  GlobeNewswire]
▶ The Biggest MLP Losses Last Week   [Sep-18-17 01:00PM  Market Realist]
▶ Sprague Resources reports 2Q loss   [Aug-09-17 04:31PM  Associated Press]
▶ Sprague Resources beats Street 1Q forecasts   [May-08-17 06:18AM  Associated Press]
▶ Sprague Resources reports 4Q loss   [06:14AM  Associated Press]
Financial statements of SRLP
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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