Intrinsic value of Sprague Resources - SRLP

Previous Close

$25.70

  Intrinsic Value

$16.86

stock screener

  Rating & Target

sell

-34%

  Value-price divergence*

-12%

Previous close

$25.70

 
Intrinsic value

$16.86

 
Up/down potential

-34%

 
Rating

sell

 
Value-price divergence*

-12%

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

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

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 0.6

 

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
  7.80
  7.52
  7.27
  7.04
  6.84
  6.65
  6.49
  6.34
  6.21
  6.08
  5.98
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
Revenue, $m
  2,390
  2,576
  2,770
  2,972
  3,181
  3,398
  3,624
  3,859
  4,104
  4,359
  4,624
  4,900
  5,188
  5,489
  5,802
  6,130
  6,471
  6,829
  7,202
  7,592
  8,001
  8,428
  8,875
  9,343
  9,834
  10,347
  10,886
  11,449
  12,041
  12,660
  13,310
Variable operating expenses, $m
 
  2,416
  2,597
  2,786
  2,981
  3,185
  3,396
  3,616
  3,845
  4,083
  4,331
  4,582
  4,851
  5,132
  5,425
  5,731
  6,051
  6,385
  6,734
  7,099
  7,481
  7,880
  8,299
  8,736
  9,195
  9,675
  10,178
  10,706
  11,258
  11,838
  12,445
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
  2,529
  2,713
  2,904
  3,102
  3,309
  3,524
  3,747
  3,979
  4,220
  4,472
  4,726
  4,999
  5,284
  5,580
  5,890
  6,214
  6,552
  6,906
  7,275
  7,661
  8,065
  8,488
  8,930
  9,394
  9,879
  10,387
  10,920
  11,478
  12,063
  12,676
Operating income, $m
  40
  48
  57
  68
  78
  89
  101
  113
  126
  139
  153
  174
  189
  205
  222
  239
  257
  276
  296
  317
  340
  363
  387
  413
  440
  468
  498
  530
  563
  597
  634
EBITDA, $m
  65
  73
  84
  96
  108
  121
  134
  148
  162
  177
  193
  209
  227
  245
  263
  283
  304
  326
  348
  372
  397
  424
  451
  480
  511
  543
  577
  612
  649
  689
  730
Interest expense (income), $m
  24
  23
  26
  29
  32
  35
  38
  42
  45
  49
  53
  57
  61
  65
  70
  75
  80
  85
  90
  96
  102
  108
  114
  121
  128
  136
  144
  152
  160
  169
  179
Earnings before tax, $m
  12
  25
  32
  39
  46
  54
  63
  71
  80
  90
  100
  117
  128
  140
  152
  164
  178
  192
  206
  222
  238
  255
  273
  292
  312
  333
  355
  378
  402
  428
  455
Tax expense, $m
  2
  7
  9
  10
  13
  15
  17
  19
  22
  24
  27
  32
  35
  38
  41
  44
  48
  52
  56
  60
  64
  69
  74
  79
  84
  90
  96
  102
  109
  116
  123
Net income, $m
  10
  18
  23
  28
  34
  40
  46
  52
  59
  66
  73
  86
  94
  102
  111
  120
  130
  140
  151
  162
  174
  186
  199
  213
  228
  243
  259
  276
  294
  313
  332

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
  1,088
  1,169
  1,254
  1,343
  1,434
  1,530
  1,629
  1,732
  1,840
  1,952
  2,069
  2,190
  2,317
  2,449
  2,587
  2,732
  2,882
  3,040
  3,205
  3,377
  3,558
  3,746
  3,944
  4,151
  4,368
  4,595
  4,833
  5,083
  5,344
  5,618
Adjusted assets (=assets-cash), $m
  1,009
  1,088
  1,169
  1,254
  1,343
  1,434
  1,530
  1,629
  1,732
  1,840
  1,952
  2,069
  2,190
  2,317
  2,449
  2,587
  2,732
  2,882
  3,040
  3,205
  3,377
  3,558
  3,746
  3,944
  4,151
  4,368
  4,595
  4,833
  5,083
  5,344
  5,618
Revenue / Adjusted assets
  2.369
  2.368
  2.370
  2.370
  2.369
  2.370
  2.369
  2.369
  2.370
  2.369
  2.369
  2.368
  2.369
  2.369
  2.369
  2.370
  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
Average production assets, $m
  148
  160
  172
  184
  197
  211
  225
  239
  254
  270
  287
  304
  322
  340
  360
  380
  401
  423
  447
  471
  496
  523
  550
  579
  610
  642
  675
  710
  747
  785
  825
Working capital, $m
  203
  384
  413
  443
  474
  506
  540
  575
  612
  649
  689
  730
  773
  818
  865
  913
  964
  1,017
  1,073
  1,131
  1,192
  1,256
  1,322
  1,392
  1,465
  1,542
  1,622
  1,706
  1,794
  1,886
  1,983
Total debt, $m
  561
  627
  698
  773
  850
  931
  1,014
  1,101
  1,192
  1,286
  1,384
  1,486
  1,593
  1,704
  1,820
  1,941
  2,067
  2,199
  2,337
  2,481
  2,632
  2,790
  2,956
  3,129
  3,310
  3,500
  3,699
  3,908
  4,126
  4,355
  4,596
Total liabilities, $m
  887
  953
  1,024
  1,099
  1,176
  1,257
  1,340
  1,427
  1,518
  1,612
  1,710
  1,812
  1,919
  2,030
  2,146
  2,267
  2,393
  2,525
  2,663
  2,807
  2,958
  3,116
  3,282
  3,455
  3,636
  3,826
  4,025
  4,234
  4,452
  4,681
  4,922
Total equity, $m
  125
  135
  145
  156
  166
  178
  190
  202
  215
  228
  242
  256
  272
  287
  304
  321
  339
  357
  377
  397
  419
  441
  465
  489
  515
  542
  570
  599
  630
  663
  697
Total liabilities and equity, $m
  1,012
  1,088
  1,169
  1,255
  1,342
  1,435
  1,530
  1,629
  1,733
  1,840
  1,952
  2,068
  2,191
  2,317
  2,450
  2,588
  2,732
  2,882
  3,040
  3,204
  3,377
  3,557
  3,747
  3,944
  4,151
  4,368
  4,595
  4,833
  5,082
  5,344
  5,619
Debt-to-equity ratio
  4.488
  4.650
  4.820
  4.970
  5.110
  5.230
  5.350
  5.450
  5.550
  5.640
  5.720
  5.790
  5.860
  5.930
  5.990
  6.050
  6.100
  6.150
  6.200
  6.240
  6.290
  6.330
  6.360
  6.400
  6.430
  6.460
  6.490
  6.520
  6.550
  6.570
  6.600
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
  18
  23
  28
  34
  40
  46
  52
  59
  66
  73
  86
  94
  102
  111
  120
  130
  140
  151
  162
  174
  186
  199
  213
  228
  243
  259
  276
  294
  313
  332
Depreciation, amort., depletion, $m
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  40
  35
  37
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  75
  78
  83
  87
  91
  96
Funds from operations, $m
  224
  44
  50
  57
  64
  71
  79
  87
  95
  104
  113
  121
  131
  142
  153
  164
  176
  189
  202
  217
  231
  247
  263
  280
  298
  317
  337
  358
  381
  404
  428
Change in working capital, $m
  92
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
Cash from operations, $m
  132
  16
  21
  27
  33
  39
  45
  52
  59
  66
  74
  80
  88
  97
  106
  115
  125
  136
  147
  158
  170
  183
  197
  211
  225
  241
  257
  274
  293
  312
  332
Maintenance CAPEX, $m
  0
  -17
  -19
  -20
  -21
  -23
  -24
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -78
  -83
  -87
  -91
New CAPEX, $m
  -16
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
Cash from investing activities, $m
  -45
  -29
  -31
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -89
  -93
  -97
  -103
  -108
  -113
  -120
  -125
  -131
Free cash flow, $m
  87
  -13
  -9
  -6
  -2
  2
  7
  11
  16
  21
  26
  29
  35
  41
  47
  53
  60
  67
  74
  82
  90
  99
  108
  118
  128
  138
  149
  161
  173
  186
  200
Issuance/(repayment) of debt, $m
  -62
  69
  72
  74
  77
  80
  84
  87
  90
  94
  98
  102
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  229
  240
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
  69
  72
  74
  77
  80
  84
  87
  90
  94
  98
  102
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  229
  240
Total cash flow (excl. dividends), $m
  20
  56
  62
  69
  76
  83
  90
  98
  106
  115
  124
  132
  141
  152
  163
  174
  186
  199
  212
  227
  241
  257
  273
  291
  309
  328
  348
  370
  392
  415
  440
Retained Cash Flow (-), $m
  32
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
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
 
  46
  52
  58
  65
  72
  79
  86
  94
  102
  110
  117
  126
  136
  146
  157
  168
  180
  193
  206
  220
  235
  250
  266
  283
  301
  320
  340
  361
  383
  406
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
 
  41
  41
  40
  38
  35
  32
  29
  25
  22
  18
  15
  12
  10
  7
  6
  4
  3
  2
  1
  1
  1
  0
  0
  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 54.8
Price to Sales 0.2
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 4.1
Price to Free Cash Flow 4.7
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 7.8% 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 22.676 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 $0.6 billion.

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COMPANY NEWS

▶ 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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