Intrinsic value of Transportadora de Gas del Sur ADR - TGS

Previous Close

$15.09

  Intrinsic Value

$742.26

stock screener

  Rating & Target

str. buy

+999%

  Value-price divergence*

+5000%

Previous close

$15.09

 
Intrinsic value

$742.26

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence*

+5000%

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

We calculate the intrinsic value of TGS 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 1.2

 

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, %
  75.56
  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
  474
  758
  1,172
  1,752
  2,543
  3,587
  4,931
  6,619
  8,692
  11,184
  14,127
  17,542
  21,447
  25,851
  30,757
  36,165
  42,069
  48,459
  55,327
  62,661
  70,450
  78,683
  87,352
  96,451
  105,975
  115,923
  126,297
  137,100
  148,339
  160,026
  172,173
Variable operating expenses, $m
 
  391
  603
  902
  1,309
  1,847
  2,540
  3,409
  4,476
  5,760
  7,275
  9,034
  11,045
  13,313
  15,840
  18,625
  21,665
  24,957
  28,494
  32,270
  36,282
  40,522
  44,986
  49,672
  54,577
  59,701
  65,043
  70,606
  76,395
  82,413
  88,669
Fixed operating expenses, $m
 
  91
  94
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
  123
  126
  129
  132
  135
  139
  142
  146
  149
  153
  157
  161
  165
  169
  173
  178
  182
  187
Total operating expenses, $m
  331
  482
  697
  998
  1,407
  1,948
  2,643
  3,515
  4,584
  5,871
  7,389
  9,151
  11,165
  13,436
  15,966
  18,754
  21,797
  25,092
  28,633
  32,412
  36,428
  40,671
  45,139
  49,829
  54,738
  59,866
  65,212
  70,779
  76,573
  82,595
  88,856
Operating income, $m
  143
  277
  475
  754
  1,135
  1,639
  2,289
  3,105
  4,107
  5,313
  6,737
  8,391
  10,282
  12,415
  14,791
  17,411
  20,271
  23,367
  26,695
  30,248
  34,022
  38,012
  42,213
  46,622
  51,237
  56,058
  61,085
  66,320
  71,767
  77,431
  83,317
EBITDA, $m
  161
  305
  519
  821
  1,232
  1,775
  2,476
  3,356
  4,437
  5,738
  7,274
  9,058
  11,097
  13,397
  15,960
  18,785
  21,870
  25,209
  28,797
  32,630
  36,699
  41,002
  45,532
  50,287
  55,264
  60,463
  65,884
  71,530
  77,404
  83,512
  89,860
Interest expense (income), $m
  21
  22
  44
  76
  121
  182
  263
  367
  497
  657
  850
  1,078
  1,342
  1,643
  1,984
  2,363
  2,781
  3,238
  3,732
  4,263
  4,830
  5,432
  6,069
  6,739
  7,442
  8,179
  8,948
  9,750
  10,585
  11,454
  12,358
Earnings before tax, $m
  91
  255
  431
  678
  1,014
  1,457
  2,026
  2,738
  3,610
  4,656
  5,887
  7,314
  8,940
  10,771
  12,808
  15,048
  17,490
  20,130
  22,963
  25,985
  29,192
  32,580
  36,144
  39,883
  43,795
  47,879
  52,137
  56,570
  61,182
  65,977
  70,960
Tax expense, $m
  31
  69
  116
  183
  274
  393
  547
  739
  975
  1,257
  1,590
  1,975
  2,414
  2,908
  3,458
  4,063
  4,722
  5,435
  6,200
  7,016
  7,882
  8,797
  9,759
  10,768
  11,825
  12,927
  14,077
  15,274
  16,519
  17,814
  19,159
Net income, $m
  60
  186
  314
  495
  740
  1,064
  1,479
  1,999
  2,635
  3,399
  4,298
  5,339
  6,527
  7,863
  9,349
  10,985
  12,768
  14,695
  16,763
  18,969
  21,310
  23,783
  26,385
  29,114
  31,970
  34,952
  38,060
  41,296
  44,663
  48,163
  51,801

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  104
  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
  572
  755
  1,167
  1,745
  2,532
  3,573
  4,912
  6,593
  8,657
  11,140
  14,070
  17,472
  21,361
  25,748
  30,635
  36,021
  41,901
  48,266
  55,107
  62,412
  70,169
  78,370
  87,004
  96,067
  105,553
  115,462
  125,794
  136,553
  147,748
  159,389
  171,487
Adjusted assets (=assets-cash), $m
  468
  755
  1,167
  1,745
  2,532
  3,573
  4,912
  6,593
  8,657
  11,140
  14,070
  17,472
  21,361
  25,748
  30,635
  36,021
  41,901
  48,266
  55,107
  62,412
  70,169
  78,370
  87,004
  96,067
  105,553
  115,462
  125,794
  136,553
  147,748
  159,389
  171,487
Revenue / Adjusted assets
  1.013
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
  1.004
Average production assets, $m
  306
  490
  757
  1,132
  1,642
  2,317
  3,186
  4,276
  5,615
  7,225
  9,126
  11,332
  13,855
  16,700
  19,869
  23,363
  27,176
  31,305
  35,741
  40,479
  45,511
  50,829
  56,430
  62,307
  68,460
  74,887
  81,588
  88,566
  95,827
  103,377
  111,224
Working capital, $m
  92
  -8
  -13
  -19
  -28
  -39
  -54
  -73
  -96
  -123
  -155
  -193
  -236
  -284
  -338
  -398
  -463
  -533
  -609
  -689
  -775
  -866
  -961
  -1,061
  -1,166
  -1,275
  -1,389
  -1,508
  -1,632
  -1,760
  -1,894
Total debt, $m
  249
  483
  835
  1,328
  1,999
  2,887
  4,029
  5,463
  7,224
  9,341
  11,841
  14,743
  18,060
  21,802
  25,970
  30,565
  35,581
  41,010
  46,845
  53,076
  59,693
  66,688
  74,054
  81,784
  89,876
  98,328
  107,141
  116,319
  125,868
  135,797
  146,118
Total liabilities, $m
  410
  644
  996
  1,489
  2,160
  3,048
  4,190
  5,624
  7,385
  9,502
  12,002
  14,904
  18,221
  21,963
  26,131
  30,726
  35,742
  41,171
  47,006
  53,237
  59,854
  66,849
  74,215
  81,945
  90,037
  98,489
  107,302
  116,480
  126,029
  135,958
  146,279
Total equity, $m
  162
  111
  172
  257
  372
  525
  722
  969
  1,273
  1,638
  2,068
  2,568
  3,140
  3,785
  4,503
  5,295
  6,159
  7,095
  8,101
  9,174
  10,315
  11,520
  12,790
  14,122
  15,516
  16,973
  18,492
  20,073
  21,719
  23,430
  25,209
Total liabilities and equity, $m
  572
  755
  1,168
  1,746
  2,532
  3,573
  4,912
  6,593
  8,658
  11,140
  14,070
  17,472
  21,361
  25,748
  30,634
  36,021
  41,901
  48,266
  55,107
  62,411
  70,169
  78,369
  87,005
  96,067
  105,553
  115,462
  125,794
  136,553
  147,748
  159,388
  171,488
Debt-to-equity ratio
  1.537
  4.350
  4.860
  5.180
  5.370
  5.500
  5.580
  5.640
  5.680
  5.700
  5.720
  5.740
  5.750
  5.760
  5.770
  5.770
  5.780
  5.780
  5.780
  5.790
  5.790
  5.790
  5.790
  5.790
  5.790
  5.790
  5.790
  5.790
  5.800
  5.800
  5.800
Adjusted equity ratio
  0.124
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147
  0.147

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  186
  314
  495
  740
  1,064
  1,479
  1,999
  2,635
  3,399
  4,298
  5,339
  6,527
  7,863
  9,349
  10,985
  12,768
  14,695
  16,763
  18,969
  21,310
  23,783
  26,385
  29,114
  31,970
  34,952
  38,060
  41,296
  44,663
  48,163
  51,801
Depreciation, amort., depletion, $m
  18
  29
  45
  67
  97
  136
  187
  252
  330
  425
  537
  667
  815
  982
  1,169
  1,374
  1,599
  1,841
  2,102
  2,381
  2,677
  2,990
  3,319
  3,665
  4,027
  4,405
  4,799
  5,210
  5,637
  6,081
  6,543
Funds from operations, $m
  93
  215
  359
  562
  837
  1,200
  1,666
  2,250
  2,966
  3,824
  4,835
  6,006
  7,342
  8,845
  10,518
  12,359
  14,366
  16,536
  18,865
  21,351
  23,988
  26,773
  29,705
  32,780
  35,997
  39,357
  42,859
  46,506
  50,300
  54,244
  58,343
Change in working capital, $m
  -44
  -3
  -5
  -6
  -9
  -11
  -15
  -19
  -23
  -27
  -32
  -38
  -43
  -48
  -54
  -59
  -65
  -70
  -76
  -81
  -86
  -91
  -95
  -100
  -105
  -109
  -114
  -119
  -124
  -129
  -134
Cash from operations, $m
  137
  218
  364
  568
  846
  1,212
  1,681
  2,269
  2,988
  3,851
  4,867
  6,043
  7,384
  8,894
  10,572
  12,419
  14,431
  16,606
  18,941
  21,431
  24,073
  26,864
  29,800
  32,880
  36,102
  39,466
  42,973
  46,625
  50,423
  54,372
  58,477
Maintenance CAPEX, $m
  0
  -18
  -29
  -45
  -67
  -97
  -136
  -187
  -252
  -330
  -425
  -537
  -667
  -815
  -982
  -1,169
  -1,374
  -1,599
  -1,841
  -2,102
  -2,381
  -2,677
  -2,990
  -3,319
  -3,665
  -4,027
  -4,405
  -4,799
  -5,210
  -5,637
  -6,081
New CAPEX, $m
  -38
  -184
  -267
  -375
  -510
  -675
  -868
  -1,090
  -1,339
  -1,610
  -1,901
  -2,206
  -2,522
  -2,845
  -3,170
  -3,493
  -3,814
  -4,129
  -4,437
  -4,738
  -5,031
  -5,319
  -5,600
  -5,878
  -6,153
  -6,426
  -6,701
  -6,979
  -7,261
  -7,550
  -7,847
Cash from investing activities, $m
  -34
  -202
  -296
  -420
  -577
  -772
  -1,004
  -1,277
  -1,591
  -1,940
  -2,326
  -2,743
  -3,189
  -3,660
  -4,152
  -4,662
  -5,188
  -5,728
  -6,278
  -6,840
  -7,412
  -7,996
  -8,590
  -9,197
  -9,818
  -10,453
  -11,106
  -11,778
  -12,471
  -13,187
  -13,928
Free cash flow, $m
  103
  16
  68
  148
  269
  440
  676
  991
  1,398
  1,911
  2,541
  3,300
  4,195
  5,234
  6,420
  7,756
  9,243
  10,879
  12,663
  14,591
  16,661
  18,868
  21,210
  23,682
  26,284
  29,013
  31,867
  34,847
  37,953
  41,186
  44,549
Issuance/(repayment) of debt, $m
  -59
  241
  351
  493
  671
  888
  1,142
  1,434
  1,761
  2,118
  2,500
  2,902
  3,318
  3,741
  4,169
  4,594
  5,016
  5,430
  5,835
  6,231
  6,617
  6,995
  7,365
  7,730
  8,092
  8,452
  8,813
  9,178
  9,549
  9,929
  10,320
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  
  -59
  241
  351
  493
  671
  888
  1,142
  1,434
  1,761
  2,118
  2,500
  2,902
  3,318
  3,741
  4,169
  4,594
  5,016
  5,430
  5,835
  6,231
  6,617
  6,995
  7,365
  7,730
  8,092
  8,452
  8,813
  9,178
  9,549
  9,929
  10,320
Total cash flow (excl. dividends), $m
  50
  257
  419
  642
  940
  1,328
  1,818
  2,425
  3,159
  4,028
  5,041
  6,202
  7,513
  8,976
  10,589
  12,351
  14,259
  16,309
  18,498
  20,822
  23,278
  25,863
  28,575
  31,413
  34,376
  37,465
  40,680
  44,025
  47,502
  51,115
  54,869
Retained Cash Flow (-), $m
  -53
  -42
  -61
  -85
  -116
  -153
  -197
  -247
  -303
  -365
  -431
  -500
  -572
  -645
  -718
  -792
  -864
  -936
  -1,006
  -1,074
  -1,140
  -1,205
  -1,269
  -1,332
  -1,394
  -1,457
  -1,519
  -1,582
  -1,646
  -1,711
  -1,778
Prev. year cash balance distribution, $m
 
  93
  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
 
  308
  358
  557
  824
  1,175
  1,622
  2,178
  2,855
  3,663
  4,610
  5,702
  6,941
  8,331
  9,871
  11,559
  13,394
  15,373
  17,492
  19,748
  22,137
  24,657
  27,306
  30,081
  32,981
  36,008
  39,162
  42,443
  45,856
  49,404
  53,090
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
 
  295
  328
  484
  679
  910
  1,177
  1,471
  1,785
  2,104
  2,417
  2,708
  2,962
  3,168
  3,314
  3,394
  3,404
  3,345
  3,221
  3,041
  2,813
  2,550
  2,266
  1,972
  1,680
  1,401
  1,143
  911
  709
  539
  400
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

Transportadora de Gas del Sur S.A. provides natural gas transportation and distribution services in Argentina. The company operates through four segments: Natural Gas Transportation, Production and Commercialization of Liquids, Other Services, and Telecommunications. The Natural Gas Transportation segment transports natural gas through 5,675 miles of pipeline system to distribution companies, producers, and traders. As of December 31, 2015, it served 5.9 million residential, commercial, industrial, and electric power generation end-users. It also provides operation and maintenance services for the natural gas transportation facilities. The Production and Commercialization of Liquids segment produces and commercializes natural gas liquids, such as ethane, LPG, natural gasoline, propane, and butane in Argentina and internationally; and provides related logistic services. The Other Services segment offers midstream services, including natural gas treatment, separation, and removal of impurities from the natural gas stream, as well as natural gas compression. It also provides services related to pipeline and compression plant construction, operation, and maintenance; and compressor plants services, as well as generates steam for electricity production. The Telecommunications segment provides telecommunication services for telecommunication operators and corporate customers. Its telecommunication network includes a microwave digital network with synchronous digital hierarchy technology. The company was founded in 1992 and is headquartered in Buenos Aires, Argentina. Transportadora de Gas del Sur S.A. is a subsidiary of Compañía de Inversiones de Energía S.A.

FINANCIAL RATIOS  of  Transportadora de Gas del Sur ADR (TGS)

Valuation Ratios
P/E Ratio 199.8
Price to Sales 25.3
Price to Book 74
Price to Tangible Book
Price to Cash Flow 87.5
Price to Free Cash Flow 121.1
Growth Rates
Sales Growth Rate 75.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.2%
Cap. Spend. - 3 Yr. Gr. Rate 20.4%
Financial Strength
Quick Ratio 15
Current Ratio 0
LT Debt to Equity 149.4%
Total Debt to Equity 153.7%
Interest Coverage 5
Management Effectiveness
Return On Assets 14.8%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 16.4%
Ret/ On T. Cap. - 3 Yr. Avg. 5.1%
Return On Equity 44.3%
Return On Equity - 3 Yr. Avg. 13.4%
Asset Turnover 1
Profitability Ratios
Gross Margin 40.1%
Gross Margin - 3 Yr. Avg. 38.4%
EBITDA Margin 27.4%
EBITDA Margin - 3 Yr. Avg. 15.7%
Operating Margin 30.2%
Oper. Margin - 3 Yr. Avg. 22.6%
Pre-Tax Margin 19.2%
Pre-Tax Margin - 3 Yr. Avg. 5.5%
Net Profit Margin 12.7%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 34.1%
Eff/ Tax Rate - 3 Yr. Avg. 36.4%
Payout Ratio 10%

TGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TGS stock intrinsic value calculation we used $474 million for the last fiscal year's total revenue generated by Transportadora de Gas del Sur ADR. The default revenue input number comes from 2016 income statement of Transportadora de Gas del Sur 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 TGS 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 4.3%, whose default value for TGS is calculated based on our internal credit rating of Transportadora de Gas del Sur 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 Transportadora de Gas del Sur 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 TGS stock the variable cost ratio is equal to 51.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $89 million in the base year in the intrinsic value calculation for TGS 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 9.1% for Transportadora de Gas del Sur ADR.

Corporate tax rate of 27% is the nominal tax rate for Transportadora de Gas del Sur 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 TGS 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 TGS are equal to 64.6%.

Life of production assets of 17 years is the average useful life of capital assets used in Transportadora de Gas del Sur 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 TGS is equal to -1.1%. 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 - $162 million for Transportadora de Gas del Sur 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 77.41 million for Transportadora de Gas del Sur 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 Transportadora de Gas del Sur ADR at the current share price and the inputted number of shares is $1.2 billion.

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COMPANY NEWS

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▶ Transportadora De Gas Del Sur SA Stock Downgraded (TGS)   [Jun-11  11:11AM  at TheStreet]
▶ Transportadora De Gas Del Sur SA Stock Upgraded (TGS)   [May-20  11:11AM  at TheStreet]
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▶ Transportadora De Gas Del Sur S.A. - A High-Yielding Gem?   [Aug-26  02:59PM  at Seeking Alpha]
▶ Transportadora De Gas Del Sur SA Stock Upgraded (TGS)   [Jul-16  10:12AM  at TheStreet]
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▶ Transportadora De Gas Del Sur SA Stock Downgraded (TGS)   [May-16-12 05:01AM  at TheStreet]
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Stock chart of TGS Financial statements of TGS
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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