Intrinsic value of Transportadora de Gas del Sur ADR - TGS

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$16.05

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$16.05

 
Intrinsic value

$726.82

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

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*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 1.3

 

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
  658
  850
  1,078
  1,342
  1,644
  1,985
  2,364
  2,783
  3,239
  3,733
  4,265
  4,832
  5,434
  6,071
  6,742
  7,445
  8,182
  8,952
  9,754
  10,589
  11,459
  12,363
Earnings before tax, $m
  91
  255
  431
  678
  1,014
  1,457
  2,026
  2,738
  3,610
  4,656
  5,887
  7,313
  8,940
  10,771
  12,807
  15,047
  17,489
  20,128
  22,962
  25,984
  29,190
  32,577
  36,142
  39,880
  43,792
  47,876
  52,133
  56,566
  61,178
  65,972
  70,955
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
  7,881
  8,796
  9,758
  10,768
  11,824
  12,926
  14,076
  15,273
  16,518
  17,812
  19,158
Net income, $m
  60
  186
  314
  495
  740
  1,064
  1,479
  1,999
  2,635
  3,399
  4,298
  5,339
  6,526
  7,863
  9,349
  10,984
  12,767
  14,694
  16,762
  18,968
  21,309
  23,782
  26,383
  29,112
  31,968
  34,949
  38,057
  41,293
  44,660
  48,159
  51,797

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
  749
  1,157
  1,730
  2,510
  3,541
  4,868
  6,535
  8,580
  11,041
  13,945
  17,317
  21,172
  25,519
  30,362
  35,701
  41,529
  47,838
  54,617
  61,857
  69,546
  77,673
  86,231
  95,213
  104,615
  114,436
  124,676
  135,340
  146,436
  157,973
  169,964
Adjusted assets (=assets-cash), $m
  468
  749
  1,157
  1,730
  2,510
  3,541
  4,868
  6,535
  8,580
  11,041
  13,945
  17,317
  21,172
  25,519
  30,362
  35,701
  41,529
  47,838
  54,617
  61,857
  69,546
  77,673
  86,231
  95,213
  104,615
  114,436
  124,676
  135,340
  146,436
  157,973
  169,964
Revenue / Adjusted assets
  1.013
  1.012
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
  1.013
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
  484
  835
  1,328
  2,000
  2,888
  4,031
  5,465
  7,227
  9,345
  11,846
  14,749
  18,068
  21,811
  25,981
  30,577
  35,595
  41,027
  46,865
  53,098
  59,718
  66,716
  74,084
  81,818
  89,913
  98,368
  107,185
  116,367
  125,920
  135,853
  146,178
Total liabilities, $m
  410
  645
  996
  1,489
  2,161
  3,049
  4,192
  5,626
  7,388
  9,506
  12,007
  14,910
  18,229
  21,972
  26,142
  30,738
  35,756
  41,188
  47,026
  53,259
  59,879
  66,877
  74,245
  81,979
  90,074
  98,529
  107,346
  116,528
  126,081
  136,014
  146,339
Total equity, $m
  162
  104
  161
  240
  349
  492
  677
  908
  1,193
  1,535
  1,938
  2,407
  2,943
  3,547
  4,220
  4,962
  5,772
  6,649
  7,592
  8,598
  9,667
  10,797
  11,986
  13,235
  14,542
  15,907
  17,330
  18,812
  20,355
  21,958
  23,625
Total liabilities and equity, $m
  572
  749
  1,157
  1,729
  2,510
  3,541
  4,869
  6,534
  8,581
  11,041
  13,945
  17,317
  21,172
  25,519
  30,362
  35,700
  41,528
  47,837
  54,618
  61,857
  69,546
  77,674
  86,231
  95,214
  104,616
  114,436
  124,676
  135,340
  146,436
  157,972
  169,964
Debt-to-equity ratio
  1.537
  4.650
  5.190
  5.520
  5.730
  5.870
  5.960
  6.020
  6.060
  6.090
  6.110
  6.130
  6.140
  6.150
  6.160
  6.160
  6.170
  6.170
  6.170
  6.180
  6.180
  6.180
  6.180
  6.180
  6.180
  6.180
  6.180
  6.190
  6.190
  6.190
  6.190
Adjusted equity ratio
  0.124
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  60
  186
  314
  495
  740
  1,064
  1,479
  1,999
  2,635
  3,399
  4,298
  5,339
  6,526
  7,863
  9,349
  10,984
  12,767
  14,694
  16,762
  18,968
  21,309
  23,782
  26,383
  29,112
  31,968
  34,949
  38,057
  41,293
  44,660
  48,159
  51,797
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
  2,965
  3,824
  4,834
  6,005
  7,341
  8,845
  10,518
  12,358
  14,365
  16,535
  18,864
  21,349
  23,986
  26,771
  29,703
  32,778
  35,995
  39,354
  42,857
  46,503
  50,296
  54,240
  58,339
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
  254
  364
  568
  846
  1,211
  1,681
  2,269
  2,988
  3,851
  4,867
  6,043
  7,384
  8,893
  10,572
  12,418
  14,430
  16,605
  18,940
  21,430
  24,072
  26,862
  29,798
  32,878
  36,100
  39,464
  42,971
  46,622
  50,420
  54,369
  58,473
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
  52
  68
  148
  268
  440
  676
  991
  1,398
  1,911
  2,541
  3,300
  4,195
  5,234
  6,420
  7,756
  9,242
  10,878
  12,662
  14,590
  16,659
  18,866
  21,208
  23,680
  26,282
  29,010
  31,864
  34,844
  37,949
  41,182
  44,545
Issuance/(repayment) of debt, $m
  -59
  242
  351
  493
  672
  888
  1,143
  1,435
  1,761
  2,118
  2,501
  2,903
  3,319
  3,743
  4,170
  4,596
  5,018
  5,432
  5,837
  6,233
  6,620
  6,998
  7,368
  7,734
  8,095
  8,455
  8,817
  9,182
  9,553
  9,933
  10,324
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
  242
  351
  493
  672
  888
  1,143
  1,435
  1,761
  2,118
  2,501
  2,903
  3,319
  3,743
  4,170
  4,596
  5,018
  5,432
  5,837
  6,233
  6,620
  6,998
  7,368
  7,734
  8,095
  8,455
  8,817
  9,182
  9,553
  9,933
  10,324
Total cash flow (excl. dividends), $m
  50
  293
  419
  642
  940
  1,328
  1,819
  2,426
  3,159
  4,029
  5,042
  6,203
  7,514
  8,977
  10,590
  12,352
  14,260
  16,310
  18,499
  20,823
  23,279
  25,864
  28,576
  31,414
  34,377
  37,466
  40,681
  44,026
  47,503
  51,116
  54,869
Retained Cash Flow (-), $m
  -53
  -39
  -57
  -80
  -108
  -143
  -184
  -232
  -284
  -342
  -404
  -469
  -536
  -604
  -673
  -742
  -810
  -877
  -942
  -1,006
  -1,069
  -1,130
  -1,190
  -1,249
  -1,307
  -1,365
  -1,423
  -1,482
  -1,542
  -1,604
  -1,667
Prev. year cash balance distribution, $m
 
  97
  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
 
  351
  362
  562
  832
  1,185
  1,634
  2,194
  2,875
  3,687
  4,638
  5,734
  6,978
  8,372
  9,917
  11,610
  13,450
  15,433
  17,557
  19,817
  22,210
  24,734
  27,387
  30,166
  33,070
  36,101
  39,258
  42,544
  45,960
  49,512
  53,203
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
 
  337
  332
  489
  685
  918
  1,186
  1,482
  1,797
  2,118
  2,432
  2,723
  2,978
  3,183
  3,329
  3,409
  3,418
  3,358
  3,233
  3,051
  2,822
  2,558
  2,272
  1,977
  1,684
  1,404
  1,145
  913
  711
  540
  401
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 212.5
Price to Sales 26.9
Price to Book 78.7
Price to Tangible Book
Price to Cash Flow 93.1
Price to Free Cash Flow 128.8
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 79.466 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 $1.3 billion.


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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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