Intrinsic value of Alliance Resource Partners, L.P. - ARLP

Previous Close

$18.63

  Intrinsic Value

$62.52

stock screener

  Rating & Target

str. buy

+236%

Previous close

$18.63

 
Intrinsic value

$62.52

 
Up/down potential

+236%

 
Rating

str. buy

We calculate the intrinsic value of ARLP 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 0001), $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 2.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.10
  9.59
  9.13
  8.72
  8.35
  8.01
  7.71
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
Revenue, $m
  2,205
  2,417
  2,637
  2,867
  3,107
  3,356
  3,614
  3,883
  4,163
  4,453
  4,755
  5,069
  5,395
  5,735
  6,088
  6,457
  6,841
  7,241
  7,658
  8,094
  8,549
  9,024
  9,521
  10,040
  10,583
  11,150
  11,745
  12,367
  13,018
  13,700
Variable operating expenses, $m
  1,783
  1,941
  2,105
  2,276
  2,454
  2,639
  2,832
  3,032
  3,240
  3,456
  3,540
  3,774
  4,017
  4,270
  4,533
  4,807
  5,093
  5,391
  5,702
  6,026
  6,365
  6,719
  7,088
  7,475
  7,879
  8,302
  8,744
  9,207
  9,692
  10,200
Fixed operating expenses, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Total operating expenses, $m
  1,784
  1,942
  2,106
  2,277
  2,455
  2,640
  2,833
  3,033
  3,241
  3,457
  3,541
  3,775
  4,018
  4,271
  4,534
  4,808
  5,094
  5,392
  5,704
  6,028
  6,367
  6,721
  7,090
  7,477
  7,881
  8,304
  8,746
  9,209
  9,694
  10,202
Operating income, $m
  421
  475
  532
  590
  651
  715
  781
  850
  921
  995
  1,214
  1,294
  1,377
  1,464
  1,554
  1,648
  1,746
  1,849
  1,955
  2,066
  2,183
  2,304
  2,431
  2,563
  2,702
  2,847
  2,999
  3,158
  3,324
  3,498
EBITDA, $m
  860
  942
  1,028
  1,118
  1,211
  1,309
  1,410
  1,514
  1,624
  1,737
  1,855
  1,977
  2,104
  2,237
  2,375
  2,519
  2,669
  2,825
  2,988
  3,158
  3,335
  3,521
  3,714
  3,917
  4,129
  4,350
  4,582
  4,825
  5,079
  5,346
Interest expense (income), $m
  29
  44
  57
  71
  85
  99
  115
  130
  147
  164
  182
  200
  220
  240
  260
  282
  305
  328
  353
  378
  405
  432
  461
  492
  523
  556
  591
  627
  665
  705
  746
Earnings before tax, $m
  377
  418
  461
  506
  552
  600
  651
  703
  757
  813
  1,013
  1,074
  1,137
  1,203
  1,272
  1,344
  1,418
  1,496
  1,577
  1,662
  1,750
  1,843
  1,939
  2,040
  2,146
  2,256
  2,372
  2,493
  2,619
  2,752
Tax expense, $m
  102
  113
  124
  137
  149
  162
  176
  190
  204
  220
  274
  290
  307
  325
  343
  363
  383
  404
  426
  449
  473
  497
  524
  551
  579
  609
  640
  673
  707
  743
Net income, $m
  275
  305
  337
  369
  403
  438
  475
  513
  553
  594
  740
  784
  830
  879
  929
  981
  1,035
  1,092
  1,151
  1,213
  1,278
  1,345
  1,416
  1,489
  1,566
  1,647
  1,731
  1,820
  1,912
  2,009

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  2,579
  2,827
  3,085
  3,354
  3,634
  3,925
  4,227
  4,542
  4,869
  5,208
  5,561
  5,928
  6,310
  6,707
  7,121
  7,552
  8,001
  8,469
  8,957
  9,467
  9,999
  10,555
  11,135
  11,742
  12,377
  13,041
  13,736
  14,464
  15,226
  16,024
Adjusted assets (=assets-cash), $m
  2,579
  2,827
  3,085
  3,354
  3,634
  3,925
  4,227
  4,542
  4,869
  5,208
  5,561
  5,928
  6,310
  6,707
  7,121
  7,552
  8,001
  8,469
  8,957
  9,467
  9,999
  10,555
  11,135
  11,742
  12,377
  13,041
  13,736
  14,464
  15,226
  16,024
Revenue / Adjusted assets
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
  0.855
Average production assets, $m
  1,665
  1,825
  1,991
  2,165
  2,346
  2,533
  2,729
  2,932
  3,143
  3,362
  3,590
  3,827
  4,073
  4,330
  4,597
  4,875
  5,165
  5,467
  5,782
  6,111
  6,454
  6,813
  7,188
  7,580
  7,990
  8,419
  8,867
  9,337
  9,829
  10,344
Working capital, $m
  71
  77
  84
  92
  99
  107
  116
  124
  133
  142
  152
  162
  173
  184
  195
  207
  219
  232
  245
  259
  274
  289
  305
  321
  339
  357
  376
  396
  417
  438
Total debt, $m
  921
  1,139
  1,365
  1,602
  1,848
  2,104
  2,370
  2,646
  2,933
  3,232
  3,542
  3,865
  4,201
  4,550
  4,913
  5,292
  5,687
  6,098
  6,527
  6,975
  7,443
  7,931
  8,442
  8,976
  9,534
  10,117
  10,728
  11,368
  12,037
  12,739
Total liabilities, $m
  2,267
  2,485
  2,712
  2,948
  3,194
  3,450
  3,716
  3,992
  4,279
  4,578
  4,888
  5,211
  5,547
  5,896
  6,259
  6,638
  7,033
  7,444
  7,873
  8,321
  8,789
  9,277
  9,788
  10,322
  10,880
  11,463
  12,074
  12,714
  13,384
  14,085
Total equity, $m
  312
  342
  373
  406
  440
  475
  512
  550
  589
  630
  673
  717
  764
  812
  862
  914
  968
  1,025
  1,084
  1,145
  1,210
  1,277
  1,347
  1,421
  1,498
  1,578
  1,662
  1,750
  1,842
  1,939
Total liabilities and equity, $m
  2,579
  2,827
  3,085
  3,354
  3,634
  3,925
  4,228
  4,542
  4,868
  5,208
  5,561
  5,928
  6,311
  6,708
  7,121
  7,552
  8,001
  8,469
  8,957
  9,466
  9,999
  10,554
  11,135
  11,743
  12,378
  13,041
  13,736
  14,464
  15,226
  16,024
Debt-to-equity ratio
  2.950
  3.330
  3.660
  3.950
  4.200
  4.430
  4.630
  4.820
  4.980
  5.130
  5.260
  5.390
  5.500
  5.610
  5.700
  5.790
  5.870
  5.950
  6.020
  6.090
  6.150
  6.210
  6.270
  6.320
  6.370
  6.410
  6.450
  6.500
  6.530
  6.570
Adjusted equity ratio
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  275
  305
  337
  369
  403
  438
  475
  513
  553
  594
  740
  784
  830
  879
  929
  981
  1,035
  1,092
  1,151
  1,213
  1,278
  1,345
  1,416
  1,489
  1,566
  1,647
  1,731
  1,820
  1,912
  2,009
Depreciation, amort., depletion, $m
  439
  467
  497
  528
  560
  594
  628
  665
  702
  742
  641
  683
  727
  773
  821
  871
  922
  976
  1,033
  1,091
  1,153
  1,217
  1,284
  1,354
  1,427
  1,503
  1,583
  1,667
  1,755
  1,847
Funds from operations, $m
  714
  772
  833
  897
  963
  1,032
  1,103
  1,178
  1,255
  1,335
  1,381
  1,467
  1,558
  1,652
  1,749
  1,851
  1,958
  2,068
  2,184
  2,304
  2,430
  2,562
  2,699
  2,843
  2,993
  3,150
  3,315
  3,487
  3,667
  3,856
Change in working capital, $m
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  707
  765
  826
  890
  955
  1,024
  1,095
  1,169
  1,246
  1,326
  1,371
  1,457
  1,547
  1,641
  1,738
  1,840
  1,945
  2,055
  2,170
  2,290
  2,416
  2,546
  2,683
  2,826
  2,976
  3,132
  3,296
  3,467
  3,646
  3,834
Maintenance CAPEX, $m
  -270
  -297
  -326
  -356
  -387
  -419
  -452
  -487
  -524
  -561
  -600
  -641
  -683
  -727
  -773
  -821
  -871
  -922
  -976
  -1,033
  -1,091
  -1,153
  -1,217
  -1,284
  -1,354
  -1,427
  -1,503
  -1,583
  -1,667
  -1,755
New CAPEX, $m
  -152
  -160
  -167
  -174
  -181
  -188
  -195
  -203
  -211
  -219
  -228
  -237
  -246
  -256
  -267
  -278
  -290
  -302
  -315
  -329
  -343
  -359
  -375
  -392
  -410
  -429
  -449
  -470
  -492
  -515
Cash from investing activities, $m
  -422
  -457
  -493
  -530
  -568
  -607
  -647
  -690
  -735
  -780
  -828
  -878
  -929
  -983
  -1,040
  -1,099
  -1,161
  -1,224
  -1,291
  -1,362
  -1,434
  -1,512
  -1,592
  -1,676
  -1,764
  -1,856
  -1,952
  -2,053
  -2,159
  -2,270
Free cash flow, $m
  285
  308
  334
  360
  388
  417
  447
  479
  512
  546
  543
  579
  617
  657
  698
  741
  785
  831
  879
  929
  981
  1,035
  1,092
  1,151
  1,212
  1,277
  1,344
  1,414
  1,487
  1,564
Issuance/(repayment) of debt, $m
  208
  217
  227
  236
  246
  256
  266
  276
  287
  299
  310
  323
  336
  349
  364
  379
  395
  411
  429
  448
  468
  488
  510
  534
  558
  584
  611
  640
  670
  701
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
Cash from financing (excl. dividends), $m  
  208
  217
  227
  236
  246
  256
  266
  276
  287
  299
  310
  323
  336
  349
  364
  379
  395
  411
  429
  448
  468
  488
  510
  534
  558
  584
  611
  640
  670
  701
Total cash flow (excl. dividends), $m
  493
  526
  561
  597
  634
  673
  713
  755
  799
  844
  853
  902
  953
  1,006
  1,062
  1,119
  1,180
  1,242
  1,308
  1,377
  1,449
  1,524
  1,602
  1,684
  1,770
  1,860
  1,955
  2,053
  2,157
  2,265
Retained Cash Flow (-), $m
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -97
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
  464
  496
  529
  564
  600
  638
  677
  717
  759
  803
  810
  858
  907
  958
  1,012
  1,067
  1,125
  1,186
  1,249
  1,315
  1,384
  1,456
  1,532
  1,611
  1,693
  1,780
  1,871
  1,965
  2,065
  2,169
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
  445
  454
  461
  465
  465
  463
  457
  448
  436
  421
  385
  366
  345
  322
  297
  271
  245
  218
  192
  167
  143
  121
  100
  82
  66
  52
  40
  30
  23
  16
Current shareholders' claim on cash, %
  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

Alliance Resource Partners, L.P. is a producer and marketer of coal primarily to the United States utilities and industrial users. The Company operates through segments, including Illinois Basin, Appalachia, and Other and Corporate. The Illinois Basin segment consists of various operating segments, including Webster County Coal, LLC's Dotiki mining complex, Gibson County Coal, LLC's mining complex, which includes the Gibson North mine and Gibson South mine, Hopkins County Coal, LLC's mining complex, which includes the Elk Creek mine, the Pleasant View surface mineable reserves and the Fies property, White County Coal, LLC's, Pattiki mining complex, Warrior Coal, LLC's mining complex, Sebree Mining, LLC's mining complex, which includes the Onton mine and River View Coal, LLC mining complex. The Appalachia segment consists of multiple operating segments, including the Mettiki mining complex, the Tunnel Ridge mining complex and the MC Mining mining complex.

FINANCIAL RATIOS  of  Alliance Resource Partners, L.P. (ARLP)

Valuation Ratios
P/E Ratio 4.1
Price to Sales 0.7
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 2
Price to Free Cash Flow 2.3
Growth Rates
Sales Growth Rate -15.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -57.3%
Cap. Spend. - 3 Yr. Gr. Rate -22.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 44.6%
Total Debt to Equity 60.8%
Interest Coverage 13
Management Effectiveness
Return On Assets 16.2%
Ret/ On Assets - 3 Yr. Avg. 18.2%
Return On Total Capital 18.6%
Ret/ On T. Cap. - 3 Yr. Avg. 20.8%
Return On Equity 32.7%
Return On Equity - 3 Yr. Avg. 38.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 98.4%
Gross Margin - 3 Yr. Avg. 98.6%
EBITDA Margin 35.8%
EBITDA Margin - 3 Yr. Avg. 33.4%
Operating Margin 18.9%
Oper. Margin - 3 Yr. Avg. 19.8%
Pre-Tax Margin 17.6%
Pre-Tax Margin - 3 Yr. Avg. 17.6%
Net Profit Margin 17.6%
Net Profit Margin - 3 Yr. Avg. 17.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 73.2%

ARLP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARLP stock intrinsic value calculation we used $2003 million for the last fiscal year's total revenue generated by Alliance Resource Partners, L.P.. The default revenue input number comes from 0001 income statement of Alliance Resource Partners, L.P.. 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 ARLP stock valuation model: a) initial revenue growth rate of 10.1% 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 4.3%, whose default value for ARLP is calculated based on our internal credit rating of Alliance Resource Partners, L.P., 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 Alliance Resource Partners, L.P..
    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 ARLP stock the variable cost ratio is equal to 81.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1 million in the base year in the intrinsic value calculation for ARLP 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 6.2% for Alliance Resource Partners, L.P..

Corporate tax rate of 27% is the nominal tax rate for Alliance Resource Partners, L.P.. 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 ARLP 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 ARLP are equal to 75.5%.

Life of production assets of 5.6 years is the average useful life of capital assets used in Alliance Resource Partners, L.P. 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 ARLP is equal to 3.2%. 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 - $283.403 million for Alliance Resource Partners, L.P. - 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 128.454 million for Alliance Resource Partners, L.P. 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 Alliance Resource Partners, L.P. at the current share price and the inputted number of shares is $2.4 billion.

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