Intrinsic value of Avianca Holdings S.A. - AVH

Previous Close

$4.39

  Intrinsic Value

$10.12

stock screener

  Rating & Target

str. buy

+131%

Previous close

$4.39

 
Intrinsic value

$10.12

 
Up/down potential

+131%

 
Rating

str. buy

We calculate the intrinsic value of AVH 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 0.5

 

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, %
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.17
  5.15
  5.13
  5.12
  5.11
Revenue, $m
  4,766
  5,103
  5,453
  5,818
  6,196
  6,590
  7,000
  7,427
  7,872
  8,336
  8,820
  9,324
  9,851
  10,401
  10,976
  11,577
  12,205
  12,862
  13,549
  14,269
  15,022
  15,811
  16,638
  17,504
  18,411
  19,362
  20,359
  21,404
  22,500
  23,649
Variable operating expenses, $m
  4,205
  4,500
  4,806
  5,124
  5,454
  5,799
  6,157
  6,530
  6,918
  7,323
  7,703
  8,144
  8,604
  9,084
  9,586
  10,111
  10,660
  11,233
  11,834
  12,462
  13,120
  13,809
  14,531
  15,287
  16,080
  16,910
  17,781
  18,694
  19,651
  20,655
Fixed operating expenses, $m
  235
  240
  246
  251
  256
  262
  268
  274
  280
  286
  292
  299
  305
  312
  319
  326
  333
  340
  348
  355
  363
  371
  379
  388
  396
  405
  414
  423
  432
  442
Total operating expenses, $m
  4,440
  4,740
  5,052
  5,375
  5,710
  6,061
  6,425
  6,804
  7,198
  7,609
  7,995
  8,443
  8,909
  9,396
  9,905
  10,437
  10,993
  11,573
  12,182
  12,817
  13,483
  14,180
  14,910
  15,675
  16,476
  17,315
  18,195
  19,117
  20,083
  21,097
Operating income, $m
  326
  363
  402
  443
  485
  530
  576
  624
  674
  727
  824
  882
  942
  1,005
  1,071
  1,140
  1,212
  1,288
  1,368
  1,451
  1,539
  1,631
  1,727
  1,828
  1,935
  2,046
  2,164
  2,287
  2,416
  2,552
EBITDA, $m
  692
  752
  815
  881
  949
  1,020
  1,094
  1,171
  1,251
  1,335
  1,423
  1,515
  1,611
  1,711
  1,816
  1,926
  2,041
  2,161
  2,287
  2,420
  2,558
  2,704
  2,856
  3,017
  3,184
  3,361
  3,546
  3,740
  3,944
  4,158
Interest expense (income), $m
  159
  203
  224
  247
  270
  294
  319
  345
  372
  401
  430
  461
  493
  526
  561
  598
  636
  676
  717
  761
  806
  854
  904
  956
  1,011
  1,068
  1,129
  1,192
  1,258
  1,327
  1,400
Earnings before tax, $m
  123
  139
  156
  173
  191
  210
  231
  252
  274
  297
  364
  389
  416
  444
  473
  504
  537
  571
  607
  645
  685
  727
  771
  817
  866
  918
  972
  1,029
  1,089
  1,153
Tax expense, $m
  33
  37
  42
  47
  52
  57
  62
  68
  74
  80
  98
  105
  112
  120
  128
  136
  145
  154
  164
  174
  185
  196
  208
  221
  234
  248
  262
  278
  294
  311
Net income, $m
  90
  101
  114
  126
  140
  154
  168
  184
  200
  217
  265
  284
  303
  324
  345
  368
  392
  417
  443
  471
  500
  530
  563
  597
  632
  670
  710
  751
  795
  842

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
  7,367
  7,888
  8,429
  8,992
  9,577
  10,186
  10,820
  11,480
  12,167
  12,884
  13,632
  14,412
  15,226
  16,076
  16,964
  17,893
  18,864
  19,879
  20,942
  22,054
  23,219
  24,438
  25,715
  27,053
  28,456
  29,925
  31,466
  33,082
  34,775
  36,552
Adjusted assets (=assets-cash), $m
  7,367
  7,888
  8,429
  8,992
  9,577
  10,186
  10,820
  11,480
  12,167
  12,884
  13,632
  14,412
  15,226
  16,076
  16,964
  17,893
  18,864
  19,879
  20,942
  22,054
  23,219
  24,438
  25,715
  27,053
  28,456
  29,925
  31,466
  33,082
  34,775
  36,552
Revenue / Adjusted assets
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
  0.647
Average production assets, $m
  5,338
  5,716
  6,108
  6,516
  6,940
  7,381
  7,840
  8,319
  8,817
  9,336
  9,878
  10,443
  11,033
  11,649
  12,293
  12,966
  13,670
  14,405
  15,175
  15,981
  16,825
  17,709
  18,634
  19,604
  20,620
  21,685
  22,802
  23,972
  25,200
  26,487
Working capital, $m
  -624
  -669
  -714
  -762
  -812
  -863
  -917
  -973
  -1,031
  -1,092
  -1,155
  -1,221
  -1,290
  -1,363
  -1,438
  -1,517
  -1,599
  -1,685
  -1,775
  -1,869
  -1,968
  -2,071
  -2,180
  -2,293
  -2,412
  -2,536
  -2,667
  -2,804
  -2,947
  -3,098
Total debt, $m
  4,156
  4,569
  4,999
  5,446
  5,910
  6,394
  6,897
  7,421
  7,967
  8,536
  9,130
  9,749
  10,396
  11,071
  11,776
  12,513
  13,284
  14,091
  14,934
  15,817
  16,742
  17,710
  18,724
  19,787
  20,900
  22,067
  23,290
  24,573
  25,918
  27,329
Total liabilities, $m
  5,849
  6,263
  6,693
  7,139
  7,604
  8,088
  8,591
  9,115
  9,661
  10,230
  10,823
  11,443
  12,089
  12,764
  13,470
  14,207
  14,978
  15,784
  16,628
  17,511
  18,436
  19,404
  20,418
  21,480
  22,594
  23,761
  24,984
  26,267
  27,612
  29,022
Total equity, $m
  1,518
  1,625
  1,736
  1,852
  1,973
  2,098
  2,229
  2,365
  2,506
  2,654
  2,808
  2,969
  3,136
  3,312
  3,495
  3,686
  3,886
  4,095
  4,314
  4,543
  4,783
  5,034
  5,297
  5,573
  5,862
  6,165
  6,482
  6,815
  7,164
  7,530
Total liabilities and equity, $m
  7,367
  7,888
  8,429
  8,991
  9,577
  10,186
  10,820
  11,480
  12,167
  12,884
  13,631
  14,412
  15,225
  16,076
  16,965
  17,893
  18,864
  19,879
  20,942
  22,054
  23,219
  24,438
  25,715
  27,053
  28,456
  29,926
  31,466
  33,082
  34,776
  36,552
Debt-to-equity ratio
  2.740
  2.810
  2.880
  2.940
  3.000
  3.050
  3.090
  3.140
  3.180
  3.220
  3.250
  3.280
  3.310
  3.340
  3.370
  3.390
  3.420
  3.440
  3.460
  3.480
  3.500
  3.520
  3.530
  3.550
  3.570
  3.580
  3.590
  3.610
  3.620
  3.630
Adjusted equity ratio
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  90
  101
  114
  126
  140
  154
  168
  184
  200
  217
  265
  284
  303
  324
  345
  368
  392
  417
  443
  471
  500
  530
  563
  597
  632
  670
  710
  751
  795
  842
Depreciation, amort., depletion, $m
  366
  389
  413
  438
  463
  490
  518
  547
  577
  609
  599
  633
  669
  706
  745
  786
  828
  873
  920
  969
  1,020
  1,073
  1,129
  1,188
  1,250
  1,314
  1,382
  1,453
  1,527
  1,605
Funds from operations, $m
  456
  490
  526
  564
  603
  644
  686
  730
  777
  825
  864
  917
  972
  1,030
  1,090
  1,154
  1,220
  1,290
  1,363
  1,439
  1,519
  1,604
  1,692
  1,785
  1,882
  1,984
  2,092
  2,204
  2,323
  2,447
Change in working capital, $m
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -113
  -119
  -125
  -131
  -137
  -144
  -151
Cash from operations, $m
  499
  535
  572
  612
  653
  695
  740
  786
  835
  886
  927
  983
  1,041
  1,102
  1,166
  1,232
  1,302
  1,376
  1,453
  1,534
  1,618
  1,707
  1,800
  1,898
  2,001
  2,109
  2,222
  2,341
  2,466
  2,597
Maintenance CAPEX, $m
  -302
  -324
  -346
  -370
  -395
  -421
  -447
  -475
  -504
  -534
  -566
  -599
  -633
  -669
  -706
  -745
  -786
  -828
  -873
  -920
  -969
  -1,020
  -1,073
  -1,129
  -1,188
  -1,250
  -1,314
  -1,382
  -1,453
  -1,527
New CAPEX, $m
  -363
  -377
  -392
  -408
  -424
  -441
  -459
  -478
  -498
  -519
  -542
  -565
  -590
  -616
  -644
  -673
  -704
  -736
  -770
  -806
  -844
  -884
  -926
  -970
  -1,016
  -1,065
  -1,116
  -1,171
  -1,227
  -1,287
Cash from investing activities, $m
  -665
  -701
  -738
  -778
  -819
  -862
  -906
  -953
  -1,002
  -1,053
  -1,108
  -1,164
  -1,223
  -1,285
  -1,350
  -1,418
  -1,490
  -1,564
  -1,643
  -1,726
  -1,813
  -1,904
  -1,999
  -2,099
  -2,204
  -2,315
  -2,430
  -2,553
  -2,680
  -2,814
Free cash flow, $m
  -166
  -166
  -166
  -166
  -166
  -167
  -167
  -167
  -167
  -168
  -180
  -181
  -182
  -183
  -184
  -185
  -187
  -189
  -190
  -192
  -194
  -196
  -199
  -201
  -203
  -206
  -209
  -211
  -214
  -217
Issuance/(repayment) of debt, $m
  403
  414
  430
  447
  465
  483
  503
  524
  546
  569
  594
  619
  646
  675
  705
  737
  771
  806
  844
  883
  925
  968
  1,014
  1,063
  1,113
  1,167
  1,223
  1,283
  1,345
  1,410
Issuance/(repurchase) of shares, $m
  12
  6
  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  
  415
  420
  430
  447
  465
  483
  503
  524
  546
  569
  594
  619
  646
  675
  705
  737
  771
  806
  844
  883
  925
  968
  1,014
  1,063
  1,113
  1,167
  1,223
  1,283
  1,345
  1,410
Total cash flow (excl. dividends), $m
  250
  253
  263
  280
  298
  317
  336
  357
  379
  401
  413
  438
  465
  492
  521
  552
  584
  618
  653
  691
  730
  772
  816
  862
  910
  961
  1,015
  1,071
  1,131
  1,193
Retained Cash Flow (-), $m
  -102
  -107
  -112
  -116
  -121
  -125
  -131
  -136
  -142
  -148
  -154
  -161
  -168
  -175
  -183
  -191
  -200
  -209
  -219
  -229
  -240
  -251
  -263
  -276
  -289
  -303
  -317
  -333
  -349
  -366
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
  148
  146
  152
  165
  178
  191
  206
  221
  237
  254
  259
  278
  297
  317
  338
  361
  384
  409
  435
  462
  491
  521
  553
  586
  621
  658
  697
  739
  782
  827
Discount rate, %
  9.20
  9.66
  10.14
  10.65
  11.18
  11.74
  12.33
  12.95
  13.59
  14.27
  14.99
  15.74
  16.52
  17.35
  18.22
  19.13
  20.08
  21.09
  22.14
  23.25
  24.41
  25.63
  26.91
  28.26
  29.67
  31.15
  32.71
  34.35
  36.07
  37.87
PV of cash for distribution, $m
  135
  121
  114
  110
  105
  98
  91
  83
  75
  67
  56
  48
  41
  34
  27
  22
  17
  13
  10
  7
  5
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  98.8
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2
  98.2

Avianca Holdings SA is a Panama-based company engaged, through its subsidiaries, in the provision of air transportation services for passengers and commercial purposes. The Company was originally established as a strategic alliance between Aerovias del Continente Americano SA (AVIANCA) and Grupo TACA Holdings Limited (GTH), and it mainly operates in North, Central and South America, the Caribbean and Europe. In addition, through codeshare agreements, the Company is active in the operation of other international passenger air routes. As of December 31, 2011, the Company owned such subsidiaries as Latin Airways Corporation and LifeMiles Corporation, among others. On December 28, 2012, the merger of subsidiaries Latin Airways Corporation, as absorbing company, with Synergy Ocean Air Colombia SAS and Soac 2 SAS was formalized. On June 18, 2013, the Company received the first out of 15 ATR 72-600, a turbo-propelled aircraft from ATR, a company engaged in regional aircraft.

FINANCIAL RATIOS  of  Avianca Holdings S.A. (AVH)

Valuation Ratios
P/E Ratio 170.6
Price to Sales 0.7
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 5.1
Price to Free Cash Flow 8.6
Growth Rates
Sales Growth Rate -5.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate -4.4%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 204.6%
Total Debt to Equity 233.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.7%
Ret/ On Assets - 3 Yr. Avg. 2.1%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity 1.2%
Return On Equity - 3 Yr. Avg. -0.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 39.9%
Gross Margin - 3 Yr. Avg. 38.7%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 9.8%
Operating Margin 6.2%
Oper. Margin - 3 Yr. Avg. 5.7%
Pre-Tax Margin 1.9%
Pre-Tax Margin - 3 Yr. Avg. 1.1%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. -0.1%
Effective Tax Rate 43.6%
Eff/ Tax Rate - 3 Yr. Avg. 14.2%
Payout Ratio 188.2%

AVH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVH stock intrinsic value calculation we used $4442 million for the last fiscal year's total revenue generated by Avianca Holdings S.A.. The default revenue input number comes from 0001 income statement of Avianca Holdings S.A.. 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 AVH stock valuation model: a) initial revenue growth rate of 7.3% 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 9.2%, whose default value for AVH is calculated based on our internal credit rating of Avianca Holdings S.A., 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 Avianca Holdings S.A..
    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 AVH stock the variable cost ratio is equal to 88.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $230 million in the base year in the intrinsic value calculation for AVH 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 5.4% for Avianca Holdings S.A..

Corporate tax rate of 27% is the nominal tax rate for Avianca Holdings S.A.. 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 AVH 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 AVH are equal to 112%.

Life of production assets of 16.5 years is the average useful life of capital assets used in Avianca Holdings S.A. 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 AVH is equal to -13.1%. 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 - $1415.65 million for Avianca Holdings S.A. - 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 125.164 million for Avianca Holdings S.A. 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 Avianca Holdings S.A. at the current share price and the inputted number of shares is $0.5 billion.

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