Intrinsic value of Azul S.A. - AZUL

Previous Close

$39.14

  Intrinsic Value

$85.00

stock screener

  Rating & Target

str. buy

+117%

Previous close

$39.14

 
Intrinsic value

$85.00

 
Up/down potential

+117%

 
Rating

str. buy

We calculate the intrinsic value of AZUL 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 4.4

 

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, %
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.58
  5.52
  5.47
Revenue, $m
  2,704
  3,080
  3,481
  3,906
  4,355
  4,827
  5,322
  5,841
  6,382
  6,945
  7,532
  8,143
  8,778
  9,438
  10,123
  10,836
  11,576
  12,346
  13,147
  13,980
  14,848
  15,751
  16,692
  17,673
  18,696
  19,764
  20,878
  22,043
  23,259
  24,530
Variable operating expenses, $m
  1,315
  1,494
  1,685
  1,887
  2,100
  2,325
  2,561
  2,807
  3,065
  3,333
  3,583
  3,873
  4,175
  4,489
  4,815
  5,154
  5,507
  5,873
  6,254
  6,650
  7,063
  7,492
  7,940
  8,407
  8,893
  9,401
  9,931
  10,485
  11,064
  11,668
Fixed operating expenses, $m
  985
  1,007
  1,029
  1,052
  1,075
  1,098
  1,123
  1,147
  1,173
  1,198
  1,225
  1,252
  1,279
  1,307
  1,336
  1,365
  1,396
  1,426
  1,458
  1,490
  1,522
  1,556
  1,590
  1,625
  1,661
  1,697
  1,735
  1,773
  1,812
  1,852
Total operating expenses, $m
  2,300
  2,501
  2,714
  2,939
  3,175
  3,423
  3,684
  3,954
  4,238
  4,531
  4,808
  5,125
  5,454
  5,796
  6,151
  6,519
  6,903
  7,299
  7,712
  8,140
  8,585
  9,048
  9,530
  10,032
  10,554
  11,098
  11,666
  12,258
  12,876
  13,520
Operating income, $m
  403
  579
  767
  967
  1,180
  1,404
  1,639
  1,886
  2,144
  2,414
  2,725
  3,018
  3,323
  3,641
  3,972
  4,316
  4,674
  5,047
  5,436
  5,841
  6,262
  6,703
  7,162
  7,641
  8,142
  8,665
  9,212
  9,784
  10,383
  11,010
EBITDA, $m
  525
  713
  915
  1,130
  1,358
  1,598
  1,850
  2,115
  2,392
  2,681
  2,983
  3,297
  3,624
  3,964
  4,318
  4,687
  5,071
  5,470
  5,886
  6,319
  6,771
  7,242
  7,733
  8,246
  8,782
  9,342
  9,927
  10,539
  11,180
  11,850
Interest expense (income), $m
  108
  144
  190
  240
  293
  349
  408
  470
  535
  603
  674
  748
  826
  906
  990
  1,076
  1,167
  1,260
  1,358
  1,459
  1,564
  1,674
  1,788
  1,907
  2,031
  2,160
  2,294
  2,435
  2,581
  2,735
  2,895
Earnings before tax, $m
  259
  388
  527
  675
  831
  996
  1,169
  1,351
  1,541
  1,740
  1,976
  2,192
  2,417
  2,651
  2,895
  3,149
  3,414
  3,690
  3,977
  4,276
  4,589
  4,914
  5,255
  5,610
  5,982
  6,371
  6,777
  7,203
  7,649
  8,115
Tax expense, $m
  70
  105
  142
  182
  224
  269
  316
  365
  416
  470
  534
  592
  653
  716
  782
  850
  922
  996
  1,074
  1,155
  1,239
  1,327
  1,419
  1,515
  1,615
  1,720
  1,830
  1,945
  2,065
  2,191
Net income, $m
  189
  284
  385
  492
  607
  727
  854
  986
  1,125
  1,270
  1,443
  1,600
  1,765
  1,936
  2,114
  2,299
  2,492
  2,693
  2,903
  3,122
  3,350
  3,588
  3,836
  4,096
  4,367
  4,651
  4,948
  5,258
  5,583
  5,924

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
  3,581
  4,079
  4,610
  5,173
  5,768
  6,394
  7,050
  7,736
  8,452
  9,199
  9,977
  10,786
  11,626
  12,500
  13,408
  14,352
  15,333
  16,353
  17,413
  18,517
  19,666
  20,862
  22,108
  23,408
  24,763
  26,177
  27,654
  29,195
  30,806
  32,490
Adjusted assets (=assets-cash), $m
  3,581
  4,079
  4,610
  5,173
  5,768
  6,394
  7,050
  7,736
  8,452
  9,199
  9,977
  10,786
  11,626
  12,500
  13,408
  14,352
  15,333
  16,353
  17,413
  18,517
  19,666
  20,862
  22,108
  23,408
  24,763
  26,177
  27,654
  29,195
  30,806
  32,490
Revenue / Adjusted assets
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
Average production assets, $m
  1,352
  1,540
  1,740
  1,953
  2,177
  2,414
  2,661
  2,920
  3,191
  3,473
  3,766
  4,072
  4,389
  4,719
  5,062
  5,418
  5,788
  6,173
  6,574
  6,990
  7,424
  7,875
  8,346
  8,836
  9,348
  9,882
  10,439
  11,021
  11,629
  12,265
Working capital, $m
  -441
  -502
  -567
  -637
  -710
  -787
  -868
  -952
  -1,040
  -1,132
  -1,228
  -1,327
  -1,431
  -1,538
  -1,650
  -1,766
  -1,887
  -2,012
  -2,143
  -2,279
  -2,420
  -2,567
  -2,721
  -2,881
  -3,047
  -3,222
  -3,403
  -3,593
  -3,791
  -3,998
Total debt, $m
  1,390
  1,751
  2,136
  2,545
  2,976
  3,429
  3,905
  4,403
  4,922
  5,463
  6,027
  6,614
  7,223
  7,857
  8,515
  9,199
  9,910
  10,650
  11,419
  12,219
  13,052
  13,919
  14,823
  15,765
  16,747
  17,773
  18,843
  19,961
  21,129
  22,350
Total liabilities, $m
  2,596
  2,957
  3,342
  3,751
  4,182
  4,635
  5,111
  5,609
  6,128
  6,669
  7,233
  7,819
  8,429
  9,063
  9,721
  10,405
  11,116
  11,856
  12,625
  13,425
  14,258
  15,125
  16,029
  16,971
  17,953
  18,979
  20,049
  21,167
  22,335
  23,556
Total equity, $m
  985
  1,122
  1,268
  1,423
  1,586
  1,758
  1,939
  2,127
  2,324
  2,530
  2,744
  2,966
  3,197
  3,438
  3,687
  3,947
  4,217
  4,497
  4,789
  5,092
  5,408
  5,737
  6,080
  6,437
  6,810
  7,199
  7,605
  8,029
  8,472
  8,935
Total liabilities and equity, $m
  3,581
  4,079
  4,610
  5,174
  5,768
  6,393
  7,050
  7,736
  8,452
  9,199
  9,977
  10,785
  11,626
  12,501
  13,408
  14,352
  15,333
  16,353
  17,414
  18,517
  19,666
  20,862
  22,109
  23,408
  24,763
  26,178
  27,654
  29,196
  30,807
  32,491
Debt-to-equity ratio
  1.410
  1.560
  1.690
  1.790
  1.880
  1.950
  2.010
  2.070
  2.120
  2.160
  2.200
  2.230
  2.260
  2.290
  2.310
  2.330
  2.350
  2.370
  2.380
  2.400
  2.410
  2.430
  2.440
  2.450
  2.460
  2.470
  2.480
  2.490
  2.490
  2.500
Adjusted equity ratio
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  189
  284
  385
  492
  607
  727
  854
  986
  1,125
  1,270
  1,443
  1,600
  1,765
  1,936
  2,114
  2,299
  2,492
  2,693
  2,903
  3,122
  3,350
  3,588
  3,836
  4,096
  4,367
  4,651
  4,948
  5,258
  5,583
  5,924
Depreciation, amort., depletion, $m
  122
  134
  148
  163
  178
  194
  211
  229
  248
  267
  258
  279
  301
  323
  347
  371
  396
  423
  450
  479
  508
  539
  572
  605
  640
  677
  715
  755
  797
  840
Funds from operations, $m
  311
  418
  533
  655
  785
  921
  1,065
  1,215
  1,373
  1,537
  1,701
  1,879
  2,065
  2,259
  2,460
  2,670
  2,889
  3,116
  3,353
  3,600
  3,858
  4,127
  4,408
  4,701
  5,007
  5,328
  5,663
  6,013
  6,380
  6,764
Change in working capital, $m
  -57
  -61
  -65
  -69
  -73
  -77
  -81
  -84
  -88
  -92
  -96
  -100
  -103
  -108
  -112
  -116
  -121
  -126
  -131
  -136
  -141
  -147
  -153
  -160
  -167
  -174
  -182
  -190
  -198
  -207
Cash from operations, $m
  368
  479
  598
  725
  858
  998
  1,146
  1,300
  1,461
  1,629
  1,796
  1,979
  2,169
  2,366
  2,572
  2,786
  3,009
  3,242
  3,484
  3,736
  3,999
  4,274
  4,561
  4,861
  5,174
  5,502
  5,844
  6,203
  6,578
  6,972
Maintenance CAPEX, $m
  -81
  -93
  -105
  -119
  -134
  -149
  -165
  -182
  -200
  -219
  -238
  -258
  -279
  -301
  -323
  -347
  -371
  -396
  -423
  -450
  -479
  -508
  -539
  -572
  -605
  -640
  -677
  -715
  -755
  -797
New CAPEX, $m
  -176
  -188
  -200
  -213
  -224
  -236
  -248
  -259
  -270
  -282
  -294
  -305
  -317
  -330
  -343
  -356
  -370
  -385
  -400
  -417
  -434
  -452
  -471
  -491
  -512
  -534
  -557
  -582
  -608
  -636
Cash from investing activities, $m
  -257
  -281
  -305
  -332
  -358
  -385
  -413
  -441
  -470
  -501
  -532
  -563
  -596
  -631
  -666
  -703
  -741
  -781
  -823
  -867
  -913
  -960
  -1,010
  -1,063
  -1,117
  -1,174
  -1,234
  -1,297
  -1,363
  -1,433
Free cash flow, $m
  111
  199
  292
  393
  500
  613
  733
  858
  990
  1,128
  1,265
  1,415
  1,572
  1,736
  1,906
  2,083
  2,268
  2,460
  2,661
  2,869
  3,087
  3,314
  3,551
  3,799
  4,057
  4,327
  4,610
  4,906
  5,215
  5,539
Issuance/(repayment) of debt, $m
  336
  361
  385
  408
  431
  454
  476
  498
  519
  541
  564
  586
  610
  634
  658
  684
  711
  739
  769
  800
  833
  867
  904
  942
  983
  1,025
  1,070
  1,118
  1,168
  1,221
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  
  336
  361
  385
  408
  431
  454
  476
  498
  519
  541
  564
  586
  610
  634
  658
  684
  711
  739
  769
  800
  833
  867
  904
  942
  983
  1,025
  1,070
  1,118
  1,168
  1,221
Total cash flow (excl. dividends), $m
  447
  560
  677
  801
  931
  1,067
  1,208
  1,356
  1,510
  1,670
  1,829
  2,002
  2,182
  2,369
  2,564
  2,768
  2,979
  3,200
  3,430
  3,669
  3,920
  4,181
  4,455
  4,741
  5,040
  5,353
  5,680
  6,024
  6,383
  6,760
Retained Cash Flow (-), $m
  -129
  -137
  -146
  -155
  -164
  -172
  -180
  -189
  -197
  -205
  -214
  -222
  -231
  -240
  -250
  -260
  -270
  -280
  -292
  -303
  -316
  -329
  -343
  -357
  -373
  -389
  -406
  -424
  -443
  -463
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
  318
  423
  531
  646
  767
  894
  1,028
  1,167
  1,313
  1,465
  1,615
  1,779
  1,951
  2,129
  2,315
  2,508
  2,709
  2,919
  3,138
  3,366
  3,604
  3,852
  4,112
  4,383
  4,667
  4,964
  5,274
  5,600
  5,940
  6,297
Discount rate, %
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
  300
  373
  437
  492
  537
  570
  593
  604
  604
  593
  570
  541
  505
  464
  419
  371
  324
  277
  232
  191
  154
  122
  94
  71
  52
  38
  26
  18
  12
  8
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

Azul SA is a Brazil-based company engaged in the provision of passenger transportation services. The Company primarily acts as an airline operator under the Azul brand name. The Company provides scheduled flights between numerous cities in Brazil, including Sao Paulo, Brasilia, Rio de Janeiro, Belo Horizonte, Porto Alegre, Curitiba, Manaus, Cuiaba, Fortaleza and Salvador, among others. In addition, its air network comprises international routes to the Unites States, Europe and other Latin American countries. The Company also offers Azul Cargo Express, a scheduled cargo transport service with airport-to-airport and door-to-door delivery. It owns a number of subsidiaries, such as Azul Linhas Aereas Brasileiras SA and Tudo Azul SA.

FINANCIAL RATIOS  of  Azul S.A. (AZUL)

Valuation Ratios
P/E Ratio -1158.1
Price to Sales 22
Price to Book 146.1
Price to Tangible Book
Price to Cash Flow 4632.4
Price to Free Cash Flow -356.3
Growth Rates
Sales Growth Rate 6.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -64.5%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 304.1%
Total Debt to Equity 406.9%
Interest Coverage 1
Management Effectiveness
Return On Assets -29.6%
Ret/ On Assets - 3 Yr. Avg. -12.5%
Return On Total Capital -2.6%
Ret/ On T. Cap. - 3 Yr. Avg. -10.2%
Return On Equity -41.5%
Return On Equity - 3 Yr. Avg. -2857.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 32.5%
Gross Margin - 3 Yr. Avg. 31.2%
EBITDA Margin 9.9%
EBITDA Margin - 3 Yr. Avg. 2.2%
Operating Margin 5.2%
Oper. Margin - 3 Yr. Avg. 3.1%
Pre-Tax Margin 0.3%
Pre-Tax Margin - 3 Yr. Avg. -6.2%
Net Profit Margin -1.9%
Net Profit Margin - 3 Yr. Avg. -6.7%
Effective Tax Rate 766.7%
Eff/ Tax Rate - 3 Yr. Avg. 264%
Payout Ratio 0%

AZUL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AZUL stock intrinsic value calculation we used $2353 million for the last fiscal year's total revenue generated by Azul S.A.. The default revenue input number comes from 0001 income statement of Azul 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 AZUL stock valuation model: a) initial revenue growth rate of 14.9% 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 6.1%, whose default value for AZUL is calculated based on our internal credit rating of Azul 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 Azul 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 AZUL stock the variable cost ratio is equal to 48.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $964 million in the base year in the intrinsic value calculation for AZUL 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 13.7% for Azul S.A..

Corporate tax rate of 27% is the nominal tax rate for Azul 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 AZUL 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 AZUL are equal to 50%.

Life of production assets of 14.6 years is the average useful life of capital assets used in Azul 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 AZUL is equal to -16.3%. 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 - $855.813953488 million for Azul 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 112.973 million for Azul 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 Azul S.A. at the current share price and the inputted number of shares is $4.4 billion.

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