Intrinsic value of Black Hills Corporation - BKH

Previous Close

$72.74

  Intrinsic Value

$20.17

stock screener

  Rating & Target

str. sell

-72%

Previous close

$72.74

 
Intrinsic value

$20.17

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of BKH 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, %
  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
  1,931
  2,116
  2,310
  2,511
  2,721
  2,938
  3,165
  3,400
  3,645
  3,899
  4,164
  4,439
  4,724
  5,022
  5,332
  5,654
  5,990
  6,341
  6,706
  7,088
  7,486
  7,902
  8,337
  8,792
  9,267
  9,764
  10,285
  10,829
  11,400
  11,997
Variable operating expenses, $m
  1,439
  1,564
  1,695
  1,832
  1,973
  2,121
  2,274
  2,434
  2,599
  2,772
  2,819
  3,005
  3,199
  3,400
  3,610
  3,828
  4,056
  4,293
  4,541
  4,799
  5,069
  5,351
  5,645
  5,953
  6,275
  6,611
  6,964
  7,332
  7,719
  8,123
Fixed operating expenses, $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 operating expenses, $m
  1,439
  1,564
  1,695
  1,832
  1,973
  2,121
  2,274
  2,434
  2,599
  2,772
  2,819
  3,005
  3,199
  3,400
  3,610
  3,828
  4,056
  4,293
  4,541
  4,799
  5,069
  5,351
  5,645
  5,953
  6,275
  6,611
  6,964
  7,332
  7,719
  8,123
Operating income, $m
  492
  552
  614
  679
  747
  817
  891
  967
  1,046
  1,128
  1,345
  1,433
  1,526
  1,622
  1,722
  1,826
  1,934
  2,048
  2,166
  2,289
  2,417
  2,552
  2,692
  2,839
  2,992
  3,153
  3,321
  3,497
  3,681
  3,874
EBITDA, $m
  820
  899
  981
  1,066
  1,155
  1,248
  1,344
  1,444
  1,548
  1,656
  1,768
  1,885
  2,006
  2,133
  2,264
  2,401
  2,544
  2,693
  2,848
  3,010
  3,179
  3,356
  3,540
  3,733
  3,935
  4,146
  4,367
  4,599
  4,841
  5,095
Interest expense (income), $m
  113
  170
  196
  223
  251
  281
  312
  344
  377
  412
  448
  486
  524
  565
  607
  651
  696
  744
  793
  845
  899
  955
  1,014
  1,075
  1,139
  1,206
  1,276
  1,349
  1,426
  1,506
  1,590
Earnings before tax, $m
  323
  356
  391
  428
  466
  506
  547
  589
  634
  680
  859
  909
  961
  1,015
  1,071
  1,129
  1,191
  1,254
  1,321
  1,390
  1,463
  1,538
  1,617
  1,700
  1,787
  1,877
  1,972
  2,071
  2,175
  2,284
Tax expense, $m
  87
  96
  106
  116
  126
  136
  148
  159
  171
  184
  232
  245
  259
  274
  289
  305
  321
  339
  357
  375
  395
  415
  437
  459
  482
  507
  532
  559
  587
  617
Net income, $m
  235
  260
  286
  312
  340
  369
  399
  430
  463
  496
  627
  663
  701
  741
  782
  825
  869
  916
  964
  1,015
  1,068
  1,123
  1,181
  1,241
  1,304
  1,370
  1,440
  1,512
  1,588
  1,668

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
  7,663
  8,398
  9,165
  9,964
  10,796
  11,661
  12,560
  13,494
  14,465
  15,474
  16,523
  17,613
  18,748
  19,928
  21,157
  22,437
  23,771
  25,162
  26,613
  28,126
  29,707
  31,358
  33,084
  34,887
  36,774
  38,747
  40,812
  42,974
  45,237
  47,608
Adjusted assets (=assets-cash), $m
  7,663
  8,398
  9,165
  9,964
  10,796
  11,661
  12,560
  13,494
  14,465
  15,474
  16,523
  17,613
  18,748
  19,928
  21,157
  22,437
  23,771
  25,162
  26,613
  28,126
  29,707
  31,358
  33,084
  34,887
  36,774
  38,747
  40,812
  42,974
  45,237
  47,608
Revenue / Adjusted assets
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
  0.252
Average production assets, $m
  5,894
  6,459
  7,049
  7,663
  8,303
  8,968
  9,660
  10,378
  11,125
  11,901
  12,708
  13,547
  14,419
  15,327
  16,272
  17,257
  18,282
  19,352
  20,468
  21,632
  22,848
  24,118
  25,445
  26,832
  28,283
  29,801
  31,389
  33,051
  34,792
  36,615
Working capital, $m
  23
  25
  28
  30
  33
  35
  38
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  90
  95
  100
  105
  111
  117
  123
  130
  137
  144
Total debt, $m
  3,625
  4,130
  4,657
  5,206
  5,777
  6,371
  6,989
  7,631
  8,298
  8,991
  9,712
  10,461
  11,240
  12,051
  12,895
  13,775
  14,691
  15,647
  16,643
  17,683
  18,769
  19,904
  21,089
  22,328
  23,624
  24,980
  26,398
  27,883
  29,438
  31,067
Total liabilities, $m
  5,265
  5,770
  6,296
  6,845
  7,417
  8,011
  8,628
  9,270
  9,937
  10,631
  11,351
  12,100
  12,880
  13,691
  14,535
  15,414
  16,331
  17,286
  18,283
  19,323
  20,409
  21,543
  22,729
  23,968
  25,264
  26,619
  28,038
  29,523
  31,078
  32,706
Total equity, $m
  2,399
  2,629
  2,869
  3,119
  3,379
  3,650
  3,931
  4,224
  4,528
  4,843
  5,172
  5,513
  5,868
  6,238
  6,622
  7,023
  7,440
  7,876
  8,330
  8,804
  9,298
  9,815
  10,355
  10,920
  11,510
  12,128
  12,774
  13,451
  14,159
  14,901
Total liabilities and equity, $m
  7,664
  8,399
  9,165
  9,964
  10,796
  11,661
  12,559
  13,494
  14,465
  15,474
  16,523
  17,613
  18,748
  19,929
  21,157
  22,437
  23,771
  25,162
  26,613
  28,127
  29,707
  31,358
  33,084
  34,888
  36,774
  38,747
  40,812
  42,974
  45,237
  47,607
Debt-to-equity ratio
  1.510
  1.570
  1.620
  1.670
  1.710
  1.750
  1.780
  1.810
  1.830
  1.860
  1.880
  1.900
  1.920
  1.930
  1.950
  1.960
  1.970
  1.990
  2.000
  2.010
  2.020
  2.030
  2.040
  2.040
  2.050
  2.060
  2.070
  2.070
  2.080
  2.080
Adjusted equity ratio
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313
  0.313

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  235
  260
  286
  312
  340
  369
  399
  430
  463
  496
  627
  663
  701
  741
  782
  825
  869
  916
  964
  1,015
  1,068
  1,123
  1,181
  1,241
  1,304
  1,370
  1,440
  1,512
  1,588
  1,668
Depreciation, amort., depletion, $m
  328
  347
  366
  387
  408
  430
  453
  477
  502
  528
  424
  452
  481
  511
  542
  575
  609
  645
  682
  721
  762
  804
  848
  894
  943
  993
  1,046
  1,102
  1,160
  1,221
Funds from operations, $m
  563
  607
  652
  699
  748
  799
  852
  908
  965
  1,024
  1,051
  1,115
  1,182
  1,252
  1,324
  1,400
  1,478
  1,561
  1,646
  1,736
  1,829
  1,927
  2,029
  2,136
  2,247
  2,364
  2,486
  2,614
  2,748
  2,888
Change in working capital, $m
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  561
  605
  650
  697
  746
  797
  850
  905
  962
  1,021
  1,048
  1,112
  1,179
  1,248
  1,320
  1,396
  1,474
  1,556
  1,642
  1,731
  1,824
  1,922
  2,024
  2,130
  2,241
  2,358
  2,480
  2,607
  2,741
  2,881
Maintenance CAPEX, $m
  -178
  -196
  -215
  -235
  -255
  -277
  -299
  -322
  -346
  -371
  -397
  -424
  -452
  -481
  -511
  -542
  -575
  -609
  -645
  -682
  -721
  -762
  -804
  -848
  -894
  -943
  -993
  -1,046
  -1,102
  -1,160
New CAPEX, $m
  -541
  -565
  -590
  -615
  -640
  -665
  -691
  -719
  -747
  -776
  -807
  -839
  -872
  -908
  -945
  -984
  -1,026
  -1,070
  -1,116
  -1,164
  -1,216
  -1,270
  -1,327
  -1,387
  -1,451
  -1,518
  -1,588
  -1,663
  -1,741
  -1,823
Cash from investing activities, $m
  -719
  -761
  -805
  -850
  -895
  -942
  -990
  -1,041
  -1,093
  -1,147
  -1,204
  -1,263
  -1,324
  -1,389
  -1,456
  -1,526
  -1,601
  -1,679
  -1,761
  -1,846
  -1,937
  -2,032
  -2,131
  -2,235
  -2,345
  -2,461
  -2,581
  -2,709
  -2,843
  -2,983
Free cash flow, $m
  -158
  -157
  -155
  -153
  -149
  -145
  -141
  -136
  -131
  -126
  -156
  -151
  -145
  -140
  -136
  -131
  -127
  -123
  -119
  -115
  -112
  -110
  -107
  -105
  -104
  -103
  -102
  -101
  -102
  -102
Issuance/(repayment) of debt, $m
  483
  505
  527
  549
  571
  594
  618
  642
  667
  693
  721
  749
  779
  811
  844
  879
  916
  955
  997
  1,040
  1,086
  1,134
  1,185
  1,239
  1,296
  1,356
  1,419
  1,485
  1,555
  1,629
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  
  483
  505
  527
  549
  571
  594
  618
  642
  667
  693
  721
  749
  779
  811
  844
  879
  916
  955
  997
  1,040
  1,086
  1,134
  1,185
  1,239
  1,296
  1,356
  1,419
  1,485
  1,555
  1,629
Total cash flow (excl. dividends), $m
  325
  348
  371
  396
  422
  449
  477
  506
  536
  568
  565
  599
  634
  670
  709
  748
  790
  833
  878
  925
  974
  1,025
  1,078
  1,134
  1,192
  1,253
  1,317
  1,384
  1,453
  1,527
Retained Cash Flow (-), $m
  -217
  -230
  -240
  -250
  -260
  -271
  -281
  -292
  -304
  -316
  -328
  -341
  -355
  -369
  -385
  -401
  -418
  -435
  -454
  -474
  -495
  -517
  -540
  -565
  -590
  -618
  -646
  -677
  -708
  -742
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
  108
  118
  131
  146
  162
  178
  196
  214
  232
  252
  236
  257
  279
  301
  324
  348
  372
  398
  424
  451
  479
  508
  538
  569
  602
  635
  670
  707
  745
  785
Discount rate, %
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
  21.18
  22.24
  23.35
  24.52
  25.74
  27.03
  28.38
  29.80
  31.29
  32.85
  34.50
  36.22
PV of cash for distribution, $m
  99
  99
  100
  99
  97
  94
  90
  84
  77
  70
  54
  48
  41
  35
  29
  24
  19
  15
  11
  8
  6
  4
  3
  2
  1
  1
  0
  0
  0
  0
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

Black Hills Corporation is a holding company. The Company is an integrated energy company, which is focused primarily on regulated utilities. The Company operates through segments, including Electric Utilities, Gas Utilities, Power Generation, Mining, Oil and Gas, and Corporate. As of December 31, 2016, the Electric Utilities segment generated, transmitted and distributed electricity to approximately 208,500 customers in South Dakota, Wyoming, Colorado and Montana. The Gas Utilities Segment includes the natural gas operations of Cheyenne Light. The Power Generation segment produces electric power from its generating plants and sells the electric capacity and energy principally to its utilities under long-term contracts. The Mining segment operates through its Wyodak Resources Development Corp. (WRDC) subsidiary. The Company's Oil and Gas segment acquires, explores for, develops and produces natural gas and crude oil in the United States primarily in the Rocky Mountain region.

FINANCIAL RATIOS  of  Black Hills Corporation (BKH)

Valuation Ratios
P/E Ratio 53.2
Price to Sales 2.5
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 12.1
Price to Free Cash Flow -25.1
Growth Rates
Sales Growth Rate 20.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 4.4%
Cap. Spend. - 3 Yr. Gr. Rate 6%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 198.8%
Total Debt to Equity 205.2%
Interest Coverage 2
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 2.6%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 4.1%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 25.1%
EBITDA Margin - 3 Yr. Avg. 22.8%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 11.7%
Pre-Tax Margin 5.9%
Pre-Tax Margin - 3 Yr. Avg. 5.3%
Net Profit Margin 4.6%
Net Profit Margin - 3 Yr. Avg. 3.9%
Effective Tax Rate 10.8%
Eff/ Tax Rate - 3 Yr. Avg. 28.4%
Payout Ratio 120.5%

BKH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BKH stock intrinsic value calculation we used $1754 million for the last fiscal year's total revenue generated by Black Hills Corporation. The default revenue input number comes from 0001 income statement of Black Hills Corporation. 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 BKH 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 8.8%, whose default value for BKH is calculated based on our internal credit rating of Black Hills Corporation, 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 Black Hills Corporation.
    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 BKH stock the variable cost ratio is equal to 75.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BKH 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 Black Hills Corporation.

Corporate tax rate of 27% is the nominal tax rate for Black Hills Corporation. 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 BKH 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 BKH are equal to 305.2%.

Life of production assets of 30.6 years is the average useful life of capital assets used in Black Hills Corporation 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 BKH is equal to 1.2%. 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 - $2181.588 million for Black Hills Corporation - 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 59.984 million for Black Hills Corporation 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 Black Hills Corporation at the current share price and the inputted number of shares is $4.4 billion.

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