Intrinsic value of Evolution Petroleum - EPM

Previous Close

$9.68

  Intrinsic Value

$13.94

stock screener

  Rating & Target

buy

+44%

Previous close

$9.68

 
Intrinsic value

$13.94

 
Up/down potential

+44%

 
Rating

buy

We calculate the intrinsic value of EPM 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 0.3

 

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, %
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.24
  6.12
  6.01
  5.91
  5.82
  5.73
  5.66
  5.59
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
  5.21
  5.19
  5.17
  5.15
  5.14
  5.12
Revenue, $m
  37
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  114
  120
  126
  133
  139
  147
  154
  162
  171
  179
  189
Variable operating expenses, $m
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
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
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Operating income, $m
  41
  45
  48
  51
  54
  58
  62
  66
  70
  74
  78
  83
  87
  92
  97
  103
  108
  114
  121
  127
  134
  141
  148
  156
  164
  173
  181
  191
  201
  211
EBITDA, $m
  48
  51
  55
  59
  63
  67
  71
  76
  80
  85
  90
  95
  101
  106
  112
  119
  125
  132
  139
  146
  154
  162
  171
  180
  189
  199
  209
  220
  231
  243
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
Earnings before tax, $m
  41
  44
  48
  51
  54
  57
  61
  65
  69
  73
  77
  81
  86
  91
  96
  101
  107
  112
  118
  125
  131
  138
  145
  153
  161
  169
  178
  187
  196
  206
Tax expense, $m
  11
  12
  13
  14
  15
  16
  16
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
Net income, $m
  30
  32
  35
  37
  39
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  117
  123
  130
  136
  143
  151

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
  74
  80
  85
  91
  97
  104
  110
  117
  124
  132
  140
  148
  156
  165
  174
  184
  194
  205
  216
  227
  239
  252
  265
  279
  293
  309
  325
  341
  359
  377
Adjusted assets (=assets-cash), $m
  74
  80
  85
  91
  97
  104
  110
  117
  124
  132
  140
  148
  156
  165
  174
  184
  194
  205
  216
  227
  239
  252
  265
  279
  293
  309
  325
  341
  359
  377
Revenue / Adjusted assets
  0.500
  0.500
  0.506
  0.505
  0.505
  0.500
  0.500
  0.504
  0.500
  0.500
  0.500
  0.500
  0.500
  0.503
  0.500
  0.500
  0.500
  0.498
  0.500
  0.502
  0.502
  0.500
  0.502
  0.498
  0.502
  0.498
  0.498
  0.501
  0.499
  0.501
Average production assets, $m
  66
  71
  76
  82
  87
  93
  99
  105
  111
  118
  125
  132
  140
  148
  156
  165
  174
  183
  193
  203
  214
  226
  237
  250
  263
  277
  291
  306
  322
  338
Working capital, $m
  0
  0
  1
  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
Total debt, $m
  2
  3
  5
  7
  9
  10
  12
  14
  16
  19
  21
  23
  26
  28
  31
  34
  37
  40
  43
  46
  50
  53
  57
  61
  66
  70
  75
  80
  85
  90
Total liabilities, $m
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  51
  54
  56
  60
  63
  66
  70
  73
  77
  81
  85
  90
  94
  99
  104
  110
Total equity, $m
  53
  56
  60
  65
  69
  74
  78
  83
  88
  93
  99
  105
  111
  117
  124
  130
  138
  145
  153
  161
  170
  179
  188
  198
  208
  219
  230
  242
  254
  267
Total liabilities and equity, $m
  75
  79
  85
  92
  97
  104
  110
  117
  124
  131
  140
  148
  156
  165
  175
  184
  194
  205
  216
  227
  240
  252
  265
  279
  293
  309
  324
  341
  358
  377
Debt-to-equity ratio
  0.030
  0.060
  0.080
  0.100
  0.120
  0.140
  0.160
  0.170
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.260
  0.270
  0.270
  0.280
  0.290
  0.290
  0.300
  0.310
  0.310
  0.320
  0.320
  0.320
  0.330
  0.330
  0.340
Adjusted equity ratio
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709
  0.709

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  32
  35
  37
  39
  42
  45
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  117
  123
  130
  136
  143
  151
Depreciation, amort., depletion, $m
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
Funds from operations, $m
  37
  39
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
  90
  94
  99
  105
  110
  116
  122
  129
  135
  142
  150
  157
  165
  174
  183
Change in working capital, $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 operations, $m
  37
  39
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  122
  129
  135
  142
  150
  157
  165
  174
  183
Maintenance CAPEX, $m
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
New CAPEX, $m
  -6
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
Cash from investing activities, $m
  -12
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -18
  -18
  -19
  -21
  -21
  -22
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -40
  -43
  -45
  -47
Free cash flow, $m
  25
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  82
  86
  90
  95
  100
  105
  111
  117
  123
  129
  136
Issuance/(repayment) of debt, $m
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
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  
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
Total cash flow (excl. dividends), $m
  27
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  73
  76
  81
  85
  89
  94
  99
  104
  110
  115
  121
  128
  134
  141
Retained Cash Flow (-), $m
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Prev. year cash balance distribution, $m
  20
  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
  43
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  49
  52
  55
  59
  62
  65
  69
  73
  77
  81
  85
  90
  94
  99
  105
  110
  116
  122
  128
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
  41
  24
  24
  25
  25
  25
  25
  24
  24
  23
  22
  21
  20
  19
  17
  16
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
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

Evolution Petroleum Corporation is an independent oil and gas company. The Company is engaged in the acquisition, exploitation and development of properties for the production of crude oil and natural gas, onshore in the United States. Its assets include interests in a carbon dioxide (CO2) enhanced oil recovery project (EOR) in Louisiana's Delhi field. Its artificial lift technology is Gas Assisted Rod Pump (GARP). The Company tested GARP technology on marginal producing wells that it owns and operates in the Giddings Field. Its mineral interests include Delhi Holt-Bryant Unit in the Delhi field (Unit) located in Northeast Louisiana. As of June 30, 2016, the Unit was approximately 13,636 acres in size. As of June 30, 2016, the Unit produced approximately 195 million barrels of oil through primary and limited secondary recovery operations. As of June 30, 2016, the Unit had produced over 11 million barrels of oil. The Unit is producing as an EOR project utilizing CO2 flood technology.

FINANCIAL RATIOS  of  Evolution Petroleum (EPM)

Valuation Ratios
P/E Ratio 40
Price to Sales 9.4
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 53.4
Growth Rates
Sales Growth Rate 30.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -52.4%
Cap. Spend. - 3 Yr. Gr. Rate 58.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.6%
Ret/ On Assets - 3 Yr. Avg. 15.3%
Return On Total Capital 11.1%
Ret/ On T. Cap. - 3 Yr. Avg. 20.3%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 20.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 70.6%
Gross Margin - 3 Yr. Avg. 66.8%
EBITDA Margin 55.9%
EBITDA Margin - 3 Yr. Avg. 82.9%
Operating Margin 35.3%
Oper. Margin - 3 Yr. Avg. 25%
Pre-Tax Margin 38.2%
Pre-Tax Margin - 3 Yr. Avg. 65.9%
Net Profit Margin 23.5%
Net Profit Margin - 3 Yr. Avg. 45.8%
Effective Tax Rate 38.5%
Eff/ Tax Rate - 3 Yr. Avg. 34.1%
Payout Ratio 112.5%

EPM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EPM stock intrinsic value calculation we used $34.484896 million for the last fiscal year's total revenue generated by Evolution Petroleum. The default revenue input number comes from 0001 income statement of Evolution Petroleum. 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 EPM stock valuation model: a) initial revenue growth rate of 7.6% 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 EPM is calculated based on our internal credit rating of Evolution Petroleum, 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 Evolution Petroleum.
    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 EPM stock the variable cost ratio is equal to -11.8%.

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 EPM 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 Evolution Petroleum.

Corporate tax rate of 27% is the nominal tax rate for Evolution Petroleum. 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 EPM 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 EPM are equal to 179.2%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Evolution Petroleum 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 EPM 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 - $68.469855 million for Evolution Petroleum - 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 33.172 million for Evolution Petroleum 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 Evolution Petroleum at the current share price and the inputted number of shares is $0.3 billion.

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▶ Evolution Petroleum Corp to Host Earnings Call   [Nov-09-17 08:40AM  ACCESSWIRE]
▶ Evolution Petroleum posts 1Q profit   [05:01AM  Associated Press]
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▶ Evolution Petroleum posts 3Q profit   [May-08-17 06:50PM  Associated Press]

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