Intrinsic value of Greif Bros. Corporation - GEF

Previous Close

$33.81

  Intrinsic Value

$57.54

stock screener

  Rating & Target

str. buy

+70%

Previous close

$33.81

 
Intrinsic value

$57.54

 
Up/down potential

+70%

 
Rating

str. buy

We calculate the intrinsic value of GEF 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 2.0

 

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, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  3,951
  4,042
  4,146
  4,263
  4,392
  4,534
  4,688
  4,855
  5,036
  5,229
  5,436
  5,656
  5,891
  6,141
  6,406
  6,686
  6,983
  7,298
  7,630
  7,980
  8,350
  8,740
  9,151
  9,585
  10,041
  10,521
  11,027
  11,559
  12,119
  12,708
Variable operating expenses, $m
  2,326
  2,377
  2,436
  2,502
  2,575
  2,656
  2,743
  2,838
  2,940
  3,050
  3,081
  3,206
  3,340
  3,481
  3,631
  3,790
  3,959
  4,137
  4,325
  4,524
  4,734
  4,955
  5,188
  5,433
  5,692
  5,964
  6,251
  6,553
  6,870
  7,204
Fixed operating expenses, $m
  1,279
  1,307
  1,335
  1,365
  1,395
  1,425
  1,457
  1,489
  1,522
  1,555
  1,589
  1,624
  1,660
  1,697
  1,734
  1,772
  1,811
  1,851
  1,892
  1,933
  1,976
  2,019
  2,064
  2,109
  2,155
  2,203
  2,251
  2,301
  2,351
  2,403
Total operating expenses, $m
  3,605
  3,684
  3,771
  3,867
  3,970
  4,081
  4,200
  4,327
  4,462
  4,605
  4,670
  4,830
  5,000
  5,178
  5,365
  5,562
  5,770
  5,988
  6,217
  6,457
  6,710
  6,974
  7,252
  7,542
  7,847
  8,167
  8,502
  8,854
  9,221
  9,607
Operating income, $m
  347
  358
  375
  396
  422
  453
  488
  528
  574
  624
  765
  825
  891
  963
  1,040
  1,124
  1,214
  1,310
  1,413
  1,523
  1,641
  1,766
  1,900
  2,042
  2,194
  2,354
  2,525
  2,706
  2,898
  3,101
EBITDA, $m
  535
  549
  568
  592
  621
  656
  695
  740
  790
  845
  906
  972
  1,044
  1,122
  1,207
  1,297
  1,395
  1,499
  1,611
  1,730
  1,857
  1,993
  2,137
  2,291
  2,454
  2,627
  2,811
  3,005
  3,212
  3,430
Interest expense (income), $m
  76
  49
  51
  54
  57
  60
  64
  68
  73
  78
  83
  88
  94
  101
  108
  115
  123
  131
  139
  149
  158
  168
  179
  191
  202
  215
  228
  242
  257
  272
  289
Earnings before tax, $m
  298
  307
  321
  339
  361
  388
  420
  456
  496
  541
  676
  731
  791
  855
  926
  1,001
  1,083
  1,170
  1,264
  1,365
  1,472
  1,587
  1,710
  1,840
  1,978
  2,126
  2,282
  2,449
  2,625
  2,812
Tax expense, $m
  80
  83
  87
  92
  98
  105
  113
  123
  134
  146
  183
  197
  213
  231
  250
  270
  292
  316
  341
  369
  398
  429
  462
  497
  534
  574
  616
  661
  709
  759
Net income, $m
  218
  224
  234
  247
  264
  284
  306
  333
  362
  395
  494
  534
  577
  624
  676
  731
  790
  854
  923
  996
  1,075
  1,159
  1,248
  1,343
  1,444
  1,552
  1,666
  1,788
  1,916
  2,053

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
  3,258
  3,333
  3,418
  3,514
  3,621
  3,738
  3,865
  4,003
  4,151
  4,311
  4,481
  4,663
  4,857
  5,062
  5,281
  5,512
  5,757
  6,016
  6,290
  6,579
  6,884
  7,205
  7,544
  7,902
  8,278
  8,674
  9,091
  9,529
  9,991
  10,476
Adjusted assets (=assets-cash), $m
  3,258
  3,333
  3,418
  3,514
  3,621
  3,738
  3,865
  4,003
  4,151
  4,311
  4,481
  4,663
  4,857
  5,062
  5,281
  5,512
  5,757
  6,016
  6,290
  6,579
  6,884
  7,205
  7,544
  7,902
  8,278
  8,674
  9,091
  9,529
  9,991
  10,476
Revenue / Adjusted assets
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
  1.213
Average production assets, $m
  1,660
  1,698
  1,741
  1,790
  1,845
  1,904
  1,969
  2,039
  2,115
  2,196
  2,283
  2,376
  2,474
  2,579
  2,690
  2,808
  2,933
  3,065
  3,204
  3,352
  3,507
  3,671
  3,844
  4,026
  4,217
  4,419
  4,631
  4,855
  5,090
  5,337
Working capital, $m
  245
  251
  257
  264
  272
  281
  291
  301
  312
  324
  337
  351
  365
  381
  397
  415
  433
  452
  473
  495
  518
  542
  567
  594
  623
  652
  684
  717
  751
  788
Total debt, $m
  950
  999
  1,055
  1,118
  1,188
  1,264
  1,347
  1,437
  1,534
  1,638
  1,749
  1,868
  1,995
  2,129
  2,272
  2,423
  2,583
  2,752
  2,931
  3,119
  3,318
  3,528
  3,750
  3,983
  4,229
  4,487
  4,759
  5,046
  5,347
  5,664
Total liabilities, $m
  2,127
  2,176
  2,232
  2,295
  2,364
  2,441
  2,524
  2,614
  2,711
  2,815
  2,926
  3,045
  3,171
  3,306
  3,448
  3,599
  3,759
  3,929
  4,107
  4,296
  4,495
  4,705
  4,927
  5,160
  5,405
  5,664
  5,936
  6,223
  6,524
  6,841
Total equity, $m
  1,130
  1,156
  1,186
  1,219
  1,256
  1,297
  1,341
  1,389
  1,441
  1,496
  1,555
  1,618
  1,685
  1,757
  1,832
  1,913
  1,998
  2,088
  2,183
  2,283
  2,389
  2,500
  2,618
  2,742
  2,872
  3,010
  3,154
  3,307
  3,467
  3,635
Total liabilities and equity, $m
  3,257
  3,332
  3,418
  3,514
  3,620
  3,738
  3,865
  4,003
  4,152
  4,311
  4,481
  4,663
  4,856
  5,063
  5,280
  5,512
  5,757
  6,017
  6,290
  6,579
  6,884
  7,205
  7,545
  7,902
  8,277
  8,674
  9,090
  9,530
  9,991
  10,476
Debt-to-equity ratio
  0.840
  0.860
  0.890
  0.920
  0.950
  0.970
  1.000
  1.030
  1.060
  1.100
  1.130
  1.150
  1.180
  1.210
  1.240
  1.270
  1.290
  1.320
  1.340
  1.370
  1.390
  1.410
  1.430
  1.450
  1.470
  1.490
  1.510
  1.530
  1.540
  1.560
Adjusted equity ratio
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347
  0.347

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  218
  224
  234
  247
  264
  284
  306
  333
  362
  395
  494
  534
  577
  624
  676
  731
  790
  854
  923
  996
  1,075
  1,159
  1,248
  1,343
  1,444
  1,552
  1,666
  1,788
  1,916
  2,053
Depreciation, amort., depletion, $m
  188
  191
  193
  196
  200
  203
  207
  212
  216
  221
  141
  147
  153
  159
  166
  173
  181
  189
  198
  207
  216
  227
  237
  248
  260
  273
  286
  300
  314
  329
Funds from operations, $m
  406
  415
  427
  444
  463
  487
  514
  544
  578
  616
  635
  680
  730
  784
  842
  904
  972
  1,044
  1,121
  1,203
  1,291
  1,385
  1,485
  1,592
  1,705
  1,825
  1,952
  2,087
  2,231
  2,382
Change in working capital, $m
  5
  6
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
Cash from operations, $m
  401
  409
  421
  436
  455
  478
  504
  534
  567
  604
  622
  667
  715
  768
  825
  887
  953
  1,024
  1,100
  1,182
  1,268
  1,361
  1,460
  1,565
  1,676
  1,795
  1,921
  2,054
  2,196
  2,346
Maintenance CAPEX, $m
  -100
  -102
  -105
  -107
  -111
  -114
  -118
  -122
  -126
  -131
  -136
  -141
  -147
  -153
  -159
  -166
  -173
  -181
  -189
  -198
  -207
  -216
  -227
  -237
  -248
  -260
  -273
  -286
  -300
  -314
New CAPEX, $m
  -34
  -38
  -44
  -49
  -54
  -60
  -65
  -70
  -76
  -81
  -87
  -93
  -99
  -105
  -111
  -118
  -125
  -132
  -139
  -147
  -155
  -164
  -173
  -182
  -192
  -202
  -212
  -223
  -235
  -247
Cash from investing activities, $m
  -134
  -140
  -149
  -156
  -165
  -174
  -183
  -192
  -202
  -212
  -223
  -234
  -246
  -258
  -270
  -284
  -298
  -313
  -328
  -345
  -362
  -380
  -400
  -419
  -440
  -462
  -485
  -509
  -535
  -561
Free cash flow, $m
  266
  268
  272
  280
  291
  305
  322
  342
  366
  393
  400
  433
  470
  511
  555
  603
  655
  711
  772
  837
  906
  981
  1,060
  1,145
  1,236
  1,333
  1,436
  1,545
  1,661
  1,784
Issuance/(repayment) of debt, $m
  40
  49
  56
  63
  70
  76
  83
  90
  97
  104
  111
  119
  126
  134
  143
  151
  160
  169
  179
  189
  199
  210
  221
  233
  246
  259
  272
  286
  301
  317
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  
  40
  49
  56
  63
  70
  76
  83
  90
  97
  104
  111
  119
  126
  134
  143
  151
  160
  169
  179
  189
  199
  210
  221
  233
  246
  259
  272
  286
  301
  317
Total cash flow (excl. dividends), $m
  306
  317
  328
  343
  360
  381
  405
  432
  463
  497
  511
  552
  596
  645
  697
  754
  815
  880
  950
  1,025
  1,105
  1,191
  1,282
  1,379
  1,482
  1,591
  1,708
  1,831
  1,962
  2,101
Retained Cash Flow (-), $m
  -23
  -26
  -30
  -33
  -37
  -41
  -44
  -48
  -52
  -55
  -59
  -63
  -67
  -71
  -76
  -80
  -85
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -131
  -137
  -145
  -152
  -160
  -168
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
  284
  291
  299
  309
  323
  340
  361
  384
  411
  441
  452
  489
  529
  574
  622
  674
  730
  790
  855
  925
  1,000
  1,079
  1,164
  1,255
  1,351
  1,454
  1,563
  1,679
  1,802
  1,933
Discount rate, %
  6.20
  6.51
  6.84
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.04
  20.00
  21.00
  22.05
  23.15
  24.30
  25.52
PV of cash for distribution, $m
  267
  257
  245
  234
  225
  216
  206
  197
  187
  176
  157
  146
  134
  122
  109
  97
  84
  72
  61
  50
  41
  32
  25
  19
  14
  10
  7
  5
  3
  2
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

Greif, Inc. is a producer of industrial packaging products and services. The Company's segments are Rigid Industrial Packaging & Services; Paper Packaging & Services; Flexible Products & Services, and Land Management. The Rigid Industrial Packaging & Services segment is engaged in the production and sale of rigid industrial packaging products, and services, such as container life cycle management, filling, logistics, warehousing and other packaging services. The Paper Packaging & Services segment is engaged in the production and sale of containerboard, corrugated sheets, corrugated containers and other corrugated products. The Flexible Products & Services segment is engaged in the production and sale of flexible intermediate bulk containers and related services on a global basis. The Land Management segment is involved in the management and sale of timber. As of October 31, 2016, the Company had operations in over 45 countries.

FINANCIAL RATIOS  of  Greif Bros. Corporation (GEF)

Valuation Ratios
P/E Ratio 13.6
Price to Sales 0.4
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 5.3
Price to Free Cash Flow 8.1
Growth Rates
Sales Growth Rate 9.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -5.4%
Cap. Spend. - 3 Yr. Gr. Rate -11.5%
Financial Strength
Quick Ratio 5
Current Ratio 0.1
LT Debt to Equity 93.7%
Total Debt to Equity 96.6%
Interest Coverage 4
Management Effectiveness
Return On Assets 5.3%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 12.2%
Return On Equity - 3 Yr. Avg. 8.8%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 19.7%
Gross Margin - 3 Yr. Avg. 19.6%
EBITDA Margin 10.9%
EBITDA Margin - 3 Yr. Avg. 8.6%
Operating Margin 7.5%
Oper. Margin - 3 Yr. Avg. 6.5%
Pre-Tax Margin 5.5%
Pre-Tax Margin - 3 Yr. Avg. 4.3%
Net Profit Margin 3.3%
Net Profit Margin - 3 Yr. Avg. 2.5%
Effective Tax Rate 33.5%
Eff/ Tax Rate - 3 Yr. Avg. 41%
Payout Ratio 83.2%

GEF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GEF stock intrinsic value calculation we used $3874 million for the last fiscal year's total revenue generated by Greif Bros. Corporation. The default revenue input number comes from 0001 income statement of Greif Bros. 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 GEF stock valuation model: a) initial revenue growth rate of 2% 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 6.2%, whose default value for GEF is calculated based on our internal credit rating of Greif Bros. 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 Greif Bros. 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 GEF stock the variable cost ratio is equal to 58.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1251 million in the base year in the intrinsic value calculation for GEF 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 Greif Bros. Corporation.

Corporate tax rate of 27% is the nominal tax rate for Greif Bros. 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 GEF 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 GEF are equal to 42%.

Life of production assets of 16.2 years is the average useful life of capital assets used in Greif Bros. 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 GEF is equal to 6.2%. 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 - $1107.8 million for Greif Bros. 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 59.186 million for Greif Bros. 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 Greif Bros. Corporation at the current share price and the inputted number of shares is $2.0 billion.

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