Intrinsic value of Gates Industrial Corporation plc - GTES

Previous Close

$9.55

  Intrinsic Value

$17.07

stock screener

  Rating & Target

str. buy

+79%

Previous close

$9.55

 
Intrinsic value

$17.07

 
Up/down potential

+79%

 
Rating

str. buy

We calculate the intrinsic value of GTES 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 2.8

 

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
  3,415
  3,494
  3,583
  3,684
  3,796
  3,918
  4,052
  4,196
  4,352
  4,519
  4,698
  4,888
  5,091
  5,307
  5,536
  5,778
  6,035
  6,307
  6,594
  6,897
  7,216
  7,554
  7,909
  8,283
  8,678
  9,093
  9,530
  9,990
  10,474
  10,982
Variable operating expenses, $m
  1,894
  1,928
  1,968
  2,012
  2,060
  2,114
  2,172
  2,235
  2,303
  2,376
  2,050
  2,133
  2,222
  2,316
  2,416
  2,522
  2,634
  2,752
  2,878
  3,010
  3,149
  3,297
  3,452
  3,615
  3,787
  3,968
  4,159
  4,360
  4,571
  4,793
Fixed operating expenses, $m
  1,049
  1,072
  1,095
  1,119
  1,144
  1,169
  1,195
  1,221
  1,248
  1,275
  1,303
  1,332
  1,361
  1,391
  1,422
  1,453
  1,485
  1,518
  1,551
  1,585
  1,620
  1,656
  1,692
  1,730
  1,768
  1,807
  1,846
  1,887
  1,929
  1,971
Total operating expenses, $m
  2,943
  3,000
  3,063
  3,131
  3,204
  3,283
  3,367
  3,456
  3,551
  3,651
  3,353
  3,465
  3,583
  3,707
  3,838
  3,975
  4,119
  4,270
  4,429
  4,595
  4,769
  4,953
  5,144
  5,345
  5,555
  5,775
  6,005
  6,247
  6,500
  6,764
Operating income, $m
  472
  494
  521
  553
  592
  635
  685
  740
  801
  868
  1,344
  1,423
  1,508
  1,599
  1,698
  1,803
  1,916
  2,036
  2,165
  2,301
  2,447
  2,601
  2,765
  2,939
  3,123
  3,318
  3,524
  3,743
  3,974
  4,218
EBITDA, $m
  1,004
  1,028
  1,058
  1,095
  1,137
  1,186
  1,240
  1,301
  1,368
  1,440
  1,520
  1,606
  1,698
  1,798
  1,905
  2,020
  2,142
  2,272
  2,412
  2,560
  2,717
  2,884
  3,061
  3,249
  3,448
  3,658
  3,881
  4,117
  4,366
  4,630
Interest expense (income), $m
  0
  162
  167
  173
  180
  188
  197
  206
  216
  227
  239
  252
  266
  281
  296
  313
  331
  349
  369
  390
  412
  435
  460
  486
  513
  542
  572
  604
  638
  673
  711
Earnings before tax, $m
  310
  326
  347
  373
  404
  439
  479
  524
  573
  628
  1,092
  1,157
  1,227
  1,303
  1,385
  1,473
  1,567
  1,667
  1,775
  1,889
  2,011
  2,141
  2,279
  2,425
  2,581
  2,745
  2,920
  3,105
  3,301
  3,508
Tax expense, $m
  84
  88
  94
  101
  109
  118
  129
  141
  155
  170
  295
  312
  331
  352
  374
  398
  423
  450
  479
  510
  543
  578
  615
  655
  697
  741
  788
  838
  891
  947
Net income, $m
  226
  238
  253
  272
  295
  320
  350
  382
  419
  459
  797
  844
  896
  951
  1,011
  1,075
  1,144
  1,217
  1,296
  1,379
  1,468
  1,563
  1,664
  1,770
  1,884
  2,004
  2,132
  2,267
  2,409
  2,561

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
  6,857
  7,015
  7,195
  7,398
  7,622
  7,868
  8,136
  8,426
  8,739
  9,074
  9,433
  9,816
  10,223
  10,656
  11,116
  11,603
  12,119
  12,664
  13,240
  13,849
  14,491
  15,168
  15,881
  16,633
  17,425
  18,259
  19,136
  20,060
  21,031
  22,053
Adjusted assets (=assets-cash), $m
  6,857
  7,015
  7,195
  7,398
  7,622
  7,868
  8,136
  8,426
  8,739
  9,074
  9,433
  9,816
  10,223
  10,656
  11,116
  11,603
  12,119
  12,664
  13,240
  13,849
  14,491
  15,168
  15,881
  16,633
  17,425
  18,259
  19,136
  20,060
  21,031
  22,053
Revenue / Adjusted assets
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
  0.498
Average production assets, $m
  2,838
  2,903
  2,978
  3,061
  3,154
  3,256
  3,367
  3,487
  3,616
  3,755
  3,904
  4,062
  4,231
  4,410
  4,600
  4,802
  5,015
  5,241
  5,479
  5,731
  5,997
  6,277
  6,572
  6,883
  7,211
  7,556
  7,919
  8,301
  8,703
  9,126
Working capital, $m
  779
  797
  817
  840
  865
  893
  924
  957
  992
  1,030
  1,071
  1,115
  1,161
  1,210
  1,262
  1,317
  1,376
  1,438
  1,503
  1,572
  1,645
  1,722
  1,803
  1,889
  1,978
  2,073
  2,173
  2,278
  2,388
  2,504
Total debt, $m
  3,099
  3,210
  3,339
  3,482
  3,641
  3,816
  4,006
  4,212
  4,434
  4,672
  4,927
  5,199
  5,488
  5,796
  6,122
  6,468
  6,834
  7,221
  7,631
  8,062
  8,518
  8,999
  9,505
  10,039
  10,602
  11,193
  11,817
  12,472
  13,162
  13,887
Total liabilities, $m
  4,869
  4,981
  5,109
  5,252
  5,412
  5,586
  5,777
  5,983
  6,204
  6,443
  6,697
  6,969
  7,258
  7,566
  7,892
  8,238
  8,604
  8,992
  9,401
  9,833
  10,288
  10,769
  11,276
  11,810
  12,372
  12,964
  13,587
  14,242
  14,932
  15,658
Total equity, $m
  1,989
  2,034
  2,087
  2,145
  2,210
  2,282
  2,359
  2,444
  2,534
  2,631
  2,736
  2,847
  2,965
  3,090
  3,224
  3,365
  3,514
  3,673
  3,840
  4,016
  4,202
  4,399
  4,606
  4,824
  5,053
  5,295
  5,550
  5,817
  6,099
  6,395
Total liabilities and equity, $m
  6,858
  7,015
  7,196
  7,397
  7,622
  7,868
  8,136
  8,427
  8,738
  9,074
  9,433
  9,816
  10,223
  10,656
  11,116
  11,603
  12,118
  12,665
  13,241
  13,849
  14,490
  15,168
  15,882
  16,634
  17,425
  18,259
  19,137
  20,059
  21,031
  22,053
Debt-to-equity ratio
  1.560
  1.580
  1.600
  1.620
  1.650
  1.670
  1.700
  1.720
  1.750
  1.780
  1.800
  1.830
  1.850
  1.880
  1.900
  1.920
  1.940
  1.970
  1.990
  2.010
  2.030
  2.050
  2.060
  2.080
  2.100
  2.110
  2.130
  2.140
  2.160
  2.170
Adjusted equity ratio
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  226
  238
  253
  272
  295
  320
  350
  382
  419
  459
  797
  844
  896
  951
  1,011
  1,075
  1,144
  1,217
  1,296
  1,379
  1,468
  1,563
  1,664
  1,770
  1,884
  2,004
  2,132
  2,267
  2,409
  2,561
Depreciation, amort., depletion, $m
  532
  534
  538
  542
  546
  550
  555
  561
  567
  573
  176
  183
  191
  199
  207
  216
  226
  236
  247
  258
  270
  283
  296
  310
  325
  340
  357
  374
  392
  411
Funds from operations, $m
  758
  773
  791
  814
  840
  871
  905
  943
  985
  1,031
  973
  1,027
  1,086
  1,150
  1,218
  1,291
  1,370
  1,453
  1,542
  1,637
  1,738
  1,846
  1,960
  2,081
  2,209
  2,345
  2,488
  2,641
  2,802
  2,972
Change in working capital, $m
  15
  18
  20
  23
  25
  28
  30
  33
  35
  38
  41
  43
  46
  49
  52
  55
  59
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  110
  116
Cash from operations, $m
  743
  755
  771
  791
  815
  843
  875
  910
  950
  993
  932
  984
  1,040
  1,101
  1,166
  1,236
  1,311
  1,391
  1,477
  1,568
  1,665
  1,769
  1,879
  1,995
  2,119
  2,250
  2,389
  2,536
  2,691
  2,856
Maintenance CAPEX, $m
  -125
  -128
  -131
  -134
  -138
  -142
  -147
  -152
  -157
  -163
  -169
  -176
  -183
  -191
  -199
  -207
  -216
  -226
  -236
  -247
  -258
  -270
  -283
  -296
  -310
  -325
  -340
  -357
  -374
  -392
New CAPEX, $m
  -54
  -65
  -75
  -84
  -93
  -102
  -111
  -120
  -129
  -139
  -148
  -158
  -169
  -179
  -190
  -202
  -213
  -226
  -238
  -252
  -266
  -280
  -295
  -311
  -328
  -345
  -363
  -382
  -402
  -423
Cash from investing activities, $m
  -179
  -193
  -206
  -218
  -231
  -244
  -258
  -272
  -286
  -302
  -317
  -334
  -352
  -370
  -389
  -409
  -429
  -452
  -474
  -499
  -524
  -550
  -578
  -607
  -638
  -670
  -703
  -739
  -776
  -815
Free cash flow, $m
  563
  562
  565
  573
  584
  599
  617
  638
  663
  692
  614
  650
  688
  731
  777
  827
  881
  940
  1,002
  1,070
  1,142
  1,219
  1,301
  1,388
  1,481
  1,580
  1,685
  1,797
  1,915
  2,041
Issuance/(repayment) of debt, $m
  94
  112
  128
  144
  159
  175
  190
  206
  222
  238
  255
  272
  289
  308
  326
  346
  366
  387
  409
  432
  456
  481
  507
  534
  562
  592
  623
  656
  690
  726
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  
  94
  112
  128
  144
  159
  175
  190
  206
  222
  238
  255
  272
  289
  308
  326
  346
  366
  387
  409
  432
  456
  481
  507
  534
  562
  592
  623
  656
  690
  726
Total cash flow (excl. dividends), $m
  656
  674
  693
  717
  743
  774
  807
  844
  885
  930
  869
  921
  978
  1,038
  1,103
  1,173
  1,248
  1,327
  1,412
  1,502
  1,597
  1,699
  1,807
  1,922
  2,043
  2,172
  2,308
  2,452
  2,605
  2,766
Retained Cash Flow (-), $m
  -41
  -46
  -52
  -59
  -65
  -71
  -78
  -84
  -91
  -97
  -104
  -111
  -118
  -126
  -133
  -141
  -150
  -158
  -167
  -176
  -186
  -196
  -207
  -218
  -230
  -242
  -254
  -268
  -282
  -296
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
  615
  628
  641
  658
  678
  702
  730
  760
  795
  832
  765
  810
  860
  913
  970
  1,032
  1,098
  1,169
  1,244
  1,325
  1,411
  1,503
  1,600
  1,704
  1,814
  1,930
  2,054
  2,185
  2,323
  2,470
Discount rate, %
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
  566
  528
  489
  450
  413
  376
  340
  305
  271
  238
  181
  156
  133
  111
  92
  74
  59
  46
  35
  26
  19
  13
  9
  6
  4
  3
  2
  1
  1
  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

FINANCIAL RATIOS  of  Gates Industrial Corporation plc (GTES)

Valuation Ratios
P/E Ratio 0
Price to Sales 0
Price to Book 0
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -100%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. 0%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 0%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

GTES stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GTES stock intrinsic value calculation we used $3348 million for the last fiscal year's total revenue generated by Gates Industrial Corporation plc. The default revenue input number comes from 0001 income statement of Gates Industrial Corporation plc. 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 GTES 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 8.6%, whose default value for GTES is calculated based on our internal credit rating of Gates Industrial Corporation plc, 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 Gates Industrial Corporation plc.
    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 GTES stock the variable cost ratio is equal to 55.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1026 million in the base year in the intrinsic value calculation for GTES 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 Gates Industrial Corporation plc.

Corporate tax rate of 27% is the nominal tax rate for Gates Industrial Corporation plc. 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 GTES 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 GTES are equal to 83.1%.

Life of production assets of 22.2 years is the average useful life of capital assets used in Gates Industrial Corporation plc 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 GTES is equal to 22.8%. 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 - $1947.4 million for Gates Industrial Corporation plc - 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 289.744 million for Gates Industrial Corporation plc 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 Gates Industrial Corporation plc at the current share price and the inputted number of shares is $2.8 billion.

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