Intrinsic value of Great Plains Energy - GXP

Previous Close

$31.99

  Intrinsic Value

$5.55

stock screener

  Rating & Target

str. sell

-83%

Previous close

$31.99

 
Intrinsic value

$5.55

 
Up/down potential

-83%

 
Rating

str. sell

We calculate the intrinsic value of GXP 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 2017), $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 6.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

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
  2,762
  2,826
  2,898
  2,980
  3,070
  3,169
  3,277
  3,394
  3,520
  3,655
  3,800
  3,954
  4,118
  4,292
  4,478
  4,674
  4,882
  5,101
  5,333
  5,578
  5,837
  6,110
  6,397
  6,700
  7,019
  7,355
  7,708
  8,080
  8,471
  8,883
Variable operating expenses, $m
  2,138
  2,186
  2,242
  2,305
  2,374
  2,450
  2,533
  2,623
  2,719
  2,823
  2,917
  3,036
  3,162
  3,296
  3,438
  3,588
  3,748
  3,916
  4,095
  4,283
  4,481
  4,691
  4,911
  5,144
  5,389
  5,647
  5,918
  6,204
  6,504
  6,820
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
  2,138
  2,186
  2,242
  2,305
  2,374
  2,450
  2,533
  2,623
  2,719
  2,823
  2,917
  3,036
  3,162
  3,296
  3,438
  3,588
  3,748
  3,916
  4,095
  4,283
  4,481
  4,691
  4,911
  5,144
  5,389
  5,647
  5,918
  6,204
  6,504
  6,820
Operating income, $m
  625
  639
  656
  675
  696
  719
  744
  771
  801
  832
  882
  918
  956
  997
  1,040
  1,085
  1,134
  1,185
  1,239
  1,296
  1,356
  1,419
  1,486
  1,556
  1,630
  1,708
  1,790
  1,877
  1,967
  2,063
EBITDA, $m
  1,581
  1,617
  1,659
  1,705
  1,757
  1,814
  1,876
  1,943
  2,015
  2,092
  2,175
  2,263
  2,357
  2,457
  2,563
  2,675
  2,794
  2,920
  3,052
  3,193
  3,341
  3,497
  3,661
  3,835
  4,017
  4,209
  4,412
  4,625
  4,849
  5,084
Interest expense (income), $m
  191
  292
  303
  315
  329
  344
  362
  381
  401
  424
  448
  473
  501
  531
  562
  595
  631
  668
  708
  750
  794
  841
  890
  943
  997
  1,055
  1,116
  1,180
  1,248
  1,319
  1,394
Earnings before tax, $m
  333
  337
  341
  346
  352
  357
  364
  370
  377
  384
  409
  417
  426
  435
  445
  455
  466
  477
  489
  501
  515
  528
  543
  559
  575
  592
  610
  629
  648
  669
Tax expense, $m
  90
  91
  92
  94
  95
  97
  98
  100
  102
  104
  110
  113
  115
  117
  120
  123
  126
  129
  132
  135
  139
  143
  147
  151
  155
  160
  165
  170
  175
  181
Net income, $m
  243
  246
  249
  253
  257
  261
  265
  270
  275
  281
  299
  305
  311
  318
  325
  332
  340
  348
  357
  366
  376
  386
  396
  408
  420
  432
  445
  459
  473
  488

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
  12,729
  13,022
  13,356
  13,732
  14,148
  14,605
  15,102
  15,641
  16,221
  16,843
  17,509
  18,220
  18,977
  19,781
  20,634
  21,538
  22,496
  23,508
  24,577
  25,707
  26,898
  28,155
  29,479
  30,875
  32,345
  33,892
  35,521
  37,235
  39,039
  40,935
Adjusted assets (=assets-cash), $m
  12,729
  13,022
  13,356
  13,732
  14,148
  14,605
  15,102
  15,641
  16,221
  16,843
  17,509
  18,220
  18,977
  19,781
  20,634
  21,538
  22,496
  23,508
  24,577
  25,707
  26,898
  28,155
  29,479
  30,875
  32,345
  33,892
  35,521
  37,235
  39,039
  40,935
Revenue / Adjusted assets
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
  0.217
Average production assets, $m
  9,394
  9,610
  9,857
  10,134
  10,442
  10,779
  11,146
  11,543
  11,971
  12,431
  12,922
  13,447
  14,005
  14,599
  15,228
  15,896
  16,602
  17,349
  18,138
  18,972
  19,851
  20,779
  21,756
  22,786
  23,871
  25,013
  26,215
  27,480
  28,811
  30,211
Working capital, $m
  -66
  -68
  -70
  -72
  -74
  -76
  -79
  -81
  -84
  -88
  -91
  -95
  -99
  -103
  -107
  -112
  -117
  -122
  -128
  -134
  -140
  -147
  -154
  -161
  -168
  -177
  -185
  -194
  -203
  -213
Total debt, $m
  4,389
  4,565
  4,766
  4,992
  5,242
  5,516
  5,815
  6,139
  6,487
  6,862
  7,262
  7,689
  8,144
  8,627
  9,140
  9,683
  10,258
  10,867
  11,510
  12,188
  12,904
  13,660
  14,456
  15,294
  16,178
  17,108
  18,087
  19,117
  20,201
  21,341
Total liabilities, $m
  7,650
  7,826
  8,027
  8,253
  8,503
  8,778
  9,077
  9,400
  9,749
  10,123
  10,523
  10,950
  11,405
  11,888
  12,401
  12,945
  13,520
  14,128
  14,771
  15,450
  16,166
  16,921
  17,717
  18,556
  19,439
  20,369
  21,348
  22,378
  23,462
  24,602
Total equity, $m
  5,079
  5,196
  5,329
  5,479
  5,645
  5,827
  6,026
  6,241
  6,472
  6,721
  6,986
  7,270
  7,572
  7,893
  8,233
  8,594
  8,976
  9,380
  9,806
  10,257
  10,732
  11,234
  11,762
  12,319
  12,906
  13,523
  14,173
  14,857
  15,576
  16,333
Total liabilities and equity, $m
  12,729
  13,022
  13,356
  13,732
  14,148
  14,605
  15,103
  15,641
  16,221
  16,844
  17,509
  18,220
  18,977
  19,781
  20,634
  21,539
  22,496
  23,508
  24,577
  25,707
  26,898
  28,155
  29,479
  30,875
  32,345
  33,892
  35,521
  37,235
  39,038
  40,935
Debt-to-equity ratio
  0.860
  0.880
  0.890
  0.910
  0.930
  0.950
  0.970
  0.980
  1.000
  1.020
  1.040
  1.060
  1.080
  1.090
  1.110
  1.130
  1.140
  1.160
  1.170
  1.190
  1.200
  1.220
  1.230
  1.240
  1.250
  1.270
  1.280
  1.290
  1.300
  1.310
Adjusted equity ratio
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399
  0.399

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  243
  246
  249
  253
  257
  261
  265
  270
  275
  281
  299
  305
  311
  318
  325
  332
  340
  348
  357
  366
  376
  386
  396
  408
  420
  432
  445
  459
  473
  488
Depreciation, amort., depletion, $m
  956
  978
  1,003
  1,030
  1,061
  1,095
  1,131
  1,171
  1,214
  1,260
  1,292
  1,345
  1,401
  1,460
  1,523
  1,590
  1,660
  1,735
  1,814
  1,897
  1,985
  2,078
  2,176
  2,279
  2,387
  2,501
  2,622
  2,748
  2,881
  3,021
Funds from operations, $m
  1,199
  1,224
  1,252
  1,283
  1,318
  1,356
  1,397
  1,441
  1,489
  1,541
  1,591
  1,649
  1,711
  1,777
  1,847
  1,922
  2,000
  2,083
  2,171
  2,263
  2,361
  2,464
  2,572
  2,686
  2,807
  2,933
  3,067
  3,207
  3,354
  3,510
Change in working capital, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Cash from operations, $m
  1,200
  1,225
  1,253
  1,285
  1,320
  1,358
  1,399
  1,444
  1,492
  1,544
  1,594
  1,653
  1,715
  1,782
  1,852
  1,926
  2,005
  2,088
  2,176
  2,269
  2,367
  2,470
  2,579
  2,694
  2,814
  2,941
  3,075
  3,216
  3,364
  3,519
Maintenance CAPEX, $m
  -921
  -939
  -961
  -986
  -1,013
  -1,044
  -1,078
  -1,115
  -1,154
  -1,197
  -1,243
  -1,292
  -1,345
  -1,401
  -1,460
  -1,523
  -1,590
  -1,660
  -1,735
  -1,814
  -1,897
  -1,985
  -2,078
  -2,176
  -2,279
  -2,387
  -2,501
  -2,622
  -2,748
  -2,881
New CAPEX, $m
  -184
  -216
  -247
  -277
  -307
  -337
  -367
  -397
  -428
  -459
  -492
  -524
  -558
  -593
  -630
  -667
  -706
  -747
  -789
  -833
  -879
  -927
  -978
  -1,030
  -1,085
  -1,142
  -1,202
  -1,265
  -1,331
  -1,400
Cash from investing activities, $m
  -1,105
  -1,155
  -1,208
  -1,263
  -1,320
  -1,381
  -1,445
  -1,512
  -1,582
  -1,656
  -1,735
  -1,816
  -1,903
  -1,994
  -2,090
  -2,190
  -2,296
  -2,407
  -2,524
  -2,647
  -2,776
  -2,912
  -3,056
  -3,206
  -3,364
  -3,529
  -3,703
  -3,887
  -4,079
  -4,281
Free cash flow, $m
  95
  70
  45
  22
  -1
  -23
  -45
  -68
  -90
  -113
  -140
  -164
  -188
  -212
  -238
  -264
  -291
  -319
  -348
  -378
  -410
  -442
  -476
  -512
  -549
  -588
  -628
  -671
  -715
  -762
Issuance/(repayment) of debt, $m
  157
  176
  201
  226
  250
  275
  299
  324
  349
  374
  400
  427
  455
  483
  513
  543
  575
  608
  643
  679
  716
  755
  796
  839
  883
  930
  979
  1,030
  1,084
  1,140
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  3
  16
  29
  42
  56
  70
  85
  100
  116
  132
  149
  167
  185
  205
  225
  246
  268
Cash from financing (excl. dividends), $m  
  157
  176
  201
  226
  250
  275
  299
  324
  349
  374
  400
  427
  455
  486
  529
  572
  617
  664
  713
  764
  816
  871
  928
  988
  1,050
  1,115
  1,184
  1,255
  1,330
  1,408
Total cash flow (excl. dividends), $m
  252
  246
  247
  248
  249
  251
  253
  256
  258
  261
  260
  263
  267
  274
  291
  308
  326
  345
  365
  385
  406
  428
  452
  476
  501
  528
  555
  584
  615
  647
Retained Cash Flow (-), $m
  -114
  -117
  -134
  -150
  -166
  -182
  -198
  -215
  -231
  -248
  -266
  -284
  -302
  -321
  -340
  -361
  -382
  -404
  -427
  -451
  -475
  -501
  -528
  -557
  -586
  -617
  -650
  -684
  -720
  -757
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
  138
  129
  113
  98
  83
  69
  55
  41
  27
  13
  -6
  -20
  -35
  -47
  -49
  -52
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -85
  -90
  -94
  -99
  -105
  -110
Discount rate, %
  6.00
  6.30
  6.62
  6.95
  7.29
  7.66
  8.04
  8.44
  8.86
  9.31
  9.77
  10.26
  10.78
  11.31
  11.88
  12.47
  13.10
  13.75
  14.44
  15.16
  15.92
  16.72
  17.55
  18.43
  19.35
  20.32
  21.33
  22.40
  23.52
  24.70
PV of cash for distribution, $m
  131
  114
  93
  75
  59
  44
  32
  21
  13
  5
  -2
  -6
  -9
  -10
  -9
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
  -1
  -1
  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
  99.8
  99.6
  99.2
  98.8
  98.3
  97.7
  97.0
  96.2
  95.4
  94.6
  93.7
  92.7
  91.7
  90.7
  89.6
  88.5

Great Plains Energy Incorporated (Great Plains Energy) is a utility holding company. The Company operates through electric utility segment. The Company's subsidiaries with operations include Kansas City Power & Light Company (KCP&L) and KCP&L Greater Missouri Operations Company (GMO). KCP&L is an integrated, regulated electric utility that provides electricity to customers primarily in the states of Missouri and Kansas. Kansas City Power & Light Receivables Company (KCP&L Receivables Company) is the KCP&L's subsidiary. GMO is an integrated, regulated electric utility that provides electricity to customers in the state of Missouri. GMO also provides regulated steam service to certain customers in the St. Joseph, Missouri area. GMO's subsidiaries include GMO Receivables Company and MPS Merchant Services, Inc. (MPS Merchant). As of December 31, 2016, electric utility had approximately 6,500 megawatts (MWs) of owned generating capacity.

FINANCIAL RATIOS  of  Great Plains Energy (GXP)

Valuation Ratios
P/E Ratio 23.8
Price to Sales 2.6
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 8.8
Price to Free Cash Flow 39.4
Growth Rates
Sales Growth Rate 7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10%
Cap. Spend. - 3 Yr. Gr. Rate -1.9%
Financial Strength
Quick Ratio 3
Current Ratio 0.1
LT Debt to Equity 54.6%
Total Debt to Equity 66.2%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 3.2%
Ret/ On T. Cap. - 3 Yr. Avg. 3.1%
Return On Equity 5.9%
Return On Equity - 3 Yr. Avg. 6.2%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 41.1%
EBITDA Margin - 3 Yr. Avg. 37.8%
Operating Margin 23.1%
Oper. Margin - 3 Yr. Avg. 21.7%
Pre-Tax Margin 17.2%
Pre-Tax Margin - 3 Yr. Avg. 14.9%
Net Profit Margin 10.8%
Net Profit Margin - 3 Yr. Avg. 9.6%
Effective Tax Rate 37.4%
Eff/ Tax Rate - 3 Yr. Avg. 35.5%
Payout Ratio 66.9%

GXP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GXP stock intrinsic value calculation we used $2708 million for the last fiscal year's total revenue generated by Great Plains Energy. The default revenue input number comes from 2017 income statement of Great Plains Energy. 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 GXP 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%, whose default value for GXP is calculated based on our internal credit rating of Great Plains Energy, 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 Great Plains Energy.
    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 GXP stock the variable cost ratio is equal to 77.4%.

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 GXP 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 6.9% for Great Plains Energy.

Corporate tax rate of 27% is the nominal tax rate for Great Plains Energy. 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 GXP 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 GXP are equal to 340.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Great Plains Energy 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 GXP is equal to -2.4%. 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 - $4965 million for Great Plains Energy - 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 216 million for Great Plains Energy 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 Great Plains Energy at the current share price and the inputted number of shares is $6.9 billion.

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