Intrinsic value of Holly Energy Partners, L.P. - HEP

Previous Close

$27.75

  Intrinsic Value

$8.01

stock screener

  Rating & Target

str. sell

-71%

Previous close

$27.75

 
Intrinsic value

$8.01

 
Up/down potential

-71%

 
Rating

str. sell

We calculate the intrinsic value of HEP 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 2.9

 

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, %
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
Revenue, $m
  520
  536
  553
  572
  592
  614
  638
  663
  690
  718
  749
  781
  815
  851
  890
  930
  973
  1,018
  1,065
  1,116
  1,168
  1,224
  1,283
  1,344
  1,409
  1,477
  1,549
  1,624
  1,704
  1,787
Variable operating expenses, $m
  249
  255
  262
  269
  278
  287
  296
  306
  317
  329
  302
  315
  329
  344
  359
  376
  393
  411
  430
  450
  472
  494
  518
  543
  569
  596
  625
  656
  688
  722
Fixed operating expenses, $m
  13
  14
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  18
  19
  19
  20
  20
  21
  21
  21
  22
  22
  23
  23
  24
  24
  25
Total operating expenses, $m
  262
  269
  276
  283
  292
  302
  311
  321
  333
  345
  319
  332
  346
  362
  377
  394
  412
  430
  450
  470
  493
  515
  539
  565
  591
  619
  648
  680
  712
  747
Operating income, $m
  258
  267
  277
  288
  300
  313
  327
  341
  357
  374
  430
  449
  469
  490
  512
  536
  561
  588
  616
  645
  676
  709
  743
  780
  818
  858
  900
  945
  992
  1,041
EBITDA, $m
  391
  402
  416
  430
  445
  462
  480
  499
  520
  542
  565
  589
  616
  643
  673
  704
  737
  771
  808
  846
  887
  929
  974
  1,022
  1,072
  1,124
  1,179
  1,237
  1,298
  1,363
Interest expense (income), $m
  39
  77
  73
  76
  79
  83
  87
  91
  96
  101
  107
  112
  119
  125
  132
  139
  147
  155
  164
  173
  182
  193
  203
  214
  226
  239
  252
  266
  280
  295
  311
Earnings before tax, $m
  182
  195
  202
  209
  217
  226
  235
  245
  256
  267
  317
  330
  344
  358
  373
  389
  406
  424
  443
  463
  484
  506
  529
  553
  579
  606
  635
  665
  696
  730
Tax expense, $m
  49
  53
  54
  56
  59
  61
  63
  66
  69
  72
  86
  89
  93
  97
  101
  105
  110
  114
  120
  125
  131
  137
  143
  149
  156
  164
  171
  179
  188
  197
Net income, $m
  133
  142
  147
  153
  158
  165
  172
  179
  187
  195
  232
  241
  251
  261
  272
  284
  296
  309
  323
  338
  353
  369
  386
  404
  423
  443
  463
  485
  508
  533

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
  2,158
  2,224
  2,295
  2,373
  2,457
  2,548
  2,646
  2,750
  2,862
  2,981
  3,107
  3,241
  3,383
  3,533
  3,692
  3,860
  4,037
  4,224
  4,421
  4,629
  4,848
  5,079
  5,322
  5,577
  5,847
  6,130
  6,427
  6,741
  7,070
  7,416
Adjusted assets (=assets-cash), $m
  2,158
  2,224
  2,295
  2,373
  2,457
  2,548
  2,646
  2,750
  2,862
  2,981
  3,107
  3,241
  3,383
  3,533
  3,692
  3,860
  4,037
  4,224
  4,421
  4,629
  4,848
  5,079
  5,322
  5,577
  5,847
  6,130
  6,427
  6,741
  7,070
  7,416
Revenue / Adjusted assets
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
  0.241
Average production assets, $m
  1,799
  1,853
  1,913
  1,978
  2,048
  2,124
  2,205
  2,292
  2,385
  2,484
  2,589
  2,701
  2,819
  2,944
  3,077
  3,216
  3,364
  3,520
  3,684
  3,858
  4,040
  4,233
  4,435
  4,648
  4,872
  5,108
  5,356
  5,617
  5,892
  6,180
Working capital, $m
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
Total debt, $m
  1,343
  1,401
  1,466
  1,536
  1,612
  1,694
  1,782
  1,876
  1,976
  2,083
  2,196
  2,317
  2,445
  2,580
  2,723
  2,874
  3,033
  3,202
  3,379
  3,566
  3,763
  3,971
  4,190
  4,420
  4,662
  4,917
  5,185
  5,467
  5,763
  6,075
Total liabilities, $m
  1,943
  2,001
  2,066
  2,136
  2,212
  2,294
  2,381
  2,475
  2,576
  2,683
  2,796
  2,917
  3,044
  3,180
  3,323
  3,474
  3,633
  3,801
  3,979
  4,166
  4,363
  4,571
  4,790
  5,020
  5,262
  5,517
  5,785
  6,066
  6,363
  6,674
Total equity, $m
  216
  222
  230
  237
  246
  255
  265
  275
  286
  298
  311
  324
  338
  353
  369
  386
  404
  422
  442
  463
  485
  508
  532
  558
  585
  613
  643
  674
  707
  742
Total liabilities and equity, $m
  2,159
  2,223
  2,296
  2,373
  2,458
  2,549
  2,646
  2,750
  2,862
  2,981
  3,107
  3,241
  3,382
  3,533
  3,692
  3,860
  4,037
  4,223
  4,421
  4,629
  4,848
  5,079
  5,322
  5,578
  5,847
  6,130
  6,428
  6,740
  7,070
  7,416
Debt-to-equity ratio
  6.220
  6.300
  6.390
  6.470
  6.560
  6.650
  6.730
  6.820
  6.900
  6.990
  7.070
  7.150
  7.230
  7.300
  7.380
  7.450
  7.510
  7.580
  7.640
  7.700
  7.760
  7.820
  7.870
  7.920
  7.970
  8.020
  8.070
  8.110
  8.150
  8.190
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  133
  142
  147
  153
  158
  165
  172
  179
  187
  195
  232
  241
  251
  261
  272
  284
  296
  309
  323
  338
  353
  369
  386
  404
  423
  443
  463
  485
  508
  533
Depreciation, amort., depletion, $m
  132
  135
  138
  142
  145
  149
  153
  158
  163
  168
  135
  141
  147
  153
  160
  168
  175
  183
  192
  201
  210
  220
  231
  242
  254
  266
  279
  293
  307
  322
Funds from operations, $m
  265
  277
  285
  294
  304
  314
  325
  337
  349
  363
  367
  382
  398
  415
  433
  452
  472
  493
  515
  539
  563
  590
  617
  646
  677
  709
  742
  778
  815
  854
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  265
  277
  285
  294
  304
  314
  325
  337
  349
  362
  366
  381
  397
  414
  432
  451
  471
  492
  515
  538
  563
  589
  616
  645
  676
  708
  742
  777
  814
  854
Maintenance CAPEX, $m
  -91
  -94
  -97
  -100
  -103
  -107
  -111
  -115
  -119
  -124
  -129
  -135
  -141
  -147
  -153
  -160
  -168
  -175
  -183
  -192
  -201
  -210
  -220
  -231
  -242
  -254
  -266
  -279
  -293
  -307
New CAPEX, $m
  -49
  -54
  -60
  -65
  -70
  -76
  -81
  -87
  -93
  -99
  -105
  -112
  -118
  -125
  -132
  -140
  -148
  -156
  -164
  -173
  -183
  -192
  -202
  -213
  -224
  -236
  -248
  -261
  -274
  -288
Cash from investing activities, $m
  -140
  -148
  -157
  -165
  -173
  -183
  -192
  -202
  -212
  -223
  -234
  -247
  -259
  -272
  -285
  -300
  -316
  -331
  -347
  -365
  -384
  -402
  -422
  -444
  -466
  -490
  -514
  -540
  -567
  -595
Free cash flow, $m
  124
  129
  129
  129
  130
  131
  133
  135
  137
  139
  132
  135
  138
  142
  147
  151
  156
  161
  167
  173
  179
  186
  194
  201
  209
  218
  227
  237
  247
  258
Issuance/(repayment) of debt, $m
  -76
  59
  64
  70
  76
  82
  88
  94
  100
  107
  114
  121
  128
  135
  143
  151
  160
  168
  178
  187
  197
  208
  219
  230
  242
  255
  268
  282
  296
  312
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  
  -76
  59
  64
  70
  76
  82
  88
  94
  100
  107
  114
  121
  128
  135
  143
  151
  160
  168
  178
  187
  197
  208
  219
  230
  242
  255
  268
  282
  296
  312
Total cash flow (excl. dividends), $m
  48
  188
  193
  200
  206
  213
  221
  229
  237
  246
  245
  255
  266
  278
  289
  302
  315
  330
  344
  360
  377
  394
  412
  431
  452
  473
  495
  519
  544
  570
Retained Cash Flow (-), $m
  -132
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
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
  -84
  181
  186
  192
  198
  204
  211
  218
  226
  234
  233
  242
  252
  262
  274
  285
  298
  311
  325
  339
  355
  371
  388
  406
  425
  445
  466
  488
  511
  535
Discount rate, %
  12.20
  12.81
  13.45
  14.12
  14.83
  15.57
  16.35
  17.17
  18.02
  18.93
  19.87
  20.87
  21.91
  23.00
  24.16
  25.36
  26.63
  27.96
  29.36
  30.83
  32.37
  33.99
  35.69
  37.47
  39.35
  41.31
  43.38
  45.55
  47.83
  50.22
PV of cash for distribution, $m
  -75
  142
  128
  113
  99
  86
  73
  61
  51
  41
  32
  25
  19
  14
  11
  8
  5
  4
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
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Holly Energy Partners, L.P., (HEP) is engaged in the business of operating a system of petroleum product and crude pipelines, storage tanks, distribution terminals, loading rack facilities and refinery processing units in West Texas, New Mexico, Utah, Nevada, Oklahoma, Wyoming, Kansas, Arizona, Idaho and Washington. The Company operates through segments, including pipelines and terminals segment and a refinery processing unit segment. As of December 31, 2016, its pipelines and terminals segment consisted of 24 main pipeline segments; Crude gathering networks in Texas and New Mexico; 10 refined product terminals; one crude terminal; 8,300 track feet of rail storage located at one facility; seven locations with truck and/or rail racks, and Tankage at all six of HollyFrontier Corporation's (HFC's) refining facility locations. As of December 31, 2016, the Company's refinery processing unit segment consisted of five refinery processing units at two of HFC's refining facility locations.

FINANCIAL RATIOS  of  Holly Energy Partners, L.P. (HEP)

Valuation Ratios
P/E Ratio 11.8
Price to Sales 4.3
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 7.2
Price to Free Cash Flow 9.5
Growth Rates
Sales Growth Rate 12%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 53.8%
Cap. Spend. - 3 Yr. Gr. Rate 2.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 329.1%
Total Debt to Equity 329.1%
Interest Coverage 5
Management Effectiveness
Return On Assets 10.2%
Ret/ On Assets - 3 Yr. Avg. 8.7%
Return On Total Capital 9.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9.3%
Return On Equity 32.5%
Return On Equity - 3 Yr. Avg. 31.5%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 69.2%
Gross Margin - 3 Yr. Avg. 69.2%
EBITDA Margin 66.4%
EBITDA Margin - 3 Yr. Avg. 59.1%
Operating Margin 48.5%
Oper. Margin - 3 Yr. Avg. 47.3%
Pre-Tax Margin 39.3%
Pre-Tax Margin - 3 Yr. Avg. 37.9%
Net Profit Margin 36.8%
Net Profit Margin - 3 Yr. Avg. 35.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 129.7%

HEP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HEP stock intrinsic value calculation we used $506 million for the last fiscal year's total revenue generated by Holly Energy Partners, L.P.. The default revenue input number comes from 0001 income statement of Holly Energy Partners, L.P.. 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 HEP stock valuation model: a) initial revenue growth rate of 2.8% 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 12.2%, whose default value for HEP is calculated based on our internal credit rating of Holly Energy Partners, L.P., 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 Holly Energy Partners, L.P..
    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 HEP stock the variable cost ratio is equal to 48%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for HEP 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 Holly Energy Partners, L.P..

Corporate tax rate of 27% is the nominal tax rate for Holly Energy Partners, L.P.. 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 HEP 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 HEP are equal to 345.8%.

Life of production assets of 19.2 years is the average useful life of capital assets used in Holly Energy Partners, L.P. 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 HEP is equal to 1.1%. 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 - $83.84 million for Holly Energy Partners, L.P. - 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 105.413 million for Holly Energy Partners, L.P. 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 Holly Energy Partners, L.P. at the current share price and the inputted number of shares is $2.9 billion.

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