Intrinsic value of Hallador Energy - HNRG

Previous Close

$5.40

  Intrinsic Value

$1.79

stock screener

  Rating & Target

str. sell

-67%

  Value-price divergence*

-50%

Previous close

$5.40

 
Intrinsic value

$1.79

 
Up/down potential

-67%

 
Rating

str. sell

 
Value-price divergence*

-50%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of HNRG 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 2016), $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 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -17.35
  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
  281
  287
  293
  301
  309
  319
  329
  340
  352
  365
  379
  394
  410
  427
  445
  465
  485
  507
  529
  553
  579
  606
  634
  664
  695
  728
  763
  800
  838
  879
  922
Variable operating expenses, $m
 
  195
  199
  205
  210
  217
  224
  231
  239
  248
  258
  268
  279
  291
  303
  316
  330
  344
  360
  376
  394
  412
  431
  451
  473
  495
  519
  544
  570
  598
  627
Fixed operating expenses, $m
 
  70
  71
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  94
  96
  98
  101
  103
  106
  109
  111
  114
  117
  120
  123
  126
  129
  132
  136
  139
  143
Total operating expenses, $m
  257
  265
  270
  278
  285
  294
  303
  312
  322
  333
  345
  357
  370
  385
  399
  414
  431
  447
  466
  485
  505
  526
  548
  571
  596
  621
  648
  676
  706
  737
  770
Operating income, $m
  24
  22
  22
  23
  24
  25
  26
  28
  30
  32
  34
  37
  40
  43
  46
  50
  54
  59
  63
  68
  74
  80
  86
  92
  99
  107
  115
  124
  133
  142
  152
EBITDA, $m
  60
  59
  60
  62
  64
  66
  69
  72
  75
  79
  83
  88
  93
  98
  104
  110
  117
  124
  131
  140
  148
  157
  167
  178
  189
  201
  213
  226
  240
  255
  271
Interest expense (income), $m
  13
  12
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  45
Earnings before tax, $m
  8
  10
  10
  11
  11
  12
  13
  14
  15
  16
  18
  20
  22
  24
  27
  29
  32
  35
  39
  43
  47
  51
  56
  61
  66
  72
  78
  85
  92
  99
  107
Tax expense, $m
  -5
  3
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  21
  23
  25
  27
  29
Net income, $m
  13
  8
  8
  8
  8
  9
  9
  10
  11
  12
  13
  14
  16
  18
  19
  21
  24
  26
  28
  31
  34
  37
  41
  44
  48
  53
  57
  62
  67
  72
  78

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  19
  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
  531
  522
  534
  548
  563
  580
  599
  619
  642
  665
  691
  718
  747
  778
  811
  846
  883
  923
  964
  1,008
  1,054
  1,103
  1,155
  1,209
  1,266
  1,327
  1,390
  1,457
  1,527
  1,601
  1,679
Adjusted assets (=assets-cash), $m
  512
  522
  534
  548
  563
  580
  599
  619
  642
  665
  691
  718
  747
  778
  811
  846
  883
  923
  964
  1,008
  1,054
  1,103
  1,155
  1,209
  1,266
  1,327
  1,390
  1,457
  1,527
  1,601
  1,679
Revenue / Adjusted assets
  0.549
  0.550
  0.549
  0.549
  0.549
  0.550
  0.549
  0.549
  0.548
  0.549
  0.548
  0.549
  0.549
  0.549
  0.549
  0.550
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
  0.549
Average production assets, $m
  434
  442
  452
  464
  477
  492
  507
  525
  543
  564
  585
  608
  633
  659
  687
  717
  748
  782
  817
  854
  893
  935
  978
  1,024
  1,073
  1,124
  1,178
  1,234
  1,294
  1,356
  1,422
Working capital, $m
  34
  45
  46
  47
  49
  50
  52
  53
  55
  57
  60
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  100
  104
  109
  114
  120
  126
  132
  138
  145
Total debt, $m
  234
  221
  228
  236
  244
  254
  265
  277
  290
  303
  318
  334
  350
  368
  387
  407
  429
  451
  475
  501
  527
  555
  585
  616
  649
  684
  721
  759
  800
  842
  887
Total liabilities, $m
  314
  301
  308
  316
  324
  334
  345
  357
  370
  383
  398
  414
  430
  448
  467
  487
  509
  531
  555
  581
  607
  635
  665
  696
  729
  764
  801
  839
  880
  922
  967
Total equity, $m
  217
  221
  226
  232
  239
  246
  254
  263
  272
  282
  293
  304
  317
  330
  344
  359
  375
  391
  409
  427
  447
  468
  490
  513
  537
  562
  589
  618
  648
  679
  712
Total liabilities and equity, $m
  531
  522
  534
  548
  563
  580
  599
  620
  642
  665
  691
  718
  747
  778
  811
  846
  884
  922
  964
  1,008
  1,054
  1,103
  1,155
  1,209
  1,266
  1,326
  1,390
  1,457
  1,528
  1,601
  1,679
Debt-to-equity ratio
  1.078
  1.000
  1.010
  1.010
  1.020
  1.030
  1.040
  1.050
  1.060
  1.070
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
  1.200
  1.200
  1.210
  1.220
  1.220
  1.230
  1.230
  1.240
  1.250
Adjusted equity ratio
  0.387
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424
  0.424

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  8
  8
  8
  8
  9
  9
  10
  11
  12
  13
  14
  16
  18
  19
  21
  24
  26
  28
  31
  34
  37
  41
  44
  48
  53
  57
  62
  67
  72
  78
Depreciation, amort., depletion, $m
  36
  37
  38
  39
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  78
  82
  85
  89
  94
  98
  103
  108
  113
  119
Funds from operations, $m
  49
  44
  45
  46
  48
  50
  52
  54
  56
  59
  62
  65
  69
  73
  77
  81
  86
  91
  96
  102
  109
  115
  122
  130
  138
  146
  155
  165
  175
  185
  197
Change in working capital, $m
  -12
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Cash from operations, $m
  61
  44
  44
  45
  47
  48
  50
  52
  54
  57
  60
  63
  66
  70
  74
  78
  83
  88
  93
  99
  105
  111
  118
  125
  133
  141
  150
  159
  169
  179
  190
Maintenance CAPEX, $m
  0
  -36
  -37
  -38
  -39
  -40
  -41
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -85
  -89
  -94
  -98
  -103
  -108
  -113
New CAPEX, $m
  -42
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
Cash from investing activities, $m
  -49
  -45
  -47
  -50
  -52
  -54
  -57
  -59
  -63
  -65
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -115
  -122
  -128
  -133
  -140
  -148
  -155
  -163
  -171
  -179
Free cash flow, $m
  12
  -1
  -3
  -4
  -5
  -6
  -7
  -8
  -8
  -9
  -9
  -9
  -9
  -9
  -9
  -9
  -8
  -8
  -7
  -7
  -6
  -5
  -4
  -2
  -1
  0
  2
  4
  6
  8
  11
Issuance/(repayment) of debt, $m
  -11
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  38
  40
  43
  45
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
  0
Cash from financing (excl. dividends), $m  
  -13
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  38
  40
  43
  45
Total cash flow (excl. dividends), $m
  -1
  4
  4
  4
  4
  4
  4
  4
  5
  5
  6
  7
  8
  9
  10
  11
  13
  15
  17
  19
  21
  23
  26
  29
  32
  35
  39
  43
  47
  51
  56
Retained Cash Flow (-), $m
  -10
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
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
 
  0
  -1
  -2
  -3
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -4
  -4
  -3
  -3
  -2
  -1
  0
  1
  3
  4
  6
  8
  10
  12
  14
  17
  20
  23
Discount rate, %
 
  6.80
  7.14
  7.50
  7.87
  8.27
  8.68
  9.11
  9.57
  10.05
  10.55
  11.08
  11.63
  12.21
  12.82
  13.46
  14.14
  14.84
  15.59
  16.37
  17.18
  18.04
  18.94
  19.89
  20.89
  21.93
  23.03
  24.18
  25.39
  26.66
  27.99
PV of cash for distribution, $m
 
  0
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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Current shareholders' claim on cash, %
  100
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  100.0
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  100.0
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  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
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  100.0
  100.0
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  100.0

Hallador Energy Company is an oil and gas exploration company focused on developing coal reserves in the Illinois Basin. The Company, through its subsidiary, Sunrise Coal, LLC, is engaged in coal mining in the state of Indiana serving the electric power generation industry. Its projects include Carlisle Mine, Ace in the Hole Mine, Oaktown 1 Mine, Oaktown 2 Mine and Bulldog Mine. It develops over 10 million tons of coal annually and has customers in the mid-west and southeastern United States. It has over 40.6 million tons of the Indiana coal V seam. It also has over 69.3 million controlled tons in both Knox County, Indiana and Lawrence County, Illinois. Its Carlisle underground coal mine is located near the town of Carlisle, Indiana in Sullivan County. The Ace mine is located approximately 40 miles northeast of the Carlisle Mine. Its Bulldog Mine controls over 35.8 million tons of coal reserves.

FINANCIAL RATIOS  of  Hallador Energy (HNRG)

Valuation Ratios
P/E Ratio 12.2
Price to Sales 0.6
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow 8.4
Growth Rates
Sales Growth Rate -17.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 35.5%
Cap. Spend. - 3 Yr. Gr. Rate 4.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.2
LT Debt to Equity 94.5%
Total Debt to Equity 107.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 2.9%
Ret/ On T. Cap. - 3 Yr. Avg. 3.3%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. 7.2%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 31%
Gross Margin - 3 Yr. Avg. 29.7%
EBITDA Margin 20.3%
EBITDA Margin - 3 Yr. Avg. 21.4%
Operating Margin 8.5%
Oper. Margin - 3 Yr. Avg. 9.8%
Pre-Tax Margin 2.8%
Pre-Tax Margin - 3 Yr. Avg. 5.2%
Net Profit Margin 4.6%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate -62.5%
Eff/ Tax Rate - 3 Yr. Avg. -8.3%
Payout Ratio 38.5%

HNRG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HNRG stock intrinsic value calculation we used $281 million for the last fiscal year's total revenue generated by Hallador Energy. The default revenue input number comes from 2016 income statement of Hallador 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 HNRG 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 6.8%, whose default value for HNRG is calculated based on our internal credit rating of Hallador 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 Hallador 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 HNRG stock the variable cost ratio is equal to 68%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $68 million in the base year in the intrinsic value calculation for HNRG 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 Hallador Energy.

Corporate tax rate of 27% is the nominal tax rate for Hallador 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 HNRG 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 HNRG are equal to 154.3%.

Life of production assets of 12 years is the average useful life of capital assets used in Hallador 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 HNRG is equal to 15.7%. 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 - $217 million for Hallador 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 30.284 million for Hallador 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 Hallador Energy at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ 6 Cheap High-Yield Stocks   [Oct-06-17 04:10PM  GuruFocus.com]
▶ Hallador Energy posts 2Q profit   [Aug-10-17 01:10AM  Associated Press]
▶ Hallador Energy posts 1Q profit   [05:02AM  Associated Press]
▶ Hallador Energy Company Declares Quarterly Dividend   [Apr-17-17 05:23PM  PR Newswire]
▶ Hallador Energy Company Declares Quarterly Dividend   [Jan-13-17 09:13PM  PR Newswire]
▶ How Hallador Energy Co (HNRG) Stacks Up Against Its Peers   [Dec-14-16 07:32AM  Insider Monkey]
Financial statements of HNRG
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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