Intrinsic value of Independence Contract Drilling - ICD

Previous Close

$3.36

  Intrinsic Value

$1.54

stock screener

  Rating & Target

str. sell

-54%

Previous close

$3.36

 
Intrinsic value

$1.54

 
Up/down potential

-54%

 
Rating

str. sell

We calculate the intrinsic value of ICD 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 0.1

 

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, %
  21.00
  19.40
  17.96
  16.66
  15.50
  14.45
  13.50
  12.65
  11.89
  11.20
  10.58
  10.02
  9.52
  9.07
  8.66
  8.29
  7.96
  7.67
  7.40
  7.16
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.03
  5.93
  5.84
  5.75
Revenue, $m
  109
  130
  153
  179
  207
  237
  268
  302
  338
  376
  416
  458
  501
  547
  594
  644
  695
  748
  803
  861
  921
  983
  1,048
  1,115
  1,185
  1,258
  1,333
  1,413
  1,495
  1,581
Variable operating expenses, $m
  120
  143
  169
  197
  227
  260
  295
  333
  372
  414
  458
  504
  552
  602
  654
  708
  764
  823
  884
  947
  1,013
  1,081
  1,152
  1,226
  1,303
  1,383
  1,467
  1,554
  1,644
  1,739
Fixed operating expenses, $m
  12
  13
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
Total operating expenses, $m
  132
  156
  182
  210
  240
  274
  309
  347
  387
  429
  473
  520
  568
  618
  671
  725
  781
  841
  902
  966
  1,032
  1,100
  1,172
  1,246
  1,324
  1,404
  1,489
  1,576
  1,667
  1,762
Operating income, $m
  -23
  -26
  -28
  -31
  -34
  -37
  -41
  -45
  -48
  -53
  -57
  -61
  -66
  -71
  -76
  -81
  -87
  -93
  -98
  -105
  -111
  -118
  -125
  -132
  -139
  -147
  -155
  -163
  -172
  -181
EBITDA, $m
  8
  12
  16
  20
  25
  31
  36
  42
  49
  56
  63
  70
  78
  86
  95
  104
  113
  122
  132
  143
  154
  165
  176
  189
  201
  214
  228
  243
  258
  273
Interest expense (income), $m
  0
  4
  5
  6
  8
  9
  11
  13
  15
  17
  19
  21
  23
  26
  29
  31
  34
  37
  40
  43
  47
  50
  54
  57
  61
  65
  70
  74
  79
  83
  88
Earnings before tax, $m
  -27
  -31
  -34
  -39
  -43
  -48
  -54
  -59
  -65
  -71
  -78
  -85
  -92
  -100
  -107
  -116
  -124
  -133
  -142
  -151
  -161
  -171
  -182
  -193
  -205
  -216
  -229
  -242
  -255
  -269
Tax expense, $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
Net income, $m
  -27
  -31
  -34
  -39
  -43
  -48
  -54
  -59
  -65
  -71
  -78
  -85
  -92
  -100
  -107
  -116
  -124
  -133
  -142
  -151
  -161
  -171
  -182
  -193
  -205
  -216
  -229
  -242
  -255
  -269

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
  369
  441
  520
  607
  701
  802
  910
  1,025
  1,147
  1,276
  1,411
  1,552
  1,700
  1,854
  2,014
  2,181
  2,355
  2,536
  2,723
  2,918
  3,121
  3,332
  3,551
  3,779
  4,016
  4,263
  4,520
  4,788
  5,068
  5,359
Adjusted assets (=assets-cash), $m
  369
  441
  520
  607
  701
  802
  910
  1,025
  1,147
  1,276
  1,411
  1,552
  1,700
  1,854
  2,014
  2,181
  2,355
  2,536
  2,723
  2,918
  3,121
  3,332
  3,551
  3,779
  4,016
  4,263
  4,520
  4,788
  5,068
  5,359
Revenue / Adjusted assets
  0.295
  0.295
  0.294
  0.295
  0.295
  0.296
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
  0.295
Average production assets, $m
  332
  396
  467
  545
  630
  721
  818
  921
  1,031
  1,146
  1,268
  1,395
  1,527
  1,666
  1,810
  1,960
  2,116
  2,279
  2,447
  2,622
  2,805
  2,994
  3,191
  3,396
  3,609
  3,831
  4,062
  4,303
  4,554
  4,816
Working capital, $m
  8
  10
  12
  14
  16
  18
  21
  24
  26
  29
  32
  36
  39
  43
  46
  50
  54
  58
  63
  67
  72
  77
  82
  87
  92
  98
  104
  110
  117
  123
Total debt, $m
  64
  81
  99
  118
  140
  163
  187
  213
  241
  270
  301
  333
  366
  401
  438
  476
  515
  556
  599
  643
  689
  737
  787
  838
  892
  948
  1,007
  1,068
  1,131
  1,197
Total liabilities, $m
  84
  100
  118
  138
  159
  182
  207
  233
  260
  290
  320
  352
  386
  421
  457
  495
  535
  576
  618
  662
  708
  756
  806
  858
  912
  968
  1,026
  1,087
  1,150
  1,217
Total equity, $m
  285
  341
  402
  469
  542
  620
  704
  793
  887
  986
  1,090
  1,200
  1,314
  1,433
  1,557
  1,686
  1,821
  1,960
  2,105
  2,256
  2,413
  2,576
  2,745
  2,921
  3,104
  3,295
  3,494
  3,701
  3,917
  4,143
Total liabilities and equity, $m
  369
  441
  520
  607
  701
  802
  911
  1,026
  1,147
  1,276
  1,410
  1,552
  1,700
  1,854
  2,014
  2,181
  2,356
  2,536
  2,723
  2,918
  3,121
  3,332
  3,551
  3,779
  4,016
  4,263
  4,520
  4,788
  5,067
  5,360
Debt-to-equity ratio
  0.230
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
  0.290
Adjusted equity ratio
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -27
  -31
  -34
  -39
  -43
  -48
  -54
  -59
  -65
  -71
  -78
  -85
  -92
  -100
  -107
  -116
  -124
  -133
  -142
  -151
  -161
  -171
  -182
  -193
  -205
  -216
  -229
  -242
  -255
  -269
Depreciation, amort., depletion, $m
  31
  37
  44
  51
  59
  68
  77
  87
  97
  108
  120
  132
  144
  157
  171
  185
  200
  215
  231
  247
  265
  282
  301
  320
  340
  361
  383
  406
  430
  454
Funds from operations, $m
  4
  7
  10
  13
  16
  20
  24
  28
  32
  37
  42
  47
  52
  58
  63
  69
  76
  82
  89
  96
  103
  111
  119
  127
  136
  145
  154
  164
  174
  185
Change in working capital, $m
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
Cash from operations, $m
  3
  5
  8
  11
  14
  17
  21
  25
  29
  34
  39
  43
  49
  54
  60
  66
  72
  78
  85
  92
  99
  106
  114
  122
  130
  139
  148
  158
  168
  178
Maintenance CAPEX, $m
  -26
  -31
  -37
  -44
  -51
  -59
  -68
  -77
  -87
  -97
  -108
  -120
  -132
  -144
  -157
  -171
  -185
  -200
  -215
  -231
  -247
  -265
  -282
  -301
  -320
  -340
  -361
  -383
  -406
  -430
New CAPEX, $m
  -58
  -64
  -71
  -78
  -84
  -91
  -97
  -103
  -110
  -115
  -121
  -127
  -133
  -138
  -144
  -150
  -156
  -162
  -169
  -175
  -182
  -189
  -197
  -205
  -213
  -222
  -231
  -241
  -251
  -262
Cash from investing activities, $m
  -84
  -95
  -108
  -122
  -135
  -150
  -165
  -180
  -197
  -212
  -229
  -247
  -265
  -282
  -301
  -321
  -341
  -362
  -384
  -406
  -429
  -454
  -479
  -506
  -533
  -562
  -592
  -624
  -657
  -692
Free cash flow, $m
  -81
  -90
  -101
  -111
  -122
  -133
  -144
  -155
  -167
  -179
  -191
  -203
  -216
  -229
  -242
  -255
  -269
  -284
  -299
  -315
  -331
  -348
  -365
  -384
  -403
  -423
  -444
  -466
  -489
  -513
Issuance/(repayment) of debt, $m
  15
  16
  18
  20
  21
  23
  25
  26
  28
  29
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
Issuance/(repurchase) of shares, $m
  77
  86
  96
  106
  116
  126
  137
  148
  159
  171
  182
  194
  206
  219
  231
  245
  258
  272
  287
  302
  318
  334
  351
  369
  388
  407
  428
  449
  471
  495
Cash from financing (excl. dividends), $m  
  92
  102
  114
  126
  137
  149
  162
  174
  187
  200
  213
  226
  240
  254
  267
  283
  297
  313
  330
  346
  364
  382
  401
  421
  442
  463
  486
  510
  534
  561
Total cash flow (excl. dividends), $m
  11
  12
  13
  14
  15
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
Retained Cash Flow (-), $m
  -77
  -86
  -96
  -106
  -116
  -126
  -137
  -148
  -159
  -171
  -182
  -194
  -206
  -219
  -231
  -245
  -258
  -272
  -287
  -302
  -318
  -334
  -351
  -369
  -388
  -407
  -428
  -449
  -471
  -495
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
  -66
  -74
  -83
  -92
  -101
  -110
  -120
  -129
  -139
  -150
  -160
  -171
  -182
  -194
  -205
  -217
  -230
  -243
  -256
  -270
  -285
  -300
  -316
  -332
  -349
  -367
  -386
  -405
  -426
  -447
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
  -62
  -66
  -68
  -70
  -71
  -71
  -70
  -68
  -65
  -61
  -57
  -53
  -48
  -43
  -38
  -33
  -28
  -24
  -20
  -16
  -13
  -10
  -8
  -6
  -4
  -3
  -2
  -1
  -1
  -1
Current shareholders' claim on cash, %
  68.2
  47.7
  34.0
  24.7
  18.3
  13.7
  10.4
  8.0
  6.2
  4.9
  3.9
  3.1
  2.5
  2.0
  1.6
  1.3
  1.1
  0.9
  0.7
  0.6
  0.5
  0.4
  0.4
  0.3
  0.3
  0.2
  0.2
  0.2
  0.1
  0.1

Independence Contract Drilling, Inc. provides land-based contract drilling services for oil and natural gas producers in the United States. The company constructs, owns, and operates a fleet of ShaleDriller rigs to optimize the development of various oil and gas properties in the Permian Basin. As of December 31, 2015, it had 14 ShaleDriller rigs. The company was founded in 2011 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Independence Contract Drilling (ICD)

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%

ICD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ICD stock intrinsic value calculation we used $90.007 million for the last fiscal year's total revenue generated by Independence Contract Drilling. The default revenue input number comes from 0001 income statement of Independence Contract Drilling. 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 ICD stock valuation model: a) initial revenue growth rate of 21% 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 ICD is calculated based on our internal credit rating of Independence Contract Drilling, 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 Independence Contract Drilling.
    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 ICD stock the variable cost ratio is equal to 110%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12 million in the base year in the intrinsic value calculation for ICD 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 7.8% for Independence Contract Drilling.

Corporate tax rate of 27% is the nominal tax rate for Independence Contract Drilling. 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 ICD 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 ICD are equal to 304.6%.

Life of production assets of 10.6 years is the average useful life of capital assets used in Independence Contract Drilling 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 ICD is equal to 7.8%. 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 - $235.482 million for Independence Contract Drilling - 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 38.253 million for Independence Contract Drilling 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 Independence Contract Drilling at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ One Houston-based drilling co. to acquire another   [Jul-19-18 08:55AM  American City Business Journals]
▶ Independence Contract Drilling Incs (NYSE:ICD) Profit Outlook   [Jun-27-18 12:07PM  Simply Wall St.]
▶ [$$] Stocks to Play an Oil Breakout   [Sep-22-17 02:03PM  Barrons.com]
▶ Daily Wrap: The Biggest Hedge Fund Moves of the Day   [Oct-17-16 11:48AM  at Insider Monkey]

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