Intrinsic value of Innospec Inc. - IOSP

Previous Close

$83.50

  Intrinsic Value

$41.39

stock screener

  Rating & Target

str. sell

-50%

Previous close

$83.50

 
Intrinsic value

$41.39

 
Up/down potential

-50%

 
Rating

str. sell

We calculate the intrinsic value of IOSP 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 2.0

 

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, %
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.86
  6.68
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.35
  5.31
Revenue, $m
  1,648
  1,829
  2,018
  2,216
  2,423
  2,638
  2,863
  3,096
  3,339
  3,591
  3,853
  4,126
  4,409
  4,703
  5,010
  5,328
  5,660
  6,005
  6,365
  6,740
  7,131
  7,539
  7,965
  8,410
  8,874
  9,360
  9,868
  10,399
  10,955
  11,537
Variable operating expenses, $m
  1,486
  1,647
  1,815
  1,991
  2,175
  2,367
  2,567
  2,774
  2,990
  3,215
  3,428
  3,671
  3,923
  4,185
  4,457
  4,741
  5,036
  5,343
  5,663
  5,997
  6,344
  6,708
  7,086
  7,482
  7,896
  8,328
  8,780
  9,253
  9,747
  10,265
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
  1,486
  1,647
  1,815
  1,991
  2,175
  2,367
  2,567
  2,774
  2,990
  3,215
  3,428
  3,671
  3,923
  4,185
  4,457
  4,741
  5,036
  5,343
  5,663
  5,997
  6,344
  6,708
  7,086
  7,482
  7,896
  8,328
  8,780
  9,253
  9,747
  10,265
Operating income, $m
  162
  182
  203
  225
  248
  271
  296
  322
  349
  376
  425
  455
  486
  519
  552
  588
  624
  662
  702
  743
  786
  831
  878
  927
  979
  1,032
  1,088
  1,147
  1,208
  1,272
EBITDA, $m
  217
  241
  266
  292
  319
  348
  377
  408
  440
  473
  508
  544
  581
  620
  660
  702
  746
  791
  838
  888
  939
  993
  1,049
  1,108
  1,169
  1,233
  1,300
  1,370
  1,443
  1,520
Interest expense (income), $m
  3
  11
  15
  20
  24
  29
  34
  39
  44
  50
  56
  62
  68
  74
  81
  88
  95
  103
  111
  119
  127
  136
  145
  155
  165
  176
  187
  198
  210
  223
  236
Earnings before tax, $m
  151
  167
  183
  201
  219
  237
  257
  278
  299
  321
  363
  387
  412
  438
  465
  492
  521
  552
  583
  616
  650
  686
  723
  762
  803
  845
  890
  936
  985
  1,036
Tax expense, $m
  41
  45
  49
  54
  59
  64
  69
  75
  81
  87
  98
  105
  111
  118
  125
  133
  141
  149
  157
  166
  176
  185
  195
  206
  217
  228
  240
  253
  266
  280
Net income, $m
  110
  122
  134
  146
  160
  173
  188
  203
  218
  234
  265
  283
  301
  320
  339
  359
  381
  403
  426
  450
  475
  501
  528
  556
  586
  617
  650
  684
  719
  756

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
  1,645
  1,825
  2,014
  2,211
  2,418
  2,633
  2,857
  3,090
  3,332
  3,584
  3,846
  4,118
  4,400
  4,694
  5,000
  5,318
  5,648
  5,993
  6,352
  6,726
  7,117
  7,524
  7,949
  8,393
  8,857
  9,341
  9,848
  10,379
  10,933
  11,514
Adjusted assets (=assets-cash), $m
  1,645
  1,825
  2,014
  2,211
  2,418
  2,633
  2,857
  3,090
  3,332
  3,584
  3,846
  4,118
  4,400
  4,694
  5,000
  5,318
  5,648
  5,993
  6,352
  6,726
  7,117
  7,524
  7,949
  8,393
  8,857
  9,341
  9,848
  10,379
  10,933
  11,514
Revenue / Adjusted assets
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
  1.002
Average production assets, $m
  506
  561
  619
  680
  744
  810
  879
  950
  1,025
  1,102
  1,183
  1,267
  1,354
  1,444
  1,538
  1,636
  1,738
  1,844
  1,954
  2,069
  2,189
  2,314
  2,445
  2,582
  2,724
  2,874
  3,029
  3,193
  3,363
  3,542
Working capital, $m
  298
  331
  365
  401
  438
  477
  518
  560
  604
  650
  697
  747
  798
  851
  907
  964
  1,024
  1,087
  1,152
  1,220
  1,291
  1,365
  1,442
  1,522
  1,606
  1,694
  1,786
  1,882
  1,983
  2,088
Total debt, $m
  286
  366
  449
  536
  626
  721
  820
  922
  1,029
  1,139
  1,255
  1,374
  1,499
  1,628
  1,762
  1,902
  2,048
  2,199
  2,357
  2,522
  2,694
  2,873
  3,060
  3,255
  3,459
  3,673
  3,896
  4,129
  4,373
  4,629
Total liabilities, $m
  724
  803
  886
  973
  1,064
  1,158
  1,257
  1,360
  1,466
  1,577
  1,692
  1,812
  1,936
  2,065
  2,200
  2,340
  2,485
  2,637
  2,795
  2,960
  3,131
  3,310
  3,497
  3,693
  3,897
  4,110
  4,333
  4,567
  4,811
  5,066
Total equity, $m
  921
  1,022
  1,128
  1,238
  1,354
  1,474
  1,600
  1,730
  1,866
  2,007
  2,154
  2,306
  2,464
  2,629
  2,800
  2,978
  3,163
  3,356
  3,557
  3,767
  3,985
  4,213
  4,451
  4,700
  4,960
  5,231
  5,515
  5,812
  6,123
  6,448
Total liabilities and equity, $m
  1,645
  1,825
  2,014
  2,211
  2,418
  2,632
  2,857
  3,090
  3,332
  3,584
  3,846
  4,118
  4,400
  4,694
  5,000
  5,318
  5,648
  5,993
  6,352
  6,727
  7,116
  7,523
  7,948
  8,393
  8,857
  9,341
  9,848
  10,379
  10,934
  11,514
Debt-to-equity ratio
  0.310
  0.360
  0.400
  0.430
  0.460
  0.490
  0.510
  0.530
  0.550
  0.570
  0.580
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.660
  0.670
  0.680
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
  0.710
  0.710
  0.720
Adjusted equity ratio
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560
  0.560

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  110
  122
  134
  146
  160
  173
  188
  203
  218
  234
  265
  283
  301
  320
  339
  359
  381
  403
  426
  450
  475
  501
  528
  556
  586
  617
  650
  684
  719
  756
Depreciation, amort., depletion, $m
  55
  59
  63
  67
  72
  76
  81
  86
  91
  97
  83
  89
  95
  101
  108
  114
  122
  129
  137
  145
  153
  162
  171
  181
  191
  201
  212
  223
  235
  248
Funds from operations, $m
  165
  180
  197
  214
  231
  250
  269
  289
  309
  331
  348
  371
  395
  421
  447
  474
  502
  532
  562
  594
  628
  663
  699
  737
  777
  818
  861
  907
  954
  1,004
Change in working capital, $m
  31
  33
  34
  36
  37
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  96
  101
  105
Cash from operations, $m
  134
  148
  162
  178
  194
  211
  228
  246
  265
  285
  301
  322
  344
  367
  391
  416
  442
  469
  497
  526
  557
  589
  622
  656
  692
  730
  769
  811
  854
  899
Maintenance CAPEX, $m
  -32
  -35
  -39
  -43
  -48
  -52
  -57
  -61
  -66
  -72
  -77
  -83
  -89
  -95
  -101
  -108
  -114
  -122
  -129
  -137
  -145
  -153
  -162
  -171
  -181
  -191
  -201
  -212
  -223
  -235
New CAPEX, $m
  -53
  -55
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -77
  -80
  -84
  -87
  -90
  -94
  -98
  -102
  -106
  -110
  -115
  -120
  -125
  -131
  -137
  -143
  -149
  -156
  -163
  -171
  -179
Cash from investing activities, $m
  -85
  -90
  -97
  -104
  -111
  -118
  -126
  -133
  -141
  -149
  -157
  -167
  -176
  -185
  -195
  -206
  -216
  -228
  -239
  -252
  -265
  -278
  -293
  -308
  -324
  -340
  -357
  -375
  -394
  -414
Free cash flow, $m
  49
  57
  65
  74
  83
  92
  103
  113
  124
  136
  143
  156
  169
  182
  196
  211
  226
  242
  258
  275
  292
  310
  329
  349
  369
  390
  413
  436
  460
  485
Issuance/(repayment) of debt, $m
  75
  79
  83
  87
  91
  95
  99
  103
  107
  111
  115
  120
  124
  129
  134
  140
  146
  152
  158
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
  255
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  
  75
  79
  83
  87
  91
  95
  99
  103
  107
  111
  115
  120
  124
  129
  134
  140
  146
  152
  158
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
  255
Total cash flow (excl. dividends), $m
  125
  136
  148
  161
  174
  187
  201
  216
  231
  247
  258
  275
  293
  311
  331
  351
  372
  393
  416
  439
  464
  489
  516
  544
  573
  604
  636
  669
  704
  740
Retained Cash Flow (-), $m
  -96
  -101
  -106
  -111
  -116
  -120
  -125
  -130
  -136
  -141
  -147
  -152
  -158
  -165
  -171
  -178
  -185
  -193
  -201
  -210
  -219
  -228
  -238
  -249
  -260
  -271
  -284
  -297
  -311
  -325
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
  28
  35
  42
  50
  58
  67
  76
  85
  95
  106
  112
  123
  135
  147
  160
  173
  186
  200
  215
  230
  245
  261
  278
  296
  314
  332
  352
  372
  393
  415
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  27
  32
  37
  41
  45
  48
  51
  53
  55
  56
  53
  52
  51
  49
  47
  44
  41
  37
  33
  29
  25
  22
  18
  15
  12
  10
  8
  6
  4
  3
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

Innospec Inc. is a specialty chemicals company engaged in developing, manufacturing, blending, marketing and supplying of specialty chemicals for use as fuel additives and ingredients for personal care, home care, agrochemical, mining and other applications and oilfield chemicals. The Company operates through four business segments: Fuel Specialties, Performance Chemicals, Oilfield Services and Octane Additives. Its Fuel Specialties develops, manufactures, blends, markets and supplies various specialty chemical products that are used as additives for a range of fuels. Its Performance Chemicals provides technology-based solutions. Its Oilfield Services business supplies drilling, completion and production chemicals. Its Octane Additives business manufactures a fuel additive for use in automotive gasoline and provides services in respect of environmental remediation. Its customers include oil and gas exploration and production companies, fuel users, and oil refiners among others.

FINANCIAL RATIOS  of  Innospec Inc. (IOSP)

Valuation Ratios
P/E Ratio 24.8
Price to Sales 2.3
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 19.1
Price to Free Cash Flow 22.8
Growth Rates
Sales Growth Rate -12.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -34.6%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio 9
Current Ratio 0
LT Debt to Equity 39.9%
Total Debt to Equity 41.7%
Interest Coverage 35
Management Effectiveness
Return On Assets 7.5%
Ret/ On Assets - 3 Yr. Avg. 9.7%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 13.6%
Return On Equity 12.9%
Return On Equity - 3 Yr. Avg. 17.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 37.6%
Gross Margin - 3 Yr. Avg. 34.4%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 16.6%
Operating Margin 11.9%
Oper. Margin - 3 Yr. Avg. 13%
Pre-Tax Margin 11.7%
Pre-Tax Margin - 3 Yr. Avg. 12.7%
Net Profit Margin 9.2%
Net Profit Margin - 3 Yr. Avg. 9.9%
Effective Tax Rate 21.4%
Eff/ Tax Rate - 3 Yr. Avg. 22.2%
Payout Ratio 19.8%

IOSP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IOSP stock intrinsic value calculation we used $1477 million for the last fiscal year's total revenue generated by Innospec Inc.. The default revenue input number comes from 0001 income statement of Innospec Inc.. 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 IOSP stock valuation model: a) initial revenue growth rate of 11.6% 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 4.3%, whose default value for IOSP is calculated based on our internal credit rating of Innospec Inc., 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 Innospec Inc..
    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 IOSP stock the variable cost ratio is equal to 90.3%.

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 IOSP 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 Innospec Inc..

Corporate tax rate of 27% is the nominal tax rate for Innospec Inc.. 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 IOSP 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 IOSP are equal to 30.7%.

Life of production assets of 14.3 years is the average useful life of capital assets used in Innospec Inc. 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 IOSP is equal to 18.1%. 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 - $825 million for Innospec Inc. - 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 24.440 million for Innospec Inc. 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 Innospec Inc. at the current share price and the inputted number of shares is $2.0 billion.

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