Intrinsic value of MDU Resources Group, Inc. - MDU

Previous Close

$25.79

  Intrinsic Value

$8.48

stock screener

  Rating & Target

str. sell

-67%

Previous close

$25.79

 
Intrinsic value

$8.48

 
Up/down potential

-67%

 
Rating

str. sell

We calculate the intrinsic value of MDU 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 5.1

 

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, %
  3.80
  3.92
  4.03
  4.13
  4.21
  4.29
  4.36
  4.43
  4.48
  4.54
  4.58
  4.62
  4.66
  4.69
  4.73
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
Revenue, $m
  4,704
  4,889
  5,086
  5,295
  5,518
  5,755
  6,006
  6,272
  6,553
  6,851
  7,164
  7,496
  7,845
  8,213
  8,601
  9,010
  9,441
  9,894
  10,371
  10,872
  11,400
  11,955
  12,539
  13,153
  13,798
  14,476
  15,188
  15,937
  16,724
  17,550
Variable operating expenses, $m
  4,250
  4,414
  4,589
  4,776
  4,974
  5,184
  5,408
  5,644
  5,894
  6,158
  6,370
  6,664
  6,975
  7,302
  7,647
  8,011
  8,394
  8,796
  9,220
  9,667
  10,136
  10,629
  11,148
  11,694
  12,267
  12,870
  13,504
  14,169
  14,869
  15,604
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
  4,250
  4,414
  4,589
  4,776
  4,974
  5,184
  5,408
  5,644
  5,894
  6,158
  6,370
  6,664
  6,975
  7,302
  7,647
  8,011
  8,394
  8,796
  9,220
  9,667
  10,136
  10,629
  11,148
  11,694
  12,267
  12,870
  13,504
  14,169
  14,869
  15,604
Operating income, $m
  454
  475
  496
  520
  544
  571
  599
  628
  659
  692
  795
  831
  870
  911
  954
  999
  1,047
  1,097
  1,150
  1,206
  1,264
  1,326
  1,391
  1,459
  1,530
  1,606
  1,685
  1,768
  1,855
  1,947
EBITDA, $m
  736
  765
  795
  828
  863
  900
  939
  981
  1,025
  1,071
  1,121
  1,172
  1,227
  1,285
  1,345
  1,409
  1,477
  1,547
  1,622
  1,700
  1,783
  1,870
  1,961
  2,057
  2,158
  2,264
  2,375
  2,493
  2,616
  2,745
Interest expense (income), $m
  88
  114
  123
  133
  143
  154
  166
  178
  191
  205
  220
  236
  252
  270
  288
  308
  328
  350
  372
  396
  421
  448
  476
  505
  536
  568
  602
  638
  675
  714
  756
Earnings before tax, $m
  340
  352
  364
  377
  390
  405
  420
  437
  454
  472
  559
  579
  600
  623
  646
  671
  697
  725
  754
  785
  817
  850
  886
  923
  963
  1,004
  1,047
  1,093
  1,140
  1,191
Tax expense, $m
  92
  95
  98
  102
  105
  109
  113
  118
  123
  127
  151
  156
  162
  168
  175
  181
  188
  196
  204
  212
  221
  230
  239
  249
  260
  271
  283
  295
  308
  321
Net income, $m
  248
  257
  266
  275
  285
  296
  307
  319
  331
  345
  408
  423
  438
  455
  472
  490
  509
  529
  550
  573
  596
  621
  647
  674
  703
  733
  764
  798
  833
  869

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
  7,248
  7,533
  7,836
  8,159
  8,503
  8,868
  9,255
  9,664
  10,098
  10,556
  11,039
  11,549
  12,088
  12,655
  13,253
  13,883
  14,547
  15,245
  15,980
  16,753
  17,566
  18,421
  19,320
  20,266
  21,260
  22,304
  23,402
  24,556
  25,769
  27,042
Adjusted assets (=assets-cash), $m
  7,248
  7,533
  7,836
  8,159
  8,503
  8,868
  9,255
  9,664
  10,098
  10,556
  11,039
  11,549
  12,088
  12,655
  13,253
  13,883
  14,547
  15,245
  15,980
  16,753
  17,566
  18,421
  19,320
  20,266
  21,260
  22,304
  23,402
  24,556
  25,769
  27,042
Revenue / Adjusted assets
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
Average production assets, $m
  4,836
  5,026
  5,228
  5,444
  5,673
  5,916
  6,174
  6,448
  6,737
  7,042
  7,365
  7,705
  8,065
  8,443
  8,842
  9,263
  9,705
  10,171
  10,661
  11,177
  11,719
  12,290
  12,890
  13,521
  14,184
  14,881
  15,613
  16,383
  17,192
  18,042
Working capital, $m
  409
  425
  442
  461
  480
  501
  523
  546
  570
  596
  623
  652
  683
  715
  748
  784
  821
  861
  902
  946
  992
  1,040
  1,091
  1,144
  1,200
  1,259
  1,321
  1,387
  1,455
  1,527
Total debt, $m
  2,276
  2,455
  2,648
  2,852
  3,070
  3,301
  3,546
  3,805
  4,079
  4,369
  4,675
  4,998
  5,339
  5,698
  6,077
  6,475
  6,895
  7,337
  7,802
  8,292
  8,807
  9,348
  9,917
  10,516
  11,145
  11,806
  12,501
  13,231
  13,999
  14,805
Total liabilities, $m
  4,588
  4,768
  4,960
  5,165
  5,382
  5,613
  5,858
  6,117
  6,392
  6,682
  6,988
  7,311
  7,652
  8,011
  8,389
  8,788
  9,208
  9,650
  10,115
  10,604
  11,119
  11,661
  12,230
  12,828
  13,457
  14,119
  14,814
  15,544
  16,311
  17,118
Total equity, $m
  2,660
  2,764
  2,876
  2,994
  3,121
  3,254
  3,396
  3,547
  3,706
  3,874
  4,051
  4,239
  4,436
  4,645
  4,864
  5,095
  5,339
  5,595
  5,865
  6,148
  6,447
  6,761
  7,091
  7,438
  7,802
  8,186
  8,589
  9,012
  9,457
  9,925
Total liabilities and equity, $m
  7,248
  7,532
  7,836
  8,159
  8,503
  8,867
  9,254
  9,664
  10,098
  10,556
  11,039
  11,550
  12,088
  12,656
  13,253
  13,883
  14,547
  15,245
  15,980
  16,752
  17,566
  18,422
  19,321
  20,266
  21,259
  22,305
  23,403
  24,556
  25,768
  27,043
Debt-to-equity ratio
  0.860
  0.890
  0.920
  0.950
  0.980
  1.010
  1.040
  1.070
  1.100
  1.130
  1.150
  1.180
  1.200
  1.230
  1.250
  1.270
  1.290
  1.310
  1.330
  1.350
  1.370
  1.380
  1.400
  1.410
  1.430
  1.440
  1.460
  1.470
  1.480
  1.490
Adjusted equity ratio
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367
  0.367

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  248
  257
  266
  275
  285
  296
  307
  319
  331
  345
  408
  423
  438
  455
  472
  490
  509
  529
  550
  573
  596
  621
  647
  674
  703
  733
  764
  798
  833
  869
Depreciation, amort., depletion, $m
  282
  290
  299
  308
  319
  329
  341
  353
  366
  379
  326
  341
  357
  374
  391
  410
  429
  450
  472
  495
  519
  544
  570
  598
  628
  658
  691
  725
  761
  798
Funds from operations, $m
  530
  547
  565
  584
  604
  625
  648
  672
  697
  724
  734
  764
  795
  828
  863
  900
  939
  979
  1,022
  1,067
  1,115
  1,165
  1,217
  1,272
  1,330
  1,391
  1,455
  1,523
  1,593
  1,668
Change in working capital, $m
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  37
  39
  41
  44
  46
  48
  51
  53
  56
  59
  62
  65
  68
  72
Cash from operations, $m
  515
  531
  547
  565
  584
  604
  626
  649
  673
  698
  706
  735
  765
  796
  829
  864
  901
  940
  981
  1,024
  1,069
  1,116
  1,166
  1,219
  1,274
  1,332
  1,393
  1,457
  1,525
  1,596
Maintenance CAPEX, $m
  -206
  -214
  -222
  -231
  -241
  -251
  -262
  -273
  -285
  -298
  -312
  -326
  -341
  -357
  -374
  -391
  -410
  -429
  -450
  -472
  -495
  -519
  -544
  -570
  -598
  -628
  -658
  -691
  -725
  -761
New CAPEX, $m
  -179
  -190
  -202
  -216
  -229
  -243
  -258
  -273
  -289
  -306
  -323
  -341
  -359
  -379
  -399
  -420
  -443
  -466
  -490
  -516
  -543
  -571
  -600
  -631
  -663
  -697
  -733
  -770
  -809
  -850
Cash from investing activities, $m
  -385
  -404
  -424
  -447
  -470
  -494
  -520
  -546
  -574
  -604
  -635
  -667
  -700
  -736
  -773
  -811
  -853
  -895
  -940
  -988
  -1,038
  -1,090
  -1,144
  -1,201
  -1,261
  -1,325
  -1,391
  -1,461
  -1,534
  -1,611
Free cash flow, $m
  130
  127
  123
  118
  114
  110
  106
  102
  98
  94
  72
  68
  65
  61
  57
  53
  49
  45
  40
  36
  32
  27
  23
  18
  13
  8
  2
  -3
  -9
  -15
Issuance/(repayment) of debt, $m
  167
  180
  192
  205
  218
  231
  245
  259
  274
  290
  306
  323
  341
  359
  379
  399
  420
  442
  465
  489
  515
  541
  569
  598
  629
  661
  695
  730
  767
  806
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  
  167
  180
  192
  205
  218
  231
  245
  259
  274
  290
  306
  323
  341
  359
  379
  399
  420
  442
  465
  489
  515
  541
  569
  598
  629
  661
  695
  730
  767
  806
Total cash flow (excl. dividends), $m
  297
  307
  315
  323
  332
  341
  351
  361
  372
  384
  378
  391
  405
  420
  435
  452
  469
  487
  506
  526
  547
  569
  592
  616
  642
  669
  697
  727
  758
  791
Retained Cash Flow (-), $m
  -93
  -104
  -111
  -119
  -126
  -134
  -142
  -150
  -159
  -168
  -177
  -187
  -198
  -208
  -219
  -231
  -243
  -256
  -270
  -284
  -298
  -314
  -330
  -347
  -365
  -383
  -403
  -423
  -445
  -468
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
  203
  203
  203
  204
  205
  207
  209
  211
  213
  216
  201
  204
  208
  212
  216
  220
  225
  230
  236
  242
  248
  255
  262
  269
  277
  286
  294
  304
  313
  324
Discount rate, %
  6.90
  7.25
  7.61
  7.99
  8.39
  8.81
  9.25
  9.71
  10.19
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.61
  17.44
  18.31
  19.22
  20.18
  21.19
  22.25
  23.37
  24.53
  25.76
  27.05
  28.40
PV of cash for distribution, $m
  190
  176
  163
  150
  137
  125
  112
  101
  89
  78
  62
  54
  45
  38
  32
  26
  21
  16
  13
  10
  7
  5
  4
  3
  2
  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
  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

MDU Resources Group, Inc. is engaged in regulated energy delivery and construction materials and services business. The Company's businesses segments are electric, natural gas distribution, pipeline and midstream, construction materials and contracting, and construction services. The electric segment generates, transmits and distributes electricity. The natural gas distribution segment distributes natural gas. The pipeline and midstream segment provides natural gas transportation, underground storage, processing and gathering services, as well as oil gathering. The construction materials and contracting segment mines aggregates and markets crushed stone, sand, gravel and related construction materials, including ready-mixed concrete, asphalt, liquid asphalt and other value-added products. The construction services segment provides utility construction services in constructing and maintaining electric and communication lines, and external lighting and traffic signalization.

FINANCIAL RATIOS  of  MDU Resources Group, Inc. (MDU)

Valuation Ratios
P/E Ratio 78.7
Price to Sales 1.2
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 10.9
Price to Free Cash Flow 68.1
Growth Rates
Sales Growth Rate 2.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -27.7%
Cap. Spend. - 3 Yr. Gr. Rate -6.1%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 75.4%
Total Debt to Equity 77.3%
Interest Coverage 5
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. -0.3%
Return On Total Capital 1.5%
Ret/ On T. Cap. - 3 Yr. Avg. -1.9%
Return On Equity 2.7%
Return On Equity - 3 Yr. Avg. -3.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 15.3%
EBITDA Margin - 3 Yr. Avg. 14%
Operating Margin 9.9%
Oper. Margin - 3 Yr. Avg. 8.6%
Pre-Tax Margin 7.9%
Pre-Tax Margin - 3 Yr. Avg. 6.7%
Net Profit Margin 1.6%
Net Profit Margin - 3 Yr. Avg. -2.2%
Effective Tax Rate 28.5%
Eff/ Tax Rate - 3 Yr. Avg. 27.7%
Payout Ratio 229.7%

MDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MDU stock intrinsic value calculation we used $4532 million for the last fiscal year's total revenue generated by MDU Resources Group, Inc.. The default revenue input number comes from 0001 income statement of MDU Resources Group, 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 MDU stock valuation model: a) initial revenue growth rate of 3.8% 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 6.9%, whose default value for MDU is calculated based on our internal credit rating of MDU Resources Group, 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 MDU Resources Group, 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 MDU stock the variable cost ratio is equal to 90.4%.

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 MDU 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 MDU Resources Group, Inc..

Corporate tax rate of 27% is the nominal tax rate for MDU Resources Group, 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 MDU 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 MDU are equal to 102.8%.

Life of production assets of 22.6 years is the average useful life of capital assets used in MDU Resources Group, 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 MDU is equal to 8.7%. 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 - $2566.775 million for MDU Resources Group, 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 196.117 million for MDU Resources Group, 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 MDU Resources Group, Inc. at the current share price and the inputted number of shares is $5.1 billion.

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