Intrinsic value of Mercer International Inc. - MERC

Previous Close

$13.15

  Intrinsic Value

$86.61

stock screener

  Rating & Target

str. buy

+559%

Previous close

$13.15

 
Intrinsic value

$86.61

 
Up/down potential

+559%

 
Rating

str. buy

We calculate the intrinsic value of MERC 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 0.9

 

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, %
  22.10
  20.39
  18.85
  17.47
  16.22
  15.10
  14.09
  13.18
  12.36
  11.62
  10.96
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.68
  6.52
  6.36
  6.23
  6.10
  5.99
  5.89
  5.81
Revenue, $m
  1,780
  2,143
  2,547
  2,992
  3,477
  4,002
  4,566
  5,168
  5,807
  6,482
  7,192
  7,938
  8,718
  9,533
  10,383
  11,267
  12,188
  13,145
  14,139
  15,173
  16,247
  17,364
  18,524
  19,731
  20,987
  22,294
  23,655
  25,073
  26,551
  28,092
Variable operating expenses, $m
  1,164
  1,400
  1,663
  1,952
  2,268
  2,609
  2,976
  3,367
  3,782
  4,221
  4,676
  5,160
  5,667
  6,197
  6,749
  7,325
  7,923
  8,545
  9,192
  9,863
  10,562
  11,287
  12,042
  12,826
  13,643
  14,492
  15,377
  16,299
  17,260
  18,262
Fixed operating expenses, $m
  245
  251
  256
  262
  268
  273
  279
  286
  292
  298
  305
  312
  318
  325
  333
  340
  347
  355
  363
  371
  379
  387
  396
  405
  414
  423
  432
  441
  451
  461
Total operating expenses, $m
  1,409
  1,651
  1,919
  2,214
  2,536
  2,882
  3,255
  3,653
  4,074
  4,519
  4,981
  5,472
  5,985
  6,522
  7,082
  7,665
  8,270
  8,900
  9,555
  10,234
  10,941
  11,674
  12,438
  13,231
  14,057
  14,915
  15,809
  16,740
  17,711
  18,723
Operating income, $m
  370
  492
  628
  778
  942
  1,120
  1,311
  1,516
  1,733
  1,963
  2,212
  2,466
  2,732
  3,011
  3,301
  3,603
  3,918
  4,245
  4,585
  4,939
  5,306
  5,689
  6,086
  6,500
  6,931
  7,379
  7,846
  8,332
  8,840
  9,369
EBITDA, $m
  493
  638
  800
  979
  1,174
  1,386
  1,613
  1,857
  2,115
  2,389
  2,677
  2,979
  3,296
  3,626
  3,972
  4,331
  4,705
  5,094
  5,499
  5,919
  6,356
  6,811
  7,283
  7,775
  8,286
  8,819
  9,374
  9,952
  10,555
  11,184
Interest expense (income), $m
  50
  58
  75
  94
  115
  138
  163
  190
  219
  250
  283
  318
  354
  393
  433
  475
  519
  565
  612
  662
  713
  767
  822
  880
  940
  1,002
  1,067
  1,134
  1,205
  1,278
  1,354
Earnings before tax, $m
  312
  417
  534
  663
  805
  957
  1,122
  1,297
  1,483
  1,680
  1,894
  2,112
  2,339
  2,577
  2,825
  3,084
  3,353
  3,632
  3,923
  4,226
  4,540
  4,867
  5,207
  5,560
  5,929
  6,312
  6,712
  7,128
  7,562
  8,015
Tax expense, $m
  84
  113
  144
  179
  217
  258
  303
  350
  400
  454
  511
  570
  632
  696
  763
  833
  905
  981
  1,059
  1,141
  1,226
  1,314
  1,406
  1,501
  1,601
  1,704
  1,812
  1,925
  2,042
  2,164
Net income, $m
  228
  305
  390
  484
  587
  699
  819
  947
  1,083
  1,226
  1,383
  1,542
  1,708
  1,881
  2,063
  2,251
  2,447
  2,652
  2,864
  3,085
  3,314
  3,553
  3,801
  4,059
  4,328
  4,608
  4,899
  5,203
  5,520
  5,851

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
  2,358
  2,839
  3,374
  3,963
  4,606
  5,301
  6,048
  6,845
  7,691
  8,585
  9,526
  10,514
  11,547
  12,627
  13,752
  14,924
  16,143
  17,410
  18,728
  20,097
  21,519
  22,998
  24,535
  26,134
  27,797
  29,528
  31,331
  33,209
  35,166
  37,208
Adjusted assets (=assets-cash), $m
  2,358
  2,839
  3,374
  3,963
  4,606
  5,301
  6,048
  6,845
  7,691
  8,585
  9,526
  10,514
  11,547
  12,627
  13,752
  14,924
  16,143
  17,410
  18,728
  20,097
  21,519
  22,998
  24,535
  26,134
  27,797
  29,528
  31,331
  33,209
  35,166
  37,208
Revenue / Adjusted assets
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
  0.755
Average production assets, $m
  1,173
  1,412
  1,679
  1,972
  2,292
  2,638
  3,009
  3,406
  3,827
  4,272
  4,740
  5,231
  5,745
  6,282
  6,842
  7,425
  8,032
  8,662
  9,318
  9,999
  10,707
  11,443
  12,207
  13,003
  13,830
  14,692
  15,588
  16,523
  17,497
  18,513
Working capital, $m
  458
  551
  655
  769
  894
  1,029
  1,174
  1,328
  1,492
  1,666
  1,848
  2,040
  2,241
  2,450
  2,668
  2,896
  3,132
  3,378
  3,634
  3,899
  4,176
  4,462
  4,761
  5,071
  5,394
  5,729
  6,079
  6,444
  6,824
  7,220
Total debt, $m
  1,388
  1,735
  2,122
  2,547
  3,011
  3,513
  4,052
  4,628
  5,239
  5,884
  6,564
  7,277
  8,023
  8,802
  9,615
  10,461
  11,341
  12,256
  13,207
  14,196
  15,223
  16,290
  17,400
  18,554
  19,755
  21,005
  22,306
  23,662
  25,076
  26,550
Total liabilities, $m
  1,702
  2,050
  2,436
  2,861
  3,325
  3,827
  4,367
  4,942
  5,553
  6,199
  6,878
  7,591
  8,337
  9,117
  9,929
  10,775
  11,655
  12,570
  13,521
  14,510
  15,537
  16,605
  17,714
  18,869
  20,069
  21,319
  22,621
  23,977
  25,390
  26,864
Total equity, $m
  655
  789
  938
  1,102
  1,280
  1,474
  1,681
  1,903
  2,138
  2,387
  2,648
  2,923
  3,210
  3,510
  3,823
  4,149
  4,488
  4,840
  5,206
  5,587
  5,982
  6,393
  6,821
  7,265
  7,728
  8,209
  8,710
  9,232
  9,776
  10,344
Total liabilities and equity, $m
  2,357
  2,839
  3,374
  3,963
  4,605
  5,301
  6,048
  6,845
  7,691
  8,586
  9,526
  10,514
  11,547
  12,627
  13,752
  14,924
  16,143
  17,410
  18,727
  20,097
  21,519
  22,998
  24,535
  26,134
  27,797
  29,528
  31,331
  33,209
  35,166
  37,208
Debt-to-equity ratio
  2.120
  2.200
  2.260
  2.310
  2.350
  2.380
  2.410
  2.430
  2.450
  2.470
  2.480
  2.490
  2.500
  2.510
  2.510
  2.520
  2.530
  2.530
  2.540
  2.540
  2.540
  2.550
  2.550
  2.550
  2.560
  2.560
  2.560
  2.560
  2.560
  2.570
Adjusted equity ratio
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278
  0.278

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  228
  305
  390
  484
  587
  699
  819
  947
  1,083
  1,226
  1,383
  1,542
  1,708
  1,881
  2,063
  2,251
  2,447
  2,652
  2,864
  3,085
  3,314
  3,553
  3,801
  4,059
  4,328
  4,608
  4,899
  5,203
  5,520
  5,851
Depreciation, amort., depletion, $m
  122
  146
  172
  201
  232
  266
  302
  341
  382
  426
  465
  513
  563
  616
  671
  728
  787
  849
  914
  980
  1,050
  1,122
  1,197
  1,275
  1,356
  1,440
  1,528
  1,620
  1,715
  1,815
Funds from operations, $m
  350
  450
  562
  685
  819
  965
  1,121
  1,288
  1,465
  1,652
  1,848
  2,054
  2,271
  2,497
  2,733
  2,979
  3,235
  3,501
  3,777
  4,065
  4,364
  4,675
  4,998
  5,334
  5,684
  6,048
  6,428
  6,823
  7,236
  7,666
Change in working capital, $m
  83
  93
  104
  114
  125
  135
  145
  155
  164
  173
  183
  192
  201
  209
  218
  227
  237
  246
  256
  266
  276
  287
  298
  310
  323
  336
  350
  364
  380
  396
Cash from operations, $m
  267
  357
  458
  571
  694
  830
  976
  1,133
  1,301
  1,479
  1,665
  1,863
  2,071
  2,288
  2,515
  2,752
  2,998
  3,255
  3,522
  3,799
  4,088
  4,388
  4,699
  5,024
  5,361
  5,712
  6,078
  6,459
  6,856
  7,270
Maintenance CAPEX, $m
  -94
  -115
  -138
  -165
  -193
  -225
  -259
  -295
  -334
  -375
  -419
  -465
  -513
  -563
  -616
  -671
  -728
  -787
  -849
  -914
  -980
  -1,050
  -1,122
  -1,197
  -1,275
  -1,356
  -1,440
  -1,528
  -1,620
  -1,715
New CAPEX, $m
  -212
  -239
  -266
  -293
  -320
  -346
  -372
  -397
  -421
  -445
  -468
  -491
  -514
  -537
  -560
  -583
  -607
  -631
  -655
  -681
  -708
  -736
  -765
  -795
  -827
  -861
  -897
  -934
  -974
  -1,016
Cash from investing activities, $m
  -306
  -354
  -404
  -458
  -513
  -571
  -631
  -692
  -755
  -820
  -887
  -956
  -1,027
  -1,100
  -1,176
  -1,254
  -1,335
  -1,418
  -1,504
  -1,595
  -1,688
  -1,786
  -1,887
  -1,992
  -2,102
  -2,217
  -2,337
  -2,462
  -2,594
  -2,731
Free cash flow, $m
  -39
  3
  53
  113
  181
  259
  346
  442
  546
  659
  778
  907
  1,043
  1,188
  1,339
  1,498
  1,664
  1,837
  2,017
  2,205
  2,400
  2,602
  2,813
  3,032
  3,259
  3,495
  3,741
  3,996
  4,262
  4,539
Issuance/(repayment) of debt, $m
  308
  347
  386
  425
  464
  502
  539
  575
  611
  646
  680
  713
  746
  779
  812
  846
  880
  915
  951
  988
  1,027
  1,068
  1,110
  1,154
  1,201
  1,250
  1,302
  1,356
  1,413
  1,474
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  
  308
  347
  386
  425
  464
  502
  539
  575
  611
  646
  680
  713
  746
  779
  812
  846
  880
  915
  951
  988
  1,027
  1,068
  1,110
  1,154
  1,201
  1,250
  1,302
  1,356
  1,413
  1,474
Total cash flow (excl. dividends), $m
  270
  350
  440
  538
  645
  761
  885
  1,017
  1,157
  1,304
  1,457
  1,620
  1,790
  1,967
  2,152
  2,344
  2,544
  2,752
  2,968
  3,193
  3,427
  3,670
  3,923
  4,186
  4,460
  4,745
  5,042
  5,352
  5,675
  6,013
Retained Cash Flow (-), $m
  -119
  -134
  -149
  -164
  -179
  -193
  -208
  -222
  -235
  -249
  -262
  -275
  -287
  -300
  -313
  -326
  -339
  -352
  -366
  -381
  -395
  -411
  -427
  -444
  -462
  -481
  -501
  -522
  -544
  -568
Prev. year cash balance distribution, $m
  45
  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
  195
  216
  291
  374
  467
  568
  677
  795
  922
  1,056
  1,196
  1,345
  1,502
  1,667
  1,839
  2,018
  2,205
  2,400
  2,602
  2,813
  3,031
  3,259
  3,495
  3,741
  3,997
  4,264
  4,541
  4,830
  5,131
  5,445
Discount rate, %
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.51
  9.99
  10.49
  11.01
  11.57
  12.14
  12.75
  13.39
  14.06
  14.76
  15.50
  16.27
  17.09
  17.94
  18.84
  19.78
  20.77
  21.81
  22.90
  24.04
  25.25
  26.51
  27.83
  29.22
PV of cash for distribution, $m
  182
  187
  232
  273
  309
  337
  359
  371
  376
  371
  359
  340
  316
  287
  256
  223
  190
  159
  130
  104
  81
  61
  46
  33
  23
  16
  10
  7
  4
  2
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

Mercer International Inc. is a producer of northern bleached softwood kraft (NBSK) pulp, which is pulp that is sold on the open market. The Company also produces and sells tall oil, a by-product of its production process, which is used as both a chemical additive and as a green energy source. It produces and sells NBSK pulp, which is a bleached kraft pulp manufactured using northern softwood. As of December 31, 2016, the Company operated two mills in Eastern Germany and one mill in Western Canada. As of December 31, 2016, its three NBSK pulp mills had consolidated annual production capacity of approximately 1.5 million air-dried metric tons (ADMTs) of NBSK pulp and were capable of generating 305 megawatts (MW) of electricity. Additionally, its German mills generate tall oil from black liquor, which is sold to third parties for use in various applications, including bio-fuels. The Company's mills generate and sell energy to regional utilities.

FINANCIAL RATIOS  of  Mercer International Inc. (MERC)

Valuation Ratios
P/E Ratio 24.3
Price to Sales 0.9
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 6
Price to Free Cash Flow 8.8
Growth Rates
Sales Growth Rate -9.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -12%
Cap. Spend. - 3 Yr. Gr. Rate -0.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 169.9%
Total Debt to Equity 169.9%
Interest Coverage 2
Management Effectiveness
Return On Assets 5.5%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 3.4%
Ret/ On T. Cap. - 3 Yr. Avg. 6.5%
Return On Equity 9.2%
Return On Equity - 3 Yr. Avg. 18.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 17%
Gross Margin - 3 Yr. Avg. 18.4%
EBITDA Margin 19.4%
EBITDA Margin - 3 Yr. Avg. 20.7%
Operating Margin 12.2%
Oper. Margin - 3 Yr. Avg. 14.1%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 8.4%
Net Profit Margin 3.8%
Net Profit Margin - 3 Yr. Avg. 6.9%
Effective Tax Rate 40.7%
Eff/ Tax Rate - 3 Yr. Avg. 17.3%
Payout Ratio 85.7%

MERC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MERC stock intrinsic value calculation we used $1458 million for the last fiscal year's total revenue generated by Mercer International Inc.. The default revenue input number comes from 0001 income statement of Mercer International 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 MERC stock valuation model: a) initial revenue growth rate of 22.1% 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 7.1%, whose default value for MERC is calculated based on our internal credit rating of Mercer International 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 Mercer International 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 MERC stock the variable cost ratio is equal to 65.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $240 million in the base year in the intrinsic value calculation for MERC 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 Mercer International Inc..

Corporate tax rate of 27% is the nominal tax rate for Mercer International 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 MERC 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 MERC are equal to 65.9%.

Life of production assets of 10.2 years is the average useful life of capital assets used in Mercer International 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 MERC is equal to 25.7%. 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 - $581.429 million for Mercer International 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 65.201 million for Mercer International 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 Mercer International Inc. at the current share price and the inputted number of shares is $0.9 billion.

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