Intrinsic value of MGE Energy Inc. - MGEE

Previous Close

$65.92

  Intrinsic Value

$10.60

stock screener

  Rating & Target

str. sell

-84%

Previous close

$65.92

 
Intrinsic value

$10.60

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of MGEE 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 2.3

 

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, %
  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
  571
  584
  599
  616
  635
  655
  678
  702
  728
  756
  786
  818
  852
  888
  926
  967
  1,009
  1,055
  1,103
  1,154
  1,207
  1,263
  1,323
  1,385
  1,451
  1,521
  1,594
  1,671
  1,752
  1,837
Variable operating expenses, $m
  445
  455
  467
  480
  495
  511
  528
  547
  567
  589
  612
  637
  663
  691
  721
  753
  786
  822
  859
  899
  940
  984
  1,031
  1,079
  1,131
  1,185
  1,242
  1,302
  1,365
  1,431
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
  445
  455
  467
  480
  495
  511
  528
  547
  567
  589
  612
  637
  663
  691
  721
  753
  786
  822
  859
  899
  940
  984
  1,031
  1,079
  1,131
  1,185
  1,242
  1,302
  1,365
  1,431
Operating income, $m
  126
  129
  132
  136
  140
  145
  150
  155
  161
  167
  174
  181
  188
  196
  205
  214
  223
  233
  244
  255
  267
  279
  292
  306
  321
  336
  352
  369
  387
  406
EBITDA, $m
  184
  188
  193
  198
  204
  211
  218
  226
  234
  243
  253
  263
  274
  285
  298
  311
  325
  339
  355
  371
  388
  406
  425
  446
  467
  489
  513
  537
  563
  591
Interest expense (income), $m
  19
  28
  29
  30
  32
  34
  36
  38
  41
  43
  46
  50
  53
  57
  60
  64
  69
  73
  78
  83
  89
  94
  100
  107
  114
  121
  128
  136
  144
  153
  162
Earnings before tax, $m
  99
  100
  102
  104
  107
  109
  112
  114
  117
  121
  124
  128
  132
  136
  140
  145
  150
  155
  160
  166
  172
  179
  186
  193
  200
  208
  216
  225
  234
  244
Tax expense, $m
  27
  27
  28
  28
  29
  29
  30
  31
  32
  33
  34
  34
  36
  37
  38
  39
  40
  42
  43
  45
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
Net income, $m
  72
  73
  75
  76
  78
  80
  81
  83
  86
  88
  91
  93
  96
  99
  102
  106
  109
  113
  117
  121
  126
  131
  135
  141
  146
  152
  158
  164
  171
  178

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
  2,026
  2,072
  2,125
  2,185
  2,251
  2,324
  2,403
  2,489
  2,581
  2,680
  2,786
  2,899
  3,020
  3,148
  3,283
  3,427
  3,580
  3,741
  3,911
  4,091
  4,280
  4,480
  4,691
  4,913
  5,147
  5,393
  5,652
  5,925
  6,212
  6,514
Adjusted assets (=assets-cash), $m
  2,026
  2,072
  2,125
  2,185
  2,251
  2,324
  2,403
  2,489
  2,581
  2,680
  2,786
  2,899
  3,020
  3,148
  3,283
  3,427
  3,580
  3,741
  3,911
  4,091
  4,280
  4,480
  4,691
  4,913
  5,147
  5,393
  5,652
  5,925
  6,212
  6,514
Revenue / Adjusted assets
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
Average production assets, $m
  1,454
  1,487
  1,525
  1,568
  1,616
  1,668
  1,725
  1,786
  1,853
  1,924
  2,000
  2,081
  2,167
  2,259
  2,357
  2,460
  2,569
  2,685
  2,807
  2,936
  3,072
  3,215
  3,367
  3,526
  3,694
  3,871
  4,057
  4,252
  4,458
  4,675
Working capital, $m
  55
  57
  58
  60
  62
  64
  66
  68
  71
  73
  76
  79
  83
  86
  90
  94
  98
  102
  107
  112
  117
  123
  128
  134
  141
  148
  155
  162
  170
  178
Total debt, $m
  532
  559
  591
  626
  665
  708
  754
  805
  859
  918
  980
  1,047
  1,118
  1,193
  1,273
  1,358
  1,447
  1,542
  1,642
  1,748
  1,860
  1,978
  2,102
  2,233
  2,371
  2,516
  2,668
  2,829
  2,998
  3,176
Total liabilities, $m
  1,193
  1,220
  1,252
  1,287
  1,326
  1,369
  1,416
  1,466
  1,520
  1,579
  1,641
  1,708
  1,779
  1,854
  1,934
  2,019
  2,108
  2,203
  2,304
  2,409
  2,521
  2,639
  2,763
  2,894
  3,032
  3,177
  3,329
  3,490
  3,659
  3,837
Total equity, $m
  832
  852
  874
  898
  925
  955
  988
  1,023
  1,061
  1,102
  1,145
  1,192
  1,241
  1,294
  1,350
  1,409
  1,471
  1,537
  1,607
  1,681
  1,759
  1,841
  1,928
  2,019
  2,115
  2,217
  2,323
  2,435
  2,553
  2,677
Total liabilities and equity, $m
  2,025
  2,072
  2,126
  2,185
  2,251
  2,324
  2,404
  2,489
  2,581
  2,681
  2,786
  2,900
  3,020
  3,148
  3,284
  3,428
  3,579
  3,740
  3,911
  4,090
  4,280
  4,480
  4,691
  4,913
  5,147
  5,394
  5,652
  5,925
  6,212
  6,514
Debt-to-equity ratio
  0.640
  0.660
  0.680
  0.700
  0.720
  0.740
  0.760
  0.790
  0.810
  0.830
  0.860
  0.880
  0.900
  0.920
  0.940
  0.960
  0.980
  1.000
  1.020
  1.040
  1.060
  1.070
  1.090
  1.110
  1.120
  1.130
  1.150
  1.160
  1.170
  1.190
Adjusted equity ratio
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411
  0.411

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  72
  73
  75
  76
  78
  80
  81
  83
  86
  88
  91
  93
  96
  99
  102
  106
  109
  113
  117
  121
  126
  131
  135
  141
  146
  152
  158
  164
  171
  178
Depreciation, amort., depletion, $m
  57
  59
  60
  62
  64
  66
  68
  71
  73
  76
  79
  82
  86
  89
  93
  97
  102
  106
  111
  116
  121
  127
  133
  139
  146
  153
  160
  168
  176
  185
Funds from operations, $m
  129
  132
  135
  138
  142
  145
  150
  154
  159
  164
  170
  176
  182
  188
  196
  203
  211
  219
  228
  237
  247
  258
  269
  280
  292
  305
  318
  332
  347
  363
Change in working capital, $m
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
Cash from operations, $m
  128
  131
  133
  136
  140
  143
  147
  152
  156
  161
  167
  172
  178
  185
  192
  199
  207
  215
  223
  232
  242
  252
  263
  274
  286
  298
  311
  325
  339
  355
Maintenance CAPEX, $m
  -56
  -57
  -59
  -60
  -62
  -64
  -66
  -68
  -71
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -97
  -102
  -106
  -111
  -116
  -121
  -127
  -133
  -139
  -146
  -153
  -160
  -168
  -176
New CAPEX, $m
  -28
  -33
  -38
  -43
  -48
  -52
  -57
  -61
  -66
  -71
  -76
  -81
  -86
  -92
  -97
  -103
  -109
  -116
  -122
  -129
  -136
  -144
  -151
  -159
  -168
  -177
  -186
  -196
  -206
  -217
Cash from investing activities, $m
  -84
  -90
  -97
  -103
  -110
  -116
  -123
  -129
  -137
  -144
  -152
  -160
  -168
  -178
  -186
  -196
  -206
  -218
  -228
  -240
  -252
  -265
  -278
  -292
  -307
  -323
  -339
  -356
  -374
  -393
Free cash flow, $m
  44
  40
  36
  33
  30
  27
  25
  22
  20
  17
  15
  12
  10
  7
  5
  3
  0
  -2
  -5
  -7
  -10
  -13
  -16
  -18
  -21
  -25
  -28
  -31
  -35
  -38
Issuance/(repayment) of debt, $m
  21
  27
  31
  35
  39
  43
  47
  50
  54
  58
  62
  67
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  153
  161
  169
  178
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  
  21
  27
  31
  35
  39
  43
  47
  50
  54
  58
  62
  67
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
  124
  131
  138
  145
  153
  161
  169
  178
Total cash flow (excl. dividends), $m
  65
  67
  68
  68
  69
  70
  71
  73
  74
  75
  77
  79
  81
  83
  85
  87
  90
  93
  95
  98
  102
  105
  109
  112
  116
  120
  125
  130
  134
  140
Retained Cash Flow (-), $m
  -16
  -19
  -22
  -25
  -27
  -30
  -33
  -35
  -38
  -41
  -44
  -46
  -49
  -53
  -56
  -59
  -63
  -66
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -107
  -112
  -118
  -124
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
  49
  48
  46
  44
  42
  40
  39
  37
  36
  35
  34
  32
  31
  30
  29
  28
  27
  26
  25
  25
  24
  23
  22
  21
  20
  19
  18
  17
  17
  16
Discount rate, %
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
  46
  43
  39
  34
  31
  27
  24
  21
  18
  16
  13
  11
  9
  8
  6
  5
  4
  3
  2
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  1
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Current shareholders' claim on cash, %
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

MGE Energy, Inc. (MGE) is a public utility holding company. The Company operates through five segments: Regulated electric utility operations; Regulated gas utility operations; Nonregulated energy operations; Transmission investments, and All other. The Regulated electric utility operations segment is engaged in generating, purchasing and distributing electricity through Madison Gas and Electric Company (MGE). The Regulated gas utility operations segment is engaged in purchasing and distributing natural gas through MGE. The Nonregulated energy operations segment is engaged in owning and leasing electric generating capacity that assists MGE through MGE Energy's subsidiaries MGE Power Elm Road, LLC and MGE Power West Campus, LLC. The Transmission investments segment represents its investment in American Transmission Company LLC and ATC Holdco, LLC. The All other segment is engaged in investing and financing in companies and property that relate to the regulated operations.

FINANCIAL RATIOS  of  MGE Energy Inc. (MGEE)

Valuation Ratios
P/E Ratio 30.1
Price to Sales 4.2
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow 35.7
Growth Rates
Sales Growth Rate -3.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate -6.7%
Financial Strength
Quick Ratio 24
Current Ratio 0.6
LT Debt to Equity 52.9%
Total Debt to Equity 53.5%
Interest Coverage 7
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 5.2%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. 7.1%
Return On Equity 10.7%
Return On Equity - 3 Yr. Avg. 11.3%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 33.4%
EBITDA Margin - 3 Yr. Avg. 31.8%
Operating Margin 23.5%
Oper. Margin - 3 Yr. Avg. 22.6%
Pre-Tax Margin 21.7%
Pre-Tax Margin - 3 Yr. Avg. 20.8%
Net Profit Margin 13.9%
Net Profit Margin - 3 Yr. Avg. 13.1%
Effective Tax Rate 35.6%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 55.3%

MGEE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MGEE stock intrinsic value calculation we used $560 million for the last fiscal year's total revenue generated by MGE Energy Inc.. The default revenue input number comes from 0001 income statement of MGE Energy 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 MGEE 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 5.4%, whose default value for MGEE is calculated based on our internal credit rating of MGE Energy 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 MGE Energy 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 MGEE stock the variable cost ratio is equal to 77.9%.

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 MGEE 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 MGE Energy Inc..

Corporate tax rate of 27% is the nominal tax rate for MGE Energy 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 MGEE 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 MGEE are equal to 254.5%.

Life of production assets of 25.3 years is the average useful life of capital assets used in MGE Energy 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 MGEE is equal to 9.7%. 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 - $816.644 million for MGE Energy 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 34.743 million for MGE Energy 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 MGE Energy Inc. at the current share price and the inputted number of shares is $2.3 billion.

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