Intrinsic value of Nexeo Solutions - NXEO

Previous Close

$10.03

  Intrinsic Value

$9.37

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  Rating & Target

hold

-7%

Previous close

$10.03

 
Intrinsic value

$9.37

 
Up/down potential

-7%

 
Rating

hold

We calculate the intrinsic value of NXEO 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, %
  11.00
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
  5.43
  5.39
  5.35
  5.31
  5.28
Revenue, $m
  4,037
  4,457
  4,896
  5,355
  5,834
  6,332
  6,851
  7,390
  7,950
  8,532
  9,138
  9,767
  10,420
  11,100
  11,808
  12,544
  13,311
  14,109
  14,942
  15,810
  16,716
  17,661
  18,649
  19,680
  20,759
  21,886
  23,065
  24,299
  25,590
  26,942
Variable operating expenses, $m
  3,889
  4,284
  4,697
  5,129
  5,579
  6,048
  6,535
  7,042
  7,569
  8,117
  8,592
  9,184
  9,798
  10,438
  11,103
  11,795
  12,516
  13,267
  14,050
  14,866
  15,718
  16,607
  17,536
  18,506
  19,520
  20,580
  21,688
  22,848
  24,063
  25,334
Fixed operating expenses, $m
  43
  44
  45
  46
  47
  48
  49
  50
  51
  52
  53
  55
  56
  57
  58
  59
  61
  62
  64
  65
  66
  68
  69
  71
  72
  74
  76
  77
  79
  81
Total operating expenses, $m
  3,932
  4,328
  4,742
  5,175
  5,626
  6,096
  6,584
  7,092
  7,620
  8,169
  8,645
  9,239
  9,854
  10,495
  11,161
  11,854
  12,577
  13,329
  14,114
  14,931
  15,784
  16,675
  17,605
  18,577
  19,592
  20,654
  21,764
  22,925
  24,142
  25,415
Operating income, $m
  105
  129
  154
  180
  208
  237
  267
  298
  330
  364
  492
  528
  566
  606
  647
  689
  734
  780
  828
  879
  932
  987
  1,044
  1,104
  1,167
  1,233
  1,301
  1,373
  1,449
  1,528
EBITDA, $m
  249
  279
  310
  342
  375
  410
  447
  485
  524
  565
  608
  652
  698
  746
  796
  848
  903
  959
  1,018
  1,079
  1,143
  1,210
  1,280
  1,354
  1,430
  1,510
  1,594
  1,681
  1,773
  1,869
Interest expense (income), $m
  46
  52
  62
  73
  84
  96
  108
  120
  133
  147
  161
  176
  191
  207
  223
  240
  258
  277
  296
  316
  337
  359
  381
  405
  430
  456
  483
  512
  541
  572
  605
Earnings before tax, $m
  52
  66
  81
  96
  112
  129
  146
  164
  183
  203
  317
  338
  360
  383
  406
  431
  457
  484
  513
  542
  573
  605
  639
  674
  711
  749
  790
  832
  876
  923
Tax expense, $m
  14
  18
  22
  26
  30
  35
  40
  44
  49
  55
  85
  91
  97
  103
  110
  116
  123
  131
  138
  146
  155
  163
  172
  182
  192
  202
  213
  225
  237
  249
Net income, $m
  38
  48
  59
  70
  82
  94
  107
  120
  134
  148
  231
  247
  263
  279
  297
  315
  334
  354
  374
  396
  418
  442
  466
  492
  519
  547
  576
  607
  640
  674

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
  2,501
  2,761
  3,034
  3,318
  3,614
  3,923
  4,245
  4,579
  4,926
  5,287
  5,661
  6,051
  6,456
  6,878
  7,316
  7,772
  8,247
  8,742
  9,258
  9,796
  10,357
  10,943
  11,554
  12,194
  12,862
  13,560
  14,291
  15,055
  15,855
  16,693
Adjusted assets (=assets-cash), $m
  2,501
  2,761
  3,034
  3,318
  3,614
  3,923
  4,245
  4,579
  4,926
  5,287
  5,661
  6,051
  6,456
  6,878
  7,316
  7,772
  8,247
  8,742
  9,258
  9,796
  10,357
  10,943
  11,554
  12,194
  12,862
  13,560
  14,291
  15,055
  15,855
  16,693
Revenue / Adjusted assets
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
  1.614
Average production assets, $m
  860
  949
  1,043
  1,141
  1,243
  1,349
  1,459
  1,574
  1,693
  1,817
  1,946
  2,080
  2,220
  2,364
  2,515
  2,672
  2,835
  3,005
  3,183
  3,368
  3,560
  3,762
  3,972
  4,192
  4,422
  4,662
  4,913
  5,176
  5,451
  5,739
Working capital, $m
  529
  584
  641
  702
  764
  830
  897
  968
  1,041
  1,118
  1,197
  1,279
  1,365
  1,454
  1,547
  1,643
  1,744
  1,848
  1,957
  2,071
  2,190
  2,314
  2,443
  2,578
  2,719
  2,867
  3,022
  3,183
  3,352
  3,529
Total debt, $m
  1,007
  1,178
  1,356
  1,542
  1,737
  1,939
  2,149
  2,368
  2,596
  2,832
  3,077
  3,333
  3,598
  3,874
  4,161
  4,460
  4,771
  5,095
  5,433
  5,785
  6,153
  6,537
  6,937
  7,356
  7,794
  8,251
  8,730
  9,230
  9,754
  10,303
Total liabilities, $m
  1,638
  1,809
  1,987
  2,173
  2,367
  2,570
  2,780
  2,999
  3,226
  3,463
  3,708
  3,964
  4,229
  4,505
  4,792
  5,091
  5,402
  5,726
  6,064
  6,416
  6,784
  7,167
  7,568
  7,987
  8,424
  8,882
  9,360
  9,861
  10,385
  10,934
Total equity, $m
  863
  953
  1,047
  1,145
  1,247
  1,354
  1,464
  1,580
  1,699
  1,824
  1,953
  2,088
  2,227
  2,373
  2,524
  2,681
  2,845
  3,016
  3,194
  3,379
  3,573
  3,775
  3,986
  4,207
  4,437
  4,678
  4,930
  5,194
  5,470
  5,759
Total liabilities and equity, $m
  2,501
  2,762
  3,034
  3,318
  3,614
  3,924
  4,244
  4,579
  4,925
  5,287
  5,661
  6,052
  6,456
  6,878
  7,316
  7,772
  8,247
  8,742
  9,258
  9,795
  10,357
  10,942
  11,554
  12,194
  12,861
  13,560
  14,290
  15,055
  15,855
  16,693
Debt-to-equity ratio
  1.170
  1.240
  1.300
  1.350
  1.390
  1.430
  1.470
  1.500
  1.530
  1.550
  1.580
  1.600
  1.620
  1.630
  1.650
  1.660
  1.680
  1.690
  1.700
  1.710
  1.720
  1.730
  1.740
  1.750
  1.760
  1.760
  1.770
  1.780
  1.780
  1.790
Adjusted equity ratio
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345
  0.345

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  38
  48
  59
  70
  82
  94
  107
  120
  134
  148
  231
  247
  263
  279
  297
  315
  334
  354
  374
  396
  418
  442
  466
  492
  519
  547
  576
  607
  640
  674
Depreciation, amort., depletion, $m
  145
  150
  156
  161
  167
  174
  180
  187
  194
  202
  116
  124
  132
  141
  150
  159
  169
  179
  189
  200
  212
  224
  236
  250
  263
  277
  292
  308
  324
  342
Funds from operations, $m
  183
  198
  215
  232
  249
  268
  287
  307
  328
  350
  347
  370
  395
  420
  446
  474
  503
  532
  564
  596
  630
  666
  703
  741
  782
  824
  869
  915
  964
  1,015
Change in working capital, $m
  52
  55
  58
  60
  63
  65
  68
  71
  73
  76
  79
  82
  86
  89
  93
  96
  100
  105
  109
  114
  119
  124
  129
  135
  141
  148
  154
  162
  169
  177
Cash from operations, $m
  130
  143
  157
  172
  187
  203
  219
  237
  255
  273
  268
  288
  309
  331
  354
  377
  402
  428
  455
  482
  511
  542
  573
  606
  641
  677
  714
  754
  795
  838
Maintenance CAPEX, $m
  -46
  -51
  -57
  -62
  -68
  -74
  -80
  -87
  -94
  -101
  -108
  -116
  -124
  -132
  -141
  -150
  -159
  -169
  -179
  -189
  -200
  -212
  -224
  -236
  -250
  -263
  -277
  -292
  -308
  -324
New CAPEX, $m
  -87
  -89
  -94
  -98
  -102
  -106
  -110
  -115
  -119
  -124
  -129
  -134
  -139
  -145
  -151
  -157
  -163
  -170
  -177
  -185
  -193
  -201
  -210
  -220
  -230
  -240
  -251
  -263
  -275
  -288
Cash from investing activities, $m
  -133
  -140
  -151
  -160
  -170
  -180
  -190
  -202
  -213
  -225
  -237
  -250
  -263
  -277
  -292
  -307
  -322
  -339
  -356
  -374
  -393
  -413
  -434
  -456
  -480
  -503
  -528
  -555
  -583
  -612
Free cash flow, $m
  -2
  3
  7
  12
  17
  23
  29
  35
  42
  49
  31
  38
  46
  54
  62
  71
  80
  89
  98
  108
  118
  128
  139
  150
  162
  173
  186
  199
  212
  226
Issuance/(repayment) of debt, $m
  162
  170
  178
  186
  194
  202
  210
  219
  227
  236
  246
  255
  265
  276
  287
  299
  311
  324
  338
  352
  368
  384
  401
  419
  438
  458
  479
  501
  524
  549
Issuance/(repurchase) of shares, $m
  47
  41
  35
  28
  20
  12
  4
  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  
  209
  211
  213
  214
  214
  214
  214
  219
  227
  236
  246
  255
  265
  276
  287
  299
  311
  324
  338
  352
  368
  384
  401
  419
  438
  458
  479
  501
  524
  549
Total cash flow (excl. dividends), $m
  207
  214
  220
  226
  231
  237
  243
  254
  269
  285
  276
  293
  311
  330
  349
  370
  391
  413
  436
  460
  486
  512
  540
  569
  599
  631
  664
  699
  736
  774
Retained Cash Flow (-), $m
  -85
  -90
  -94
  -98
  -102
  -107
  -111
  -115
  -120
  -124
  -129
  -134
  -140
  -145
  -151
  -157
  -164
  -171
  -178
  -186
  -194
  -202
  -211
  -221
  -230
  -241
  -252
  -264
  -276
  -289
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
  122
  125
  126
  128
  129
  131
  132
  138
  149
  160
  147
  159
  172
  185
  198
  212
  227
  242
  258
  275
  292
  310
  329
  348
  369
  390
  412
  436
  460
  485
Discount rate, %
  8.50
  8.93
  9.37
  9.84
  10.33
  10.85
  11.39
  11.96
  12.56
  13.19
  13.85
  14.54
  15.26
  16.03
  16.83
  17.67
  18.55
  19.48
  20.46
  21.48
  22.55
  23.68
  24.86
  26.11
  27.41
  28.78
  30.22
  31.73
  33.32
  34.99
PV of cash for distribution, $m
  112
  105
  96
  88
  79
  70
  62
  56
  51
  46
  35
  31
  27
  23
  19
  16
  13
  10
  8
  6
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  95.0
  91.2
  88.4
  86.5
  85.2
  84.4
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2
  84.2

Nexeo Solutions Inc, formerly WL Ross Holding Corp., is global distributor of chemicals products in North America and Asia, and plastics products in North America, Europe, the Middle East and Africa (EMEA) and Asia. The Company provides services, such as custom blending, packaging and re-packaging, private-label manufacturing and product testing in the form of chemical analysis, product performance analysis and product development. It also provides environmental services, including waste collection, recovery and arrangement for disposal services and recycling in North America, primarily in the United States, through its Environmental Services line of business. The Company operates in three segments: Chemicals, Plastics and Environmental Services.

FINANCIAL RATIOS  of  Nexeo Solutions (NXEO)

Valuation Ratios
P/E Ratio 64
Price to Sales 0.2
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 11.3
Price to Free Cash Flow 17.6
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 3.7%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 102.1%
Total Debt to Equity 108.6%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.8%
Ret/ On Assets - 3 Yr. Avg. 1.7%
Return On Total Capital 0.9%
Ret/ On T. Cap. - 3 Yr. Avg. -0.4%
Return On Equity 1.8%
Return On Equity - 3 Yr. Avg. -0.6%
Asset Turnover 1.7
Profitability Ratios
Gross Margin 10.9%
Gross Margin - 3 Yr. Avg. 7.4%
EBITDA Margin 4%
EBITDA Margin - 3 Yr. Avg. 2.2%
Operating Margin 1.8%
Oper. Margin - 3 Yr. Avg. 1%
Pre-Tax Margin 0.7%
Pre-Tax Margin - 3 Yr. Avg. 0.1%
Net Profit Margin 0.4%
Net Profit Margin - 3 Yr. Avg. -0.1%
Effective Tax Rate 44%
Eff/ Tax Rate - 3 Yr. Avg. 4.9%
Payout Ratio 0%

NXEO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NXEO stock intrinsic value calculation we used $3636.9 million for the last fiscal year's total revenue generated by Nexeo Solutions. The default revenue input number comes from 0001 income statement of Nexeo Solutions. 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 NXEO stock valuation model: a) initial revenue growth rate of 11% 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 8.5%, whose default value for NXEO is calculated based on our internal credit rating of Nexeo Solutions, 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 Nexeo Solutions.
    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 NXEO stock the variable cost ratio is equal to 96.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $42 million in the base year in the intrinsic value calculation for NXEO 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 6.2% for Nexeo Solutions.

Corporate tax rate of 27% is the nominal tax rate for Nexeo Solutions. 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 NXEO 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 NXEO are equal to 21.3%.

Life of production assets of 16.8 years is the average useful life of capital assets used in Nexeo Solutions 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 NXEO is equal to 13.1%. 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 - $777.6 million for Nexeo Solutions - 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 89.734 million for Nexeo Solutions 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 Nexeo Solutions at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Cannabis Related Stock is Flying Under The Radar   [Sep-19-18 10:30AM  ACCESSWIRE]
▶ Univar to buy Wilbur Ross's Nexeo for $2 billion   [Sep-17-18 05:02PM  MarketWatch]
▶ Nexeo Solutions Releases New Global Website   [Aug-30-18 06:00AM  GlobeNewswire]
▶ Nexeo Solutions Releases 2017 Sustainability Report   [Aug-27-18 05:05AM  GlobeNewswire]
▶ Nexeo Solutions, Inc. to Host Earnings Call   [Aug-07-18 08:00AM  ACCESSWIRE]
▶ Nexeo Solutions Scoops Prize for Sustainable Manufacturing   [Dec-20-17 03:27PM  GlobeNewswire]
▶ Nexeo Solutions Reprices Term Loan Credit Facility   [Dec-19-17 04:20PM  GlobeNewswire]

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