Intrinsic value of Pan American Silver Corp. - PAAS

Previous Close

$12.85

  Intrinsic Value

$1.79

stock screener

  Rating & Target

str. sell

-86%

Previous close

$12.85

 
Intrinsic value

$1.79

 
Up/down potential

-86%

 
Rating

str. sell

We calculate the intrinsic value of PAAS 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 2.7

 

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
  800
  818
  839
  863
  889
  918
  949
  983
  1,019
  1,058
  1,100
  1,145
  1,192
  1,243
  1,296
  1,353
  1,413
  1,477
  1,544
  1,615
  1,690
  1,769
  1,852
  1,940
  2,032
  2,129
  2,232
  2,339
  2,453
  2,572
Variable operating expenses, $m
  619
  633
  649
  668
  688
  710
  734
  760
  789
  819
  851
  886
  922
  961
  1,003
  1,047
  1,093
  1,143
  1,195
  1,249
  1,307
  1,368
  1,433
  1,501
  1,572
  1,647
  1,726
  1,810
  1,897
  1,990
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
  619
  633
  649
  668
  688
  710
  734
  760
  789
  819
  851
  886
  922
  961
  1,003
  1,047
  1,093
  1,143
  1,195
  1,249
  1,307
  1,368
  1,433
  1,501
  1,572
  1,647
  1,726
  1,810
  1,897
  1,990
Operating income, $m
  181
  185
  190
  195
  201
  207
  214
  222
  230
  239
  249
  259
  270
  281
  293
  306
  320
  334
  350
  366
  383
  400
  419
  439
  460
  482
  505
  530
  555
  582
EBITDA, $m
  331
  338
  347
  357
  368
  379
  392
  406
  421
  438
  455
  473
  493
  514
  536
  560
  584
  611
  638
  668
  699
  731
  766
  802
  840
  880
  923
  967
  1,014
  1,063
Interest expense (income), $m
  3
  6
  15
  25
  35
  47
  61
  75
  91
  109
  127
  147
  169
  192
  216
  242
  269
  298
  329
  361
  396
  432
  470
  511
  553
  598
  645
  695
  747
  803
  860
Earnings before tax, $m
  174
  170
  165
  160
  154
  147
  139
  131
  122
  112
  102
  90
  78
  65
  52
  37
  22
  5
  -12
  -30
  -50
  -70
  -91
  -114
  -138
  -163
  -190
  -218
  -247
  -278
Tax expense, $m
  47
  46
  45
  43
  41
  40
  38
  35
  33
  30
  27
  24
  21
  18
  14
  10
  6
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  127
  124
  121
  117
  112
  107
  102
  95
  89
  82
  74
  66
  57
  48
  38
  27
  16
  4
  -12
  -30
  -50
  -70
  -91
  -114
  -138
  -163
  -190
  -218
  -247
  -278

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
  1,909
  1,952
  2,003
  2,059
  2,121
  2,190
  2,264
  2,345
  2,432
  2,525
  2,625
  2,732
  2,845
  2,966
  3,094
  3,229
  3,373
  3,525
  3,685
  3,854
  4,033
  4,221
  4,420
  4,629
  4,850
  5,082
  5,326
  5,583
  5,853
  6,138
Adjusted assets (=assets-cash), $m
  1,909
  1,952
  2,003
  2,059
  2,121
  2,190
  2,264
  2,345
  2,432
  2,525
  2,625
  2,732
  2,845
  2,966
  3,094
  3,229
  3,373
  3,525
  3,685
  3,854
  4,033
  4,221
  4,420
  4,629
  4,850
  5,082
  5,326
  5,583
  5,853
  6,138
Revenue / Adjusted assets
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
  0.419
Average production assets, $m
  1,347
  1,378
  1,413
  1,453
  1,497
  1,545
  1,598
  1,655
  1,716
  1,782
  1,852
  1,928
  2,008
  2,093
  2,183
  2,279
  2,380
  2,487
  2,600
  2,720
  2,846
  2,979
  3,119
  3,266
  3,422
  3,586
  3,758
  3,939
  4,130
  4,331
Working capital, $m
  194
  199
  204
  210
  216
  223
  231
  239
  248
  257
  267
  278
  290
  302
  315
  329
  343
  359
  375
  392
  411
  430
  450
  471
  494
  517
  542
  568
  596
  625
Total debt, $m
  16
  26
  37
  50
  64
  80
  97
  115
  135
  156
  179
  203
  229
  256
  285
  316
  348
  383
  419
  458
  498
  541
  586
  634
  684
  736
  792
  850
  911
  976
Total liabilities, $m
  433
  443
  455
  467
  482
  497
  514
  532
  552
  573
  596
  620
  646
  673
  702
  733
  766
  800
  837
  875
  916
  958
  1,003
  1,051
  1,101
  1,154
  1,209
  1,267
  1,329
  1,393
Total equity, $m
  1,475
  1,509
  1,548
  1,592
  1,640
  1,693
  1,750
  1,813
  1,880
  1,952
  2,029
  2,112
  2,199
  2,293
  2,392
  2,496
  2,607
  2,725
  2,849
  2,979
  3,118
  3,263
  3,417
  3,578
  3,749
  3,928
  4,117
  4,316
  4,525
  4,745
Total liabilities and equity, $m
  1,908
  1,952
  2,003
  2,059
  2,122
  2,190
  2,264
  2,345
  2,432
  2,525
  2,625
  2,732
  2,845
  2,966
  3,094
  3,229
  3,373
  3,525
  3,686
  3,854
  4,034
  4,221
  4,420
  4,629
  4,850
  5,082
  5,326
  5,583
  5,854
  6,138
Debt-to-equity ratio
  0.010
  0.020
  0.020
  0.030
  0.040
  0.050
  0.060
  0.060
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.130
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
Adjusted equity ratio
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773
  0.773

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  127
  124
  121
  117
  112
  107
  102
  95
  89
  82
  74
  66
  57
  48
  38
  27
  16
  4
  -12
  -30
  -50
  -70
  -91
  -114
  -138
  -163
  -190
  -218
  -247
  -278
Depreciation, amort., depletion, $m
  150
  153
  157
  162
  167
  172
  178
  184
  191
  198
  206
  214
  223
  233
  243
  253
  264
  276
  289
  302
  316
  331
  347
  363
  380
  398
  418
  438
  459
  481
Funds from operations, $m
  277
  277
  278
  278
  279
  279
  279
  280
  280
  280
  280
  280
  280
  280
  280
  280
  280
  280
  277
  272
  267
  261
  255
  249
  242
  235
  228
  220
  212
  203
Change in working capital, $m
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
Cash from operations, $m
  273
  273
  273
  273
  272
  272
  272
  271
  271
  271
  270
  269
  269
  268
  267
  267
  266
  265
  261
  255
  248
  242
  235
  227
  220
  211
  203
  194
  184
  174
Maintenance CAPEX, $m
  -147
  -150
  -153
  -157
  -161
  -166
  -172
  -178
  -184
  -191
  -198
  -206
  -214
  -223
  -233
  -243
  -253
  -264
  -276
  -289
  -302
  -316
  -331
  -347
  -363
  -380
  -398
  -418
  -438
  -459
New CAPEX, $m
  -26
  -31
  -35
  -40
  -44
  -48
  -53
  -57
  -61
  -66
  -70
  -75
  -80
  -85
  -90
  -96
  -101
  -107
  -113
  -119
  -126
  -133
  -140
  -148
  -156
  -164
  -172
  -181
  -191
  -201
Cash from investing activities, $m
  -173
  -181
  -188
  -197
  -205
  -214
  -225
  -235
  -245
  -257
  -268
  -281
  -294
  -308
  -323
  -339
  -354
  -371
  -389
  -408
  -428
  -449
  -471
  -495
  -519
  -544
  -570
  -599
  -629
  -660
Free cash flow, $m
  100
  92
  84
  76
  67
  57
  47
  37
  26
  14
  1
  -12
  -26
  -40
  -55
  -72
  -89
  -107
  -129
  -154
  -180
  -207
  -236
  -267
  -299
  -333
  -368
  -405
  -444
  -486
Issuance/(repayment) of debt, $m
  9
  10
  11
  13
  14
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  41
  43
  45
  48
  50
  53
  55
  58
  61
  65
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  3
  16
  31
  45
  61
  78
  95
  113
  136
  161
  188
  216
  245
  276
  308
  343
  379
  417
  456
  498
Cash from financing (excl. dividends), $m  
  9
  10
  11
  13
  14
  16
  17
  18
  20
  21
  26
  40
  57
  72
  90
  109
  128
  147
  172
  199
  229
  259
  290
  324
  358
  396
  434
  475
  517
  563
Total cash flow (excl. dividends), $m
  110
  102
  96
  89
  81
  73
  64
  55
  45
  35
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
  66
  70
  73
  77
Retained Cash Flow (-), $m
  -29
  -34
  -39
  -44
  -48
  -53
  -58
  -62
  -67
  -72
  -77
  -82
  -88
  -93
  -99
  -105
  -111
  -117
  -136
  -161
  -188
  -216
  -245
  -276
  -308
  -343
  -379
  -417
  -456
  -498
Prev. year cash balance distribution, $m
  62
  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
  143
  68
  57
  45
  33
  20
  7
  -7
  -22
  -37
  -50
  -53
  -57
  -61
  -64
  -68
  -72
  -76
  -92
  -115
  -139
  -165
  -191
  -219
  -249
  -280
  -313
  -347
  -383
  -421
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
  137
  63
  49
  37
  25
  15
  5
  -4
  -12
  -19
  -24
  -23
  -22
  -20
  -19
  -17
  -16
  -14
  -14
  -15
  -14
  -14
  -13
  -11
  -10
  -8
  -7
  -5
  -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
  99.9
  99.5
  98.7
  97.5
  96.1
  94.4
  92.4
  90.2
  87.8
  85.1
  82.2
  79.1
  75.9
  72.7
  69.3
  65.9
  62.6
  59.2
  55.9
  52.7

Pan American Silver Corp. is a silver production company. The Company is principally engaged in the operation and development of, and exploration for, silver producing properties. The Company's segments include Peru, Mexico, Argentina and Bolivia. The Company also produces and sells gold, zinc, lead and copper. The Company's operating properties in Mexico include La Colorada Mine, Dolores and Alamo Dorado. The Company's operating properties in Peru include Huaron Mine and Morococha Mine. The Company's operating properties in Bolivia include San Vicente. The Company's operating properties in Argentina include Manantial Espejo. The Company's development properties include Navidad Property. The La Colorada underground silver mine is located in the Chalchihuites district in Zacatecas State, Mexico, approximately 99 kilometers south of Durango and 156 kilometers northwest of Zacatecas. The La Colorada consists of approximately 60 claims totaling approximately 8,400 hectares.

FINANCIAL RATIOS  of  Pan American Silver Corp. (PAAS)

Valuation Ratios
P/E Ratio 19.6
Price to Sales 2.5
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 9.1
Price to Free Cash Flow 163.1
Growth Rates
Sales Growth Rate 14.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 38.1%
Cap. Spend. - 3 Yr. Gr. Rate 5%
Financial Strength
Quick Ratio 55
Current Ratio 0
LT Debt to Equity 2.8%
Total Debt to Equity 3.1%
Interest Coverage 60
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. -9.7%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. -12.1%
Return On Equity 7.4%
Return On Equity - 3 Yr. Avg. -12.5%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 25.7%
Gross Margin - 3 Yr. Avg. 7.3%
EBITDA Margin 38.1%
EBITDA Margin - 3 Yr. Avg. -12.8%
Operating Margin 23.9%
Oper. Margin - 3 Yr. Avg. -31.4%
Pre-Tax Margin 22.7%
Pre-Tax Margin - 3 Yr. Avg. -32.3%
Net Profit Margin 12.9%
Net Profit Margin - 3 Yr. Avg. -31.1%
Effective Tax Rate 42%
Eff/ Tax Rate - 3 Yr. Avg. 19.4%
Payout Ratio 8%

PAAS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PAAS stock intrinsic value calculation we used $784 million for the last fiscal year's total revenue generated by Pan American Silver Corp.. The default revenue input number comes from 0001 income statement of Pan American Silver Corp.. 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 PAAS 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 4.3%, whose default value for PAAS is calculated based on our internal credit rating of Pan American Silver Corp., 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 Pan American Silver Corp..
    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 PAAS stock the variable cost ratio is equal to 77.4%.

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 PAAS 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 94.4% for Pan American Silver Corp..

Corporate tax rate of 27% is the nominal tax rate for Pan American Silver Corp.. 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 PAAS 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 PAAS are equal to 168.4%.

Life of production assets of 9 years is the average useful life of capital assets used in Pan American Silver Corp. 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 PAAS is equal to 24.3%. 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 - $1508.212 million for Pan American Silver Corp. - 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 209.774 million for Pan American Silver Corp. 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 Pan American Silver Corp. at the current share price and the inputted number of shares is $2.7 billion.

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