Intrinsic value of Phibro Animal Health - PAHC

Previous Close

$47.50

  Intrinsic Value

$20.63

stock screener

  Rating & Target

str. sell

-57%

Previous close

$47.50

 
Intrinsic value

$20.63

 
Up/down potential

-57%

 
Rating

str. sell

We calculate the intrinsic value of PAHC 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 2017), $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 1.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

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
  779
  797
  818
  841
  866
  894
  925
  958
  993
  1,031
  1,072
  1,115
  1,162
  1,211
  1,263
  1,319
  1,377
  1,439
  1,505
  1,574
  1,647
  1,724
  1,805
  1,890
  1,980
  2,075
  2,175
  2,280
  2,390
  2,506
Variable operating expenses, $m
  138
  141
  144
  148
  152
  157
  162
  167
  173
  180
  179
  186
  194
  202
  211
  220
  230
  240
  251
  262
  274
  287
  301
  315
  330
  346
  362
  380
  398
  418
Fixed operating expenses, $m
  557
  569
  582
  595
  608
  621
  635
  649
  663
  677
  692
  708
  723
  739
  755
  772
  789
  806
  824
  842
  861
  880
  899
  919
  939
  960
  981
  1,002
  1,024
  1,047
Total operating expenses, $m
  695
  710
  726
  743
  760
  778
  797
  816
  836
  857
  871
  894
  917
  941
  966
  992
  1,019
  1,046
  1,075
  1,104
  1,135
  1,167
  1,200
  1,234
  1,269
  1,306
  1,343
  1,382
  1,422
  1,465
Operating income, $m
  85
  87
  92
  98
  106
  116
  128
  141
  157
  174
  201
  222
  245
  270
  297
  327
  359
  393
  430
  469
  512
  557
  605
  656
  711
  769
  831
  897
  967
  1,042
EBITDA, $m
  114
  117
  122
  129
  138
  148
  161
  175
  192
  210
  230
  252
  276
  303
  332
  363
  396
  432
  471
  512
  556
  603
  654
  708
  765
  826
  890
  959
  1,032
  1,109
Interest expense (income), $m
  15
  17
  17
  18
  19
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  42
  44
  46
  49
  52
  55
  58
  61
  64
  68
  71
Earnings before tax, $m
  68
  70
  74
  79
  87
  96
  107
  119
  133
  149
  175
  195
  216
  240
  266
  293
  323
  356
  390
  428
  468
  510
  556
  605
  657
  712
  771
  833
  900
  970
Tax expense, $m
  18
  19
  20
  21
  23
  26
  29
  32
  36
  40
  47
  53
  58
  65
  72
  79
  87
  96
  105
  115
  126
  138
  150
  163
  177
  192
  208
  225
  243
  262
Net income, $m
  49
  51
  54
  58
  63
  70
  78
  87
  97
  109
  128
  142
  158
  175
  194
  214
  236
  260
  285
  312
  341
  373
  406
  441
  479
  520
  563
  608
  657
  708

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
  636
  650
  667
  686
  707
  729
  754
  781
  810
  841
  874
  910
  948
  988
  1,030
  1,076
  1,123
  1,174
  1,227
  1,284
  1,343
  1,406
  1,472
  1,542
  1,615
  1,692
  1,774
  1,859
  1,949
  2,044
Adjusted assets (=assets-cash), $m
  636
  650
  667
  686
  707
  729
  754
  781
  810
  841
  874
  910
  948
  988
  1,030
  1,076
  1,123
  1,174
  1,227
  1,284
  1,343
  1,406
  1,472
  1,542
  1,615
  1,692
  1,774
  1,859
  1,949
  2,044
Revenue / Adjusted assets
  1.225
  1.226
  1.226
  1.226
  1.225
  1.226
  1.227
  1.227
  1.226
  1.226
  1.227
  1.225
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
  1.227
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
  1.226
Average production assets, $m
  211
  216
  222
  228
  235
  242
  251
  259
  269
  279
  291
  302
  315
  328
  342
  357
  373
  390
  408
  426
  446
  467
  489
  512
  537
  562
  589
  618
  648
  679
Working capital, $m
  107
  109
  112
  115
  119
  122
  127
  131
  136
  141
  147
  153
  159
  166
  173
  181
  189
  197
  206
  216
  226
  236
  247
  259
  271
  284
  298
  312
  327
  343
Total debt, $m
  323
  334
  346
  361
  376
  394
  412
  433
  455
  478
  504
  530
  559
  589
  622
  656
  692
  731
  771
  814
  859
  906
  957
  1,009
  1,065
  1,124
  1,185
  1,250
  1,318
  1,390
Total liabilities, $m
  482
  493
  506
  520
  536
  553
  572
  592
  614
  638
  663
  690
  718
  749
  781
  815
  851
  890
  930
  973
  1,018
  1,066
  1,116
  1,169
  1,224
  1,283
  1,345
  1,409
  1,478
  1,549
Total equity, $m
  154
  157
  161
  166
  171
  176
  183
  189
  196
  204
  212
  220
  229
  239
  249
  260
  272
  284
  297
  311
  325
  340
  356
  373
  391
  410
  429
  450
  472
  495
Total liabilities and equity, $m
  636
  650
  667
  686
  707
  729
  755
  781
  810
  842
  875
  910
  947
  988
  1,030
  1,075
  1,123
  1,174
  1,227
  1,284
  1,343
  1,406
  1,472
  1,542
  1,615
  1,693
  1,774
  1,859
  1,950
  2,044
Debt-to-equity ratio
  2.100
  2.120
  2.150
  2.170
  2.200
  2.230
  2.260
  2.290
  2.320
  2.350
  2.380
  2.410
  2.440
  2.470
  2.490
  2.520
  2.550
  2.570
  2.600
  2.620
  2.640
  2.660
  2.690
  2.710
  2.720
  2.740
  2.760
  2.780
  2.790
  2.810
Adjusted equity ratio
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242
  0.242

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  49
  51
  54
  58
  63
  70
  78
  87
  97
  109
  128
  142
  158
  175
  194
  214
  236
  260
  285
  312
  341
  373
  406
  441
  479
  520
  563
  608
  657
  708
Depreciation, amort., depletion, $m
  29
  30
  30
  31
  31
  32
  33
  34
  35
  36
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Funds from operations, $m
  78
  80
  84
  89
  95
  102
  111
  121
  132
  145
  157
  172
  189
  208
  228
  250
  273
  299
  326
  355
  386
  419
  455
  493
  533
  576
  622
  670
  722
  776
Change in working capital, $m
  2
  2
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
Cash from operations, $m
  76
  78
  81
  86
  91
  98
  107
  116
  127
  140
  151
  166
  183
  201
  221
  242
  265
  290
  317
  345
  376
  409
  444
  481
  521
  563
  608
  656
  706
  760
Maintenance CAPEX, $m
  -21
  -21
  -22
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
New CAPEX, $m
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -25
  -26
  -28
  -28
  -30
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -44
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -80
  -83
  -87
  -92
  -96
Free cash flow, $m
  52
  52
  54
  57
  62
  67
  74
  82
  92
  102
  112
  126
  140
  156
  174
  193
  214
  236
  260
  286
  314
  343
  375
  409
  445
  484
  525
  568
  615
  664
Issuance/(repayment) of debt, $m
  9
  11
  13
  14
  16
  17
  19
  20
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
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  
  9
  11
  13
  14
  16
  17
  19
  20
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
Total cash flow (excl. dividends), $m
  61
  63
  67
  71
  77
  85
  93
  103
  114
  126
  137
  152
  169
  187
  206
  227
  250
  274
  301
  329
  359
  391
  425
  462
  501
  542
  586
  633
  683
  736
Retained Cash Flow (-), $m
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
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
  58
  60
  63
  67
  72
  79
  87
  96
  107
  118
  129
  144
  160
  177
  196
  216
  238
  262
  288
  315
  344
  376
  409
  445
  483
  524
  567
  613
  661
  713
Discount rate, %
  6.60
  6.93
  7.28
  7.64
  8.02
  8.42
  8.84
  9.29
  9.75
  10.24
  10.75
  11.29
  11.85
  12.45
  13.07
  13.72
  14.41
  15.13
  15.88
  16.68
  17.51
  18.39
  19.31
  20.27
  21.29
  22.35
  23.47
  24.64
  25.87
  27.17
PV of cash for distribution, $m
  55
  52
  51
  50
  49
  49
  48
  47
  46
  45
  42
  40
  37
  34
  31
  28
  24
  21
  17
  14
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
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
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Phibro Animal Health Corporation (Phibro) is a global diversified animal health and mineral nutrition company. The Company operates in three segments, which include Animal Health, Mineral Nutrition and Performance Products. The Company offers various products, which include Animal health products, such as antibacterials, anticoccidials, vaccines, nutritional specialty products and mineral nutrition products. The Company also manufactures and markets specific ingredients for use in the personal care, automotive, industrial chemical and chemical catalyst industries. The Company's Medicated Feed Additives (MFAs) and other business consist of concentrated medicated products, which are administered through animal feeds. The Company's MFAs and other business consists of the production and sale of antibacterials, including Stafac, Terramycin, Neo-Terramycin and Mecadox and anticoccidials, including Nicarb, Aviax, Aviax Plus, Coxistac and amprolium.

FINANCIAL RATIOS  of  Phibro Animal Health (PAHC)

Valuation Ratios
P/E Ratio 29.1
Price to Sales 2.5
Price to Book 12.5
Price to Tangible Book
Price to Cash Flow 19.3
Price to Free Cash Flow 24.6
Growth Rates
Sales Growth Rate 1.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -41.7%
Cap. Spend. - 3 Yr. Gr. Rate 1%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 203.3%
Total Debt to Equity 207.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 12.5%
Ret/ On Assets - 3 Yr. Avg. 14.9%
Return On Total Capital 14.4%
Ret/ On T. Cap. - 3 Yr. Avg. 18.5%
Return On Equity 53.9%
Return On Equity - 3 Yr. Avg. 153%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 32.5%
Gross Margin - 3 Yr. Avg. 31.8%
EBITDA Margin 16%
EBITDA Margin - 3 Yr. Avg. 15.4%
Operating Margin 12.4%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 10.6%
Pre-Tax Margin - 3 Yr. Avg. 10.5%
Net Profit Margin 8.5%
Net Profit Margin - 3 Yr. Avg. 9.2%
Effective Tax Rate 19.8%
Eff/ Tax Rate - 3 Yr. Avg. 12%
Payout Ratio 24.6%

PAHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PAHC stock intrinsic value calculation we used $764 million for the last fiscal year's total revenue generated by Phibro Animal Health. The default revenue input number comes from 2017 income statement of Phibro Animal Health. 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 PAHC 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 6.6%, whose default value for PAHC is calculated based on our internal credit rating of Phibro Animal Health, 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 Phibro Animal Health.
    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 PAHC stock the variable cost ratio is equal to 17.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $545 million in the base year in the intrinsic value calculation for PAHC 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 Phibro Animal Health.

Corporate tax rate of 27% is the nominal tax rate for Phibro Animal Health. 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 PAHC 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 PAHC are equal to 27.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Phibro Animal Health 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 PAHC is equal to 13.7%. 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 - $151 million for Phibro Animal Health - 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 40 million for Phibro Animal Health 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 Phibro Animal Health at the current share price and the inputted number of shares is $1.9 billion.

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COMPANY NEWS

▶ [$$] Phibro Plans Ireland Biotech Facility, Creating Up to 150 Jobs   [Jul-05-18 01:51PM  The Wall Street Journal]
▶ Phibro: Fiscal 3Q Earnings Snapshot   [May-07-18 06:27PM  Associated Press]
▶ Phibro beats 2Q profit forecasts   [Feb-05-18 04:38PM  Associated Press]
▶ Phibro beats 1Q profit forecasts   [Nov-06-17 05:49PM  Associated Press]
▶ Phibro beats 4Q profit forecasts   [08:04PM  Associated Press]
▶ Phibro posts 3Q profit   [May-08-17 05:00PM  Associated Press]
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