Intrinsic value of RGC Resources Inc. - RGCO

Previous Close

$27.59

  Intrinsic Value

$2.48

stock screener

  Rating & Target

str. sell

-91%

Previous close

$27.59

 
Intrinsic value

$2.48

 
Up/down potential

-91%

 
Rating

str. sell

We calculate the intrinsic value of RGCO 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 0.2

 

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, %
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
Revenue, $m
  75
  84
  94
  104
  114
  126
  137
  149
  162
  175
  189
  203
  218
  234
  250
  266
  283
  301
  320
  340
  360
  381
  403
  426
  451
  476
  502
  529
  558
  588
Variable operating expenses, $m
  61
  69
  76
  85
  94
  103
  112
  122
  133
  143
  155
  166
  178
  191
  204
  218
  232
  247
  262
  278
  295
  312
  330
  349
  369
  389
  411
  433
  457
  481
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
  61
  69
  76
  85
  94
  103
  112
  122
  133
  143
  155
  166
  178
  191
  204
  218
  232
  247
  262
  278
  295
  312
  330
  349
  369
  389
  411
  433
  457
  481
Operating income, $m
  14
  15
  17
  19
  21
  23
  25
  27
  30
  32
  34
  37
  40
  43
  45
  48
  52
  55
  58
  62
  66
  69
  73
  78
  82
  87
  91
  96
  102
  107
EBITDA, $m
  22
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  63
  68
  72
  77
  82
  87
  93
  98
  104
  110
  117
  124
  130
  138
  145
  153
  162
  170
Interest expense (income), $m
  2
  4
  5
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
Earnings before tax, $m
  10
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  47
Tax expense, $m
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  10
  11
  12
  12
  13
Net income, $m
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34

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
  248
  278
  311
  345
  380
  417
  456
  497
  539
  583
  628
  675
  725
  776
  829
  884
  942
  1,002
  1,064
  1,129
  1,196
  1,267
  1,340
  1,417
  1,497
  1,580
  1,668
  1,759
  1,854
  1,954
Adjusted assets (=assets-cash), $m
  248
  278
  311
  345
  380
  417
  456
  497
  539
  583
  628
  675
  725
  776
  829
  884
  942
  1,002
  1,064
  1,129
  1,196
  1,267
  1,340
  1,417
  1,497
  1,580
  1,668
  1,759
  1,854
  1,954
Revenue / Adjusted assets
  0.302
  0.302
  0.302
  0.301
  0.300
  0.302
  0.300
  0.300
  0.301
  0.300
  0.301
  0.301
  0.301
  0.302
  0.302
  0.301
  0.300
  0.300
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
  0.301
Average production assets, $m
  178
  199
  222
  247
  272
  299
  326
  355
  386
  417
  450
  484
  519
  555
  593
  633
  674
  717
  762
  808
  856
  907
  959
  1,014
  1,071
  1,131
  1,194
  1,259
  1,327
  1,399
Working capital, $m
  -10
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
Total debt, $m
  89
  108
  129
  150
  173
  197
  221
  247
  274
  302
  331
  361
  393
  425
  459
  495
  531
  569
  609
  650
  694
  739
  785
  834
  885
  939
  994
  1,052
  1,113
  1,177
Total liabilities, $m
  158
  178
  198
  220
  242
  266
  291
  317
  344
  372
  401
  431
  462
  495
  529
  564
  601
  639
  679
  720
  763
  808
  855
  904
  955
  1,008
  1,064
  1,122
  1,183
  1,247
Total equity, $m
  90
  101
  112
  125
  138
  151
  165
  180
  195
  211
  227
  245
  262
  281
  300
  320
  341
  363
  385
  409
  433
  459
  485
  513
  542
  572
  604
  637
  671
  707
Total liabilities and equity, $m
  248
  279
  310
  345
  380
  417
  456
  497
  539
  583
  628
  676
  724
  776
  829
  884
  942
  1,002
  1,064
  1,129
  1,196
  1,267
  1,340
  1,417
  1,497
  1,580
  1,668
  1,759
  1,854
  1,954
Debt-to-equity ratio
  0.990
  1.070
  1.140
  1.200
  1.260
  1.300
  1.340
  1.370
  1.410
  1.430
  1.460
  1.480
  1.500
  1.510
  1.530
  1.540
  1.560
  1.570
  1.580
  1.590
  1.600
  1.610
  1.620
  1.630
  1.630
  1.640
  1.650
  1.650
  1.660
  1.660
Adjusted equity ratio
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  34
Depreciation, amort., depletion, $m
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  32
  34
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
Funds from operations, $m
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  34
  36
  38
  41
  43
  46
  49
  52
  55
  58
  61
  64
  68
  72
  75
  79
  84
  88
  93
  98
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
Cash from operations, $m
  16
  18
  20
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  87
  92
  97
  102
Maintenance CAPEX, $m
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -32
  -34
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
New CAPEX, $m
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -46
  -48
  -50
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
Cash from investing activities, $m
  -28
  -30
  -32
  -34
  -36
  -39
  -42
  -44
  -46
  -48
  -52
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -77
  -80
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -119
  -125
  -131
Free cash flow, $m
  -11
  -12
  -13
  -13
  -14
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -17
  -18
  -18
  -19
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -28
  -29
  -30
Issuance/(repayment) of debt, $m
  18
  19
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
Issuance/(repurchase) of shares, $m
  3
  3
  3
  4
  4
  4
  4
  4
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Cash from financing (excl. dividends), $m  
  21
  22
  24
  26
  27
  28
  29
  30
  30
  31
  32
  33
  34
  36
  37
  38
  40
  41
  42
  43
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
Total cash flow (excl. dividends), $m
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
Retained Cash Flow (-), $m
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
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
  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
  -1
  -1
Discount rate, %
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for 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
Current shareholders' claim on cash, %
  98.6
  97.3
  96.1
  95.0
  94.1
  93.2
  92.4
  91.7
  91.1
  90.5
  90.0
  89.6
  89.2
  88.8
  88.5
  88.2
  87.9
  87.7
  87.5
  87.3
  87.1
  87.0
  86.8
  86.7
  86.6
  86.5
  86.3
  86.3
  86.2
  86.1

RGC Resources, Inc. (Resources) is an energy services company. The Company is engaged in the regulated sale and distribution of natural gas to residential, commercial and industrial customers in Roanoke, Virginia, and the surrounding localities, through its Roanoke Gas Company (Roanoke Gas) subsidiary. Roanoke Gas also provides certain non-regulated services. It maintains an integrated natural gas distribution system to deliver natural gas purchased from suppliers to residential, commercial and industrial users in its service territory. As of September 30, 2016, Resources had approximately 1,132 miles of transmission and distribution pipeline. As of September 30, 2016, Roanoke Gas owned and operated eight metering stations. It also owns a liquefied natural gas storage facility located in Botetourt County that has the capacity to store up to 220,000 dekatherm (DTH) of natural gas. The Company's subsidiaries also include Diversified Energy Company and RGC Midstream, LLC.

FINANCIAL RATIOS  of  RGC Resources Inc. (RGCO)

Valuation Ratios
P/E Ratio 33.3
Price to Sales 3.2
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow -25
Growth Rates
Sales Growth Rate 5.1%
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 7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 101.7%
Total Debt to Equity 101.7%
Interest Coverage 6
Management Effectiveness
Return On Assets 4.1%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 5.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.6%
Return On Equity 10.3%
Return On Equity - 3 Yr. Avg. 10.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 29%
EBITDA Margin - 3 Yr. Avg. 25.6%
Operating Margin 17.7%
Oper. Margin - 3 Yr. Avg. 17%
Pre-Tax Margin 16.1%
Pre-Tax Margin - 3 Yr. Avg. 14.4%
Net Profit Margin 9.7%
Net Profit Margin - 3 Yr. Avg. 9.1%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. 36.9%
Payout Ratio 66.7%

RGCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RGCO stock intrinsic value calculation we used $66 million for the last fiscal year's total revenue generated by RGC Resources Inc.. The default revenue input number comes from 0001 income statement of RGC Resources 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 RGCO stock valuation model: a) initial revenue growth rate of 13.1% 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 7.5%, whose default value for RGCO is calculated based on our internal credit rating of RGC Resources 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 RGC Resources 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 RGCO stock the variable cost ratio is equal to 81.8%.

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 RGCO 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 RGC Resources Inc..

Corporate tax rate of 27% is the nominal tax rate for RGC Resources 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 RGCO 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 RGCO are equal to 237.8%.

Life of production assets of 22.1 years is the average useful life of capital assets used in RGC Resources 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 RGCO is equal to -13.3%. 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 - $79.583112 million for RGC Resources 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 8.023 million for RGC Resources 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 RGC Resources Inc. at the current share price and the inputted number of shares is $0.2 billion.

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