Intrinsic value of Domtar - UFS

Previous Close

$50.53

  Intrinsic Value

$13.13

stock screener

  Rating & Target

str. sell

-74%

Previous close

$50.53

 
Intrinsic value

$13.13

 
Up/down potential

-74%

 
Rating

str. sell

We calculate the intrinsic value of UFS 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 3.2

 

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
  5,260
  5,381
  5,519
  5,675
  5,847
  6,035
  6,241
  6,464
  6,703
  6,960
  7,236
  7,529
  7,842
  8,174
  8,527
  8,901
  9,296
  9,714
  10,156
  10,623
  11,116
  11,635
  12,182
  12,759
  13,366
  14,006
  14,679
  15,387
  16,133
  16,916
Variable operating expenses, $m
  5,027
  5,142
  5,272
  5,419
  5,581
  5,759
  5,953
  6,163
  6,389
  6,632
  6,829
  7,106
  7,401
  7,714
  8,047
  8,400
  8,773
  9,168
  9,585
  10,025
  10,490
  10,980
  11,497
  12,041
  12,614
  13,218
  13,853
  14,521
  15,225
  15,964
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
  5,027
  5,142
  5,272
  5,419
  5,581
  5,759
  5,953
  6,163
  6,389
  6,632
  6,829
  7,106
  7,401
  7,714
  8,047
  8,400
  8,773
  9,168
  9,585
  10,025
  10,490
  10,980
  11,497
  12,041
  12,614
  13,218
  13,853
  14,521
  15,225
  15,964
Operating income, $m
  233
  240
  247
  256
  266
  276
  288
  300
  314
  328
  407
  424
  441
  460
  480
  501
  523
  547
  572
  598
  626
  655
  686
  718
  752
  788
  826
  866
  908
  952
EBITDA, $m
  673
  688
  706
  726
  748
  772
  798
  827
  857
  890
  925
  963
  1,003
  1,045
  1,090
  1,138
  1,189
  1,242
  1,299
  1,358
  1,421
  1,488
  1,558
  1,632
  1,709
  1,791
  1,877
  1,968
  2,063
  2,163
Interest expense (income), $m
  64
  61
  64
  68
  72
  76
  81
  86
  92
  99
  105
  113
  121
  129
  138
  148
  158
  168
  180
  192
  204
  218
  232
  247
  262
  279
  296
  314
  334
  354
  375
Earnings before tax, $m
  172
  175
  180
  184
  190
  195
  202
  208
  215
  223
  294
  303
  312
  322
  332
  343
  355
  367
  380
  394
  408
  423
  439
  456
  473
  492
  512
  532
  554
  577
Tax expense, $m
  46
  47
  49
  50
  51
  53
  54
  56
  58
  60
  79
  82
  84
  87
  90
  93
  96
  99
  103
  106
  110
  114
  119
  123
  128
  133
  138
  144
  150
  156
Net income, $m
  125
  128
  131
  135
  138
  143
  147
  152
  157
  163
  215
  221
  228
  235
  243
  251
  259
  268
  277
  287
  298
  309
  320
  333
  346
  359
  374
  389
  404
  421

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
  5,319
  5,441
  5,581
  5,738
  5,912
  6,103
  6,310
  6,535
  6,778
  7,038
  7,316
  7,613
  7,929
  8,265
  8,622
  9,000
  9,400
  9,823
  10,269
  10,741
  11,239
  11,764
  12,318
  12,901
  13,515
  14,162
  14,842
  15,559
  16,312
  17,105
Adjusted assets (=assets-cash), $m
  5,319
  5,441
  5,581
  5,738
  5,912
  6,103
  6,310
  6,535
  6,778
  7,038
  7,316
  7,613
  7,929
  8,265
  8,622
  9,000
  9,400
  9,823
  10,269
  10,741
  11,239
  11,764
  12,318
  12,901
  13,515
  14,162
  14,842
  15,559
  16,312
  17,105
Revenue / Adjusted assets
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
  0.989
Average production assets, $m
  3,766
  3,853
  3,952
  4,063
  4,186
  4,321
  4,469
  4,628
  4,800
  4,984
  5,181
  5,391
  5,615
  5,853
  6,105
  6,373
  6,656
  6,956
  7,272
  7,606
  7,959
  8,331
  8,722
  9,135
  9,570
  10,028
  10,510
  11,017
  11,551
  12,112
Working capital, $m
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
  135
Total debt, $m
  1,188
  1,252
  1,325
  1,408
  1,499
  1,599
  1,708
  1,826
  1,953
  2,089
  2,235
  2,390
  2,556
  2,732
  2,919
  3,117
  3,326
  3,548
  3,782
  4,029
  4,290
  4,565
  4,855
  5,161
  5,483
  5,822
  6,178
  6,554
  6,948
  7,364
Total liabilities, $m
  2,787
  2,851
  2,924
  3,007
  3,098
  3,198
  3,307
  3,425
  3,552
  3,688
  3,834
  3,989
  4,155
  4,331
  4,518
  4,716
  4,925
  5,147
  5,381
  5,628
  5,889
  6,164
  6,454
  6,760
  7,082
  7,421
  7,777
  8,153
  8,547
  8,963
Total equity, $m
  2,532
  2,590
  2,656
  2,731
  2,814
  2,905
  3,004
  3,111
  3,226
  3,350
  3,483
  3,624
  3,774
  3,934
  4,104
  4,284
  4,474
  4,676
  4,888
  5,113
  5,350
  5,600
  5,863
  6,141
  6,433
  6,741
  7,065
  7,406
  7,765
  8,142
Total liabilities and equity, $m
  5,319
  5,441
  5,580
  5,738
  5,912
  6,103
  6,311
  6,536
  6,778
  7,038
  7,317
  7,613
  7,929
  8,265
  8,622
  9,000
  9,399
  9,823
  10,269
  10,741
  11,239
  11,764
  12,317
  12,901
  13,515
  14,162
  14,842
  15,559
  16,312
  17,105
Debt-to-equity ratio
  0.470
  0.480
  0.500
  0.520
  0.530
  0.550
  0.570
  0.590
  0.610
  0.620
  0.640
  0.660
  0.680
  0.690
  0.710
  0.730
  0.740
  0.760
  0.770
  0.790
  0.800
  0.820
  0.830
  0.840
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
Adjusted equity ratio
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476
  0.476

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  125
  128
  131
  135
  138
  143
  147
  152
  157
  163
  215
  221
  228
  235
  243
  251
  259
  268
  277
  287
  298
  309
  320
  333
  346
  359
  374
  389
  404
  421
Depreciation, amort., depletion, $m
  440
  449
  458
  470
  482
  495
  510
  526
  543
  562
  518
  539
  561
  585
  611
  637
  666
  696
  727
  761
  796
  833
  872
  914
  957
  1,003
  1,051
  1,102
  1,155
  1,211
Funds from operations, $m
  565
  577
  590
  604
  620
  638
  657
  678
  700
  724
  733
  760
  789
  820
  853
  888
  925
  964
  1,005
  1,048
  1,094
  1,142
  1,193
  1,246
  1,303
  1,362
  1,425
  1,490
  1,559
  1,632
Change in working capital, $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Cash from operations, $m
  564
  576
  589
  603
  619
  637
  656
  676
  699
  722
  731
  758
  787
  818
  850
  885
  921
  960
  1,001
  1,044
  1,090
  1,138
  1,188
  1,242
  1,298
  1,357
  1,419
  1,485
  1,554
  1,626
Maintenance CAPEX, $m
  -369
  -377
  -385
  -395
  -406
  -419
  -432
  -447
  -463
  -480
  -498
  -518
  -539
  -561
  -585
  -611
  -637
  -666
  -696
  -727
  -761
  -796
  -833
  -872
  -914
  -957
  -1,003
  -1,051
  -1,102
  -1,155
New CAPEX, $m
  -76
  -87
  -99
  -111
  -123
  -135
  -147
  -159
  -172
  -184
  -197
  -210
  -224
  -238
  -252
  -268
  -283
  -300
  -316
  -334
  -353
  -372
  -392
  -413
  -435
  -458
  -482
  -507
  -534
  -561
Cash from investing activities, $m
  -445
  -464
  -484
  -506
  -529
  -554
  -579
  -606
  -635
  -664
  -695
  -728
  -763
  -799
  -837
  -879
  -920
  -966
  -1,012
  -1,061
  -1,114
  -1,168
  -1,225
  -1,285
  -1,349
  -1,415
  -1,485
  -1,558
  -1,636
  -1,716
Free cash flow, $m
  120
  112
  104
  97
  90
  83
  76
  70
  64
  58
  35
  30
  24
  18
  13
  7
  1
  -5
  -11
  -17
  -23
  -30
  -37
  -44
  -51
  -58
  -66
  -74
  -82
  -90
Issuance/(repayment) of debt, $m
  58
  64
  73
  82
  91
  100
  109
  118
  127
  136
  146
  156
  166
  176
  187
  198
  210
  222
  234
  247
  261
  275
  290
  306
  322
  339
  357
  375
  395
  415
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  
  58
  64
  73
  82
  91
  100
  109
  118
  127
  136
  146
  156
  166
  176
  187
  198
  210
  222
  234
  247
  261
  275
  290
  306
  322
  339
  357
  375
  395
  415
Total cash flow (excl. dividends), $m
  178
  176
  178
  179
  181
  183
  185
  188
  191
  195
  181
  185
  190
  194
  199
  205
  211
  217
  223
  230
  237
  245
  253
  262
  271
  281
  291
  302
  313
  325
Retained Cash Flow (-), $m
  -49
  -58
  -67
  -75
  -83
  -91
  -99
  -107
  -115
  -124
  -132
  -141
  -150
  -160
  -170
  -180
  -190
  -201
  -213
  -225
  -237
  -250
  -263
  -278
  -292
  -308
  -324
  -341
  -359
  -377
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
  5
  5
  5
  6
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Cash available for distribution, $m
  129
  118
  111
  104
  98
  92
  86
  81
  76
  71
  49
  44
  39
  34
  30
  25
  20
  15
  10
  6
  0
  -5
  -10
  -16
  -21
  -27
  -33
  -39
  -46
  -52
Discount rate, %
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
  123
  108
  96
  85
  75
  66
  58
  50
  43
  37
  23
  18
  15
  11
  8
  6
  4
  3
  2
  1
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Domtar Corporation designs, manufactures, markets and distributes a range of fiber-based products, including communication papers, specialty and packaging papers and absorbent hygiene products. The Company segments include Pulp and Paper and Personal Care. The Pulp and Paper segment consists of the design, manufacturing, marketing and distribution of communication, specialty and packaging papers, as well as softwood, fluff and hardwood market pulp. The Personal Care segment consists of the design, manufacturing, marketing and distribution of absorbent hygiene products. The Company is a marketer of uncoated freesheet paper in North America serving a range of customers, including merchants, retail outlets, stationers, printers, publishers, converters and end users. It is also a marketer and producer of a line of incontinence care products, as well as infant diapers. It has a network of wood fiber converting assets that produce paper grade, fluff and specialty pulp.

FINANCIAL RATIOS  of  Domtar (UFS)

Valuation Ratios
P/E Ratio 24.7
Price to Sales 0.6
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow 26.8
Growth Rates
Sales Growth Rate -3.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20.1%
Cap. Spend. - 3 Yr. Gr. Rate 7.5%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 45.5%
Total Debt to Equity 48.3%
Interest Coverage 3
Management Effectiveness
Return On Assets 3.2%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 3.3%
Ret/ On T. Cap. - 3 Yr. Avg. 5.6%
Return On Equity 4.8%
Return On Equity - 3 Yr. Avg. 8.4%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 20.9%
Gross Margin - 3 Yr. Avg. 21%
EBITDA Margin 11.2%
EBITDA Margin - 3 Yr. Avg. 12.2%
Operating Margin 4.4%
Oper. Margin - 3 Yr. Avg. 5.5%
Pre-Tax Margin 3.1%
Pre-Tax Margin - 3 Yr. Avg. 3.6%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. 4.3%
Effective Tax Rate 18.5%
Eff/ Tax Rate - 3 Yr. Avg. -12.6%
Payout Ratio 79.7%

UFS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the UFS stock intrinsic value calculation we used $5157 million for the last fiscal year's total revenue generated by Domtar. The default revenue input number comes from 2017 income statement of Domtar. 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 UFS 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 4.4%, whose default value for UFS is calculated based on our internal credit rating of Domtar, 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 Domtar.
    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 UFS stock the variable cost ratio is equal to 95.6%.

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 UFS 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 Domtar.

Corporate tax rate of 27% is the nominal tax rate for Domtar. 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 UFS stock is equal to 0.1%.

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 UFS are equal to 71.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Domtar 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 UFS is equal to 0.8%. 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 - $2483 million for Domtar - 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 63 million for Domtar 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 Domtar at the current share price and the inputted number of shares is $3.2 billion.

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COMPANY NEWS

▶ Domtar Declares Regular Quarterly Dividend   [Aug-08-18 09:30AM  Business Wire]
▶ Domtar Corporation to Host Earnings Call   [Aug-01-18 08:55AM  ACCESSWIRE]
▶ Domtar: 2Q Earnings Snapshot   [07:29AM  Associated Press]
▶ 7 Valuable Low Price-to-Sales Stocks Worth Betting on Now   [Jul-30-18 02:05PM  InvestorPlace]
▶ 5 Great Basic Materials Stocks to Buy Ahead of Q2 Earnings   [Jul-23-18 11:00AM  InvestorPlace]
▶ 7 Low Price-to-Sales Stocks to Craft a Standout Portfolio   [Jul-19-18 01:33PM  InvestorPlace]
▶ How Domtar is taking the lead on hiring, training veterans   [May-24-18 07:00AM  American City Business Journals]
▶ Top Ranked Income Stocks to Buy for May 21st   [May-21-18 09:15AM  Zacks]
▶ Domtar Declares Regular Quarterly Dividend   [May-09-18 10:00AM  Business Wire]
▶ Calculating The Fair Value Of Domtar Corporation (NYSE:UFS)   [May-01-18 08:26AM  Simply Wall St.]
▶ Domtar: 1Q Earnings Snapshot   [07:21AM  Associated Press]
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