Intrinsic value of Domtar Corporation - UFS

Previous Close

$41.54

  Intrinsic Value

$7.72

stock screener

  Rating & Target

str. sell

-81%

Previous close

$41.54

 
Intrinsic value

$7.72

 
Up/down potential

-81%

 
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 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 2.6

 

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, %
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.69
  4.72
  4.75
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
Revenue, $m
  5,679
  5,917
  6,169
  6,437
  6,721
  7,021
  7,339
  7,674
  8,028
  8,402
  8,795
  9,210
  9,647
  10,108
  10,592
  11,102
  11,639
  12,203
  12,797
  13,421
  14,078
  14,768
  15,493
  16,255
  17,057
  17,898
  18,783
  19,712
  20,688
  21,714
Variable operating expenses, $m
  6,040
  6,290
  6,556
  6,839
  7,137
  7,454
  7,788
  8,141
  8,514
  8,907
  9,262
  9,699
  10,159
  10,644
  11,154
  11,691
  12,256
  12,851
  13,476
  14,133
  14,825
  15,551
  16,315
  17,118
  17,961
  18,848
  19,779
  20,758
  21,786
  22,866
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
  6,040
  6,290
  6,556
  6,839
  7,137
  7,454
  7,788
  8,141
  8,514
  8,907
  9,262
  9,699
  10,159
  10,644
  11,154
  11,691
  12,256
  12,851
  13,476
  14,133
  14,825
  15,551
  16,315
  17,118
  17,961
  18,848
  19,779
  20,758
  21,786
  22,866
Operating income, $m
  -361
  -374
  -387
  -401
  -416
  -432
  -449
  -467
  -486
  -505
  -467
  -489
  -512
  -536
  -562
  -589
  -618
  -647
  -679
  -712
  -747
  -784
  -822
  -862
  -905
  -950
  -997
  -1,046
  -1,098
  -1,152
EBITDA, $m
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
Interest expense (income), $m
  64
  54
  60
  67
  74
  81
  89
  97
  106
  115
  125
  135
  146
  157
  169
  182
  196
  210
  224
  240
  256
  274
  292
  311
  331
  352
  374
  397
  421
  447
  474
Earnings before tax, $m
  -415
  -434
  -454
  -475
  -497
  -521
  -546
  -573
  -601
  -630
  -602
  -635
  -669
  -706
  -744
  -785
  -827
  -872
  -919
  -968
  -1,020
  -1,075
  -1,133
  -1,193
  -1,257
  -1,323
  -1,394
  -1,467
  -1,545
  -1,626
Tax expense, $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
Net income, $m
  -415
  -434
  -454
  -475
  -497
  -521
  -546
  -573
  -601
  -630
  -602
  -635
  -669
  -706
  -744
  -785
  -827
  -872
  -919
  -968
  -1,020
  -1,075
  -1,133
  -1,193
  -1,257
  -1,323
  -1,394
  -1,467
  -1,545
  -1,626

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
  5,125
  5,340
  5,568
  5,810
  6,066
  6,337
  6,624
  6,926
  7,246
  7,583
  7,938
  8,313
  8,707
  9,123
  9,560
  10,020
  10,504
  11,014
  11,550
  12,113
  12,706
  13,328
  13,983
  14,671
  15,394
  16,154
  16,952
  17,791
  18,672
  19,598
Adjusted assets (=assets-cash), $m
  5,125
  5,340
  5,568
  5,810
  6,066
  6,337
  6,624
  6,926
  7,246
  7,583
  7,938
  8,313
  8,707
  9,123
  9,560
  10,020
  10,504
  11,014
  11,550
  12,113
  12,706
  13,328
  13,983
  14,671
  15,394
  16,154
  16,952
  17,791
  18,672
  19,598
Revenue / Adjusted assets
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
  1.108
Average production assets, $m
  3,118
  3,248
  3,387
  3,534
  3,690
  3,855
  4,029
  4,213
  4,408
  4,613
  4,829
  5,056
  5,296
  5,549
  5,815
  6,095
  6,390
  6,700
  7,026
  7,368
  7,729
  8,108
  8,506
  8,924
  9,364
  9,826
  10,312
  10,822
  11,358
  11,921
Working capital, $m
  727
  757
  790
  824
  860
  899
  939
  982
  1,028
  1,075
  1,126
  1,179
  1,235
  1,294
  1,356
  1,421
  1,490
  1,562
  1,638
  1,718
  1,802
  1,890
  1,983
  2,081
  2,183
  2,291
  2,404
  2,523
  2,648
  2,779
Total debt, $m
  953
  1,057
  1,167
  1,285
  1,409
  1,540
  1,679
  1,826
  1,981
  2,145
  2,317
  2,499
  2,690
  2,891
  3,104
  3,327
  3,562
  3,809
  4,069
  4,342
  4,629
  4,931
  5,249
  5,582
  5,933
  6,302
  6,689
  7,096
  7,523
  7,972
Total liabilities, $m
  2,486
  2,590
  2,700
  2,818
  2,942
  3,073
  3,212
  3,359
  3,514
  3,678
  3,850
  4,032
  4,223
  4,424
  4,637
  4,860
  5,095
  5,342
  5,602
  5,875
  6,162
  6,464
  6,782
  7,115
  7,466
  7,835
  8,222
  8,629
  9,056
  9,505
Total equity, $m
  2,639
  2,750
  2,867
  2,992
  3,124
  3,264
  3,411
  3,567
  3,732
  3,905
  4,088
  4,281
  4,484
  4,698
  4,923
  5,160
  5,410
  5,672
  5,948
  6,238
  6,543
  6,864
  7,201
  7,556
  7,928
  8,319
  8,730
  9,162
  9,616
  10,093
Total liabilities and equity, $m
  5,125
  5,340
  5,567
  5,810
  6,066
  6,337
  6,623
  6,926
  7,246
  7,583
  7,938
  8,313
  8,707
  9,122
  9,560
  10,020
  10,505
  11,014
  11,550
  12,113
  12,705
  13,328
  13,983
  14,671
  15,394
  16,154
  16,952
  17,791
  18,672
  19,598
Debt-to-equity ratio
  0.360
  0.380
  0.410
  0.430
  0.450
  0.470
  0.490
  0.510
  0.530
  0.550
  0.570
  0.580
  0.600
  0.620
  0.630
  0.640
  0.660
  0.670
  0.680
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.770
  0.780
  0.790
Adjusted equity ratio
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -415
  -434
  -454
  -475
  -497
  -521
  -546
  -573
  -601
  -630
  -602
  -635
  -669
  -706
  -744
  -785
  -827
  -872
  -919
  -968
  -1,020
  -1,075
  -1,133
  -1,193
  -1,257
  -1,323
  -1,394
  -1,467
  -1,545
  -1,626
Depreciation, amort., depletion, $m
  351
  363
  376
  390
  405
  420
  436
  453
  472
  491
  451
  473
  495
  519
  543
  570
  597
  626
  657
  689
  722
  758
  795
  834
  875
  918
  964
  1,011
  1,061
  1,114
Funds from operations, $m
  -64
  -70
  -77
  -85
  -93
  -101
  -110
  -119
  -129
  -139
  -150
  -162
  -174
  -187
  -201
  -215
  -230
  -246
  -262
  -280
  -298
  -317
  -338
  -359
  -381
  -405
  -430
  -456
  -483
  -512
Change in working capital, $m
  29
  30
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
  88
  93
  98
  103
  108
  113
  119
  125
  131
Cash from operations, $m
  -92
  -101
  -110
  -119
  -129
  -139
  -151
  -162
  -174
  -187
  -201
  -215
  -230
  -246
  -263
  -280
  -299
  -318
  -338
  -360
  -382
  -406
  -431
  -457
  -484
  -513
  -543
  -575
  -608
  -643
Maintenance CAPEX, $m
  -280
  -291
  -304
  -317
  -330
  -345
  -360
  -377
  -394
  -412
  -431
  -451
  -473
  -495
  -519
  -543
  -570
  -597
  -626
  -657
  -689
  -722
  -758
  -795
  -834
  -875
  -918
  -964
  -1,011
  -1,061
New CAPEX, $m
  -125
  -131
  -139
  -147
  -156
  -165
  -174
  -184
  -194
  -205
  -216
  -228
  -240
  -253
  -266
  -280
  -295
  -310
  -326
  -343
  -360
  -379
  -398
  -419
  -440
  -462
  -486
  -510
  -536
  -563
Cash from investing activities, $m
  -405
  -422
  -443
  -464
  -486
  -510
  -534
  -561
  -588
  -617
  -647
  -679
  -713
  -748
  -785
  -823
  -865
  -907
  -952
  -1,000
  -1,049
  -1,101
  -1,156
  -1,214
  -1,274
  -1,337
  -1,404
  -1,474
  -1,547
  -1,624
Free cash flow, $m
  -497
  -523
  -552
  -583
  -615
  -649
  -685
  -723
  -762
  -804
  -848
  -894
  -943
  -994
  -1,047
  -1,104
  -1,163
  -1,225
  -1,290
  -1,359
  -1,431
  -1,507
  -1,586
  -1,670
  -1,758
  -1,850
  -1,947
  -2,049
  -2,156
  -2,268
Issuance/(repayment) of debt, $m
  99
  104
  111
  117
  124
  131
  139
  147
  155
  163
  172
  182
  191
  201
  212
  223
  235
  247
  260
  273
  287
  302
  317
  334
  351
  368
  387
  407
  427
  449
Issuance/(repurchase) of shares, $m
  516
  544
  571
  599
  629
  661
  694
  729
  765
  804
  785
  827
  872
  920
  969
  1,022
  1,077
  1,134
  1,195
  1,259
  1,326
  1,396
  1,470
  1,547
  1,629
  1,715
  1,805
  1,899
  1,998
  2,103
Cash from financing (excl. dividends), $m  
  615
  648
  682
  716
  753
  792
  833
  876
  920
  967
  957
  1,009
  1,063
  1,121
  1,181
  1,245
  1,312
  1,381
  1,455
  1,532
  1,613
  1,698
  1,787
  1,881
  1,980
  2,083
  2,192
  2,306
  2,425
  2,552
Total cash flow (excl. dividends), $m
  118
  126
  130
  134
  138
  143
  148
  153
  158
  163
  109
  115
  121
  127
  134
  141
  149
  156
  164
  173
  182
  191
  201
  211
  222
  233
  245
  257
  270
  284
Retained Cash Flow (-), $m
  -516
  -544
  -571
  -599
  -629
  -661
  -694
  -729
  -765
  -804
  -785
  -827
  -872
  -920
  -969
  -1,022
  -1,077
  -1,134
  -1,195
  -1,259
  -1,326
  -1,396
  -1,470
  -1,547
  -1,629
  -1,715
  -1,805
  -1,899
  -1,998
  -2,103
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
  -398
  -419
  -441
  -465
  -491
  -518
  -546
  -576
  -608
  -641
  -676
  -713
  -751
  -792
  -835
  -880
  -928
  -978
  -1,031
  -1,086
  -1,144
  -1,205
  -1,269
  -1,336
  -1,407
  -1,482
  -1,560
  -1,642
  -1,728
  -1,819
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
  -382
  -383
  -384
  -383
  -381
  -376
  -369
  -360
  -349
  -336
  -321
  -304
  -286
  -266
  -245
  -224
  -202
  -180
  -159
  -138
  -118
  -100
  -83
  -68
  -55
  -43
  -33
  -25
  -19
  -14
Current shareholders' claim on cash, %
  83.5
  69.5
  57.9
  48.1
  39.9
  33.1
  27.4
  22.7
  18.8
  15.5
  13.0
  10.9
  9.1
  7.6
  6.3
  5.2
  4.4
  3.6
  3.0
  2.5
  2.1
  1.7
  1.4
  1.2
  1.0
  0.8
  0.7
  0.5
  0.4
  0.4

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 Corporation (UFS)

Valuation Ratios
P/E Ratio 20.3
Price to Sales 0.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 5.6
Price to Free Cash Flow 22
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 $5455 million for the last fiscal year's total revenue generated by Domtar Corporation. The default revenue input number comes from 0001 income statement of Domtar Corporation. 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 4.1% 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 4.3%, whose default value for UFS is calculated based on our internal credit rating of Domtar Corporation, 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 Corporation.
    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 106.4%.

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 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 6.3% for Domtar Corporation.

Corporate tax rate of 27% is the nominal tax rate for Domtar Corporation. 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%.

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 54.9%.

Life of production assets of 10.7 years is the average useful life of capital assets used in Domtar Corporation 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 12.8%. 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 - $2538 million for Domtar Corporation - 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 62.829 million for Domtar Corporation 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 Corporation at the current share price and the inputted number of shares is $2.6 billion.

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