Intrinsic value of WGL Holdings - WGL

Previous Close

$88.74

  Intrinsic Value

$24.52

stock screener

  Rating & Target

str. sell

-72%

Previous close

$88.74

 
Intrinsic value

$24.52

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of WGL 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 4.5

 

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
  2,402
  2,457
  2,521
  2,591
  2,670
  2,756
  2,850
  2,952
  3,061
  3,179
  3,304
  3,438
  3,581
  3,733
  3,894
  4,065
  4,245
  4,436
  4,638
  4,851
  5,076
  5,313
  5,563
  5,827
  6,104
  6,396
  6,703
  7,027
  7,367
  7,725
Variable operating expenses, $m
  1,946
  1,990
  2,042
  2,099
  2,163
  2,232
  2,309
  2,391
  2,479
  2,575
  2,676
  2,785
  2,901
  3,024
  3,154
  3,292
  3,439
  3,593
  3,757
  3,929
  4,112
  4,304
  4,506
  4,719
  4,944
  5,181
  5,430
  5,692
  5,967
  6,257
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
  1,946
  1,990
  2,042
  2,099
  2,163
  2,232
  2,309
  2,391
  2,479
  2,575
  2,676
  2,785
  2,901
  3,024
  3,154
  3,292
  3,439
  3,593
  3,757
  3,929
  4,112
  4,304
  4,506
  4,719
  4,944
  5,181
  5,430
  5,692
  5,967
  6,257
Operating income, $m
  456
  467
  479
  492
  507
  524
  542
  561
  582
  604
  628
  653
  680
  709
  740
  772
  807
  843
  881
  922
  964
  1,010
  1,057
  1,107
  1,160
  1,215
  1,274
  1,335
  1,400
  1,468
EBITDA, $m
  903
  924
  948
  974
  1,004
  1,036
  1,072
  1,110
  1,151
  1,195
  1,242
  1,293
  1,347
  1,404
  1,464
  1,528
  1,596
  1,668
  1,744
  1,824
  1,909
  1,998
  2,092
  2,191
  2,295
  2,405
  2,520
  2,642
  2,770
  2,905
Interest expense (income), $m
  66
  121
  113
  121
  130
  139
  150
  162
  175
  189
  204
  220
  237
  255
  275
  296
  318
  341
  366
  392
  419
  449
  479
  512
  546
  582
  620
  660
  702
  746
  793
Earnings before tax, $m
  335
  354
  358
  363
  368
  374
  380
  386
  393
  400
  408
  416
  425
  435
  444
  455
  466
  477
  489
  502
  516
  530
  545
  561
  578
  595
  614
  633
  653
  675
Tax expense, $m
  91
  95
  97
  98
  99
  101
  103
  104
  106
  108
  110
  112
  115
  117
  120
  123
  126
  129
  132
  136
  139
  143
  147
  151
  156
  161
  166
  171
  176
  182
Net income, $m
  245
  258
  261
  265
  269
  273
  277
  282
  287
  292
  298
  304
  310
  317
  324
  332
  340
  348
  357
  367
  377
  387
  398
  410
  422
  434
  448
  462
  477
  493

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
  6,766
  6,922
  7,100
  7,300
  7,521
  7,764
  8,028
  8,314
  8,623
  8,954
  9,308
  9,686
  10,088
  10,515
  10,969
  11,450
  11,958
  12,496
  13,065
  13,665
  14,299
  14,967
  15,671
  16,413
  17,194
  18,017
  18,883
  19,794
  20,752
  21,761
Adjusted assets (=assets-cash), $m
  6,766
  6,922
  7,100
  7,300
  7,521
  7,764
  8,028
  8,314
  8,623
  8,954
  9,308
  9,686
  10,088
  10,515
  10,969
  11,450
  11,958
  12,496
  13,065
  13,665
  14,299
  14,967
  15,671
  16,413
  17,194
  18,017
  18,883
  19,794
  20,752
  21,761
Revenue / Adjusted assets
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
  0.355
Average production assets, $m
  4,468
  4,571
  4,688
  4,820
  4,966
  5,126
  5,301
  5,490
  5,694
  5,912
  6,146
  6,395
  6,661
  6,943
  7,243
  7,560
  7,896
  8,251
  8,627
  9,023
  9,441
  9,883
  10,347
  10,837
  11,353
  11,896
  12,468
  13,070
  13,703
  14,369
Working capital, $m
  -180
  -184
  -189
  -194
  -200
  -207
  -214
  -221
  -230
  -238
  -248
  -258
  -269
  -280
  -292
  -305
  -318
  -333
  -348
  -364
  -381
  -398
  -417
  -437
  -458
  -480
  -503
  -527
  -553
  -579
Total debt, $m
  2,099
  2,239
  2,399
  2,578
  2,778
  2,996
  3,234
  3,492
  3,769
  4,067
  4,386
  4,726
  5,088
  5,472
  5,881
  6,313
  6,771
  7,255
  7,767
  8,307
  8,878
  9,479
  10,112
  10,780
  11,483
  12,224
  13,003
  13,823
  14,686
  15,593
Total liabilities, $m
  6,090
  6,230
  6,390
  6,570
  6,769
  6,987
  7,225
  7,483
  7,761
  8,058
  8,377
  8,717
  9,079
  9,464
  9,872
  10,305
  10,762
  11,247
  11,758
  12,299
  12,869
  13,470
  14,104
  14,771
  15,475
  16,215
  16,994
  17,814
  18,677
  19,585
Total equity, $m
  677
  692
  710
  730
  752
  776
  803
  831
  862
  895
  931
  969
  1,009
  1,052
  1,097
  1,145
  1,196
  1,250
  1,306
  1,367
  1,430
  1,497
  1,567
  1,641
  1,719
  1,802
  1,888
  1,979
  2,075
  2,176
Total liabilities and equity, $m
  6,767
  6,922
  7,100
  7,300
  7,521
  7,763
  8,028
  8,314
  8,623
  8,953
  9,308
  9,686
  10,088
  10,516
  10,969
  11,450
  11,958
  12,497
  13,064
  13,666
  14,299
  14,967
  15,671
  16,412
  17,194
  18,017
  18,882
  19,793
  20,752
  21,761
Debt-to-equity ratio
  3.100
  3.230
  3.380
  3.530
  3.690
  3.860
  4.030
  4.200
  4.370
  4.540
  4.710
  4.880
  5.040
  5.200
  5.360
  5.510
  5.660
  5.810
  5.950
  6.080
  6.210
  6.330
  6.450
  6.570
  6.680
  6.780
  6.890
  6.980
  7.080
  7.170
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  245
  258
  261
  265
  269
  273
  277
  282
  287
  292
  298
  304
  310
  317
  324
  332
  340
  348
  357
  367
  377
  387
  398
  410
  422
  434
  448
  462
  477
  493
Depreciation, amort., depletion, $m
  447
  457
  469
  482
  497
  513
  530
  549
  569
  591
  615
  640
  666
  694
  724
  756
  790
  825
  863
  902
  944
  988
  1,035
  1,084
  1,135
  1,190
  1,247
  1,307
  1,370
  1,437
Funds from operations, $m
  692
  715
  730
  747
  765
  785
  807
  831
  856
  884
  913
  944
  977
  1,012
  1,049
  1,088
  1,130
  1,174
  1,220
  1,269
  1,321
  1,375
  1,433
  1,493
  1,557
  1,624
  1,695
  1,769
  1,847
  1,929
Change in working capital, $m
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
Cash from operations, $m
  695
  719
  735
  752
  771
  792
  814
  839
  865
  892
  922
  954
  987
  1,023
  1,061
  1,101
  1,143
  1,188
  1,235
  1,285
  1,338
  1,393
  1,451
  1,513
  1,578
  1,646
  1,718
  1,793
  1,873
  1,956
Maintenance CAPEX, $m
  -438
  -447
  -457
  -469
  -482
  -497
  -513
  -530
  -549
  -569
  -591
  -615
  -640
  -666
  -694
  -724
  -756
  -790
  -825
  -863
  -902
  -944
  -988
  -1,035
  -1,084
  -1,135
  -1,190
  -1,247
  -1,307
  -1,370
New CAPEX, $m
  -89
  -103
  -117
  -132
  -146
  -160
  -175
  -189
  -204
  -219
  -234
  -249
  -266
  -282
  -300
  -317
  -336
  -355
  -375
  -396
  -418
  -441
  -465
  -490
  -516
  -543
  -572
  -602
  -633
  -666
Cash from investing activities, $m
  -527
  -550
  -574
  -601
  -628
  -657
  -688
  -719
  -753
  -788
  -825
  -864
  -906
  -948
  -994
  -1,041
  -1,092
  -1,145
  -1,200
  -1,259
  -1,320
  -1,385
  -1,453
  -1,525
  -1,600
  -1,678
  -1,762
  -1,849
  -1,940
  -2,036
Free cash flow, $m
  168
  170
  160
  151
  143
  135
  127
  119
  112
  104
  97
  90
  82
  75
  67
  59
  51
  43
  35
  26
  17
  8
  -2
  -12
  -22
  -33
  -44
  -55
  -67
  -80
Issuance/(repayment) of debt, $m
  -142
  140
  160
  180
  199
  219
  238
  258
  278
  298
  319
  340
  362
  385
  408
  433
  458
  484
  512
  540
  570
  601
  634
  668
  703
  740
  779
  820
  863
  907
Issuance/(repurchase) of shares, $m
  38
  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  
  -104
  140
  160
  180
  199
  219
  238
  258
  278
  298
  319
  340
  362
  385
  408
  433
  458
  484
  512
  540
  570
  601
  634
  668
  703
  740
  779
  820
  863
  907
Total cash flow (excl. dividends), $m
  64
  310
  320
  331
  342
  353
  365
  377
  389
  402
  416
  430
  444
  459
  475
  492
  509
  527
  546
  566
  587
  609
  632
  656
  681
  708
  736
  765
  796
  828
Retained Cash Flow (-), $m
  -283
  -16
  -18
  -20
  -22
  -24
  -26
  -29
  -31
  -33
  -35
  -38
  -40
  -43
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -101
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
  16
  17
  17
  18
  18
  19
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
Cash available for distribution, $m
  -219
  294
  303
  311
  320
  329
  339
  348
  359
  369
  380
  392
  404
  417
  430
  444
  458
  473
  489
  506
  524
  542
  562
  582
  603
  626
  649
  674
  700
  727
Discount rate, %
  12.40
  13.02
  13.67
  14.35
  15.07
  15.83
  16.62
  17.45
  18.32
  19.24
  20.20
  21.21
  22.27
  23.38
  24.55
  25.78
  27.07
  28.42
  29.84
  31.33
  32.90
  34.55
  36.27
  38.09
  39.99
  41.99
  44.09
  46.29
  48.61
  51.04
PV of cash for distribution, $m
  -195
  230
  206
  182
  159
  136
  115
  96
  79
  64
  50
  39
  30
  22
  16
  11
  8
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0
  99.0

WGL Holdings, Inc. (WGL) is a holding company. The Company operates through four segments. The Regulated Utility segment consists of Washington Gas Light Company, which provides regulated gas distribution services to end use customers and natural gas transportation services to an unaffiliated natural gas distribution company and Hampshire Gas Company, which provides regulated interstate natural gas storage services. The Retail Energy-Marketing segment consists of the operations of WGL Energy Services, Inc., which sells natural gas and electricity directly to retail customers. The Commercial Energy Systems segment consists of the operations of WGL Energy Systems, Inc., WGSW, Inc. and the results of operations of affiliate-owned commercial distributed energy projects. The Midstream Energy Services segment consists of the operations of WGL Midstream, Inc., which engages in acquiring, investing in, managing and optimizing natural gas storage and transportation assets.

FINANCIAL RATIOS  of  WGL Holdings (WGL)

Valuation Ratios
P/E Ratio 23.4
Price to Sales 1.9
Price to Book 3
Price to Tangible Book
Price to Cash Flow 19.7
Price to Free Cash Flow -15.9
Growth Rates
Sales Growth Rate 0.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -2.5%
Cap. Spend. - 3 Yr. Gr. Rate 5.5%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 93.5%
Total Debt to Equity 146.4%
Interest Coverage 5
Management Effectiveness
Return On Assets 3.7%
Ret/ On Assets - 3 Yr. Avg. 3.5%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.6%
Return On Equity 13.2%
Return On Equity - 3 Yr. Avg. 12.1%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 21.6%
EBITDA Margin - 3 Yr. Avg. 18.4%
Operating Margin 14.5%
Oper. Margin - 3 Yr. Avg. 12.4%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 10.6%
Net Profit Margin 8.2%
Net Profit Margin - 3 Yr. Avg. 6.8%
Effective Tax Rate 38.4%
Eff/ Tax Rate - 3 Yr. Avg. 37.9%
Payout Ratio 52.6%

WGL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WGL stock intrinsic value calculation we used $2355 million for the last fiscal year's total revenue generated by WGL Holdings. The default revenue input number comes from 2017 income statement of WGL Holdings. 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 WGL 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 12.4%, whose default value for WGL is calculated based on our internal credit rating of WGL Holdings, 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 WGL Holdings.
    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 WGL stock the variable cost ratio is equal to 81%.

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 WGL 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 WGL Holdings.

Corporate tax rate of 27% is the nominal tax rate for WGL Holdings. 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 WGL stock is equal to 0.7%.

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 WGL are equal to 186%.

Life of production assets of 10 years is the average useful life of capital assets used in WGL Holdings 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 WGL is equal to -7.5%. 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 - $394 million for WGL Holdings - 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 51 million for WGL Holdings 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 WGL Holdings at the current share price and the inputted number of shares is $4.5 billion.

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