Intrinsic value of Olympic Steel, Inc. - ZEUS

Previous Close

$13.12

  Intrinsic Value

$35.41

stock screener

  Rating & Target

str. buy

+170%

Previous close

$13.12

 
Intrinsic value

$35.41

 
Up/down potential

+170%

 
Rating

str. buy

We calculate the intrinsic value of ZEUS 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 0.1

 

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, %
  39.40
  35.96
  32.86
  30.08
  27.57
  25.31
  23.28
  21.45
  19.81
  18.33
  16.99
  15.80
  14.72
  13.74
  12.87
  12.08
  11.37
  10.74
  10.16
  9.65
  9.18
  8.76
  8.39
  8.05
  7.74
  7.47
  7.22
  7.00
  6.80
  6.62
Revenue, $m
  2,391
  3,250
  4,319
  5,618
  7,166
  8,980
  11,071
  13,446
  16,110
  19,062
  22,302
  25,824
  29,624
  33,696
  38,032
  42,628
  47,476
  52,574
  57,917
  63,504
  69,335
  75,412
  81,737
  88,316
  95,155
  102,263
  109,649
  117,325
  125,303
  133,599
Variable operating expenses, $m
  2,184
  2,968
  3,943
  5,128
  6,541
  8,197
  10,104
  12,271
  14,702
  17,395
  20,349
  23,563
  27,030
  30,745
  34,702
  38,895
  43,319
  47,970
  52,845
  57,943
  63,263
  68,808
  74,579
  80,582
  86,822
  93,307
  100,047
  107,050
  114,330
  121,899
Fixed operating expenses, $m
  95
  97
  99
  101
  104
  106
  108
  111
  113
  116
  118
  121
  123
  126
  129
  132
  135
  138
  141
  144
  147
  150
  153
  157
  160
  164
  167
  171
  175
  179
Total operating expenses, $m
  2,279
  3,065
  4,042
  5,229
  6,645
  8,303
  10,212
  12,382
  14,815
  17,511
  20,467
  23,684
  27,153
  30,871
  34,831
  39,027
  43,454
  48,108
  52,986
  58,087
  63,410
  68,958
  74,732
  80,739
  86,982
  93,471
  100,214
  107,221
  114,505
  122,078
Operating income, $m
  112
  185
  276
  388
  521
  678
  859
  1,064
  1,295
  1,551
  1,835
  2,141
  2,471
  2,825
  3,202
  3,601
  4,023
  4,467
  4,931
  5,418
  5,925
  6,454
  7,005
  7,577
  8,173
  8,792
  9,435
  10,104
  10,799
  11,521
EBITDA, $m
  138
  219
  321
  446
  594
  768
  970
  1,199
  1,456
  1,741
  2,053
  2,394
  2,761
  3,155
  3,574
  4,019
  4,488
  4,982
  5,499
  6,040
  6,604
  7,193
  7,806
  8,443
  9,105
  9,794
  10,509
  11,253
  12,026
  12,830
Interest expense (income), $m
  4
  16
  26
  38
  53
  72
  94
  120
  150
  184
  222
  264
  310
  361
  415
  473
  535
  600
  670
  743
  819
  899
  982
  1,069
  1,159
  1,253
  1,351
  1,452
  1,557
  1,667
  1,781
Earnings before tax, $m
  95
  159
  238
  334
  449
  584
  738
  914
  1,111
  1,329
  1,571
  1,831
  2,110
  2,410
  2,729
  3,066
  3,423
  3,797
  4,189
  4,599
  5,027
  5,472
  5,936
  6,419
  6,920
  7,441
  7,983
  8,546
  9,131
  9,740
Tax expense, $m
  26
  43
  64
  90
  121
  158
  199
  247
  300
  359
  424
  494
  570
  651
  737
  828
  924
  1,025
  1,131
  1,242
  1,357
  1,477
  1,603
  1,733
  1,868
  2,009
  2,155
  2,307
  2,466
  2,630
Net income, $m
  70
  116
  174
  244
  328
  426
  539
  667
  811
  970
  1,147
  1,336
  1,541
  1,759
  1,992
  2,239
  2,498
  2,772
  3,058
  3,357
  3,669
  3,995
  4,333
  4,686
  5,052
  5,432
  5,828
  6,239
  6,666
  7,110

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
  1,061
  1,442
  1,916
  2,492
  3,179
  3,984
  4,912
  5,965
  7,147
  8,457
  9,894
  11,457
  13,143
  14,949
  16,873
  18,912
  21,063
  23,325
  25,695
  28,174
  30,761
  33,457
  36,263
  39,182
  42,216
  45,370
  48,646
  52,052
  55,592
  59,272
Adjusted assets (=assets-cash), $m
  1,061
  1,442
  1,916
  2,492
  3,179
  3,984
  4,912
  5,965
  7,147
  8,457
  9,894
  11,457
  13,143
  14,949
  16,873
  18,912
  21,063
  23,325
  25,695
  28,174
  30,761
  33,457
  36,263
  39,182
  42,216
  45,370
  48,646
  52,052
  55,592
  59,272
Revenue / Adjusted assets
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
  2.254
Average production assets, $m
  232
  315
  419
  545
  695
  871
  1,074
  1,304
  1,563
  1,849
  2,163
  2,505
  2,874
  3,269
  3,689
  4,135
  4,605
  5,100
  5,618
  6,160
  6,726
  7,315
  7,929
  8,567
  9,230
  9,920
  10,636
  11,381
  12,154
  12,959
Working capital, $m
  593
  806
  1,071
  1,393
  1,777
  2,227
  2,746
  3,335
  3,995
  4,727
  5,531
  6,404
  7,347
  8,357
  9,432
  10,572
  11,774
  13,038
  14,363
  15,749
  17,195
  18,702
  20,271
  21,902
  23,599
  25,361
  27,193
  29,097
  31,075
  33,133
Total debt, $m
  481
  708
  991
  1,334
  1,744
  2,223
  2,776
  3,404
  4,108
  4,889
  5,746
  6,677
  7,682
  8,759
  9,905
  11,120
  12,402
  13,750
  15,163
  16,641
  18,182
  19,789
  21,462
  23,201
  25,010
  26,889
  28,842
  30,872
  32,981
  35,175
Total liabilities, $m
  632
  859
  1,142
  1,485
  1,895
  2,375
  2,927
  3,555
  4,260
  5,040
  5,897
  6,828
  7,833
  8,910
  10,056
  11,272
  12,554
  13,902
  15,314
  16,792
  18,334
  19,940
  21,613
  23,352
  25,161
  27,040
  28,993
  31,023
  33,133
  35,326
Total equity, $m
  429
  583
  774
  1,007
  1,284
  1,610
  1,984
  2,410
  2,887
  3,417
  3,997
  4,629
  5,310
  6,040
  6,817
  7,640
  8,510
  9,423
  10,381
  11,382
  12,427
  13,517
  14,650
  15,830
  17,055
  18,329
  19,653
  21,029
  22,459
  23,946
Total liabilities and equity, $m
  1,061
  1,442
  1,916
  2,492
  3,179
  3,985
  4,911
  5,965
  7,147
  8,457
  9,894
  11,457
  13,143
  14,950
  16,873
  18,912
  21,064
  23,325
  25,695
  28,174
  30,761
  33,457
  36,263
  39,182
  42,216
  45,369
  48,646
  52,052
  55,592
  59,272
Debt-to-equity ratio
  1.120
  1.220
  1.280
  1.330
  1.360
  1.380
  1.400
  1.410
  1.420
  1.430
  1.440
  1.440
  1.450
  1.450
  1.450
  1.460
  1.460
  1.460
  1.460
  1.460
  1.460
  1.460
  1.460
  1.470
  1.470
  1.470
  1.470
  1.470
  1.470
  1.470
Adjusted equity ratio
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404
  0.404

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  70
  116
  174
  244
  328
  426
  539
  667
  811
  970
  1,147
  1,336
  1,541
  1,759
  1,992
  2,239
  2,498
  2,772
  3,058
  3,357
  3,669
  3,995
  4,333
  4,686
  5,052
  5,432
  5,828
  6,239
  6,666
  7,110
Depreciation, amort., depletion, $m
  26
  35
  45
  58
  73
  91
  111
  134
  161
  189
  219
  253
  290
  330
  373
  418
  465
  515
  567
  622
  679
  739
  801
  865
  932
  1,002
  1,074
  1,150
  1,228
  1,309
Funds from operations, $m
  96
  151
  219
  302
  401
  517
  650
  802
  972
  1,160
  1,365
  1,589
  1,831
  2,089
  2,365
  2,656
  2,964
  3,287
  3,625
  3,979
  4,349
  4,734
  5,134
  5,551
  5,984
  6,434
  6,902
  7,388
  7,894
  8,419
Change in working capital, $m
  168
  213
  265
  322
  384
  450
  519
  589
  661
  732
  803
  874
  942
  1,010
  1,075
  1,140
  1,202
  1,264
  1,325
  1,386
  1,446
  1,507
  1,569
  1,632
  1,696
  1,763
  1,832
  1,904
  1,979
  2,057
Cash from operations, $m
  -72
  -63
  -46
  -20
  17
  67
  132
  213
  311
  428
  562
  716
  888
  1,080
  1,289
  1,517
  1,761
  2,023
  2,300
  2,594
  2,903
  3,227
  3,566
  3,919
  4,288
  4,671
  5,070
  5,485
  5,915
  6,362
Maintenance CAPEX, $m
  -17
  -23
  -32
  -42
  -55
  -70
  -88
  -108
  -132
  -158
  -187
  -219
  -253
  -290
  -330
  -373
  -418
  -465
  -515
  -567
  -622
  -679
  -739
  -801
  -865
  -932
  -1,002
  -1,074
  -1,150
  -1,228
New CAPEX, $m
  -66
  -83
  -104
  -126
  -150
  -176
  -203
  -230
  -258
  -286
  -314
  -342
  -369
  -395
  -421
  -446
  -470
  -494
  -518
  -542
  -566
  -589
  -614
  -638
  -663
  -689
  -716
  -745
  -774
  -805
Cash from investing activities, $m
  -83
  -106
  -136
  -168
  -205
  -246
  -291
  -338
  -390
  -444
  -501
  -561
  -622
  -685
  -751
  -819
  -888
  -959
  -1,033
  -1,109
  -1,188
  -1,268
  -1,353
  -1,439
  -1,528
  -1,621
  -1,718
  -1,819
  -1,924
  -2,033
Free cash flow, $m
  -154
  -170
  -182
  -189
  -189
  -179
  -159
  -126
  -79
  -17
  61
  156
  267
  394
  538
  698
  873
  1,063
  1,267
  1,484
  1,715
  1,958
  2,213
  2,480
  2,759
  3,050
  3,352
  3,666
  3,992
  4,330
Issuance/(repayment) of debt, $m
  178
  227
  282
  343
  410
  480
  553
  628
  704
  781
  857
  931
  1,005
  1,077
  1,147
  1,215
  1,282
  1,348
  1,413
  1,477
  1,542
  1,607
  1,673
  1,740
  1,808
  1,879
  1,953
  2,030
  2,110
  2,193
Issuance/(repurchase) of shares, $m
  52
  38
  18
  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  
  230
  265
  300
  343
  410
  480
  553
  628
  704
  781
  857
  931
  1,005
  1,077
  1,147
  1,215
  1,282
  1,348
  1,413
  1,477
  1,542
  1,607
  1,673
  1,740
  1,808
  1,879
  1,953
  2,030
  2,110
  2,193
Total cash flow (excl. dividends), $m
  76
  96
  119
  155
  221
  300
  394
  502
  625
  764
  917
  1,087
  1,272
  1,471
  1,685
  1,913
  2,155
  2,411
  2,680
  2,962
  3,257
  3,565
  3,886
  4,220
  4,568
  4,929
  5,305
  5,695
  6,101
  6,523
Retained Cash Flow (-), $m
  -122
  -154
  -191
  -233
  -278
  -325
  -375
  -426
  -477
  -529
  -581
  -631
  -681
  -730
  -777
  -824
  -869
  -914
  -958
  -1,001
  -1,045
  -1,089
  -1,134
  -1,179
  -1,226
  -1,274
  -1,324
  -1,376
  -1,430
  -1,487
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
  -46
  -58
  -73
  -78
  -57
  -25
  19
  76
  148
  235
  337
  456
  590
  741
  908
  1,090
  1,286
  1,497
  1,722
  1,960
  2,211
  2,475
  2,752
  3,041
  3,342
  3,655
  3,981
  4,320
  4,671
  5,036
Discount rate, %
  9.30
  9.77
  10.25
  10.77
  11.30
  11.87
  12.46
  13.09
  13.74
  14.43
  15.15
  15.91
  16.70
  17.54
  18.41
  19.33
  20.30
  21.32
  22.38
  23.50
  24.68
  25.91
  27.20
  28.57
  29.99
  31.49
  33.07
  34.72
  36.46
  38.28
PV of cash for distribution, $m
  -42
  -48
  -54
  -52
  -33
  -13
  8
  29
  46
  61
  71
  77
  79
  77
  72
  64
  56
  46
  37
  29
  22
  16
  11
  7
  5
  3
  2
  1
  1
  0
Current shareholders' claim on cash, %
  80.5
  71.4
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5
  68.5

Olympic Steel, Inc. is a metals service center. The Company provides metals processing and distribution services for a range of customers. The Company operates through three segments: carbon flat products, specialty metals flat products, and tubular and pipe products. The Company's carbon flat products segment's focus is on the direct sale and distribution of large volumes of processed carbon and coated flat-rolled sheet, coil and plate products and fabricated parts. The Company's specialty metals flat products segment's focus is on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products and fabricated parts. The Company's tubular and pipe products segment consists of the Chicago Tube and Iron Company (CTI) business. Through its tubular and pipe products segment, it distributes metals tubing, pipe, bar, valve and fittings, and fabricate pressure parts supplied to various industrial markets.

FINANCIAL RATIOS  of  Olympic Steel, Inc. (ZEUS)

Valuation Ratios
P/E Ratio -143.8
Price to Sales 0.1
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow -14.4
Price to Free Cash Flow -8.5
Growth Rates
Sales Growth Rate -10.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -15.2%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 64.8%
Total Debt to Equity 65.6%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.6%
Ret/ On Assets - 3 Yr. Avg. -1.6%
Return On Total Capital -0.2%
Ret/ On T. Cap. - 3 Yr. Avg. -3.2%
Return On Equity -0.4%
Return On Equity - 3 Yr. Avg. -5.7%
Asset Turnover 2
Profitability Ratios
Gross Margin 14.8%
Gross Margin - 3 Yr. Avg. 13.4%
EBITDA Margin 2.2%
EBITDA Margin - 3 Yr. Avg. 0.8%
Operating Margin 0.6%
Oper. Margin - 3 Yr. Avg. -0.8%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. -1.3%
Net Profit Margin -0.1%
Net Profit Margin - 3 Yr. Avg. -1.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0.6%
Payout Ratio -100%

ZEUS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ZEUS stock intrinsic value calculation we used $1715 million for the last fiscal year's total revenue generated by Olympic Steel, Inc.. The default revenue input number comes from 0001 income statement of Olympic Steel, 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 ZEUS stock valuation model: a) initial revenue growth rate of 39.4% 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 9.3%, whose default value for ZEUS is calculated based on our internal credit rating of Olympic Steel, 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 Olympic Steel, 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 ZEUS stock the variable cost ratio is equal to 91.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $93 million in the base year in the intrinsic value calculation for ZEUS 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 Olympic Steel, Inc..

Corporate tax rate of 27% is the nominal tax rate for Olympic Steel, 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 ZEUS 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 ZEUS are equal to 9.7%.

Life of production assets of 9.9 years is the average useful life of capital assets used in Olympic Steel, 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 ZEUS is equal to 24.8%. 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 - $306.991 million for Olympic Steel, 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 11.008 million for Olympic Steel, 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 Olympic Steel, Inc. at the current share price and the inputted number of shares is $0.1 billion.

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