Intrinsic value of Sabine Royalty Trust UBI - SBR

Previous Close

$43.15

  Intrinsic Value

$95.23

stock screener

  Rating & Target

str. buy

+121%

Previous close

$43.15

 
Intrinsic value

$95.23

 
Up/down potential

+121%

 
Rating

str. buy

We calculate the intrinsic value of SBR 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 2016), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -37.50
  28.60
  26.24
  24.12
  22.20
  20.48
  18.94
  17.54
  16.29
  15.16
  14.14
  13.23
  12.41
  11.67
  11.00
  10.40
  9.86
  9.37
  8.94
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.24
  6.11
Revenue, $m
  30
  39
  49
  60
  74
  89
  106
  124
  145
  167
  190
  215
  242
  270
  300
  331
  364
  398
  434
  471
  509
  549
  591
  634
  679
  726
  774
  825
  878
  932
  989
Variable operating expenses, $m
 
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
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
  3
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
Operating income, $m
  27
  37
  47
  58
  71
  86
  102
  120
  140
  161
  184
  208
  234
  261
  290
  320
  352
  385
  419
  455
  492
  531
  571
  613
  657
  702
  749
  798
  849
  901
  957
EBITDA, $m
  27
  37
  47
  58
  71
  86
  102
  120
  140
  161
  184
  208
  234
  261
  290
  320
  352
  385
  419
  455
  492
  531
  571
  613
  657
  702
  749
  798
  849
  901
  957
Interest expense (income), $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
  0
Earnings before tax, $m
  27
  37
  47
  58
  71
  86
  102
  120
  140
  161
  184
  208
  234
  261
  290
  320
  352
  385
  419
  455
  492
  531
  571
  613
  657
  702
  749
  798
  849
  901
  957
Tax expense, $m
  0
  10
  13
  16
  19
  23
  28
  32
  38
  44
  50
  56
  63
  71
  78
  86
  95
  104
  113
  123
  133
  143
  154
  166
  177
  190
  202
  215
  229
  243
  258
Net income, $m
  27
  27
  34
  43
  52
  63
  75
  88
  102
  118
  134
  152
  171
  191
  212
  234
  257
  281
  306
  332
  359
  388
  417
  448
  479
  512
  547
  582
  619
  658
  698

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5
  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
  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
Adjusted assets (=assets-cash), $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
  0
Revenue / Adjusted assets
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Average production assets, $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
  0
Working capital, $m
  0
  -6
  -8
  -10
  -12
  -15
  -18
  -21
  -24
  -28
  -32
  -36
  -40
  -45
  -50
  -55
  -61
  -66
  -72
  -79
  -85
  -92
  -99
  -106
  -113
  -121
  -129
  -138
  -147
  -156
  -165
Total debt, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Total liabilities, $m
  1
  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 equity, $m
  4
  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 liabilities and equity, $m
  5
  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
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  27
  34
  43
  52
  63
  75
  88
  102
  118
  134
  152
  171
  191
  212
  234
  257
  281
  306
  332
  359
  388
  417
  448
  479
  512
  547
  582
  619
  658
  698
Depreciation, amort., depletion, $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
  0
Funds from operations, $m
  27
  27
  34
  43
  52
  63
  75
  88
  102
  118
  134
  152
  171
  191
  212
  234
  257
  281
  306
  332
  359
  388
  417
  448
  479
  512
  547
  582
  619
  658
  698
Change in working capital, $m
  0
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
Cash from operations, $m
  27
  29
  36
  45
  54
  65
  78
  91
  106
  121
  138
  156
  175
  196
  217
  239
  262
  287
  312
  338
  366
  394
  424
  455
  487
  520
  555
  591
  628
  667
  708
Maintenance CAPEX, $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
  0
New CAPEX, $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
  0
Cash from investing activities, $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
  0
Free cash flow, $m
  27
  29
  36
  45
  54
  65
  78
  91
  106
  121
  138
  156
  175
  196
  217
  239
  262
  287
  312
  338
  366
  394
  424
  455
  487
  520
  555
  591
  628
  667
  708
Issuance/(repayment) of debt, $m
  0
  -1
  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
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
  0
Cash from financing (excl. dividends), $m  
  0
  -1
  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 cash flow (excl. dividends), $m
  27
  28
  36
  45
  54
  65
  78
  91
  106
  121
  138
  156
  175
  196
  217
  239
  262
  287
  312
  338
  366
  394
  424
  455
  487
  520
  555
  591
  628
  667
  708
Retained Cash Flow (-), $m
  1
  -1
  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
Prev. year cash balance distribution, $m
 
  5
  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
 
  32
  36
  45
  54
  65
  78
  91
  106
  121
  138
  156
  175
  196
  217
  239
  262
  287
  312
  338
  366
  394
  424
  455
  487
  520
  555
  591
  628
  667
  708
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
 
  30
  33
  39
  45
  51
  56
  61
  66
  70
  72
  74
  75
  74
  73
  70
  67
  62
  57
  52
  46
  41
  35
  30
  25
  20
  16
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  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

Sabine Royalty Trust (the Trust) is an express trust. The Royalty Properties are the assets of the Trust. The Royalty Properties constitute interests in gross production of oil, gas and other minerals free of the costs of production. Southwest Bank acts as trustee of the Trust. The Royalty Properties consist of royalty and mineral interests, including landowner's royalties, overriding royalty interests, minerals (other than executive rights, bonuses and delay rentals), production payments and any other similar, non-participatory interest, in certain producing and proved undeveloped oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma and Texas. As of December 31, 2016, these properties were represented by approximately 5,400 tracts of land. As of December 31, 2016, approximately 2,950 of the tracts were in Oklahoma, 1,750 in Texas, 330 in Louisiana, 200 in New Mexico, 150 in Mississippi and 12 in Florida.

FINANCIAL RATIOS  of  Sabine Royalty Trust UBI (SBR)

Valuation Ratios
P/E Ratio 23.3
Price to Sales 21
Price to Book 157.3
Price to Tangible Book
Price to Cash Flow 23.3
Price to Free Cash Flow 23.3
Growth Rates
Sales Growth Rate -37.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 490.9%
Ret/ On Assets - 3 Yr. Avg. 680.5%
Return On Total Capital 600%
Ret/ On T. Cap. - 3 Yr. Avg. 864.2%
Return On Equity 600%
Return On Equity - 3 Yr. Avg. 864.2%
Asset Turnover 5.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 90%
EBITDA Margin - 3 Yr. Avg. 94.2%
Operating Margin 90%
Oper. Margin - 3 Yr. Avg. 94.2%
Pre-Tax Margin 90%
Pre-Tax Margin - 3 Yr. Avg. 94.2%
Net Profit Margin 90%
Net Profit Margin - 3 Yr. Avg. 94.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 103.7%

SBR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SBR stock intrinsic value calculation we used $30 million for the last fiscal year's total revenue generated by Sabine Royalty Trust UBI. The default revenue input number comes from 2016 income statement of Sabine Royalty Trust UBI. 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 SBR stock valuation model: a) initial revenue growth rate of 28.6% 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 SBR is calculated based on our internal credit rating of Sabine Royalty Trust UBI, 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 Sabine Royalty Trust UBI.
    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 SBR stock the variable cost ratio is equal to 3.3%.

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 SBR 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 3.5% for Sabine Royalty Trust UBI.

Corporate tax rate of 27% is the nominal tax rate for Sabine Royalty Trust UBI. 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 SBR 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 SBR are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Sabine Royalty Trust UBI 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 SBR is equal to -16.7%. 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 - $4 million for Sabine Royalty Trust UBI - 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 14.579 million for Sabine Royalty Trust UBI 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 Sabine Royalty Trust UBI at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Sabine Royalty posts 2Q profit   [Aug-10-17 08:20PM  Associated Press]
▶ How Sabine Royalty Trust (SBR) Compares to Its Peers   [Dec-15-16 12:20AM  Insider Monkey]
▶ Five Unheralded Energy Plays This Hedge Fund Likes   [Dec-01-16 08:37PM  at Insider Monkey]
▶ [$$] Oil's Rally Is Sour for Royalty Trusts   [Apr-06-16 07:17PM  at The Wall Street Journal]
▶ NMI Holdings Inc (NMIH) Attracting the Attention of Smart Money   [Nov-27  08:45PM  at Insider Monkey]
▶ Lucas Capital Management Bets Big on Energy in Q4   [Nov-11  09:20AM  at Insider Monkey]
Financial statements of SBR
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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