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Analysts: Aleck Boyd, Dario Munoz Poletti,
Bernadette Smith and Sara SpechtWashburn University
Gross Profit Margin: Gross profit margin shows gross profit as a percentage of revenue. Barrick Gold's gross profit is in a downtrend from 56.4% in 2011 to 27.0% in 2015. Newmont's gross profit margin is in also in a downtrend from 61.1% in 2011 to 43.7% in 2015, and outperforming Barrick Gold each year. Newmont's outperformance of Barrick Gold every year, indicating that a greater percentage of revenue is available to flow toward bottom line profits, free cash flow that supports the firms intrinsic value, and back to investors in the form of dividends.
Operating Profit Margin: Operating profit margin illustrates operating profit as a percentage of revenue. Barrick Gold's operating profit margin is in a downtrend from 49.8% in 2011 to 19.3% in 2015. Newmont's operating profit margin is in a downtrend from 2011 to 2014, before a slight increase in 2015 and outperforming Barrick Gold in 2015. The decrease in Barrick's operating profit margin signals that there is less cash available to flow toward bottom line profits, free cash flow that supports the firm's intrinsic value, and back to the investors in the form of dividends.
Net Profit Margin: Net profit margin expresses net income as a percentage of total revenues. Barrick Gold shows a downward trend in Net Profit Margin from 31.5% in 2011 to ‐31.4% in 2015, where revenues are growing slower than net income. Newmont's Net Profit Margin shows a downtrend from 67.6% in 2013 to ‐9.6% in 2015. Newmont outperforms Barrick from 2012 to 2015. Low and negative Net Profit Margins for both companies indicate profits are not flowing to the bottom line efficiently.
Conclusion: Overall, Barrick's gross profit margin, operating profit margin, and net profit margin are in a recent downtrend. Growing gross, operating, and net profit margins indicate that gross profit, operating profit, and net profit are growing faster than revenue.
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Free Cash Flow Margin TSX:ABX NEM
1. Margins and Profitability ABX, Page 3 of 17 Copyright Robert A. Weigand, Ph.D., 2016
TSX:ABX Barrick Gold Corporation NEM Newmont Mining Corporation
Total Asset Turnover: The total asset turnover is the percentage of revenue that is generated by total assets. Barrick's total asset turnover is holding steady around 0.3 from 2011 to 2015. Newmont is in a similar pattern, and remains steady around 0.3 from 2012 through 2015. Newmont is above Barrick from 2014 to 2015, as well as 2013. The steady trend signals that both companies are generating roughly the same level of revenues per dollar of assets each year.
Return on Assets: Return on assets is net income as a percentage of assets. Barrick's ROA is in a downtrend from 9.2% in 2011 to ‐10.8% in 2015. This is due to fluctuations in the net profit margin while total asset turnover remains steady. Newmont's ROA shows a downtrend from 6.1% in 2012 to0.93% in 2015, with the exception of ‐10.3% in 2013. While both companies are in a relative uptrend, Newmont is outperforming Barrick in 2from 2012 to 2015. Newmont's performance above Barrick, shows that Newmont is generating more net income per dollar of assets.
Return on Equity: Return on equity is net income as a percentage of shareholder's equity. Barrick's ROE is in a downtrend from 17.5% in 2011 to ‐30.0% in 2015 due to a decrease in net profit margin affecting the ROA, while total asset turnover stays steady, and the equity multiplier increased. Newmont's ROE shows a downtrend from 10.6% in 2012 to 1.5% in 2015, with the exception of a negative 19.6% in 2013, and outperforms Barrick from 2012 to 2015. Newmont's outperformance of Barrick Gold from 2012 to 2015 illustrates that Barrick is expressing less dollars of profit relative to the capital contributions by shareholders.
Conclusion: Overall, Barrick Gold's return on assets and return on equity are in a downtrend from 2011 to 2015 due to fluctuations in net income and the equity multiplier. With a decreasing net profit margin and steady total asset turnover, the decreases in ROA and ROE signals that Barrick Gold is generating less net income per dollar of assets and equity.
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1. Margins and Profitability ABX, Page 4 of 17 Copyright Robert A. Weigand, Ph.D., 2016
TSX:ABX Barrick Gold Corporation NEM Newmont Mining Corporation
Multiples and Yields 2011 2012 2013 2014 2015 Multiples and Yields 2011 2012 2013 2014 2015
Price to earnings ratio: The price to earnings ratio expresses the stock price as a multiple of its earnings over the past 12 trailing months. Barick Gold's P/E ratio is nonexistant, through 2012 to 2015. In 2011 when they had possitive earnings ABX was at 10.1. Newmont Minning's P/E ratio is also volitile from 81 in 2011 to 112.8 in 2012. In 2013 NEM saw a nonexistent PE ratio as well. The lack of P/E ratio can be attributed to negative earnings per share indicating a strong concern for possible overvaluation.Earnings yield: The earnings yield, the reciprocal of its P/E ratio, expresses EPS as a percentage of the stock price. Barick Gold's earnings yield is volitile from 9.9% in 2011 and bottoming at ‐57.6% in 2013 as the stock price grows faster than its earnings. Newmont Minning's earnings yield is volitile ranging from ‐21.1% in 2013 to 7.8% in 2011 as the stock price grows faster than earnings. ABX's and NEM's lower earnings yield indicate that the market is pricing their stock more expensive relative to its earnings. Dividend yield: Dividend yield expresses the annual dividend per share as a percentage of the stock price. Barick Gold's dividend yield is from 1.1% in 2011 to 1.9% in 2015, the small decrease shows that the market is pricing the stock cheaper relative to its dividend per share as dividends grows faster than the stock price. The low dividend yield, over all years, ranging from 1.1%‐2.8% for ABX shows a weak commitment to paying dividends. NEM's dividend yield is volitile ranging from .6%‐5.3%. Both companies lack the history of strong dividend payers.Conclusion: Barick Gold's P/E ratio is below the reasonable range of 12‐18 and negative in almost all years where earnings decline faster than the stock price indicating concerns about a possible overvaluation. ABX's dividend yield is low at approximately 1.5% on average which is below our benchmark of 2% for strong dividend payers.
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Price to Earnings TSX:ABX NEM
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Price to Book TSX:ABX NEM
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2. Relative Valuation and Debt ABX, Page 5 of 17 Copyright Robert A. Weigand, Ph.D., 2016
TSX:ABX Barrick Gold Corporation NEM Newmont Mining Corporation
Liquidity and Debt 2011 2012 2013 2014 2015 Liquidity and Debt 2011 2012 2013 2014 2015
Current Ratio 2.25 1.30 2.15 2.47 2.96 Current Ratio 1.37 1.89 1.78 2.47 3.52
Quick Ratio 1.39 0.72 1.23 1.38 2.03 Quick Ratio 0.81 1.01 0.98 1.58 2.38
Days Sales Outstanding 15.90 17.12 18.85 22.32 18.35 Days Sales Outstanding 22.27 35.53 26.55 30.03 21.02
Total Debt to Assets 26.6% 25.2% 33.9% 36.8% 36.7% Total Debt to Assets 13.9% 21.2% 25.0% 26.0% 24.1%
Long‐Term Debt to Equity 55.6% 54.4% 93.8% 121.6% 134.5% Long‐Term Debt to Equity 28.1% 45.7% 61.5% 63.1% 53.5%
Times Interest Earned 47.25 49.29 8.09 3.34 2.34 Times Interest Earned 17.01 12.99 6.42 3.92 4.97
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Current Ratio: The current ratio measures the firm’s ability to meet short term obligations. Barick Gold's current ratio has been volitile from 2012 to 2015 ranging from 1.3 to 2.96. Newmont Minning's has been in an uptrend from 2013 to 2015, and is higher than ABX in 2015. ABX is above 1.0 from in all years meaning that the company is able to meet their short term obligations historically..Total Debt to Assets: Total debt to assets is the percentage of total debt to total assets. Barrick Gold's total debt to assets have been increasing from 25.2% in 2012 to 36.7% in 2015, having a higher ratio than Newmont's from 2011 to 2015.Barick Gold's higher ratio expresses that ABX is incurring more debt to finance the acquired assets.Conclusion: Both ABX and NEM are maintaining a current ratio above or arround 1.0 which illustrates that both companies are able to meet their short term obligations in 2015. ABX's higher total debt to assets can be attributed to their higher debt to fund projects.
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Total Debt to Assets TSX:ABX NEM
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Total Debt to Assets Long-Term Debt to Equity
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2. Relative Valuation and Debt ABX, Page 6 of 17 Copyright Robert A. Weigand, Ph.D., 2016
TSX:ABX Barrick Gold Corporation NEM Newmont Mining Corporation
Total Invested Capital 2011 2012 2013 2014 2015 Total Invested Capital 2011 2012 2013 2014 2015
Total Cash and ST Investments 2,745 2,097 2,404 2,699 2,455 Total Cash and ST Investments 1,854 1,647 1,633 2,476 2,801
NOPAT per Share $4.72 $5.96 $3.95 $2.07 $1.49 NOPAT per Share $5.11 $4.66 $3.91 $2.08 $0.94
Free Cash Flow per Share N/A $6.34 $10.90 $3.50 $6.38 Free Cash Flow per Share N/A $0.43 $11.42 $1.57 ($1.44)
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Net Property, Plant & Equip. Total Invested Capital
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Net Operating Profit After Tax Free Cash Flow
Total invested capital: ABX's total invested capital is showing an downwardtrend from 32,718 in 2011 to 17,881 in 2015. ABX's total invested capital exceeds NEM's every year from 2011 to 2015, where ABX had a substantial decrease in Net PP&E from $28,979 in 2011 to $14,434 in 2015 exceeding NEM’s Net PP&E that decreases from $15,428 in 2011 to $13,917 in 2015.NOPAT/share: ABX's NOPAT/share has been in a downward trend from $5.96 in 2012 to $1.49 in 2015 due to a lower EBIT. NEM's NOPAT/share decreases from $5.11 in 2011 to $0.94 2015. The decrease in NOPAT/share for ABX can be attributed to lower revenues and decreasing EBIT, while NEM has a higher tax rates every year showing ABX's tax advantage.FCF/Share: ABX's FCF/share shows an increase from $6.34 2012 to $10.90 in 2013 where the change in total invested capital is declining faster than NOPAT, but FCF/share decreases to $6.38 in 2015, where ABX experience decrease in NOPAT and at the same time a negative change in total invested capital. NEM's free cash flow/share increases from $0.43 in 2012 to $11.42 in 2013, but finally decreases to ‐$1.44 in 2015 where the change in total invested capital exceeds NOPAT. ABX's FCF/share is outperforming NEM every year except for 2013. Even with the decrease in NOPAT, ABX's 2015 increase in free cash flow/share signals that there is more free NOPAT to pay out to investors than NEM because less has been spent on acquiring new assets and since FCF/share is the major driver of per share valuation ABX earns a win in this category.
3. Value Creation and DCF Model ABX, Page 7 of 17 Copyright Robert A. Weigand, Ph.D., 2016
TSX:ABX Barrick Gold Corporation NEM Newmont Mining Corporation
Cost of Capital 2015 Weight % Cost Weighted % Cost of Capital 2015 Weight % Cost Weighted %
EVA per Share $1.91 $3.19 $1.84 $0.34 $0.18 EVA per Share $4.34 $3.79 $3.21 $1.38 $0.20
MVA per Share $22.01 $12.98 $4.37 $2.02 $1.22 MVA per Share $33.90 $18.67 $2.96 ($1.69) ($4.01)
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ROIC: Return on invested capital measures how much NOPAT a firm generates per dollar of invested capital. ABX experiences an downward trend in ROIC from 14.4% in 2011 to 9.7% in 2015. NEM's ROIC decreases from 14% in 2011 to 2.7% in 2015, ABX outperforms NEM from 2011 to 2015 generating more NOPAT per dollar of total invested capital. abx is experiencing a decrease in how much NOPAT has been generated per dollar of invested capital. Even with a decrease, ABX's ROIC beats the WACC from 2011 to 2015 meaning ABX is still in a position to generate value.
EVA/share: EVA/share measures how much economic value a firm has created on a year‐by‐year basis per share. ABX's EVA/share decreases from $1.91 in 2011 to $0.18 in 2015, showing that the NOPAT ABX generates is decreasing faster than the cost of capital. NEM's EVA per share is on a downward trend from $4.34 to $0.20, signaling less economic profit is being created on a per share basis. To conclude, even with NEM's decreasing EVA/share where less economic profit has been created due to a lower levels of NOPAT, NEM is still outperforming ABX in this category from 2011 to 2015.Conclusion: With a WACC of 8.56%, a decrease in total invested capital; ABX's EVA/share decreases from $3.19 in 2012 to $.18 2015 showing how much economic profit was reduce in 2015. The reduction in value creation is confirmed by the ROIC‐WACC spread where ABX's ROIC decrease from 14.4% in 2011 to 9.7% bearly above the 8.56% WACC.
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3. Value Creation and DCF Model ABX, Page 8 of 17 Copyright Robert A. Weigand, Ph.D., 2016
Long‐Term Growth Rate: Long‐Term Growth Rate:
TSX:ABX Barrick Gold Corporation 0.0% NEM Newmont Mining Corporation
Intrinsic Value Model 2011 2012 2013 2014 2015 Intrinsic Value Model 2011 2012 2013 2014 2015
PV of Future FCFs 86,306 87,349 83,690 86,781 86,781 PV of Future FCFs ‐26,264 ‐27,038 ‐33,301 ‐34,793 ‐34,793
+ Value of Non‐Oper. Assets 2,745 2,097 2,404 2,699 2,455 + Value of Non‐Oper. Assets 1,854 1,647 1,633 2,476 2,801
= Total Intrinsic Firm Value 89,051 89,446 86,094 89,480 89,236 = Total Intrinsic Firm Value ‐24,410 ‐25,391 ‐31,668 ‐32,317 ‐31,992
− Total Debt 12,998 11,948 12,699 12,465 9,653 − Total Debt 3,623 6,288 6,145 6,480 6,070
= Intrinsic Value of Equity 76,053 77,498 73,395 77,015 79,583 = Intrinsic Value of Equity ‐28,033 ‐31,679 ‐37,813 ‐38,797 ‐38,062
÷ Total Weighted Shares 999 1,001 1,022 1,165 1,165 ÷ Total Weighted Shares 494 496 498 499 516
= Per Share Intrinsic Value $76.13 $77.42 $71.82 $66.11 $68.31 = Per Share Intrinsic Value ‐$56.75 ‐$63.87 ‐$75.93 ‐$77.75 ‐$73.76
vs. Year‐End Stock Price $45.40 $34.93 $17.61 $10.81 $7.38 vs. Year‐End Stock Price $60.01 $46.44 $23.03 $18.90 $17.99
Over (Under) Valuation/Share ($30.73) ($42.49) ($54.20) ($55.30) ($60.93) Over (Under) Valuation/Share $116.76 $110.31 $98.96 $96.65 $91.75
% Over (Under) Valued ‐40.4% ‐54.9% ‐75.5% ‐83.6% ‐89.2% % Over (Under) Valued ‐205.7% ‐172.7% ‐130.3% ‐124.3% ‐124.4%
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MVA per Share TSX:ABX NEM
MVA/share: MVA/share measures value creation over the entire life time of the firm on a per share basis. ABX's MVA/share is in a downward trend from $22.01 in 2011 to $1.22 in 2015. NEM is also in a downward trend from $33.90 in 2011 to ‐$4.01 in 2015. ABX has a higher MVA/share than NEM, expressing a higher value of capital contributions to the firm by shareholders. Both firms are in a downward trend showing how genuine value creation decreases on a per share basis from 2011 to 2015.ROIC vs. WACC: ABX's ROIC is on a decreasing trend which is closing the gap between the ROIC and WACC, that can be attributed to the declinig NOPAT faster than total invested capital. The diminishing gap between ROIC and WACC signals that the firm is decreasing its ability to generate economic profit on its investments, where in 2015 reach it's lowest point at 9.7%, but ABX's ROIC is still above the WACC showing that is still able to generate economic profit by a minimal amount.Conclusion: ABX's MVA per share increase expresses how genuine value creation is declines in 2015. NOPAT decreasing faster than total invested capital in 2015 caused a lower return on the invested capital that decreased the ROIC‐WACC spread showing a decrease in ABX's ability to generate economic profit.
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3. Value Creation and DCF Model ABX, Page 9 of 17 Copyright Robert A. Weigand, Ph.D., 2016
TSX:ABX Barrick Gold Corporation NEM Newmont Mining Corporation
Altman Z‐Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23 Altman Z‐Score Scale: Safe Zone = Z > 2.9, Grey Zone = 1.23 < Z < 2.9, Distress Zone = Z < 1.23
3. Value Creation and DCF Model ABX, Page 10 of 17 Copyright Robert A. Weigand, Ph.D., 2016
% of sales 17.5% 18.0% 21.4% 26.6% 19.0% 20.5% % of sales
Net PPE 28,979 29,277 21,688 19,193 14,434 Net PPE 12,424 12,023 11,159 10,465 10,329
% of sales 203.6% 203.4% 173.1% 187.4% 159.9% 185.5% % of sales 160.0% 158.0% 156.0% 154.0% 152.0%
Total Assets 48,884 47,478 37,448 33,879 26,308 Total Assets 24,761 24,266 22,810 21,669 21,669
% of sales 343.4% 329.8% 298.9% 330.9% 291.4% 318.9% % of sales
Payables and Accruals 2,124 2,300 2,184 1,668 1,179 Payables and Accruals 1,206 1,182 1,111 1,056 1,056
% of sales 14.9% 16.0% 17.4% 16.3% 13.1% 15.5% % of sales
ST Debt plus LT Debt 12,998 11,948 12,699 12,465 9,653 ST Debt plus LT Debt 7,832 7,676 7,215 6,854 6,854
% of sales 91.3% 83.0% 101.4% 121.7% 106.9% 100.9% % of sales
Total Equity 25,554 24,636 16,001 12,862 9,455 Total Equity 9,473 9,436 9,442 9,446 9,446
% of sales 179.5% 171.2% 127.7% 125.6% 104.7% 141.7% % of sales 122.0% 124.0% 132.0% 139.0% 139.0%
April 18, 2016
Forecasted Income Statement Drivers
Forecasted Balance Sheet Drivers
Historical Income Statement Drivers
Historical Balance Sheet Drivers
Total Revenue Growth: The S&P is projecting total revenue decline of ‐12.35% in 2016, ‐0.31% in 2017, and ‐4.95% in 2018. The model above takes a conservative approach with forecasting total revenue decline of ‐14% in 2016, ‐2% in 2017, ‐6% in 2018, and tapering down the long term perpetual growth rate to 0% in 2020 which reflects a margin of safety. Gross Profit Margin: S&P analysts are predicting a gross margin of 30.54% in 2016, 27.32% in 2017, and 30.42% in 2018; yet the forecast takes a conservative approach. The starting point of 29% is tapered down to 24%. EBIT: Analyst at S&P predicted 21.57% operating margin in 2016, taking a conservative stand point and margin of safety the forecast assumes a constant 20.5% from 2016 to 2020. E‐Tax rate: S&P CIQ estimate a 44.17% effective tax rate in 2016 to 30% in 2020. The forecast assumes a constant 0% tax rate from 2016 to 2020.Net Income: Analyst are forecasting an increase in net income (S&P Capital IQ) from 5.47% in 2016, 7.71% in 2017, and 8.89% in 2018; however, the model reflects a more conservative forecast slowly increasing from 5% in2016 to 7% in 2020. Dividend/share: Analyst's reports states that ABX will keep their dividend constant at .08 from 2016 to 2020.There is a margin of safety and the model takes conservative approach showing a decline in DPS starting at $.06 in 2016 to $.04 in 2020. Net PPE: Due to the management plan of reducing debt to lower levels with the sale of noncore assets, the NET PP&E is expected to slowly decrease from 160% in 2016 to 152% in 2020. Total Assets: Due to the sales of assets, Total assets is expected to remain at its historical average of 318.9% but decreasing from $24,761 in 2016 to $21,669 in 2020. Debt: The forecast shows total debt of 100.9% from 2016 to 2020, but the level of debt is declining from $7,832 in 2016 to $6,854 in 2020 due to the firm's plan of reducing debt in the future years.Total equity: The forecast shows an increase in equity starting at 122% in 2016 to 139% in 2020. The increase in total equity is due to the expected decrease in sales; therefore, the level of equity is expected to remain fairly constant due no expected repurchase programs.
4. Forecasting and Valuation ABX, Page 11 of 17 Copyright Robert A. Weigand, Ph.D., 2016
Barrick Gold Corporation Barrick Gold Corporation
Total Invested Capital 2011 2012 2013 2014 2015 Total Invested Capital 2016E 2017E 2018E 2019E 2020E
Cash and ST Investments 2,745 2,097 2,404 2,699 2,455 Cash and ST Investments 2,019 1,940 1,753 1,631 1,597
NOPAT per Share $4.72 $5.96 $3.95 $2.07 $1.49 NOPAT per Share $1.32 $1.24 $1.12 $1.03 $0.99
Free Cash Flow per Share N/A $6.34 $10.90 $3.50 $6.38 Free Cash Flow per Share $3.51 $1.63 $1.96 $1.65 $1.11
Historical Performance Forecasted Performance
Historical Performance Forecasted Performance
FCF/Share: ABX FCF shows an downward trend from $3.51 in 2016 to $1.11 in 2020 due to decreasing EBIT and NOPAT. The decreasing free cash flow/share signals that there is less free NOPAT to pay out to investors and FCF that supports the firm's intrinsic value.
ROIC: The forecasted ROIC greater than the WACC of 8.784% illustrates that ABX is still able to create value, but the forecasted ROIC is sluggishly increasing over time from 10.5% in 2016 to 11% in 2020 signaling a relatively small increase in their ability to generate profit on investments due to a declining total invested capital.
EVA/Share: EVA per share is forecasted to decrease from $0.21 in 2016 to $0.20 in 2016 signaling less economic profit is expected to be created on a per share basis.Intrinsic Value: Intrinsic value over the forecasted period appears to be overvalued by 20.3%.MVA/Share: MVA per share decreases to $5.89 in 2016 expressing a decrease in the value of capital contributions to the firm by shareholders. Genuine value creation increases in the forecasted model from ‐$0.74 in 2015 to $5.89 in 2016, but decreases to $2.19 by 2020.Conclusion: ABX's MVA per share decrease expresses how genuine value creation is reduced from $5.89 in 2016 to $2.19 in 2020. With Total Invested Capital slowing down, ROIC shows a small increase from 10.5% in 2016 to 11% in 2020 due to NOPAT growing faster than total invested capital. ABX forecasted ROIC‐WACC spread expands from 2016 to 2020 showing asmall improvement in their ability to generate profit on its investments from 2016 to 2020, while the stock price appears to be overvalued in 2016 by 20.3%.
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NOPAT Free Cash Flow
$0
$2
$4
$6
$8
$10
$12
2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
NOPAT per Share Free Cash Flow per Share
4. Forecasting and Valuation ABX, Page 13 of 17 Copyright Robert A. Weigand, Ph.D., 2016
P/E ratio: ABX's 42.8 P/E ratio in 2016 is above the reasonable range of 12 to 18, and stays above the reasonable range from 2017 to 2020. ABX's forecasted 2016 P/E Ratio can be a warning sign of volatility when there is no faster expected future growth for the firm.
Dividend yield: ABX's dividend yield remains fairly constant and below our 2% benchmark from 2016 to 2020, which is not good based on our preference for strong dividend payers.