Stock Analysis on Net
Stock Analysis on Net

BP PLC (NYSE:BP)

This company has been moved to the archive! The financial data has not been updated since March 3, 2015.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

BP PLC, free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 16.15%
01 FCFF0 12,937
1 FCFF1 13,346 = 12,937 × (1 + 3.17%) 11,491
2 FCFF2 13,958 = 13,346 × (1 + 4.59%) 10,347
3 FCFF3 14,797 = 13,958 × (1 + 6.01%) 9,444
4 FCFF4 15,896 = 14,797 × (1 + 7.43%) 8,735
5 FCFF5 17,303 = 15,896 × (1 + 8.85%) 8,187
5 Terminal value (TV5) 258,134 = 17,303 × (1 + 8.85%) ÷ (16.15% – 8.85%) 122,133
Intrinsic value of BP PLC capital 170,338
Less: Finance debt (fair value) 53,825
Intrinsic value of BP PLC common stock 116,513
 
Intrinsic value of BP PLC common stock (per share) $34.94
Current share price $41.74

Based on: 20-F (reporting date: 2014-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

BP PLC, cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 139,175 0.72 21.94%
Finance debt (fair value) 53,825 0.28 1.16% = 1.62% × (1 – 28.20%)

Based on: 20-F (reporting date: 2014-12-31).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 3,334,326,882 × $41.74
= $139,174,804,054.68

   Finance debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (19.00% + 21.00% + 37.00% + 33.00% + 31.00%) ÷ 5
= 28.20%

WACC = 16.15%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

BP PLC, PRAT model

Microsoft Excel
Average Dec 31, 2014 Dec 31, 2013 Dec 31, 2012 Dec 31, 2011 Dec 31, 2010
Selected Financial Data (US$ in millions)
Finance costs 1,148 1,068 1,125 1,246 1,170
Profit (loss) for the year attributable to BP shareholders 3,780 23,451 11,582 25,700 (3,719)
 
Effective income tax rate (EITR)1 19.00% 21.00% 37.00% 33.00% 31.00%
 
Finance costs, after tax2 930 844 709 835 807
Add: Dividends 5,850 5,441 5,294 4,072 2,627
Interest expense (after tax) and dividends 6,780 6,285 6,003 4,907 3,434
 
EBIT(1 – EITR)3 4,710 24,295 12,291 26,535 (2,912)
 
Current finance debt 6,877 7,381 10,030 9,044 14,626
Non-current finance debt 45,977 40,811 38,767 35,169 30,710
Total BP shareholders’ equity 111,441 129,302 118,414 111,465 94,987
Total capital 164,295 177,494 167,211 155,678 140,323
Financial Ratios
Retention rate (RR)4 -0.44 0.74 0.51 0.82 —
Return on invested capital (ROIC)5 2.87% 13.69% 7.35% 17.04% -2.07%
Averages
RR 0.41
ROIC 7.77%
 
FCFF growth rate (g)6 3.17%

Based on: 20-F (reporting date: 2014-12-31), 20-F (reporting date: 2013-12-31), 20-F (reporting date: 2012-12-31), 20-F (reporting date: 2011-12-31), 20-F (reporting date: 2010-12-31).

1 See details »

2014 Calculations

2 Finance costs, after tax = Finance costs × (1 – EITR)
= 1,148 × (1 – 19.00%)
= 930

3 EBIT(1 – EITR) = Profit (loss) for the year attributable to BP shareholders + Finance costs, after tax
= 3,780 + 930
= 4,710

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [4,710 – 6,780] ÷ 4,710
= -0.44

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 4,710 ÷ 164,295
= 2.87%

6 g = RR × ROIC
= 0.41 × 7.77%
= 3.17%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (193,000 × 16.15% – 12,937) ÷ (193,000 + 12,937)
= 8.85%

where:

Total capital, fair value0 = current fair value of BP PLC debt and equity (US$ in millions)
FCFF0 = the last year BP PLC free cash flow to the firm (US$ in millions)
WACC = weighted average cost of BP PLC capital

FCFF growth rate (g) forecast

BP PLC, H-model

Microsoft Excel
Year Value gt
1 g1 3.17%
2 g2 4.59%
3 g3 6.01%
4 g4 7.43%
5 and thereafter g5 8.85%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 3.17% + (8.85% – 3.17%) × (2 – 1) ÷ (5 – 1)
= 4.59%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 3.17% + (8.85% – 3.17%) × (3 – 1) ÷ (5 – 1)
= 6.01%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 3.17% + (8.85% – 3.17%) × (4 – 1) ÷ (5 – 1)
= 7.43%