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 Equity (FCFE)

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 equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

BP PLC, free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 22.54%
01 FCFE0 17,447
1 FCFE1 18,152 = 17,447 × (1 + 4.04%) 14,813
2 FCFE2 19,106 = 18,152 × (1 + 5.26%) 12,723
3 FCFE3 20,342 = 19,106 × (1 + 6.47%) 11,054
4 FCFE4 21,905 = 20,342 × (1 + 7.68%) 9,713
5 FCFE5 23,853 = 21,905 × (1 + 8.89%) 8,631
5 Terminal value (TV5) 190,275 = 23,853 × (1 + 8.89%) ÷ (22.54%8.89%) 68,851
Intrinsic value of BP PLC common stock 125,785
 
Intrinsic value of BP PLC common stock (per share) $37.72
Current share price $41.74

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

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.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.43%
Expected rate of return on market portfolio2 E(RM) 13.60%
Systematic risk of BP PLC common stock βBP 1.97
 
Required rate of return on BP PLC common stock3 rBP 22.54%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rBP = RF + βBP [E(RM) – RF]
= 4.43% + 1.97 [13.60%4.43%]
= 22.54%


FCFE Growth Rate (g)

FCFE 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)
Dividends 5,850 5,441 5,294 4,072 2,627
Profit (loss) for the year attributable to BP shareholders 3,780 23,451 11,582 25,700 (3,719)
Sales and other operating revenues 353,568 379,136 375,580 375,517 297,107
Total assets 284,305 305,690 300,193 293,068 272,262
Total BP shareholders’ equity 111,441 129,302 118,414 111,465 94,987
Financial Ratios
Retention rate1 -0.55 0.77 0.54 0.84
Profit margin2 1.07% 6.19% 3.08% 6.84% -1.25%
Asset turnover3 1.24 1.24 1.25 1.28 1.09
Financial leverage4 2.55 2.36 2.54 2.63 2.87
Averages
Retention rate 0.40
Profit margin 3.19%
Asset turnover 1.22
Financial leverage 2.59
 
FCFE growth rate (g)5 4.04%

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).

2014 Calculations

1 Retention rate = (Profit (loss) for the year attributable to BP shareholders – Dividends) ÷ Profit (loss) for the year attributable to BP shareholders
= (3,7805,850) ÷ 3,780
= -0.55

2 Profit margin = 100 × Profit (loss) for the year attributable to BP shareholders ÷ Sales and other operating revenues
= 100 × 3,780 ÷ 353,568
= 1.07%

3 Asset turnover = Sales and other operating revenues ÷ Total assets
= 353,568 ÷ 284,305
= 1.24

4 Financial leverage = Total assets ÷ Total BP shareholders’ equity
= 284,305 ÷ 111,441
= 2.55

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.40 × 3.19% × 1.22 × 2.59
= 4.04%


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

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (139,175 × 22.54%17,447) ÷ (139,175 + 17,447)
= 8.89%

where:
Equity market value0 = current market value of BP PLC common stock (US$ in millions)
FCFE0 = the last year BP PLC free cash flow to equity (US$ in millions)
r = required rate of return on BP PLC common stock


FCFE growth rate (g) forecast

BP PLC, H-model

Microsoft Excel
Year Value gt
1 g1 4.04%
2 g2 5.26%
3 g3 6.47%
4 g4 7.68%
5 and thereafter g5 8.89%

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 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 4.04% + (8.89%4.04%) × (2 – 1) ÷ (5 – 1)
= 5.26%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 4.04% + (8.89%4.04%) × (3 – 1) ÷ (5 – 1)
= 6.47%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 4.04% + (8.89%4.04%) × (4 – 1) ÷ (5 – 1)
= 7.68%