Intrinsic value of Morneau Shepell Inc. - MSI

Previous Close

$22.29

  Intrinsic Value

$21.51

stock screener

  Rating & Target

hold

-3%

Previous close

$22.29

 
Intrinsic value

$21.51

 
Up/down potential

-3%

 
Rating

hold

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of MSI 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  4.41
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
  5.57
  5.52
  5.46
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
Revenue, $m
  592
  629
  667
  707
  748
  792
  837
  884
  933
  985
  1,039
  1,095
  1,154
  1,215
  1,280
  1,347
  1,418
  1,492
  1,570
  1,651
  1,736
  1,825
  1,919
  2,017
  2,120
  2,228
  2,342
  2,461
  2,585
  2,716
  2,854
Variable operating expenses, $m
 
  274
  289
  304
  320
  337
  354
  372
  391
  411
  432
  421
  444
  468
  492
  518
  546
  574
  604
  635
  668
  702
  738
  776
  816
  857
  901
  947
  995
  1,045
  1,098
Fixed operating expenses, $m
 
  293
  300
  308
  316
  324
  332
  340
  348
  357
  366
  375
  385
  394
  404
  414
  425
  435
  446
  457
  469
  480
  492
  505
  517
  530
  543
  557
  571
  585
  600
Total operating expenses, $m
  539
  567
  589
  612
  636
  661
  686
  712
  739
  768
  798
  796
  829
  862
  896
  932
  971
  1,009
  1,050
  1,092
  1,137
  1,182
  1,230
  1,281
  1,333
  1,387
  1,444
  1,504
  1,566
  1,630
  1,698
Operating income, $m
  53
  62
  78
  95
  113
  131
  151
  172
  194
  217
  241
  298
  325
  353
  383
  415
  448
  483
  520
  558
  599
  643
  688
  736
  787
  841
  897
  957
  1,020
  1,086
  1,156
EBITDA, $m
  88
  111
  128
  146
  165
  185
  206
  228
  251
  275
  301
  328
  356
  386
  418
  451
  486
  523
  562
  603
  646
  692
  740
  791
  844
  901
  960
  1,023
  1,089
  1,159
  1,233
Interest expense (income), $m
  0
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41
  43
  46
  49
  51
  54
  57
  60
Earnings before tax, $m
  38
  53
  68
  84
  101
  119
  137
  157
  178
  199
  222
  279
  304
  331
  359
  389
  421
  454
  489
  526
  565
  606
  650
  695
  744
  795
  849
  905
  965
  1,029
  1,095
Tax expense, $m
  12
  14
  18
  23
  27
  32
  37
  42
  48
  54
  60
  75
  82
  89
  97
  105
  114
  123
  132
  142
  153
  164
  175
  188
  201
  215
  229
  244
  261
  278
  296
Net income, $m
  26
  39
  50
  61
  74
  87
  100
  115
  130
  146
  162
  203
  222
  242
  262
  284
  307
  331
  357
  384
  412
  442
  474
  508
  543
  580
  619
  661
  705
  751
  800

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
  0
Total assets, $m
  774
  822
  872
  924
  978
  1,035
  1,094
  1,155
  1,220
  1,287
  1,358
  1,431
  1,508
  1,589
  1,673
  1,761
  1,853
  1,950
  2,052
  2,158
  2,269
  2,386
  2,509
  2,637
  2,772
  2,913
  3,061
  3,216
  3,379
  3,551
  3,730
Adjusted assets (=assets-cash), $m
  774
  822
  872
  924
  978
  1,035
  1,094
  1,155
  1,220
  1,287
  1,358
  1,431
  1,508
  1,589
  1,673
  1,761
  1,853
  1,950
  2,052
  2,158
  2,269
  2,386
  2,509
  2,637
  2,772
  2,913
  3,061
  3,216
  3,379
  3,551
  3,730
Revenue / Adjusted assets
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
  0.765
Average production assets, $m
  267
  283
  300
  318
  337
  356
  377
  398
  420
  443
  467
  493
  519
  547
  576
  606
  638
  671
  706
  743
  781
  821
  864
  908
  954
  1,003
  1,054
  1,107
  1,163
  1,222
  1,284
Working capital, $m
  64
  71
  75
  80
  85
  89
  95
  100
  105
  111
  117
  124
  130
  137
  145
  152
  160
  169
  177
  187
  196
  206
  217
  228
  240
  252
  265
  278
  292
  307
  322
Total debt, $m
  250
  275
  302
  329
  358
  388
  420
  453
  487
  523
  560
  599
  640
  683
  728
  775
  824
  876
  929
  986
  1,045
  1,107
  1,173
  1,241
  1,312
  1,388
  1,466
  1,549
  1,636
  1,727
  1,822
Total liabilities, $m
  412
  437
  464
  491
  520
  550
  582
  615
  649
  685
  722
  761
  802
  845
  890
  937
  986
  1,038
  1,091
  1,148
  1,207
  1,269
  1,335
  1,403
  1,474
  1,550
  1,628
  1,711
  1,798
  1,889
  1,984
Total equity, $m
  362
  385
  408
  432
  458
  484
  512
  541
  571
  602
  635
  670
  706
  743
  783
  824
  867
  913
  960
  1,010
  1,062
  1,117
  1,174
  1,234
  1,297
  1,363
  1,433
  1,505
  1,582
  1,662
  1,746
Total liabilities and equity, $m
  774
  822
  872
  923
  978
  1,034
  1,094
  1,156
  1,220
  1,287
  1,357
  1,431
  1,508
  1,588
  1,673
  1,761
  1,853
  1,951
  2,051
  2,158
  2,269
  2,386
  2,509
  2,637
  2,771
  2,913
  3,061
  3,216
  3,380
  3,551
  3,730
Debt-to-equity ratio
  0.691
  0.720
  0.740
  0.760
  0.780
  0.800
  0.820
  0.840
  0.850
  0.870
  0.880
  0.890
  0.910
  0.920
  0.930
  0.940
  0.950
  0.960
  0.970
  0.980
  0.980
  0.990
  1.000
  1.010
  1.010
  1.020
  1.020
  1.030
  1.030
  1.040
  1.040
Adjusted equity ratio
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  26
  39
  50
  61
  74
  87
  100
  115
  130
  146
  162
  203
  222
  242
  262
  284
  307
  331
  357
  384
  412
  442
  474
  508
  543
  580
  619
  661
  705
  751
  800
Depreciation, amort., depletion, $m
  35
  49
  50
  51
  52
  53
  55
  56
  57
  59
  60
  30
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
  66
  70
  73
  77
Funds from operations, $m
  40
  88
  100
  113
  126
  140
  155
  171
  187
  204
  222
  233
  253
  274
  297
  320
  345
  372
  399
  428
  459
  492
  526
  562
  600
  640
  683
  727
  774
  824
  876
Change in working capital, $m
  -27
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
Cash from operations, $m
  67
  83
  95
  108
  121
  135
  150
  165
  181
  198
  216
  227
  246
  267
  289
  313
  337
  363
  390
  419
  450
  482
  515
  551
  588
  628
  670
  714
  760
  809
  861
Maintenance CAPEX, $m
  0
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -70
  -73
New CAPEX, $m
  -23
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
  -59
  -62
Cash from investing activities, $m
  -33
  -32
  -34
  -36
  -38
  -39
  -41
  -44
  -46
  -48
  -51
  -53
  -56
  -59
  -62
  -64
  -68
  -71
  -75
  -79
  -82
  -87
  -91
  -96
  -100
  -106
  -111
  -117
  -122
  -129
  -135
Free cash flow, $m
  34
  51
  61
  72
  84
  96
  108
  121
  135
  150
  166
  173
  190
  209
  228
  248
  269
  292
  315
  340
  367
  395
  424
  455
  488
  522
  559
  597
  638
  681
  726
Issuance/(repayment) of debt, $m
  2
  25
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  96
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  
  1
  25
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  57
  59
  62
  65
  68
  72
  75
  79
  83
  87
  91
  96
Total cash flow (excl. dividends), $m
  35
  76
  88
  100
  112
  126
  140
  154
  170
  186
  203
  212
  231
  251
  273
  295
  318
  343
  369
  397
  426
  457
  489
  523
  559
  597
  638
  680
  725
  772
  821
Retained Cash Flow (-), $m
  -61
  -23
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
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
 
  54
  65
  76
  87
  99
  112
  125
  140
  154
  170
  178
  195
  214
  233
  254
  275
  298
  322
  347
  374
  402
  432
  463
  496
  531
  568
  607
  648
  692
  737
Discount rate, %
 
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
 
  51
  57
  62
  66
  69
  71
  72
  72
  71
  69
  63
  59
  55
  51
  46
  41
  36
  31
  26
  21
  17
  14
  11
  8
  6
  4
  3
  2
  1
  1
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

Morneau Shepell Inc. is a Canada-based company, which provides health and productivity, administrative and retirement solutions to assist employers in managing the financial security, health and productivity of their employees. The Company offers its services to organizations that are situated in Canada, the United States and internationally. The Company's services include consulting engagements, outsourcing engagements, employee and family assistance programs, and absence management solutions. The Company's administrative solutions practice is characterized by fixed contracts, which has 3 to 5 year terms. Its absence management solutions include attendance support and disability management. The Company's subsidiaries include Morneau Shepell Ltd., Morneau Shepell Limited, Morneau Shepell Asset & Risk Management Ltd., Morneau Shepell (Bahams) Ltd. and Morneau Shepell BDA Limited.

FINANCIAL RATIOS  of  Morneau Shepell Inc. (MSI)

Valuation Ratios
P/E Ratio 45.6
Price to Sales 2
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow 17.7
Price to Free Cash Flow 27
Growth Rates
Sales Growth Rate 4.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.5%
Cap. Spend. - 3 Yr. Gr. Rate 0.9%
Financial Strength
Quick Ratio 0
Current Ratio 0.2
LT Debt to Equity 68.2%
Total Debt to Equity 69.1%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital 4.2%
Ret/ On T. Cap. - 3 Yr. Avg. 3.7%
Return On Equity 7.8%
Return On Equity - 3 Yr. Avg. 6.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 12.3%
EBITDA Margin - 3 Yr. Avg. 11.9%
Operating Margin 9%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 6.4%
Pre-Tax Margin - 3 Yr. Avg. 5.9%
Net Profit Margin 4.4%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 153.8%

MSI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MSI stock intrinsic value calculation we used $592 million for the last fiscal year's total revenue generated by Morneau Shepell Inc.. The default revenue input number comes from 2016 income statement of Morneau Shepell 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 MSI stock valuation model: a) initial revenue growth rate of 6.2% 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 6.1%, whose default value for MSI is calculated based on our internal credit rating of Morneau Shepell 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 Morneau Shepell 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 MSI stock the variable cost ratio is equal to 43.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $286 million in the base year in the intrinsic value calculation for MSI 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 Morneau Shepell Inc..

Corporate tax rate of 27% is the nominal tax rate for Morneau Shepell 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 MSI 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 MSI are equal to 45%.

Life of production assets of 16.7 years is the average useful life of capital assets used in Morneau Shepell 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 MSI is equal to 11.3%. 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 - $362 million for Morneau Shepell 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 53.812 million for Morneau Shepell 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 Morneau Shepell Inc. at the current share price and the inputted number of shares is $1.2 billion.

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Financial statements of MSI
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