Intrinsic value of The North West Company Inc. - NWC

Previous Close

$29.79

  Intrinsic Value

$30.27

stock screener

  Rating & Target

hold

+2%

Previous close

$29.79

 
Intrinsic value

$30.27

 
Up/down potential

+2%

 
Rating

hold

We calculate the intrinsic value of NWC 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 2017), $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 1.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.20
  3.38
  3.54
  3.69
  3.82
  3.94
  4.04
  4.14
  4.23
  4.30
  4.37
  4.44
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
Revenue, $m
  1,903
  1,967
  2,037
  2,112
  2,193
  2,279
  2,371
  2,469
  2,574
  2,685
  2,802
  2,926
  3,058
  3,196
  3,343
  3,498
  3,661
  3,833
  4,015
  4,205
  4,407
  4,618
  4,841
  5,075
  5,322
  5,581
  5,853
  6,140
  6,441
  6,758
Variable operating expenses, $m
  1,467
  1,517
  1,570
  1,628
  1,690
  1,756
  1,827
  1,903
  1,983
  2,068
  2,154
  2,250
  2,351
  2,458
  2,571
  2,690
  2,815
  2,947
  3,087
  3,234
  3,388
  3,551
  3,722
  3,903
  4,092
  4,291
  4,501
  4,721
  4,953
  5,196
Fixed operating expenses, $m
  320
  327
  334
  341
  349
  357
  365
  373
  381
  389
  398
  406
  415
  424
  434
  443
  453
  463
  473
  484
  494
  505
  516
  528
  539
  551
  563
  576
  588
  601
Total operating expenses, $m
  1,787
  1,844
  1,904
  1,969
  2,039
  2,113
  2,192
  2,276
  2,364
  2,457
  2,552
  2,656
  2,766
  2,882
  3,005
  3,133
  3,268
  3,410
  3,560
  3,718
  3,882
  4,056
  4,238
  4,431
  4,631
  4,842
  5,064
  5,297
  5,541
  5,797
Operating income, $m
  116
  124
  133
  143
  154
  166
  180
  194
  210
  227
  250
  270
  291
  314
  339
  365
  393
  423
  454
  488
  524
  562
  602
  645
  690
  738
  789
  843
  900
  960
EBITDA, $m
  165
  174
  185
  197
  210
  224
  240
  257
  275
  295
  316
  339
  364
  390
  418
  448
  480
  514
  550
  588
  629
  672
  717
  766
  817
  871
  928
  989
  1,053
  1,121
Interest expense (income), $m
  6
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
Earnings before tax, $m
  108
  115
  124
  133
  144
  155
  168
  182
  197
  213
  235
  254
  274
  296
  319
  344
  371
  400
  430
  462
  496
  533
  571
  612
  656
  701
  750
  802
  856
  914
Tax expense, $m
  29
  31
  33
  36
  39
  42
  45
  49
  53
  58
  63
  69
  74
  80
  86
  93
  100
  108
  116
  125
  134
  144
  154
  165
  177
  189
  203
  216
  231
  247
Net income, $m
  79
  84
  90
  97
  105
  113
  123
  133
  144
  156
  171
  185
  200
  216
  233
  251
  271
  292
  314
  337
  362
  389
  417
  447
  479
  512
  548
  585
  625
  667

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
Total assets, $m
  801
  828
  857
  889
  923
  959
  998
  1,039
  1,083
  1,130
  1,179
  1,232
  1,287
  1,345
  1,407
  1,472
  1,541
  1,613
  1,690
  1,770
  1,855
  1,944
  2,037
  2,136
  2,240
  2,349
  2,464
  2,584
  2,711
  2,844
Adjusted assets (=assets-cash), $m
  801
  828
  857
  889
  923
  959
  998
  1,039
  1,083
  1,130
  1,179
  1,232
  1,287
  1,345
  1,407
  1,472
  1,541
  1,613
  1,690
  1,770
  1,855
  1,944
  2,037
  2,136
  2,240
  2,349
  2,464
  2,584
  2,711
  2,844
Revenue / Adjusted assets
  2.376
  2.376
  2.377
  2.376
  2.376
  2.376
  2.376
  2.376
  2.377
  2.376
  2.377
  2.375
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.377
  2.376
  2.376
  2.376
  2.375
  2.376
  2.376
  2.376
Average production assets, $m
  398
  411
  426
  441
  458
  476
  496
  516
  538
  561
  586
  612
  639
  668
  699
  731
  765
  801
  839
  879
  921
  965
  1,012
  1,061
  1,112
  1,166
  1,223
  1,283
  1,346
  1,412
Working capital, $m
  150
  155
  161
  167
  173
  180
  187
  195
  203
  212
  221
  231
  242
  253
  264
  276
  289
  303
  317
  332
  348
  365
  382
  401
  420
  441
  462
  485
  509
  534
Total debt, $m
  243
  258
  275
  292
  312
  332
  354
  377
  402
  428
  456
  486
  517
  550
  585
  621
  660
  701
  744
  789
  837
  887
  940
  996
  1,054
  1,116
  1,180
  1,248
  1,320
  1,395
Total liabilities, $m
  452
  467
  484
  501
  521
  541
  563
  586
  611
  637
  665
  695
  726
  759
  794
  830
  869
  910
  953
  998
  1,046
  1,096
  1,149
  1,205
  1,263
  1,325
  1,389
  1,457
  1,529
  1,604
Total equity, $m
  349
  361
  374
  388
  402
  418
  435
  453
  472
  493
  514
  537
  561
  587
  613
  642
  672
  703
  737
  772
  809
  847
  888
  931
  977
  1,024
  1,074
  1,127
  1,182
  1,240
Total liabilities and equity, $m
  801
  828
  858
  889
  923
  959
  998
  1,039
  1,083
  1,130
  1,179
  1,232
  1,287
  1,346
  1,407
  1,472
  1,541
  1,613
  1,690
  1,770
  1,855
  1,943
  2,037
  2,136
  2,240
  2,349
  2,463
  2,584
  2,711
  2,844
Debt-to-equity ratio
  0.700
  0.710
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.850
  0.870
  0.890
  0.900
  0.920
  0.940
  0.950
  0.970
  0.980
  1.000
  1.010
  1.020
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
Adjusted equity ratio
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436
  0.436

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  79
  84
  90
  97
  105
  113
  123
  133
  144
  156
  171
  185
  200
  216
  233
  251
  271
  292
  314
  337
  362
  389
  417
  447
  479
  512
  548
  585
  625
  667
Depreciation, amort., depletion, $m
  49
  51
  52
  54
  56
  58
  60
  62
  65
  68
  67
  69
  73
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  121
  126
  133
  139
  146
  153
  160
Funds from operations, $m
  128
  135
  143
  151
  161
  171
  183
  195
  209
  223
  238
  255
  273
  292
  313
  334
  358
  383
  409
  437
  467
  498
  532
  567
  605
  645
  687
  731
  778
  828
Change in working capital, $m
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  19
  20
  22
  23
  24
  25
Cash from operations, $m
  123
  130
  137
  145
  154
  164
  175
  187
  200
  215
  229
  245
  262
  281
  301
  322
  345
  369
  395
  422
  451
  482
  514
  549
  585
  624
  665
  708
  754
  803
Maintenance CAPEX, $m
  -44
  -45
  -47
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -69
  -73
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -115
  -121
  -126
  -133
  -139
  -146
  -153
New CAPEX, $m
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
Cash from investing activities, $m
  -56
  -58
  -62
  -64
  -67
  -70
  -73
  -77
  -81
  -84
  -89
  -93
  -96
  -102
  -107
  -111
  -117
  -123
  -129
  -135
  -142
  -149
  -157
  -164
  -173
  -180
  -190
  -199
  -209
  -219
Free cash flow, $m
  68
  71
  76
  81
  87
  94
  102
  111
  120
  130
  140
  152
  165
  179
  194
  211
  228
  246
  266
  287
  309
  333
  358
  385
  413
  444
  476
  510
  545
  584
Issuance/(repayment) of debt, $m
  14
  15
  17
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
  75
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
Cash from financing (excl. dividends), $m  
  14
  15
  17
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
  75
Total cash flow (excl. dividends), $m
  81
  86
  92
  99
  107
  115
  124
  134
  145
  157
  168
  182
  197
  212
  229
  247
  267
  287
  309
  332
  357
  383
  411
  441
  472
  505
  540
  578
  617
  659
Retained Cash Flow (-), $m
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
Prev. year cash balance distribution, $m
  30
  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
  100
  74
  79
  85
  92
  99
  107
  116
  126
  136
  147
  159
  172
  187
  202
  219
  237
  255
  276
  297
  320
  344
  370
  398
  427
  458
  490
  525
  562
  601
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
  96
  68
  69
  70
  71
  72
  72
  72
  72
  71
  70
  68
  66
  63
  59
  56
  51
  47
  42
  38
  33
  29
  24
  20
  17
  13
  11
  8
  6
  5
Current shareholders' claim on cash, %
  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

The North West Company Inc is a Canada-based retailer of food and everyday products and services to rural and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. Its segments are Canadian Operations and International Operations. Canadian Operations consist of approximately 120 Northern stores, over five NorthMart stores, approximately 10 Quickstop convenience stores, over 34 Giant Tiger (GT) junior discount stores, a Valu Lots discount center, a Solo Market store, a Price Chopper store, Crescent Multi Foods (CMF) and approximately two North West Company Fur Marketing outlets. Its International Operations consist of approximately 27 AC Value Centers stores, over five Quickstop convenience stores, approximately 10 Cost-U-Less (CUL) mid-sized warehouse stores and an Island Fresh IGA Supermarket. Its everyday products and services include gasoline, pharmacy and financial services. The Company operates North Star Air Ltd, a Thunder Bay-based passenger airline.

FINANCIAL RATIOS  of  The North West Company Inc. (NWC)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 0.8
Price to Book 3.9
Price to Tangible Book
Price to Cash Flow 11.5
Price to Free Cash Flow 30.1
Growth Rates
Sales Growth Rate 2.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 2.6%
Cap. Spend. - 3 Yr. Gr. Rate 12.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 62.2%
Total Debt to Equity 62.2%
Interest Coverage 20
Management Effectiveness
Return On Assets 10.1%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 13.1%
Ret/ On T. Cap. - 3 Yr. Avg. 12.6%
Return On Equity 21.2%
Return On Equity - 3 Yr. Avg. 20.3%
Asset Turnover 2.3
Profitability Ratios
Gross Margin 29.4%
Gross Margin - 3 Yr. Avg. 29%
EBITDA Margin 8.9%
EBITDA Margin - 3 Yr. Avg. 8.6%
Operating Margin 6.4%
Oper. Margin - 3 Yr. Avg. 6.1%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 5.7%
Net Profit Margin 4.2%
Net Profit Margin - 3 Yr. Avg. 4%
Effective Tax Rate 30.6%
Eff/ Tax Rate - 3 Yr. Avg. 30.7%
Payout Ratio 77.9%

NWC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NWC stock intrinsic value calculation we used $1844 million for the last fiscal year's total revenue generated by The North West Company Inc.. The default revenue input number comes from 2017 income statement of The North West Company 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 NWC stock valuation model: a) initial revenue growth rate of 3.2% 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 4.3%, whose default value for NWC is calculated based on our internal credit rating of The North West Company 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 The North West Company 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 NWC stock the variable cost ratio is equal to 77.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $313 million in the base year in the intrinsic value calculation for NWC 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 The North West Company Inc..

Corporate tax rate of 27% is the nominal tax rate for The North West Company 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 NWC 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 NWC are equal to 20.9%.

Life of production assets of 8.8 years is the average useful life of capital assets used in The North West Company 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 NWC is equal to 7.9%. 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 - $368 million for The North West Company 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 48.553 million for The North West Company 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 The North West Company Inc. at the current share price and the inputted number of shares is $1.4 billion.

RELATED COMPANIES Price Int.Val. Rating
MRU Metro Inc. 43.95 42.84  hold
WN George Weston 105.60 142.62  buy
L Loblaw Compani 66.35 40.05  sell
HBC Hudson's B 12.00 21.36  str.buy

CONTACT US       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.