Intrinsic value of The North West Company Inc. - NWC

Previous Close

$31.76

  Intrinsic Value

$65.99

stock screener

  Rating & Target

str. buy

+108%

Previous close

$31.76

 
Intrinsic value

$65.99

 
Up/down potential

+108%

 
Rating

str. buy

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

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 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  2.67
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  1,844
  2,032
  2,229
  2,434
  2,648
  2,871
  3,103
  3,343
  3,594
  3,854
  4,124
  4,405
  4,697
  5,001
  5,317
  5,646
  5,989
  6,346
  6,719
  7,107
  7,512
  7,936
  8,377
  8,839
  9,322
  9,827
  10,355
  10,907
  11,486
  12,091
  12,725
Variable operating expenses, $m
 
  1,566
  1,718
  1,875
  2,040
  2,211
  2,389
  2,575
  2,767
  2,967
  3,175
  3,387
  3,612
  3,846
  4,089
  4,342
  4,605
  4,880
  5,166
  5,465
  5,777
  6,102
  6,442
  6,797
  7,168
  7,556
  7,962
  8,387
  8,832
  9,297
  9,785
Fixed operating expenses, $m
 
  321
  329
  337
  345
  354
  363
  372
  381
  391
  401
  411
  421
  431
  442
  453
  465
  476
  488
  500
  513
  526
  539
  552
  566
  580
  595
  610
  625
  641
  657
Total operating expenses, $m
  1,726
  1,887
  2,047
  2,212
  2,385
  2,565
  2,752
  2,947
  3,148
  3,358
  3,576
  3,798
  4,033
  4,277
  4,531
  4,795
  5,070
  5,356
  5,654
  5,965
  6,290
  6,628
  6,981
  7,349
  7,734
  8,136
  8,557
  8,997
  9,457
  9,938
  10,442
Operating income, $m
  118
  145
  182
  222
  263
  305
  350
  397
  445
  496
  548
  607
  664
  724
  786
  851
  919
  990
  1,064
  1,142
  1,223
  1,308
  1,397
  1,490
  1,588
  1,690
  1,798
  1,911
  2,029
  2,153
  2,284
EBITDA, $m
  166
  197
  239
  283
  329
  377
  428
  480
  534
  591
  650
  712
  776
  843
  913
  985
  1,061
  1,141
  1,224
  1,311
  1,401
  1,496
  1,596
  1,700
  1,809
  1,924
  2,044
  2,170
  2,302
  2,440
  2,586
Interest expense (income), $m
  6
  8
  10
  11
  13
  15
  17
  18
  20
  23
  25
  27
  29
  32
  34
  37
  40
  42
  45
  49
  52
  55
  59
  62
  66
  70
  74
  79
  83
  88
  93
Earnings before tax, $m
  111
  137
  173
  210
  250
  291
  334
  378
  425
  473
  524
  580
  635
  692
  752
  814
  880
  948
  1,019
  1,093
  1,171
  1,253
  1,338
  1,428
  1,522
  1,620
  1,723
  1,832
  1,946
  2,065
  2,191
Tax expense, $m
  34
  37
  47
  57
  67
  78
  90
  102
  115
  128
  141
  157
  171
  187
  203
  220
  237
  256
  275
  295
  316
  338
  361
  386
  411
  437
  465
  495
  525
  558
  591
Net income, $m
  77
  100
  126
  154
  182
  212
  243
  276
  310
  345
  382
  424
  464
  505
  549
  595
  642
  692
  744
  798
  855
  915
  977
  1,042
  1,111
  1,183
  1,258
  1,337
  1,420
  1,508
  1,599

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  806
  855
  938
  1,024
  1,115
  1,208
  1,306
  1,407
  1,513
  1,622
  1,736
  1,854
  1,977
  2,105
  2,238
  2,376
  2,521
  2,671
  2,828
  2,991
  3,162
  3,340
  3,526
  3,720
  3,923
  4,136
  4,358
  4,591
  4,834
  5,089
  5,356
Adjusted assets (=assets-cash), $m
  776
  855
  938
  1,024
  1,115
  1,208
  1,306
  1,407
  1,513
  1,622
  1,736
  1,854
  1,977
  2,105
  2,238
  2,376
  2,521
  2,671
  2,828
  2,991
  3,162
  3,340
  3,526
  3,720
  3,923
  4,136
  4,358
  4,591
  4,834
  5,089
  5,356
Revenue / Adjusted assets
  2.376
  2.377
  2.376
  2.377
  2.375
  2.377
  2.376
  2.376
  2.375
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
  2.376
Average production assets, $m
  386
  425
  466
  509
  553
  600
  648
  699
  751
  805
  862
  921
  982
  1,045
  1,111
  1,180
  1,252
  1,326
  1,404
  1,485
  1,570
  1,659
  1,751
  1,847
  1,948
  2,054
  2,164
  2,280
  2,400
  2,527
  2,660
Working capital, $m
  176
  161
  176
  192
  209
  227
  245
  264
  284
  304
  326
  348
  371
  395
  420
  446
  473
  501
  531
  561
  593
  627
  662
  698
  736
  776
  818
  862
  907
  955
  1,005
Total debt, $m
  229
  273
  320
  369
  420
  472
  527
  585
  644
  706
  770
  837
  906
  978
  1,053
  1,131
  1,213
  1,297
  1,386
  1,478
  1,574
  1,675
  1,780
  1,889
  2,004
  2,124
  2,249
  2,380
  2,517
  2,661
  2,812
Total liabilities, $m
  438
  482
  529
  578
  629
  681
  736
  794
  853
  915
  979
  1,046
  1,115
  1,187
  1,262
  1,340
  1,422
  1,506
  1,595
  1,687
  1,783
  1,884
  1,989
  2,098
  2,213
  2,333
  2,458
  2,589
  2,726
  2,870
  3,021
Total equity, $m
  368
  373
  409
  447
  486
  527
  569
  614
  659
  707
  757
  808
  862
  918
  976
  1,036
  1,099
  1,165
  1,233
  1,304
  1,379
  1,456
  1,537
  1,622
  1,711
  1,803
  1,900
  2,001
  2,108
  2,219
  2,335
Total liabilities and equity, $m
  806
  855
  938
  1,025
  1,115
  1,208
  1,305
  1,408
  1,512
  1,622
  1,736
  1,854
  1,977
  2,105
  2,238
  2,376
  2,521
  2,671
  2,828
  2,991
  3,162
  3,340
  3,526
  3,720
  3,924
  4,136
  4,358
  4,590
  4,834
  5,089
  5,356
Debt-to-equity ratio
  0.622
  0.730
  0.780
  0.830
  0.860
  0.900
  0.930
  0.950
  0.980
  1.000
  1.020
  1.040
  1.050
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.180
  1.180
  1.190
  1.190
  1.200
  1.200
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
  0.436

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  77
  100
  126
  154
  182
  212
  243
  276
  310
  345
  382
  424
  464
  505
  549
  595
  642
  692
  744
  798
  855
  915
  977
  1,042
  1,111
  1,183
  1,258
  1,337
  1,420
  1,508
  1,599
Depreciation, amort., depletion, $m
  48
  52
  57
  62
  67
  72
  77
  83
  89
  95
  102
  105
  112
  119
  126
  134
  142
  151
  160
  169
  178
  188
  199
  210
  221
  233
  246
  259
  273
  287
  302
Funds from operations, $m
  80
  152
  183
  215
  249
  284
  321
  359
  399
  441
  484
  528
  575
  624
  675
  729
  784
  843
  903
  967
  1,033
  1,103
  1,176
  1,252
  1,332
  1,416
  1,504
  1,596
  1,693
  1,795
  1,901
Change in working capital, $m
  -46
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
Cash from operations, $m
  126
  137
  167
  199
  232
  267
  303
  340
  379
  420
  463
  506
  552
  600
  650
  703
  757
  814
  874
  936
  1,001
  1,070
  1,141
  1,216
  1,294
  1,376
  1,462
  1,553
  1,647
  1,747
  1,851
Maintenance CAPEX, $m
  0
  -44
  -48
  -53
  -58
  -63
  -68
  -74
  -79
  -85
  -92
  -98
  -105
  -112
  -119
  -126
  -134
  -142
  -151
  -160
  -169
  -178
  -188
  -199
  -210
  -221
  -233
  -246
  -259
  -273
  -287
New CAPEX, $m
  -78
  -39
  -41
  -43
  -45
  -47
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -97
  -101
  -105
  -110
  -115
  -121
  -127
  -133
Cash from investing activities, $m
  -78
  -83
  -89
  -96
  -103
  -110
  -116
  -124
  -131
  -139
  -148
  -157
  -166
  -176
  -185
  -195
  -206
  -217
  -229
  -241
  -254
  -266
  -280
  -296
  -311
  -326
  -343
  -361
  -380
  -400
  -420
Free cash flow, $m
  48
  55
  78
  103
  130
  157
  186
  216
  248
  281
  315
  349
  386
  425
  466
  508
  552
  597
  645
  695
  748
  803
  860
  920
  983
  1,049
  1,119
  1,191
  1,268
  1,348
  1,432
Issuance/(repayment) of debt, $m
  12
  44
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  110
  115
  120
  125
  131
  137
  144
  151
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  
  6
  44
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  78
  81
  85
  88
  92
  96
  100
  105
  110
  115
  120
  125
  131
  137
  144
  151
Total cash flow (excl. dividends), $m
  53
  99
  125
  152
  180
  210
  241
  273
  307
  342
  379
  416
  456
  497
  541
  586
  633
  682
  734
  788
  844
  903
  965
  1,030
  1,098
  1,169
  1,244
  1,322
  1,405
  1,491
  1,582
Retained Cash Flow (-), $m
  -10
  -35
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -66
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -97
  -101
  -106
  -111
  -116
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
 
  94
  89
  114
  141
  169
  199
  229
  261
  295
  329
  364
  402
  442
  483
  525
  570
  617
  665
  716
  770
  826
  884
  945
  1,009
  1,077
  1,147
  1,221
  1,299
  1,380
  1,466
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
 
  90
  81
  99
  116
  131
  144
  155
  163
  169
  173
  173
  172
  168
  162
  154
  145
  134
  123
  110
  98
  85
  73
  62
  51
  42
  33
  26
  20
  15
  11
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

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 20
Price to Sales 0.8
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 12.2
Price to Free Cash Flow 32.1
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 10.2% 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 48.55 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 $1.5 billion.

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Financial statements of NWC
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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