Intrinsic value of Chartwell Retirement Residences - CSH-UN

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$15.51

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$15.51

 
Intrinsic value

$1.08

 
Up/down potential

-93%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of CSH-UN 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 2016), $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 3.0

 

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, %
  10.50
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  758
  799
  842
  887
  933
  983
  1,034
  1,088
  1,144
  1,204
  1,266
  1,331
  1,399
  1,470
  1,545
  1,624
  1,707
  1,793
  1,884
  1,980
  2,080
  2,185
  2,295
  2,410
  2,532
  2,659
  2,793
  2,933
  3,081
  3,235
  3,398
Variable operating expenses, $m
 
  714
  753
  793
  835
  878
  924
  973
  1,023
  1,076
  1,132
  1,190
  1,251
  1,315
  1,382
  1,452
  1,526
  1,603
  1,684
  1,770
  1,859
  1,953
  2,051
  2,155
  2,263
  2,377
  2,497
  2,622
  2,754
  2,892
  3,037
Fixed operating expenses, $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 operating expenses, $m
  682
  714
  753
  793
  835
  878
  924
  973
  1,023
  1,076
  1,132
  1,190
  1,251
  1,315
  1,382
  1,452
  1,526
  1,603
  1,684
  1,770
  1,859
  1,953
  2,051
  2,155
  2,263
  2,377
  2,497
  2,622
  2,754
  2,892
  3,037
Operating income, $m
  76
  85
  89
  94
  99
  104
  110
  115
  121
  128
  134
  141
  148
  156
  164
  172
  181
  190
  200
  210
  220
  232
  243
  255
  268
  282
  296
  311
  327
  343
  360
EBITDA, $m
  223
  240
  252
  266
  280
  295
  310
  326
  343
  361
  380
  399
  420
  441
  463
  487
  512
  538
  565
  594
  624
  655
  688
  723
  759
  797
  838
  880
  924
  970
  1,019
Interest expense (income), $m
  73
  73
  77
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  164
  173
  182
  191
  201
  212
  223
  235
  247
  259
  273
  287
  302
  317
  333
Earnings before tax, $m
  -1
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
Tax expense, $m
  0
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
Net income, $m
  5
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20

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
  2,797
  2,916
  3,072
  3,236
  3,407
  3,586
  3,774
  3,971
  4,177
  4,393
  4,619
  4,857
  5,106
  5,367
  5,640
  5,928
  6,229
  6,545
  6,877
  7,225
  7,590
  7,973
  8,375
  8,797
  9,240
  9,705
  10,193
  10,705
  11,243
  11,807
  12,400
Adjusted assets (=assets-cash), $m
  2,767
  2,916
  3,072
  3,236
  3,407
  3,586
  3,774
  3,971
  4,177
  4,393
  4,619
  4,857
  5,106
  5,367
  5,640
  5,928
  6,229
  6,545
  6,877
  7,225
  7,590
  7,973
  8,375
  8,797
  9,240
  9,705
  10,193
  10,705
  11,243
  11,807
  12,400
Revenue / Adjusted assets
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
  0.274
Average production assets, $m
  2,543
  2,680
  2,823
  2,974
  3,131
  3,296
  3,468
  3,649
  3,838
  4,037
  4,245
  4,463
  4,692
  4,932
  5,184
  5,447
  5,724
  6,015
  6,320
  6,639
  6,975
  7,327
  7,697
  8,084
  8,491
  8,919
  9,367
  9,838
  10,332
  10,851
  11,396
Working capital, $m
  -206
  -97
  -102
  -107
  -113
  -119
  -125
  -132
  -138
  -146
  -153
  -161
  -169
  -178
  -187
  -197
  -207
  -217
  -228
  -240
  -252
  -264
  -278
  -292
  -306
  -322
  -338
  -355
  -373
  -391
  -411
Total debt, $m
  1,814
  1,889
  1,999
  2,113
  2,234
  2,359
  2,491
  2,629
  2,774
  2,926
  3,085
  3,251
  3,426
  3,609
  3,802
  4,003
  4,215
  4,437
  4,669
  4,914
  5,170
  5,439
  5,721
  6,017
  6,328
  6,655
  6,997
  7,357
  7,735
  8,131
  8,547
Total liabilities, $m
  1,972
  2,047
  2,157
  2,271
  2,392
  2,517
  2,649
  2,787
  2,932
  3,084
  3,243
  3,409
  3,584
  3,767
  3,960
  4,161
  4,373
  4,595
  4,827
  5,072
  5,328
  5,597
  5,879
  6,175
  6,486
  6,813
  7,155
  7,515
  7,893
  8,289
  8,705
Total equity, $m
  825
  869
  915
  964
  1,015
  1,069
  1,125
  1,183
  1,245
  1,309
  1,377
  1,447
  1,521
  1,599
  1,681
  1,766
  1,856
  1,950
  2,049
  2,153
  2,262
  2,376
  2,496
  2,622
  2,754
  2,892
  3,037
  3,190
  3,350
  3,519
  3,695
Total liabilities and equity, $m
  2,797
  2,916
  3,072
  3,235
  3,407
  3,586
  3,774
  3,970
  4,177
  4,393
  4,620
  4,856
  5,105
  5,366
  5,641
  5,927
  6,229
  6,545
  6,876
  7,225
  7,590
  7,973
  8,375
  8,797
  9,240
  9,705
  10,192
  10,705
  11,243
  11,808
  12,400
Debt-to-equity ratio
  2.199
  2.170
  2.180
  2.190
  2.200
  2.210
  2.220
  2.220
  2.230
  2.240
  2.240
  2.250
  2.250
  2.260
  2.260
  2.270
  2.270
  2.270
  2.280
  2.280
  2.290
  2.290
  2.290
  2.300
  2.300
  2.300
  2.300
  2.310
  2.310
  2.310
  2.310
Adjusted equity ratio
  0.287
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298
  0.298

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
Depreciation, amort., depletion, $m
  147
  155
  163
  172
  181
  191
  200
  211
  222
  233
  245
  258
  271
  285
  300
  315
  331
  348
  365
  384
  403
  424
  445
  467
  491
  516
  541
  569
  597
  627
  659
Funds from operations, $m
  87
  163
  172
  181
  190
  200
  210
  221
  232
  243
  256
  269
  282
  296
  311
  327
  343
  360
  378
  397
  417
  438
  460
  483
  507
  532
  558
  586
  615
  646
  678
Change in working capital, $m
  -71
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Cash from operations, $m
  158
  255
  177
  186
  196
  206
  216
  227
  239
  251
  263
  277
  290
  305
  320
  336
  353
  371
  389
  409
  429
  451
  473
  497
  521
  547
  575
  603
  633
  665
  698
Maintenance CAPEX, $m
  0
  -147
  -155
  -163
  -172
  -181
  -191
  -200
  -211
  -222
  -233
  -245
  -258
  -271
  -285
  -300
  -315
  -331
  -348
  -365
  -384
  -403
  -424
  -445
  -467
  -491
  -516
  -541
  -569
  -597
  -627
New CAPEX, $m
  -254
  -137
  -144
  -150
  -157
  -165
  -173
  -181
  -189
  -199
  -208
  -218
  -229
  -240
  -252
  -264
  -277
  -290
  -305
  -320
  -336
  -352
  -370
  -388
  -407
  -427
  -448
  -471
  -494
  -519
  -545
Cash from investing activities, $m
  -232
  -284
  -299
  -313
  -329
  -346
  -364
  -381
  -400
  -421
  -441
  -463
  -487
  -511
  -537
  -564
  -592
  -621
  -653
  -685
  -720
  -755
  -794
  -833
  -874
  -918
  -964
  -1,012
  -1,063
  -1,116
  -1,172
Free cash flow, $m
  -74
  -29
  -122
  -127
  -134
  -140
  -147
  -154
  -162
  -170
  -178
  -187
  -196
  -206
  -216
  -227
  -239
  -251
  -263
  -276
  -290
  -305
  -320
  -336
  -353
  -371
  -389
  -409
  -430
  -451
  -474
Issuance/(repayment) of debt, $m
  190
  105
  110
  115
  120
  126
  132
  138
  145
  152
  159
  167
  175
  183
  192
  202
  211
  222
  233
  244
  256
  269
  282
  296
  311
  326
  343
  360
  378
  396
  416
Issuance/(repurchase) of shares, $m
  0
  0
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  136
  143
  150
  158
  166
  174
  183
  192
  202
  212
  223
  235
Cash from financing (excl. dividends), $m  
  183
  105
  168
  176
  184
  194
  203
  213
  224
  235
  246
  258
  271
  284
  298
  313
  328
  345
  362
  380
  399
  419
  440
  462
  485
  509
  535
  562
  590
  619
  651
Total cash flow (excl. dividends), $m
  110
  76
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -55
  -58
Retained Cash Flow (-), $m
  -95
  -44
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
  -120
  -126
  -132
  -139
  -145
  -153
  -160
  -168
  -177
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
 
  32
  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
Discount rate, %
 
  10.30
  10.82
  11.36
  11.92
  12.52
  13.15
  13.80
  14.49
  15.22
  15.98
  16.78
  17.62
  18.50
  19.42
  20.39
  21.41
  22.48
  23.61
  24.79
  26.03
  27.33
  28.70
  30.13
  31.64
  33.22
  34.88
  36.62
  38.45
  40.38
  42.40
PV of cash for distribution, $m
 
  29
  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
Current shareholders' claim on cash, %
  100
  100.0
  98.2
  96.4
  94.6
  92.9
  91.2
  89.5
  87.9
  86.3
  84.8
  83.2
  81.7
  80.3
  78.8
  77.4
  76.0
  74.6
  73.3
  71.9
  70.6
  69.4
  68.1
  66.9
  65.6
  64.5
  63.3
  62.1
  61.0
  59.9
  58.8

Chartwell Retirement Residences is an independent real estate investment trust. The firm invests in the real estate markets of Canada and the United States. It is primarily engaged in ownership, operation, and management of retirement and long term care seniors housing communities. Chartwell Retirement Residences was founded on July 7, 2003 and is based in Mississauga, Canada.

FINANCIAL RATIOS  of  Chartwell Retirement Residences (CSH-UN)

Valuation Ratios
P/E Ratio 594.7
Price to Sales 3.9
Price to Book 3.6
Price to Tangible Book
Price to Cash Flow 18.8
Price to Free Cash Flow -31
Growth Rates
Sales Growth Rate 10.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -48.9%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio 0
Current Ratio 0.1
LT Debt to Equity 202.4%
Total Debt to Equity 219.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 2.9%
Ret/ On Assets - 3 Yr. Avg. 9.4%
Return On Total Capital 0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 4.8%
Return On Equity 0.6%
Return On Equity - 3 Yr. Avg. 20.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 34.7%
Gross Margin - 3 Yr. Avg. 32.8%
EBITDA Margin 28.9%
EBITDA Margin - 3 Yr. Avg. 33.5%
Operating Margin 10%
Oper. Margin - 3 Yr. Avg. 9.4%
Pre-Tax Margin -0.1%
Pre-Tax Margin - 3 Yr. Avg. -1.2%
Net Profit Margin 0.7%
Net Profit Margin - 3 Yr. Avg. 17.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. -44.3%
Payout Ratio 1660%

CSH-UN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSH-UN stock intrinsic value calculation we used $758 million for the last fiscal year's total revenue generated by Chartwell Retirement Residences. The default revenue input number comes from 2016 income statement of Chartwell Retirement Residences. 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 CSH-UN stock valuation model: a) initial revenue growth rate of 5.4% 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 10.3%, whose default value for CSH-UN is calculated based on our internal credit rating of Chartwell Retirement Residences, 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 Chartwell Retirement Residences.
    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 CSH-UN stock the variable cost ratio is equal to 89.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for CSH-UN 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 4.1% for Chartwell Retirement Residences.

Corporate tax rate of 27% is the nominal tax rate for Chartwell Retirement Residences. 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 CSH-UN 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 CSH-UN are equal to 335.4%.

Life of production assets of 17.3 years is the average useful life of capital assets used in Chartwell Retirement Residences 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 CSH-UN is equal to -12.1%. 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 - $825 million for Chartwell Retirement Residences - 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 191.243 million for Chartwell Retirement Residences 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 Chartwell Retirement Residences at the current share price and the inputted number of shares is $3.0 billion.


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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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