Intrinsic value of Dominion Diamond Corporation - DDC

Previous Close

$17.70

  Intrinsic Value

$4.91

stock screener

  Rating & Target

str. sell

-72%

  Value-price divergence*

-62%

Previous close

$17.70

 
Intrinsic value

$4.91

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence*

-62%

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

We calculate the intrinsic value of DDC 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, %
  -20.84
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  771
  786
  805
  825
  848
  874
  902
  933
  966
  1,002
  1,041
  1,082
  1,126
  1,172
  1,222
  1,275
  1,331
  1,390
  1,452
  1,518
  1,588
  1,662
  1,739
  1,821
  1,908
  1,998
  2,094
  2,195
  2,300
  2,412
  2,529
Variable operating expenses, $m
 
  446
  456
  468
  481
  496
  512
  529
  548
  568
  590
  613
  638
  664
  693
  722
  754
  788
  823
  861
  900
  942
  986
  1,032
  1,081
  1,133
  1,187
  1,244
  1,304
  1,367
  1,433
Fixed operating expenses, $m
 
  432
  442
  453
  465
  476
  488
  500
  513
  526
  539
  552
  566
  580
  595
  610
  625
  641
  657
  673
  690
  707
  725
  743
  761
  781
  800
  820
  841
  862
  883
Total operating expenses, $m
  848
  878
  898
  921
  946
  972
  1,000
  1,029
  1,061
  1,094
  1,129
  1,165
  1,204
  1,244
  1,288
  1,332
  1,379
  1,429
  1,480
  1,534
  1,590
  1,649
  1,711
  1,775
  1,842
  1,914
  1,987
  2,064
  2,145
  2,229
  2,316
Operating income, $m
  -76
  -91
  -94
  -96
  -97
  -98
  -97
  -96
  -94
  -92
  -88
  -84
  -78
  -72
  -65
  -57
  -48
  -38
  -27
  -15
  -2
  13
  29
  46
  65
  85
  107
  131
  156
  183
  213
EBITDA, $m
  208
  198
  202
  207
  215
  224
  234
  247
  261
  277
  294
  314
  335
  359
  384
  411
  441
  472
  507
  543
  582
  624
  668
  716
  766
  820
  877
  937
  1,002
  1,070
  1,142
Interest expense (income), $m
  4
  0
  3
  6
  10
  14
  19
  24
  29
  35
  42
  49
  56
  64
  72
  81
  91
  101
  112
  123
  135
  147
  161
  175
  189
  205
  221
  239
  257
  276
  296
Earnings before tax, $m
  -55
  -91
  -97
  -102
  -107
  -112
  -116
  -120
  -124
  -127
  -130
  -132
  -134
  -136
  -138
  -139
  -139
  -139
  -139
  -138
  -137
  -134
  -132
  -128
  -124
  -120
  -114
  -108
  -101
  -92
  -83
Tax expense, $m
  -38
  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
Net income, $m
  0
  -91
  -97
  -102
  -107
  -112
  -116
  -120
  -124
  -127
  -130
  -132
  -134
  -136
  -138
  -139
  -139
  -139
  -139
  -138
  -137
  -134
  -132
  -128
  -124
  -120
  -114
  -108
  -101
  -92
  -83

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  184
  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
  2,707
  2,570
  2,629
  2,697
  2,773
  2,857
  2,949
  3,049
  3,158
  3,275
  3,401
  3,535
  3,679
  3,831
  3,994
  4,166
  4,349
  4,542
  4,746
  4,962
  5,190
  5,431
  5,685
  5,952
  6,234
  6,531
  6,843
  7,172
  7,518
  7,882
  8,265
Adjusted assets (=assets-cash), $m
  2,523
  2,570
  2,629
  2,697
  2,773
  2,857
  2,949
  3,049
  3,158
  3,275
  3,401
  3,535
  3,679
  3,831
  3,994
  4,166
  4,349
  4,542
  4,746
  4,962
  5,190
  5,431
  5,685
  5,952
  6,234
  6,531
  6,843
  7,172
  7,518
  7,882
  8,265
Revenue / Adjusted assets
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
  0.306
Average production assets, $m
  1,757
  1,792
  1,833
  1,881
  1,933
  1,992
  2,056
  2,126
  2,202
  2,284
  2,372
  2,465
  2,565
  2,672
  2,785
  2,905
  3,033
  3,167
  3,310
  3,461
  3,620
  3,787
  3,964
  4,151
  4,347
  4,554
  4,772
  5,001
  5,243
  5,497
  5,764
Working capital, $m
  587
  393
  402
  413
  424
  437
  451
  467
  483
  501
  520
  541
  563
  586
  611
  637
  665
  695
  726
  759
  794
  831
  870
  911
  954
  999
  1,047
  1,097
  1,150
  1,206
  1,265
Total debt, $m
  14
  21
  45
  73
  105
  139
  178
  219
  265
  313
  365
  421
  481
  544
  611
  683
  759
  839
  924
  1,013
  1,108
  1,208
  1,313
  1,424
  1,541
  1,664
  1,794
  1,930
  2,074
  2,225
  2,384
Total liabilities, $m
  1,061
  1,067
  1,091
  1,119
  1,151
  1,185
  1,224
  1,265
  1,311
  1,359
  1,411
  1,467
  1,527
  1,590
  1,657
  1,729
  1,805
  1,885
  1,970
  2,059
  2,154
  2,254
  2,359
  2,470
  2,587
  2,710
  2,840
  2,976
  3,120
  3,271
  3,430
Total equity, $m
  1,647
  1,503
  1,538
  1,578
  1,622
  1,671
  1,725
  1,784
  1,847
  1,916
  1,989
  2,068
  2,152
  2,241
  2,336
  2,437
  2,544
  2,657
  2,777
  2,903
  3,036
  3,177
  3,325
  3,482
  3,647
  3,820
  4,003
  4,196
  4,398
  4,611
  4,835
Total liabilities and equity, $m
  2,708
  2,570
  2,629
  2,697
  2,773
  2,856
  2,949
  3,049
  3,158
  3,275
  3,400
  3,535
  3,679
  3,831
  3,993
  4,166
  4,349
  4,542
  4,747
  4,962
  5,190
  5,431
  5,684
  5,952
  6,234
  6,530
  6,843
  7,172
  7,518
  7,882
  8,265
Debt-to-equity ratio
  0.009
  0.010
  0.030
  0.050
  0.060
  0.080
  0.100
  0.120
  0.140
  0.160
  0.180
  0.200
  0.220
  0.240
  0.260
  0.280
  0.300
  0.320
  0.330
  0.350
  0.360
  0.380
  0.390
  0.410
  0.420
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
Adjusted equity ratio
  0.580
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585
  0.585

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  -91
  -97
  -102
  -107
  -112
  -116
  -120
  -124
  -127
  -130
  -132
  -134
  -136
  -138
  -139
  -139
  -139
  -139
  -138
  -137
  -134
  -132
  -128
  -124
  -120
  -114
  -108
  -101
  -92
  -83
Depreciation, amort., depletion, $m
  284
  289
  296
  304
  312
  322
  332
  343
  355
  369
  383
  398
  414
  431
  449
  469
  489
  511
  534
  558
  584
  611
  639
  669
  701
  735
  770
  807
  846
  887
  930
Funds from operations, $m
  86
  198
  199
  201
  205
  210
  216
  223
  232
  242
  253
  265
  279
  295
  311
  330
  350
  372
  395
  420
  447
  476
  508
  541
  577
  615
  656
  699
  745
  794
  846
Change in working capital, $m
  -72
  8
  9
  10
  12
  13
  14
  15
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
Cash from operations, $m
  158
  191
  190
  191
  193
  197
  202
  208
  215
  224
  234
  245
  257
  271
  287
  304
  322
  342
  364
  387
  412
  440
  469
  500
  534
  569
  608
  649
  692
  738
  788
Maintenance CAPEX, $m
  0
  -283
  -289
  -296
  -303
  -312
  -321
  -332
  -343
  -355
  -368
  -383
  -398
  -414
  -431
  -449
  -469
  -489
  -511
  -534
  -558
  -584
  -611
  -639
  -669
  -701
  -735
  -770
  -807
  -846
  -887
New CAPEX, $m
  -418
  -35
  -41
  -47
  -53
  -59
  -64
  -70
  -76
  -82
  -88
  -94
  -100
  -107
  -113
  -120
  -127
  -135
  -143
  -151
  -159
  -168
  -177
  -187
  -197
  -207
  -218
  -229
  -241
  -254
  -267
Cash from investing activities, $m
  -292
  -318
  -330
  -343
  -356
  -371
  -385
  -402
  -419
  -437
  -456
  -477
  -498
  -521
  -544
  -569
  -596
  -624
  -654
  -685
  -717
  -752
  -788
  -826
  -866
  -908
  -953
  -999
  -1,048
  -1,100
  -1,154
Free cash flow, $m
  -134
  -128
  -140
  -152
  -163
  -174
  -184
  -194
  -204
  -213
  -222
  -232
  -240
  -249
  -258
  -266
  -274
  -282
  -290
  -297
  -305
  -312
  -319
  -326
  -332
  -339
  -345
  -350
  -356
  -361
  -366
Issuance/(repayment) of debt, $m
  -32
  21
  25
  28
  31
  35
  38
  42
  45
  49
  52
  56
  60
  63
  67
  71
  76
  80
  85
  90
  95
  100
  105
  111
  117
  123
  130
  136
  144
  151
  159
Issuance/(repurchase) of shares, $m
  -42
  117
  131
  142
  151
  161
  170
  179
  187
  195
  203
  211
  218
  226
  233
  240
  246
  252
  258
  264
  270
  275
  280
  285
  289
  293
  297
  300
  303
  305
  307
Cash from financing (excl. dividends), $m  
  -70
  138
  156
  170
  182
  196
  208
  221
  232
  244
  255
  267
  278
  289
  300
  311
  322
  332
  343
  354
  365
  375
  385
  396
  406
  416
  427
  436
  447
  456
  466
Total cash flow (excl. dividends), $m
  -202
  10
  16
  18
  20
  22
  24
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  95
  100
Retained Cash Flow (-), $m
  83
  -117
  -131
  -142
  -151
  -161
  -170
  -179
  -187
  -195
  -203
  -211
  -218
  -226
  -233
  -240
  -246
  -252
  -258
  -264
  -270
  -275
  -280
  -285
  -289
  -293
  -297
  -300
  -303
  -305
  -307
Prev. year cash balance distribution, $m
 
  170
  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
 
  62
  -116
  -124
  -131
  -139
  -146
  -152
  -159
  -165
  -170
  -176
  -181
  -186
  -190
  -194
  -198
  -202
  -205
  -208
  -210
  -212
  -214
  -215
  -215
  -215
  -215
  -214
  -212
  -210
  -207
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
 
  60
  -106
  -108
  -108
  -107
  -106
  -103
  -99
  -95
  -89
  -83
  -77
  -71
  -64
  -57
  -50
  -44
  -38
  -32
  -27
  -22
  -18
  -14
  -11
  -8
  -6
  -5
  -3
  -2
  -2
Current shareholders' claim on cash, %
  100
  91.9
  83.8
  76.0
  68.7
  61.9
  55.6
  49.8
  44.6
  39.9
  35.7
  32.0
  28.6
  25.6
  23.0
  20.6
  18.5
  16.7
  15.1
  13.6
  12.4
  11.2
  10.2
  9.3
  8.5
  7.8
  7.2
  6.7
  6.2
  5.7
  5.3

Dominion Diamond Corporation engages in the mining and marketing of rough diamonds. It operates through Diavik Diamond Mine and Ekati Diamond Mine segments. The company holds an 88.9% ownership interest in the Ekati group of mineral claims, as well as a 65.3% ownership interest in other reserves; and a 40% ownership interest in the Diavik group of mineral claims located at Lac de Gras in Northwest Territories, Canada. It produces, sorts, and sells rough diamonds in North America, Europe, and India. The company was formerly known as Harry Winston Diamond Corporation and changed its name to Dominion Diamond Corporation in March 2013. Dominion Diamond Corporation was founded in 1980 and is headquartered in Yellowknife, Canada.

FINANCIAL RATIOS  of  Dominion Diamond Corporation (DDC)

Valuation Ratios
P/E Ratio 0
Price to Sales 1.9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 9.2
Price to Free Cash Flow -5.6
Growth Rates
Sales Growth Rate -20.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 47.2%
Cap. Spend. - 3 Yr. Gr. Rate 20.4%
Financial Strength
Quick Ratio 13
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0.9%
Interest Coverage -13
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 0.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 4.7%
Gross Margin - 3 Yr. Avg. 12.4%
EBITDA Margin 30.2%
EBITDA Margin - 3 Yr. Avg. 31.8%
Operating Margin -10%
Oper. Margin - 3 Yr. Avg. 4.3%
Pre-Tax Margin -7.1%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 0.9%
Effective Tax Rate 69.1%
Eff/ Tax Rate - 3 Yr. Avg. -33%
Payout Ratio 0%

DDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DDC stock intrinsic value calculation we used $771 million for the last fiscal year's total revenue generated by Dominion Diamond Corporation. The default revenue input number comes from 2017 income statement of Dominion Diamond Corporation. 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 DDC stock valuation model: a) initial revenue growth rate of 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 DDC is calculated based on our internal credit rating of Dominion Diamond Corporation, 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 Dominion Diamond Corporation.
    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 DDC stock the variable cost ratio is equal to 56.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $421 million in the base year in the intrinsic value calculation for DDC 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 13.3% for Dominion Diamond Corporation.

Corporate tax rate of 27% is the nominal tax rate for Dominion Diamond Corporation. 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 DDC 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 DDC are equal to 227.9%.

Life of production assets of 6.2 years is the average useful life of capital assets used in Dominion Diamond Corporation 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 DDC is equal to 50%. 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 - $1647 million for Dominion Diamond Corporation - 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 83.764 million for Dominion Diamond Corporation 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 Dominion Diamond Corporation at the current share price and the inputted number of shares is $1.5 billion.

RELATED COMPANIES Price Int.Val. Rating
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Stock chart of DDC Financial statements of DDC
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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