Intrinsic value of DH Corporation - DH

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$25.40

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$25.40

 
Intrinsic value

$22.28

 
Up/down potential

-12%

 
Rating

hold

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

We calculate the intrinsic value of DH 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 2.7

 

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, %
  11.48
  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
  1,680
  1,714
  1,753
  1,798
  1,849
  1,905
  1,966
  2,033
  2,106
  2,184
  2,268
  2,357
  2,453
  2,555
  2,663
  2,778
  2,900
  3,028
  3,165
  3,309
  3,461
  3,621
  3,790
  3,969
  4,156
  4,354
  4,563
  4,782
  5,013
  5,256
  5,511
Variable operating expenses, $m
 
  1,513
  1,542
  1,575
  1,612
  1,653
  1,697
  1,746
  1,799
  1,856
  1,918
  1,722
  1,791
  1,866
  1,945
  2,029
  2,118
  2,212
  2,311
  2,416
  2,528
  2,645
  2,768
  2,898
  3,036
  3,180
  3,332
  3,493
  3,661
  3,838
  4,025
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
  1,694
  1,513
  1,542
  1,575
  1,612
  1,653
  1,697
  1,746
  1,799
  1,856
  1,918
  1,722
  1,791
  1,866
  1,945
  2,029
  2,118
  2,212
  2,311
  2,416
  2,528
  2,645
  2,768
  2,898
  3,036
  3,180
  3,332
  3,493
  3,661
  3,838
  4,025
Operating income, $m
  -14
  201
  211
  223
  237
  252
  269
  287
  306
  327
  350
  636
  661
  689
  718
  749
  782
  817
  853
  892
  933
  976
  1,022
  1,070
  1,121
  1,174
  1,230
  1,289
  1,352
  1,417
  1,486
EBITDA, $m
  298
  600
  613
  629
  647
  666
  688
  711
  737
  764
  793
  825
  858
  894
  932
  972
  1,015
  1,060
  1,107
  1,158
  1,211
  1,267
  1,326
  1,389
  1,454
  1,524
  1,597
  1,673
  1,754
  1,839
  1,928
Interest expense (income), $m
  96
  91
  93
  96
  100
  104
  109
  114
  119
  125
  132
  138
  146
  154
  162
  171
  180
  190
  201
  212
  224
  236
  249
  263
  278
  293
  309
  326
  344
  363
  383
Earnings before tax, $m
  -118
  110
  118
  127
  137
  148
  160
  173
  187
  202
  218
  497
  516
  535
  556
  578
  602
  626
  653
  680
  709
  740
  773
  807
  843
  881
  921
  963
  1,007
  1,054
  1,103
Tax expense, $m
  -50
  30
  32
  34
  37
  40
  43
  47
  50
  55
  59
  134
  139
  145
  150
  156
  162
  169
  176
  184
  192
  200
  209
  218
  228
  238
  249
  260
  272
  285
  298
Net income, $m
  -68
  80
  86
  93
  100
  108
  117
  126
  137
  148
  159
  363
  376
  391
  406
  422
  439
  457
  476
  497
  518
  540
  564
  589
  615
  643
  672
  703
  735
  769
  805

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  58
  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
  5,059
  5,100
  5,217
  5,351
  5,502
  5,669
  5,852
  6,051
  6,267
  6,499
  6,749
  7,015
  7,300
  7,603
  7,925
  8,267
  8,630
  9,013
  9,419
  9,847
  10,300
  10,777
  11,281
  11,811
  12,370
  12,959
  13,579
  14,232
  14,919
  15,641
  16,401
Adjusted assets (=assets-cash), $m
  5,001
  5,100
  5,217
  5,351
  5,502
  5,669
  5,852
  6,051
  6,267
  6,499
  6,749
  7,015
  7,300
  7,603
  7,925
  8,267
  8,630
  9,013
  9,419
  9,847
  10,300
  10,777
  11,281
  11,811
  12,370
  12,959
  13,579
  14,232
  14,919
  15,641
  16,401
Revenue / Adjusted assets
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
  0.336
Average production assets, $m
  2,050
  2,091
  2,139
  2,194
  2,255
  2,324
  2,399
  2,480
  2,569
  2,664
  2,766
  2,876
  2,992
  3,117
  3,249
  3,389
  3,537
  3,695
  3,861
  4,037
  4,222
  4,418
  4,624
  4,842
  5,071
  5,312
  5,566
  5,834
  6,116
  6,412
  6,723
Working capital, $m
  -57
  -36
  -37
  -38
  -39
  -40
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -64
  -66
  -69
  -73
  -76
  -80
  -83
  -87
  -91
  -96
  -100
  -105
  -110
  -116
Total debt, $m
  1,944
  1,940
  2,008
  2,084
  2,171
  2,266
  2,371
  2,485
  2,609
  2,742
  2,885
  3,038
  3,201
  3,375
  3,559
  3,755
  3,963
  4,183
  4,415
  4,660
  4,920
  5,193
  5,482
  5,786
  6,106
  6,444
  6,799
  7,173
  7,567
  7,981
  8,416
Total liabilities, $m
  2,926
  2,922
  2,990
  3,066
  3,153
  3,248
  3,353
  3,467
  3,591
  3,724
  3,867
  4,020
  4,183
  4,357
  4,541
  4,737
  4,945
  5,165
  5,397
  5,642
  5,902
  6,175
  6,464
  6,768
  7,088
  7,426
  7,781
  8,155
  8,549
  8,963
  9,398
Total equity, $m
  2,133
  2,178
  2,228
  2,285
  2,349
  2,421
  2,499
  2,584
  2,676
  2,775
  2,882
  2,996
  3,117
  3,247
  3,384
  3,530
  3,685
  3,849
  4,022
  4,205
  4,398
  4,602
  4,817
  5,043
  5,282
  5,534
  5,798
  6,077
  6,370
  6,679
  7,003
Total liabilities and equity, $m
  5,059
  5,100
  5,218
  5,351
  5,502
  5,669
  5,852
  6,051
  6,267
  6,499
  6,749
  7,016
  7,300
  7,604
  7,925
  8,267
  8,630
  9,014
  9,419
  9,847
  10,300
  10,777
  11,281
  11,811
  12,370
  12,960
  13,579
  14,232
  14,919
  15,642
  16,401
Debt-to-equity ratio
  0.911
  0.890
  0.900
  0.910
  0.920
  0.940
  0.950
  0.960
  0.970
  0.990
  1.000
  1.010
  1.030
  1.040
  1.050
  1.060
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.160
  1.160
  1.170
  1.180
  1.190
  1.190
  1.200
Adjusted equity ratio
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -68
  80
  86
  93
  100
  108
  117
  126
  137
  148
  159
  363
  376
  391
  406
  422
  439
  457
  476
  497
  518
  540
  564
  589
  615
  643
  672
  703
  735
  769
  805
Depreciation, amort., depletion, $m
  312
  399
  402
  406
  410
  414
  419
  425
  431
  437
  443
  189
  197
  205
  214
  223
  233
  243
  254
  266
  278
  291
  304
  319
  334
  349
  366
  384
  402
  422
  442
Funds from operations, $m
  164
  479
  488
  499
  510
  522
  536
  551
  567
  584
  603
  552
  573
  596
  620
  645
  672
  700
  730
  762
  796
  831
  868
  908
  949
  993
  1,039
  1,087
  1,138
  1,191
  1,247
Change in working capital, $m
  -129
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Cash from operations, $m
  293
  337
  489
  499
  511
  524
  537
  552
  569
  586
  605
  554
  575
  598
  622
  647
  674
  703
  733
  765
  799
  834
  872
  911
  953
  997
  1,043
  1,092
  1,143
  1,196
  1,253
Maintenance CAPEX, $m
  0
  -135
  -138
  -141
  -144
  -148
  -153
  -158
  -163
  -169
  -175
  -182
  -189
  -197
  -205
  -214
  -223
  -233
  -243
  -254
  -266
  -278
  -291
  -304
  -319
  -334
  -349
  -366
  -384
  -402
  -422
New CAPEX, $m
  -96
  -41
  -48
  -55
  -62
  -68
  -75
  -82
  -88
  -95
  -102
  -109
  -117
  -124
  -132
  -140
  -149
  -157
  -166
  -176
  -185
  -196
  -206
  -218
  -229
  -241
  -254
  -268
  -282
  -296
  -312
Cash from investing activities, $m
  -96
  -176
  -186
  -196
  -206
  -216
  -228
  -240
  -251
  -264
  -277
  -291
  -306
  -321
  -337
  -354
  -372
  -390
  -409
  -430
  -451
  -474
  -497
  -522
  -548
  -575
  -603
  -634
  -666
  -698
  -734
Free cash flow, $m
  197
  162
  304
  304
  305
  307
  309
  313
  317
  322
  327
  263
  269
  277
  285
  294
  303
  313
  324
  336
  348
  361
  375
  390
  405
  422
  439
  458
  477
  498
  519
Issuance/(repayment) of debt, $m
  -81
  54
  67
  77
  86
  96
  105
  114
  124
  133
  143
  153
  163
  174
  185
  196
  208
  220
  232
  246
  259
  274
  288
  304
  320
  337
  355
  374
  394
  414
  435
Issuance/(repurchase) of shares, $m
  2
  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  
  -79
  54
  67
  77
  86
  96
  105
  114
  124
  133
  143
  153
  163
  174
  185
  196
  208
  220
  232
  246
  259
  274
  288
  304
  320
  337
  355
  374
  394
  414
  435
Total cash flow (excl. dividends), $m
  117
  216
  371
  381
  391
  402
  414
  427
  441
  455
  470
  416
  433
  450
  469
  489
  511
  533
  556
  581
  607
  635
  663
  694
  726
  759
  795
  832
  871
  912
  955
Retained Cash Flow (-), $m
  236
  -45
  -50
  -57
  -64
  -71
  -78
  -85
  -92
  -99
  -107
  -114
  -122
  -129
  -138
  -146
  -155
  -164
  -173
  -183
  -193
  -204
  -215
  -227
  -239
  -251
  -265
  -279
  -293
  -309
  -325
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
 
  171
  321
  323
  327
  331
  336
  342
  348
  356
  364
  302
  311
  321
  332
  343
  356
  369
  383
  398
  414
  431
  448
  467
  487
  508
  530
  553
  578
  603
  630
Discount rate, %
 
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
 
  159
  276
  255
  234
  214
  194
  175
  156
  138
  121
  85
  73
  62
  52
  43
  35
  28
  22
  17
  13
  10
  7
  5
  3
  2
  1
  1
  1
  0
  0
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

DH Corporation, a financial technology company, provides lending, payments, enterprise, and global transaction banking solutions to banks, specialty lenders, credit unions, governments, and corporations worldwide. The company offers Canadian mortgage lending platform, a SaaS-based origination solution that provides a standardized application process for brokers and lenders, and mortgage underwriting, as well as document sharing, management, and storage; collateral management solutions, which offer search and lien registration services, and recovery and insolvency management solutions; and student lending program management services, including loan origination and maintenance, repayment management, and loan discharge. It also provides personal and business cheques; enhancement services, such as MyIdentityAssist for detection of identity theft, and creditdefend that offers credit monitoring services; Payment Manager, which enables pre-authorized payment management; payment and connectivity solutions; card and electronic payment solutions; and item processing and deposit automation solutions. In addition, the company offers channel solutions; optimization solutions; and treasury services, such as merchant, financial messaging, and cash management solutions; and mortgage lending solution that enables lenders to obtain qualified applications from multiple point-of-sale channels. Further, it provides consumer lending solutions to automate the lending process from applications acceptance to loan approval process; commercial lending solutions; core banking platform; corporate cash and liquidity management; and foreign exchange services. The company was formerly known as Davis + Henderson Corporation and changed its name to DH Corporation in May 2014. DH Corporation was founded in 1875 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  DH Corporation (DH)

Valuation Ratios
P/E Ratio -39.9
Price to Sales 1.6
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 9.3
Price to Free Cash Flow 13.8
Growth Rates
Sales Growth Rate 11.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -6.8%
Cap. Spend. - 3 Yr. Gr. Rate 19.1%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 87.4%
Total Debt to Equity 91.1%
Interest Coverage 0
Management Effectiveness
Return On Assets -0.2%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital -1.6%
Ret/ On T. Cap. - 3 Yr. Avg. 1.8%
Return On Equity -3%
Return On Equity - 3 Yr. Avg. 3.2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 17.3%
EBITDA Margin - 3 Yr. Avg. 24.6%
Operating Margin -0.8%
Oper. Margin - 3 Yr. Avg. 8.7%
Pre-Tax Margin -7%
Pre-Tax Margin - 3 Yr. Avg. 2.9%
Net Profit Margin -4%
Net Profit Margin - 3 Yr. Avg. 3.6%
Effective Tax Rate 42.4%
Eff/ Tax Rate - 3 Yr. Avg. 14.5%
Payout Ratio -183.8%

DH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DH stock intrinsic value calculation we used $1680 million for the last fiscal year's total revenue generated by DH Corporation. The default revenue input number comes from 2016 income statement of DH 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 DH 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 7.5%, whose default value for DH is calculated based on our internal credit rating of DH 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 DH 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 DH stock the variable cost ratio is equal to 88.6%.

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 DH 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 4.8% for DH Corporation.

Corporate tax rate of 27% is the nominal tax rate for DH 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 DH 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 DH are equal to 122%.

Life of production assets of 15.2 years is the average useful life of capital assets used in DH 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 DH is equal to -2.1%. 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 - $2133 million for DH 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 106.96 million for DH 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 DH Corporation at the current share price and the inputted number of shares is $2.7 billion.


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Stock chart of DH Financial statements of DH
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