Intrinsic value of Maple Leaf Foods Inc. - MFI

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$32.18

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$32.18

 
Intrinsic value

$3.46

 
Up/down potential

-89%

 
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 MFI 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 4.2

 

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, %
  1.18
  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
  3,332
  3,399
  3,477
  3,566
  3,666
  3,778
  3,900
  4,032
  4,176
  4,331
  4,497
  4,675
  4,865
  5,067
  5,282
  5,509
  5,751
  6,006
  6,277
  6,562
  6,864
  7,182
  7,517
  7,871
  8,244
  8,636
  9,049
  9,484
  9,942
  10,423
  10,930
Variable operating expenses, $m
 
  3,340
  3,416
  3,503
  3,600
  3,708
  3,826
  3,955
  4,094
  4,245
  4,406
  4,536
  4,720
  4,916
  5,124
  5,345
  5,579
  5,827
  6,089
  6,366
  6,659
  6,968
  7,293
  7,636
  7,998
  8,378
  8,779
  9,201
  9,645
  10,112
  10,604
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
  3,076
  3,340
  3,416
  3,503
  3,600
  3,708
  3,826
  3,955
  4,094
  4,245
  4,406
  4,536
  4,720
  4,916
  5,124
  5,345
  5,579
  5,827
  6,089
  6,366
  6,659
  6,968
  7,293
  7,636
  7,998
  8,378
  8,779
  9,201
  9,645
  10,112
  10,604
Operating income, $m
  256
  59
  61
  64
  67
  70
  74
  78
  82
  86
  91
  140
  145
  151
  158
  164
  172
  179
  187
  196
  205
  214
  224
  235
  246
  258
  270
  283
  297
  311
  326
EBITDA, $m
  368
  186
  190
  195
  200
  207
  213
  220
  228
  237
  246
  256
  266
  277
  289
  301
  314
  328
  343
  359
  375
  393
  411
  430
  451
  472
  495
  519
  544
  570
  598
Interest expense (income), $m
  4
  3
  8
  12
  18
  24
  31
  39
  47
  56
  65
  76
  87
  99
  111
  125
  139
  154
  170
  186
  204
  223
  243
  264
  286
  309
  333
  359
  386
  414
  444
Earnings before tax, $m
  250
  55
  53
  51
  49
  46
  43
  39
  35
  31
  26
  64
  58
  53
  46
  40
  33
  25
  18
  9
  1
  -9
  -18
  -29
  -40
  -51
  -63
  -76
  -89
  -103
  -118
Tax expense, $m
  68
  15
  14
  14
  13
  12
  11
  11
  9
  8
  7
  17
  16
  14
  13
  11
  9
  7
  5
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  182
  40
  39
  37
  36
  33
  31
  28
  25
  22
  19
  47
  43
  38
  34
  29
  24
  19
  13
  7
  0
  -9
  -18
  -29
  -40
  -51
  -63
  -76
  -89
  -103
  -118

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  404
  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
  2,633
  2,273
  2,326
  2,385
  2,452
  2,527
  2,608
  2,697
  2,793
  2,897
  3,008
  3,127
  3,254
  3,389
  3,533
  3,685
  3,847
  4,018
  4,198
  4,389
  4,591
  4,804
  5,028
  5,265
  5,514
  5,777
  6,053
  6,344
  6,650
  6,972
  7,311
Adjusted assets (=assets-cash), $m
  2,229
  2,273
  2,326
  2,385
  2,452
  2,527
  2,608
  2,697
  2,793
  2,897
  3,008
  3,127
  3,254
  3,389
  3,533
  3,685
  3,847
  4,018
  4,198
  4,389
  4,591
  4,804
  5,028
  5,265
  5,514
  5,777
  6,053
  6,344
  6,650
  6,972
  7,311
Revenue / Adjusted assets
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
  1.495
Average production assets, $m
  1,217
  1,241
  1,269
  1,302
  1,338
  1,379
  1,423
  1,472
  1,524
  1,581
  1,641
  1,706
  1,776
  1,849
  1,928
  2,011
  2,099
  2,192
  2,291
  2,395
  2,505
  2,621
  2,744
  2,873
  3,009
  3,152
  3,303
  3,462
  3,629
  3,805
  3,989
Working capital, $m
  597
  197
  202
  207
  213
  219
  226
  234
  242
  251
  261
  271
  282
  294
  306
  320
  334
  348
  364
  381
  398
  417
  436
  457
  478
  501
  525
  550
  577
  605
  634
Total debt, $m
  10
  20
  32
  47
  63
  82
  101
  123
  147
  172
  199
  228
  259
  292
  327
  364
  404
  445
  489
  536
  585
  637
  692
  750
  810
  875
  942
  1,013
  1,088
  1,166
  1,249
Total liabilities, $m
  545
  555
  567
  582
  598
  617
  636
  658
  682
  707
  734
  763
  794
  827
  862
  899
  939
  980
  1,024
  1,071
  1,120
  1,172
  1,227
  1,285
  1,345
  1,410
  1,477
  1,548
  1,623
  1,701
  1,784
Total equity, $m
  2,088
  1,719
  1,758
  1,803
  1,854
  1,910
  1,972
  2,039
  2,112
  2,190
  2,274
  2,364
  2,460
  2,562
  2,671
  2,786
  2,908
  3,037
  3,174
  3,318
  3,471
  3,632
  3,801
  3,980
  4,169
  4,367
  4,576
  4,796
  5,028
  5,271
  5,527
Total liabilities and equity, $m
  2,633
  2,274
  2,325
  2,385
  2,452
  2,527
  2,608
  2,697
  2,794
  2,897
  3,008
  3,127
  3,254
  3,389
  3,533
  3,685
  3,847
  4,017
  4,198
  4,389
  4,591
  4,804
  5,028
  5,265
  5,514
  5,777
  6,053
  6,344
  6,651
  6,972
  7,311
Debt-to-equity ratio
  0.005
  0.010
  0.020
  0.030
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.110
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
Adjusted equity ratio
  0.755
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  182
  40
  39
  37
  36
  33
  31
  28
  25
  22
  19
  47
  43
  38
  34
  29
  24
  19
  13
  7
  0
  -9
  -18
  -29
  -40
  -51
  -63
  -76
  -89
  -103
  -118
Depreciation, amort., depletion, $m
  112
  127
  129
  131
  134
  137
  140
  143
  146
  150
  154
  116
  121
  126
  131
  137
  143
  149
  156
  163
  170
  178
  187
  195
  205
  214
  225
  235
  247
  259
  271
Funds from operations, $m
  337
  167
  168
  169
  169
  170
  171
  171
  172
  173
  173
  163
  163
  164
  165
  166
  167
  168
  169
  170
  171
  170
  168
  167
  165
  163
  162
  160
  158
  156
  153
Change in working capital, $m
  -20
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  17
  18
  19
  21
  22
  23
  24
  25
  27
  28
  29
Cash from operations, $m
  357
  160
  164
  164
  164
  164
  164
  164
  164
  164
  164
  152
  152
  152
  153
  153
  153
  153
  153
  153
  153
  151
  149
  146
  143
  141
  138
  134
  131
  128
  124
Maintenance CAPEX, $m
  0
  -83
  -84
  -86
  -89
  -91
  -94
  -97
  -100
  -104
  -108
  -112
  -116
  -121
  -126
  -131
  -137
  -143
  -149
  -156
  -163
  -170
  -178
  -187
  -195
  -205
  -214
  -225
  -235
  -247
  -259
New CAPEX, $m
  -113
  -24
  -29
  -33
  -37
  -41
  -45
  -48
  -52
  -57
  -61
  -65
  -69
  -74
  -78
  -83
  -88
  -93
  -99
  -104
  -110
  -116
  -122
  -129
  -136
  -143
  -151
  -159
  -167
  -176
  -185
Cash from investing activities, $m
  -107
  -107
  -113
  -119
  -126
  -132
  -139
  -145
  -152
  -161
  -169
  -177
  -185
  -195
  -204
  -214
  -225
  -236
  -248
  -260
  -273
  -286
  -300
  -316
  -331
  -348
  -365
  -384
  -402
  -423
  -444
Free cash flow, $m
  250
  53
  51
  45
  38
  32
  25
  18
  11
  3
  -4
  -24
  -33
  -42
  -52
  -62
  -72
  -83
  -95
  -107
  -120
  -135
  -152
  -170
  -188
  -207
  -228
  -249
  -271
  -295
  -320
Issuance/(repayment) of debt, $m
  -1
  11
  13
  15
  16
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
  83
Issuance/(repurchase) of shares, $m
  -88
  0
  0
  0
  0
  6
  16
  27
  38
  50
  61
  85
  98
  111
  125
  140
  155
  171
  187
  205
  223
  244
  267
  291
  316
  342
  369
  398
  428
  460
  493
Cash from financing (excl. dividends), $m  
  -91
  11
  13
  15
  16
  24
  36
  49
  61
  75
  88
  114
  129
  144
  160
  177
  194
  213
  231
  252
  272
  296
  322
  349
  377
  406
  436
  469
  503
  539
  576
Total cash flow (excl. dividends), $m
  159
  64
  63
  59
  55
  50
  45
  40
  35
  29
  23
  5
  -2
  -9
  -17
  -24
  -33
  -41
  -51
  -60
  -70
  -83
  -97
  -112
  -127
  -143
  -160
  -178
  -197
  -216
  -237
Retained Cash Flow (-), $m
  -47
  -34
  -40
  -45
  -51
  -56
  -62
  -67
  -73
  -78
  -84
  -90
  -96
  -102
  -109
  -115
  -122
  -129
  -137
  -144
  -152
  -161
  -170
  -179
  -188
  -198
  -209
  -220
  -231
  -243
  -256
Prev. year cash balance distribution, $m
 
  403
  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
 
  433
  24
  14
  4
  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, %
 
  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
 
  416
  22
  12
  3
  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
  100.0
  100.0
  100.0
  99.8
  99.4
  98.7
  97.8
  96.7
  95.4
  93.7
  91.8
  89.8
  87.6
  85.4
  83.1
  80.8
  78.4
  76.0
  73.5
  71.1
  68.6
  66.1
  63.6
  61.1
  58.6
  56.2
  53.8
  51.5
  49.2

Maple Leaf Foods Inc. operates as a packaged meats company. The Meat Products Group segment offers prepared meats, lunch kits, and snacks, as well as fresh pork and poultry products. This segment markets its products primarily under the Maple Leaf, Maple Leaf Prime, Maple Leaf Natural Selections, Schneiders, Schneiders Country Naturals, and Mina brand names. The Agribusiness Group segment produces and manages hogs. The company has operations in Canada, Japan, the United States, and internationally. Maple Leaf Foods Inc. is based in Mississauga, Canada.

FINANCIAL RATIOS  of  Maple Leaf Foods Inc. (MFI)

Valuation Ratios
P/E Ratio 23.4
Price to Sales 1.3
Price to Book 2
Price to Tangible Book
Price to Cash Flow 11.9
Price to Free Cash Flow 17.4
Growth Rates
Sales Growth Rate 1.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.6%
Cap. Spend. - 3 Yr. Gr. Rate -20.7%
Financial Strength
Quick Ratio 404
Current Ratio 0.3
LT Debt to Equity 0.4%
Total Debt to Equity 0.5%
Interest Coverage 64
Management Effectiveness
Return On Assets 7%
Ret/ On Assets - 3 Yr. Avg. 10.5%
Return On Total Capital 8.8%
Ret/ On T. Cap. - 3 Yr. Avg. 13.4%
Return On Equity 8.8%
Return On Equity - 3 Yr. Avg. 16%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 17.7%
Gross Margin - 3 Yr. Avg. 12.1%
EBITDA Margin 11%
EBITDA Margin - 3 Yr. Avg. 4.1%
Operating Margin 7.7%
Oper. Margin - 3 Yr. Avg. 1.4%
Pre-Tax Margin 7.5%
Pre-Tax Margin - 3 Yr. Avg. -0%
Net Profit Margin 5.5%
Net Profit Margin - 3 Yr. Avg. 9.7%
Effective Tax Rate 27.2%
Eff/ Tax Rate - 3 Yr. Avg. 24.5%
Payout Ratio 26.4%

MFI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MFI stock intrinsic value calculation we used $3332 million for the last fiscal year's total revenue generated by Maple Leaf Foods Inc.. The default revenue input number comes from 2016 income statement of Maple Leaf Foods 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 MFI 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 MFI is calculated based on our internal credit rating of Maple Leaf Foods 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 Maple Leaf Foods 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 MFI stock the variable cost ratio is equal to 98.3%.

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 MFI 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 38.1% for Maple Leaf Foods Inc..

Corporate tax rate of 27% is the nominal tax rate for Maple Leaf Foods 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 MFI 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 MFI are equal to 36.5%.

Life of production assets of 14.7 years is the average useful life of capital assets used in Maple Leaf Foods 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 MFI is equal to 5.8%. 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 - $2088 million for Maple Leaf Foods 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 131.137 million for Maple Leaf Foods 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 Maple Leaf Foods Inc. at the current share price and the inputted number of shares is $4.2 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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