Intrinsic value of The North West Company Inc. - NWC

Previous Close

$30.22

  Intrinsic Value

$56.67

stock screener

  Rating & Target

str. buy

+88%

  Value-price divergence*

0%

Previous close

$30.22

 
Intrinsic value

$56.67

 
Up/down potential

+88%

 
Rating

str. buy

 
Value-price divergence*

0%

*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
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
Revenue, $m
  1,844
  2,004
  2,171
  2,345
  2,526
  2,713
  2,908
  3,111
  3,321
  3,540
  3,768
  4,005
  4,252
  4,509
  4,777
  5,056
  5,347
  5,651
  5,969
  6,300
  6,647
  7,009
  7,388
  7,784
  8,199
  8,633
  9,087
  9,564
  10,062
  10,585
  11,133
Variable operating expenses, $m
 
  1,545
  1,673
  1,807
  1,946
  2,090
  2,240
  2,396
  2,558
  2,726
  2,901
  3,080
  3,269
  3,467
  3,673
  3,888
  4,112
  4,345
  4,589
  4,844
  5,111
  5,389
  5,681
  5,985
  6,304
  6,638
  6,988
  7,354
  7,737
  8,139
  8,560
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
  1,866
  2,002
  2,144
  2,291
  2,444
  2,603
  2,768
  2,939
  3,117
  3,302
  3,491
  3,690
  3,898
  4,115
  4,341
  4,577
  4,821
  5,077
  5,344
  5,624
  5,915
  6,220
  6,537
  6,870
  7,218
  7,583
  7,964
  8,362
  8,780
  9,217
Operating income, $m
  118
  139
  169
  201
  234
  269
  305
  343
  382
  423
  466
  515
  561
  610
  661
  715
  771
  829
  891
  955
  1,023
  1,094
  1,168
  1,246
  1,328
  1,414
  1,505
  1,600
  1,700
  1,805
  1,916
EBITDA, $m
  166
  190
  224
  260
  298
  337
  378
  421
  465
  511
  559
  610
  662
  717
  775
  835
  898
  964
  1,033
  1,105
  1,181
  1,260
  1,344
  1,431
  1,523
  1,619
  1,721
  1,827
  1,939
  2,057
  2,180
Interest expense (income), $m
  6
  8
  9
  11
  12
  14
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  76
  81
Earnings before tax, $m
  111
  131
  160
  190
  222
  255
  290
  326
  364
  403
  444
  491
  535
  582
  631
  683
  736
  792
  851
  913
  978
  1,046
  1,117
  1,192
  1,271
  1,354
  1,441
  1,532
  1,628
  1,729
  1,835
Tax expense, $m
  34
  35
  43
  51
  60
  69
  78
  88
  98
  109
  120
  132
  145
  157
  170
  184
  199
  214
  230
  247
  264
  282
  302
  322
  343
  365
  389
  414
  440
  467
  495
Net income, $m
  77
  95
  117
  139
  162
  186
  212
  238
  266
  294
  324
  358
  391
  425
  461
  498
  537
  578
  621
  667
  714
  763
  816
  870
  928
  988
  1,052
  1,118
  1,188
  1,262
  1,340

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
  844
  914
  987
  1,063
  1,142
  1,224
  1,309
  1,398
  1,490
  1,586
  1,686
  1,789
  1,898
  2,010
  2,128
  2,250
  2,378
  2,512
  2,652
  2,797
  2,950
  3,109
  3,276
  3,451
  3,633
  3,825
  4,025
  4,235
  4,455
  4,685
Adjusted assets (=assets-cash), $m
  776
  844
  914
  987
  1,063
  1,142
  1,224
  1,309
  1,398
  1,490
  1,586
  1,686
  1,789
  1,898
  2,010
  2,128
  2,250
  2,378
  2,512
  2,652
  2,797
  2,950
  3,109
  3,276
  3,451
  3,633
  3,825
  4,025
  4,235
  4,455
  4,685
Revenue / Adjusted assets
  2.376
  2.374
  2.375
  2.376
  2.376
  2.376
  2.376
  2.377
  2.376
  2.376
  2.376
  2.375
  2.377
  2.376
  2.377
  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
  419
  454
  490
  528
  567
  608
  650
  694
  740
  788
  837
  889
  942
  998
  1,057
  1,118
  1,181
  1,247
  1,317
  1,389
  1,465
  1,544
  1,627
  1,714
  1,804
  1,899
  1,999
  2,103
  2,212
  2,327
Working capital, $m
  176
  158
  172
  185
  200
  214
  230
  246
  262
  280
  298
  316
  336
  356
  377
  399
  422
  446
  472
  498
  525
  554
  584
  615
  648
  682
  718
  756
  795
  836
  879
Total debt, $m
  229
  267
  306
  348
  390
  435
  481
  529
  579
  631
  685
  742
  800
  861
  925
  991
  1,060
  1,132
  1,208
  1,286
  1,369
  1,455
  1,545
  1,639
  1,737
  1,840
  1,948
  2,061
  2,180
  2,304
  2,434
Total liabilities, $m
  438
  476
  515
  557
  599
  644
  690
  738
  788
  840
  894
  951
  1,009
  1,070
  1,134
  1,200
  1,269
  1,341
  1,417
  1,495
  1,578
  1,664
  1,754
  1,848
  1,946
  2,049
  2,157
  2,270
  2,389
  2,513
  2,643
Total equity, $m
  368
  368
  398
  430
  463
  498
  534
  571
  609
  650
  691
  735
  780
  827
  877
  928
  981
  1,037
  1,095
  1,156
  1,220
  1,286
  1,356
  1,428
  1,504
  1,584
  1,668
  1,755
  1,846
  1,942
  2,043
Total liabilities and equity, $m
  806
  844
  913
  987
  1,062
  1,142
  1,224
  1,309
  1,397
  1,490
  1,585
  1,686
  1,789
  1,897
  2,011
  2,128
  2,250
  2,378
  2,512
  2,651
  2,798
  2,950
  3,110
  3,276
  3,450
  3,633
  3,825
  4,025
  4,235
  4,455
  4,686
Debt-to-equity ratio
  0.622
  0.730
  0.770
  0.810
  0.840
  0.870
  0.900
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.040
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.140
  1.150
  1.150
  1.160
  1.170
  1.170
  1.180
  1.190
  1.190
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
  95
  117
  139
  162
  186
  212
  238
  266
  294
  324
  358
  391
  425
  461
  498
  537
  578
  621
  667
  714
  763
  816
  870
  928
  988
  1,052
  1,118
  1,188
  1,262
  1,340
Depreciation, amort., depletion, $m
  48
  51
  55
  59
  64
  68
  73
  78
  83
  88
  93
  95
  101
  107
  113
  120
  127
  134
  142
  150
  158
  166
  175
  185
  195
  205
  216
  227
  239
  251
  264
Funds from operations, $m
  80
  147
  172
  198
  226
  255
  285
  316
  348
  382
  417
  453
  492
  532
  574
  618
  664
  713
  763
  816
  872
  930
  991
  1,055
  1,122
  1,193
  1,267
  1,345
  1,427
  1,514
  1,604
Change in working capital, $m
  -46
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
Cash from operations, $m
  126
  134
  159
  185
  212
  240
  269
  300
  332
  365
  399
  435
  472
  512
  553
  596
  641
  689
  738
  790
  844
  901
  961
  1,024
  1,090
  1,159
  1,232
  1,308
  1,388
  1,472
  1,561
Maintenance CAPEX, $m
  0
  -44
  -48
  -52
  -56
  -60
  -64
  -69
  -74
  -79
  -84
  -89
  -95
  -101
  -107
  -113
  -120
  -127
  -134
  -142
  -150
  -158
  -166
  -175
  -185
  -195
  -205
  -216
  -227
  -239
  -251
New CAPEX, $m
  -78
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -64
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -104
  -109
  -114
Cash from investing activities, $m
  -78
  -77
  -83
  -88
  -94
  -99
  -105
  -111
  -118
  -125
  -132
  -139
  -147
  -155
  -163
  -171
  -181
  -191
  -200
  -211
  -222
  -234
  -245
  -258
  -272
  -286
  -300
  -316
  -331
  -348
  -365
Free cash flow, $m
  48
  57
  76
  97
  118
  141
  164
  188
  214
  240
  268
  296
  326
  357
  390
  424
  460
  498
  538
  579
  622
  668
  715
  766
  818
  873
  931
  992
  1,057
  1,124
  1,195
Issuance/(repayment) of debt, $m
  12
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  66
  69
  72
  75
  79
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
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
  38
  40
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  66
  69
  72
  75
  79
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
Total cash flow (excl. dividends), $m
  53
  95
  116
  138
  161
  185
  210
  236
  264
  292
  322
  352
  384
  418
  454
  491
  530
  570
  613
  658
  705
  754
  805
  860
  917
  976
  1,039
  1,106
  1,175
  1,248
  1,325
Retained Cash Flow (-), $m
  -10
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -66
  -70
  -73
  -76
  -80
  -83
  -87
  -92
  -96
  -101
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
 
  95
  85
  106
  128
  151
  174
  199
  225
  252
  280
  308
  339
  371
  404
  439
  476
  514
  555
  597
  641
  687
  736
  787
  841
  897
  956
  1,018
  1,083
  1,152
  1,224
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
 
  91
  78
  92
  105
  117
  127
  135
  141
  145
  147
  146
  145
  141
  136
  129
  121
  112
  102
  92
  81
  71
  61
  52
  43
  35
  28
  22
  17
  13
  9
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 19.1
Price to Sales 0.8
Price to Book 4
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow 30.6
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 8.7% 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 48.562 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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