Intrinsic value of The North West Company Inc. - NWC

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$32.20

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$32.20

 
Intrinsic value

$22.58

 
Up/down potential

-30%

 
Rating

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 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
  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
  1,844
  1,881
  1,924
  1,974
  2,029
  2,091
  2,158
  2,232
  2,311
  2,397
  2,489
  2,587
  2,692
  2,804
  2,923
  3,049
  3,183
  3,324
  3,474
  3,632
  3,799
  3,975
  4,160
  4,356
  4,562
  4,779
  5,008
  5,249
  5,502
  5,769
  6,049
Variable operating expenses, $m
 
  1,450
  1,483
  1,521
  1,564
  1,611
  1,663
  1,720
  1,781
  1,847
  1,918
  1,989
  2,070
  2,156
  2,248
  2,344
  2,447
  2,556
  2,671
  2,793
  2,921
  3,056
  3,199
  3,350
  3,508
  3,675
  3,851
  4,036
  4,231
  4,436
  4,651
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
  1,771
  1,812
  1,858
  1,909
  1,965
  2,026
  2,092
  2,162
  2,238
  2,319
  2,400
  2,491
  2,587
  2,690
  2,797
  2,912
  3,032
  3,159
  3,293
  3,434
  3,582
  3,738
  3,902
  4,074
  4,255
  4,446
  4,646
  4,856
  5,077
  5,308
Operating income, $m
  118
  110
  112
  115
  120
  125
  132
  140
  149
  159
  171
  187
  201
  216
  233
  251
  271
  292
  314
  339
  365
  393
  422
  454
  488
  524
  562
  603
  646
  692
  741
EBITDA, $m
  166
  155
  158
  162
  168
  175
  183
  193
  203
  216
  229
  244
  260
  278
  297
  318
  341
  365
  391
  419
  448
  480
  514
  550
  588
  629
  672
  718
  767
  819
  874
Interest expense (income), $m
  6
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  32
  34
  36
  38
  41
Earnings before tax, $m
  111
  102
  104
  106
  110
  116
  122
  129
  138
  147
  158
  174
  187
  201
  217
  234
  253
  273
  294
  317
  342
  368
  397
  427
  459
  493
  530
  569
  610
  654
  700
Tax expense, $m
  34
  28
  28
  29
  30
  31
  33
  35
  37
  40
  43
  47
  50
  54
  59
  63
  68
  74
  79
  86
  92
  99
  107
  115
  124
  133
  143
  154
  165
  177
  189
Net income, $m
  77
  74
  76
  78
  81
  84
  89
  94
  100
  107
  115
  127
  136
  147
  159
  171
  184
  199
  215
  232
  250
  269
  290
  312
  335
  360
  387
  415
  445
  477
  511

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
  792
  810
  831
  854
  880
  908
  939
  973
  1,009
  1,048
  1,089
  1,133
  1,180
  1,230
  1,283
  1,339
  1,399
  1,462
  1,528
  1,599
  1,673
  1,751
  1,833
  1,920
  2,012
  2,108
  2,209
  2,316
  2,428
  2,546
Adjusted assets (=assets-cash), $m
  776
  792
  810
  831
  854
  880
  908
  939
  973
  1,009
  1,048
  1,089
  1,133
  1,180
  1,230
  1,283
  1,339
  1,399
  1,462
  1,528
  1,599
  1,673
  1,751
  1,833
  1,920
  2,012
  2,108
  2,209
  2,316
  2,428
  2,546
Revenue / Adjusted assets
  2.376
  2.375
  2.375
  2.375
  2.376
  2.376
  2.377
  2.377
  2.375
  2.376
  2.375
  2.376
  2.376
  2.376
  2.376
  2.376
  2.377
  2.376
  2.376
  2.377
  2.376
  2.376
  2.376
  2.376
  2.376
  2.375
  2.376
  2.376
  2.376
  2.376
  2.376
Average production assets, $m
  207
  211
  216
  221
  227
  234
  242
  250
  259
  268
  279
  290
  302
  314
  327
  341
  356
  372
  389
  407
  425
  445
  466
  488
  511
  535
  561
  588
  616
  646
  677
Working capital, $m
  176
  149
  152
  156
  160
  165
  170
  176
  183
  189
  197
  204
  213
  222
  231
  241
  251
  263
  274
  287
  300
  314
  329
  344
  360
  378
  396
  415
  435
  456
  478
Total debt, $m
  229
  237
  248
  259
  273
  287
  303
  321
  340
  360
  382
  405
  430
  457
  485
  515
  546
  580
  616
  653
  693
  734
  779
  825
  874
  926
  980
  1,037
  1,097
  1,160
  1,227
Total liabilities, $m
  438
  446
  457
  468
  482
  496
  512
  530
  549
  569
  591
  614
  639
  666
  694
  724
  755
  789
  825
  862
  902
  943
  988
  1,034
  1,083
  1,135
  1,189
  1,246
  1,306
  1,369
  1,436
Total equity, $m
  368
  345
  353
  362
  372
  384
  396
  410
  424
  440
  457
  475
  494
  515
  536
  559
  584
  610
  637
  666
  697
  729
  763
  799
  837
  877
  919
  963
  1,010
  1,059
  1,110
Total liabilities and equity, $m
  806
  791
  810
  830
  854
  880
  908
  940
  973
  1,009
  1,048
  1,089
  1,133
  1,181
  1,230
  1,283
  1,339
  1,399
  1,462
  1,528
  1,599
  1,672
  1,751
  1,833
  1,920
  2,012
  2,108
  2,209
  2,316
  2,428
  2,546
Debt-to-equity ratio
  0.622
  0.690
  0.700
  0.720
  0.730
  0.750
  0.770
  0.780
  0.800
  0.820
  0.840
  0.850
  0.870
  0.890
  0.900
  0.920
  0.940
  0.950
  0.970
  0.980
  0.990
  1.010
  1.020
  1.030
  1.040
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
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
  74
  76
  78
  81
  84
  89
  94
  100
  107
  115
  127
  136
  147
  159
  171
  184
  199
  215
  232
  250
  269
  290
  312
  335
  360
  387
  415
  445
  477
  511
Depreciation, amort., depletion, $m
  48
  45
  46
  47
  48
  50
  51
  53
  55
  56
  58
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  96
  100
  105
  110
  115
  121
  127
  133
Funds from operations, $m
  80
  120
  122
  125
  129
  134
  140
  147
  155
  164
  174
  184
  196
  209
  223
  238
  254
  272
  291
  311
  333
  356
  381
  407
  435
  465
  497
  531
  566
  604
  644
Change in working capital, $m
  -46
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  126
  -55
  118
  121
  125
  129
  135
  141
  149
  157
  167
  176
  187
  200
  213
  228
  244
  261
  279
  299
  320
  342
  366
  392
  419
  448
  479
  512
  546
  583
  622
Maintenance CAPEX, $m
  0
  -41
  -41
  -42
  -43
  -45
  -46
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -76
  -80
  -83
  -87
  -91
  -96
  -100
  -105
  -110
  -115
  -121
  -127
New CAPEX, $m
  -78
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -78
  -45
  -46
  -48
  -49
  -52
  -54
  -55
  -58
  -61
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -108
  -113
  -119
  -124
  -131
  -137
  -143
  -151
  -158
Free cash flow, $m
  48
  -100
  72
  73
  75
  78
  81
  86
  91
  97
  104
  110
  119
  128
  138
  150
  162
  175
  189
  205
  221
  239
  258
  279
  300
  324
  348
  375
  403
  432
  464
Issuance/(repayment) of debt, $m
  12
  8
  10
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  52
  54
  57
  60
  63
  67
Issuance/(repurchase) of shares, $m
  0
  68
  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
  76
  10
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  46
  49
  52
  54
  57
  60
  63
  67
Total cash flow (excl. dividends), $m
  53
  -91
  82
  85
  88
  92
  97
  103
  110
  117
  125
  134
  144
  155
  167
  180
  194
  209
  225
  242
  261
  281
  302
  325
  349
  375
  403
  432
  463
  496
  531
Retained Cash Flow (-), $m
  -10
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
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
 
  0
  74
  76
  78
  81
  85
  90
  95
  101
  109
  116
  124
  134
  145
  156
  169
  183
  198
  213
  230
  249
  268
  289
  311
  335
  361
  388
  416
  447
  479
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
 
  0
  68
  66
  64
  63
  62
  61
  59
  58
  57
  55
  53
  51
  49
  46
  43
  40
  36
  33
  29
  26
  22
  19
  16
  13
  11
  8
  6
  5
  4
Current shareholders' claim on cash, %
  100
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4
  95.4

The North West Company Inc., through its subsidiaries, engages in the retail of food and everyday products and services to rural communities and urban neighborhood markets in Canada, Alaska, the South Pacific, and the Caribbean. The company’s Canadian operations comprise 122 Northern stores, which offer food, financial services, and general merchandise; 7 Northmart stores that provide fresh foods, fashion, and health products and services; 31 Giant Tiger junior discount stores, which offer family fashion, household products, and food; and 13 Quickstop convenience stores that provide ready-to-eat foods, petroleum products, and related services; 1 Solo Market store for rural market; 1 Valu Lots clearance center; and 1 Price Chopper store, which offers grocery items. Its international operations include 30 AC Value Centers that provide food and general merchandise to remote and rural regions; 13 Cost-U-Less mid-size warehouse stores offering discount food and general merchandise; 1 Island Fresh IGA store with deli, bakery, fresh meat, fresh produce, a coffee and espresso bar, an adult beverage department, and the U.S. and international food brands; and 3 Quickstop convenience stores providing ready-to-eat foods, petroleum products, and related services. In addition, the company distributes produce and fresh meat and Inuit art services; physician services; healthcare solutions; trades in wild furs, as well as offers Aboriginal handicrafts and authentic Canadian heritage products; and a range of financial services, such as credit, debit, pre-paid credit, and gift cards. The North West Company Inc. was founded in 1668 and is based in Winnipeg, Canada.

FINANCIAL RATIOS  of  The North West Company Inc. (NWC)

Valuation Ratios
P/E Ratio 20.3
Price to Sales 0.8
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 32.6
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 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 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 11.2%.

Life of production assets of 5.1 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 47.756 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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Stock chart of NWC 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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