Intrinsic value of Sleep Country Canada Holdings Inc. - ZZZ

Previous Close

$32.51

  Intrinsic Value

$52.78

stock screener

  Rating & Target

str. buy

+62%

Previous close

$32.51

 
Intrinsic value

$52.78

 
Up/down potential

+62%

 
Rating

str. buy

We calculate the intrinsic value of ZZZ 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 1.2

 

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, %
  14.91
  9.90
  9.41
  8.97
  8.57
  8.21
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
  5.35
  5.32
  5.28
  5.26
  5.23
Revenue, $m
  524
  576
  630
  687
  745
  807
  870
  937
  1,005
  1,077
  1,151
  1,228
  1,309
  1,392
  1,479
  1,570
  1,664
  1,762
  1,865
  1,972
  2,083
  2,200
  2,322
  2,449
  2,582
  2,721
  2,867
  3,019
  3,179
  3,346
  3,521
Variable operating expenses, $m
 
  370
  403
  437
  472
  509
  547
  587
  628
  671
  716
  738
  786
  836
  889
  943
  1,000
  1,059
  1,120
  1,185
  1,252
  1,322
  1,395
  1,471
  1,551
  1,635
  1,722
  1,814
  1,910
  2,010
  2,115
Fixed operating expenses, $m
 
  119
  122
  125
  128
  131
  135
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  177
  181
  185
  190
  195
  200
  205
  210
  215
  220
  226
  232
  237
  243
Total operating expenses, $m
  452
  489
  525
  562
  600
  640
  682
  725
  769
  816
  864
  890
  942
  996
  1,053
  1,111
  1,172
  1,236
  1,301
  1,370
  1,442
  1,517
  1,595
  1,676
  1,761
  1,850
  1,942
  2,040
  2,142
  2,247
  2,358
Operating income, $m
  72
  87
  105
  125
  145
  167
  189
  212
  236
  261
  287
  338
  366
  396
  427
  459
  492
  527
  563
  602
  642
  683
  727
  773
  821
  871
  924
  979
  1,037
  1,098
  1,162
EBITDA, $m
  84
  116
  135
  155
  176
  198
  220
  244
  269
  294
  321
  349
  378
  408
  439
  472
  506
  542
  580
  619
  660
  702
  747
  794
  843
  895
  949
  1,005
  1,065
  1,127
  1,193
Interest expense (income), $m
  4
  4
  5
  6
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
Earnings before tax, $m
  67
  83
  101
  119
  139
  159
  181
  203
  226
  250
  275
  326
  353
  381
  411
  442
  474
  508
  543
  580
  618
  659
  701
  745
  791
  840
  891
  944
  1,000
  1,059
  1,121
Tax expense, $m
  17
  22
  27
  32
  38
  43
  49
  55
  61
  68
  74
  88
  95
  103
  111
  119
  128
  137
  147
  157
  167
  178
  189
  201
  214
  227
  241
  255
  270
  286
  303
Net income, $m
  50
  60
  73
  87
  101
  116
  132
  148
  165
  183
  201
  238
  258
  278
  300
  323
  346
  371
  396
  423
  451
  481
  512
  544
  578
  613
  650
  689
  730
  773
  818

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  24
  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
  461
  480
  525
  573
  622
  673
  726
  781
  838
  898
  960
  1,024
  1,091
  1,161
  1,234
  1,309
  1,388
  1,470
  1,555
  1,644
  1,738
  1,835
  1,936
  2,042
  2,153
  2,270
  2,391
  2,518
  2,651
  2,791
  2,937
Adjusted assets (=assets-cash), $m
  437
  480
  525
  573
  622
  673
  726
  781
  838
  898
  960
  1,024
  1,091
  1,161
  1,234
  1,309
  1,388
  1,470
  1,555
  1,644
  1,738
  1,835
  1,936
  2,042
  2,153
  2,270
  2,391
  2,518
  2,651
  2,791
  2,937
Revenue / Adjusted assets
  1.199
  1.200
  1.200
  1.199
  1.198
  1.199
  1.198
  1.200
  1.199
  1.199
  1.199
  1.199
  1.200
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
  1.200
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
  1.199
Average production assets, $m
  136
  149
  163
  178
  193
  209
  225
  243
  260
  279
  298
  318
  339
  361
  383
  407
  431
  456
  483
  511
  540
  570
  601
  634
  669
  705
  743
  782
  823
  867
  912
Working capital, $m
  17
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -46
Total debt, $m
  119
  139
  159
  180
  202
  225
  249
  274
  299
  326
  354
  383
  413
  444
  477
  511
  546
  583
  621
  661
  703
  747
  792
  840
  890
  942
  997
  1,054
  1,113
  1,176
  1,242
Total liabilities, $m
  196
  216
  236
  257
  279
  302
  326
  351
  376
  403
  431
  460
  490
  521
  554
  588
  623
  660
  698
  738
  780
  824
  869
  917
  967
  1,019
  1,074
  1,131
  1,190
  1,253
  1,319
Total equity, $m
  265
  265
  290
  316
  343
  371
  400
  430
  462
  495
  529
  564
  601
  640
  680
  721
  765
  810
  857
  906
  957
  1,011
  1,067
  1,125
  1,187
  1,251
  1,317
  1,387
  1,461
  1,538
  1,618
Total liabilities and equity, $m
  461
  481
  526
  573
  622
  673
  726
  781
  838
  898
  960
  1,024
  1,091
  1,161
  1,234
  1,309
  1,388
  1,470
  1,555
  1,644
  1,737
  1,835
  1,936
  2,042
  2,154
  2,270
  2,391
  2,518
  2,651
  2,791
  2,937
Debt-to-equity ratio
  0.449
  0.520
  0.550
  0.570
  0.590
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.710
  0.710
  0.720
  0.730
  0.730
  0.730
  0.740
  0.740
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
  0.760
  0.770
Adjusted equity ratio
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551
  0.551

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  50
  60
  73
  87
  101
  116
  132
  148
  165
  183
  201
  238
  258
  278
  300
  323
  346
  371
  396
  423
  451
  481
  512
  544
  578
  613
  650
  689
  730
  773
  818
Depreciation, amort., depletion, $m
  12
  29
  30
  30
  31
  31
  32
  32
  33
  33
  34
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
Funds from operations, $m
  41
  89
  103
  117
  132
  148
  164
  181
  198
  216
  235
  248
  269
  290
  313
  336
  360
  386
  413
  440
  469
  500
  532
  565
  600
  637
  675
  715
  758
  802
  849
Change in working capital, $m
  -13
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  54
  90
  104
  118
  133
  148
  165
  181
  199
  217
  236
  249
  270
  291
  314
  337
  362
  387
  414
  442
  471
  501
  533
  567
  602
  639
  677
  717
  760
  804
  851
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
New CAPEX, $m
  -17
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -45
Cash from investing activities, $m
  -17
  -19
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -28
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
Free cash flow, $m
  37
  72
  85
  98
  112
  126
  141
  157
  173
  190
  208
  219
  239
  259
  279
  301
  324
  347
  372
  398
  425
  453
  483
  514
  546
  580
  616
  653
  692
  734
  777
Issuance/(repayment) of debt, $m
  -6
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
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  
  -10
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
Total cash flow (excl. dividends), $m
  27
  92
  105
  119
  134
  149
  165
  181
  199
  217
  235
  248
  269
  290
  312
  335
  359
  384
  410
  438
  467
  497
  528
  561
  596
  632
  670
  710
  752
  796
  842
Retained Cash Flow (-), $m
  -31
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
Prev. year cash balance distribution, $m
 
  24
  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
 
  92
  80
  93
  107
  121
  136
  151
  167
  184
  201
  213
  232
  251
  272
  293
  316
  339
  363
  389
  415
  443
  472
  503
  535
  568
  603
  640
  679
  719
  762
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
 
  88
  73
  81
  88
  94
  98
  102
  104
  106
  106
  101
  99
  96
  91
  86
  80
  74
  67
  60
  53
  46
  39
  33
  27
  22
  18
  14
  11
  8
  6
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

Sleep Country Canada Holdings Inc. is a Canada-based mattress retailer. The Company operates under two mattress retail banners: Dormez-vous?, the retailer of mattresses in Quebec, and Sleep Country Canada, the mattress retailer in the rest of Canada. The Company operates through Canada segment. The Dormez-vous? has over 50 stores with approximately two distribution centers in Montreal and Quebec City. The Sleep Country Canada has over 170 corporately owned stores and approximately 10 distribution centers in British Columbia, Alberta, Manitoba, Saskatchewan, Ontario, Nova Scotia and New Brunswick. The Company offer a range of mattresses and an assortment of complementary sleep related products and accessories, which include bed frames, pillows, mattress pads, sheets, duvets, headboards and footboards. Its subsidiaries include Sleep Country Canada Inc., Sleep Country Canada GP ULC and Sleep Country Canada LP.

FINANCIAL RATIOS  of  Sleep Country Canada Holdings Inc. (ZZZ)

Valuation Ratios
P/E Ratio 24.5
Price to Sales 2.3
Price to Book 4.6
Price to Tangible Book
Price to Cash Flow 22.7
Price to Free Cash Flow 33.1
Growth Rates
Sales Growth Rate 14.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 13.3%
Cap. Spend. - 3 Yr. Gr. Rate 4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 44.9%
Total Debt to Equity 44.9%
Interest Coverage 18
Management Effectiveness
Return On Assets 11.8%
Ret/ On Assets - 3 Yr. Avg. -0.9%
Return On Total Capital 13.5%
Ret/ On T. Cap. - 3 Yr. Avg. -3%
Return On Equity 20%
Return On Equity - 3 Yr. Avg. -15.9%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 28.8%
Gross Margin - 3 Yr. Avg. 27.6%
EBITDA Margin 15.8%
EBITDA Margin - 3 Yr. Avg. 1.3%
Operating Margin 13.7%
Oper. Margin - 3 Yr. Avg. 11.4%
Pre-Tax Margin 12.8%
Pre-Tax Margin - 3 Yr. Avg. -2.4%
Net Profit Margin 9.5%
Net Profit Margin - 3 Yr. Avg. -2.6%
Effective Tax Rate 25.4%
Eff/ Tax Rate - 3 Yr. Avg. 23.4%
Payout Ratio 40%

ZZZ stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ZZZ stock intrinsic value calculation we used $524 million for the last fiscal year's total revenue generated by Sleep Country Canada Holdings Inc.. The default revenue input number comes from 2016 income statement of Sleep Country Canada Holdings 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 ZZZ stock valuation model: a) initial revenue growth rate of 9.9% 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 ZZZ is calculated based on our internal credit rating of Sleep Country Canada Holdings 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 Sleep Country Canada Holdings 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 ZZZ stock the variable cost ratio is equal to 64.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $116 million in the base year in the intrinsic value calculation for ZZZ 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 Sleep Country Canada Holdings Inc..

Corporate tax rate of 27% is the nominal tax rate for Sleep Country Canada Holdings 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 ZZZ 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 ZZZ are equal to 25.9%.

Life of production assets of 31.5 years is the average useful life of capital assets used in Sleep Country Canada Holdings 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 ZZZ is equal to -1.3%. 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 - $265 million for Sleep Country Canada Holdings 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 37.552 million for Sleep Country Canada Holdings 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 Sleep Country Canada Holdings Inc. at the current share price and the inputted number of shares is $1.2 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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