Intrinsic value of Sleep Country Canada Holdings Inc. - ZZZ

Previous Close

$35.43

  Intrinsic Value

$56.49

stock screener

  Rating & Target

str. buy

+59%

  Value-price divergence*

0%

Previous close

$35.43

 
Intrinsic value

$56.49

 
Up/down potential

+59%

 
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 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 1.3

 

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
  10.80
  10.22
  9.70
  9.23
  8.81
  8.42
  8.08
  7.77
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.07
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
Revenue, $m
  524
  581
  640
  702
  767
  834
  905
  978
  1,054
  1,133
  1,215
  1,300
  1,389
  1,481
  1,577
  1,677
  1,780
  1,889
  2,001
  2,119
  2,241
  2,369
  2,503
  2,642
  2,788
  2,940
  3,099
  3,266
  3,440
  3,623
  3,814
Variable operating expenses, $m
 
  373
  409
  446
  485
  525
  568
  612
  657
  705
  754
  781
  834
  890
  947
  1,007
  1,070
  1,135
  1,202
  1,273
  1,347
  1,423
  1,504
  1,587
  1,675
  1,766
  1,862
  1,962
  2,067
  2,177
  2,291
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
  492
  531
  571
  613
  656
  703
  750
  798
  850
  902
  933
  990
  1,050
  1,111
  1,175
  1,242
  1,312
  1,383
  1,458
  1,537
  1,618
  1,704
  1,792
  1,885
  1,981
  2,082
  2,188
  2,299
  2,414
  2,534
Operating income, $m
  72
  89
  109
  131
  154
  178
  202
  228
  255
  283
  312
  367
  398
  431
  466
  501
  539
  577
  618
  660
  705
  751
  799
  850
  903
  959
  1,017
  1,078
  1,142
  1,209
  1,279
EBITDA, $m
  84
  118
  139
  161
  185
  209
  234
  261
  288
  317
  347
  378
  410
  444
  479
  516
  554
  594
  635
  679
  724
  771
  821
  873
  927
  984
  1,044
  1,106
  1,171
  1,240
  1,312
Interest expense (income), $m
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
Earnings before tax, $m
  67
  84
  104
  125
  147
  170
  194
  219
  245
  272
  300
  354
  384
  416
  449
  483
  519
  557
  596
  637
  680
  724
  771
  820
  871
  925
  981
  1,040
  1,102
  1,166
  1,234
Tax expense, $m
  17
  23
  28
  34
  40
  46
  52
  59
  66
  73
  81
  95
  104
  112
  121
  130
  140
  150
  161
  172
  183
  196
  208
  221
  235
  250
  265
  281
  297
  315
  333
Net income, $m
  50
  62
  76
  92
  108
  124
  142
  160
  179
  199
  219
  258
  280
  303
  328
  353
  379
  406
  435
  465
  496
  529
  563
  599
  636
  675
  716
  759
  804
  851
  901

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
  484
  534
  585
  640
  696
  754
  815
  879
  945
  1,013
  1,084
  1,158
  1,235
  1,315
  1,398
  1,485
  1,575
  1,669
  1,767
  1,869
  1,976
  2,087
  2,204
  2,325
  2,452
  2,585
  2,724
  2,869
  3,021
  3,181
Adjusted assets (=assets-cash), $m
  437
  484
  534
  585
  640
  696
  754
  815
  879
  945
  1,013
  1,084
  1,158
  1,235
  1,315
  1,398
  1,485
  1,575
  1,669
  1,767
  1,869
  1,976
  2,087
  2,204
  2,325
  2,452
  2,585
  2,724
  2,869
  3,021
  3,181
Revenue / Adjusted assets
  1.199
  1.200
  1.199
  1.200
  1.198
  1.198
  1.200
  1.200
  1.199
  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
  1.199
  1.199
  1.199
  1.199
Average production assets, $m
  136
  150
  166
  182
  199
  216
  234
  253
  273
  293
  315
  337
  360
  384
  408
  434
  461
  489
  518
  549
  580
  614
  648
  684
  722
  761
  803
  846
  891
  938
  988
Working capital, $m
  17
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
Total debt, $m
  119
  140
  163
  186
  210
  235
  262
  289
  318
  347
  378
  410
  443
  478
  513
  551
  590
  630
  672
  716
  762
  810
  860
  912
  967
  1,024
  1,084
  1,146
  1,211
  1,280
  1,351
Total liabilities, $m
  196
  217
  240
  263
  287
  312
  339
  366
  395
  424
  455
  487
  520
  555
  590
  628
  667
  707
  749
  793
  839
  887
  937
  989
  1,044
  1,101
  1,161
  1,223
  1,288
  1,357
  1,428
Total equity, $m
  265
  267
  294
  323
  352
  383
  416
  449
  484
  521
  558
  597
  638
  681
  725
  770
  818
  868
  920
  974
  1,030
  1,089
  1,150
  1,214
  1,281
  1,351
  1,424
  1,501
  1,581
  1,665
  1,753
Total liabilities and equity, $m
  461
  484
  534
  586
  639
  695
  755
  815
  879
  945
  1,013
  1,084
  1,158
  1,236
  1,315
  1,398
  1,485
  1,575
  1,669
  1,767
  1,869
  1,976
  2,087
  2,203
  2,325
  2,452
  2,585
  2,724
  2,869
  3,022
  3,181
Debt-to-equity ratio
  0.449
  0.530
  0.550
  0.580
  0.600
  0.610
  0.630
  0.640
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.710
  0.710
  0.720
  0.730
  0.730
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.760
  0.760
  0.760
  0.770
  0.770
  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
  62
  76
  92
  108
  124
  142
  160
  179
  199
  219
  258
  280
  303
  328
  353
  379
  406
  435
  465
  496
  529
  563
  599
  636
  675
  716
  759
  804
  851
  901
Depreciation, amort., depletion, $m
  12
  29
  30
  30
  31
  31
  32
  33
  33
  34
  35
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  31
  33
Funds from operations, $m
  41
  91
  106
  122
  138
  156
  174
  193
  212
  233
  254
  269
  292
  316
  341
  367
  394
  423
  452
  483
  515
  549
  584
  621
  660
  700
  743
  787
  834
  883
  934
Change in working capital, $m
  -13
  -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
  -2
  -2
Cash from operations, $m
  54
  92
  107
  123
  139
  157
  175
  193
  213
  234
  255
  270
  293
  317
  342
  369
  396
  424
  454
  485
  517
  551
  586
  623
  662
  702
  745
  789
  836
  885
  936
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
New CAPEX, $m
  -17
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
Cash from investing activities, $m
  -17
  -20
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -63
  -66
  -70
  -73
  -77
  -80
Free cash flow, $m
  37
  72
  86
  101
  116
  132
  149
  167
  185
  204
  224
  238
  259
  282
  305
  329
  354
  381
  408
  437
  467
  498
  531
  565
  601
  639
  678
  720
  763
  808
  856
Issuance/(repayment) of debt, $m
  -6
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  37
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  72
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
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  37
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  72
Total cash flow (excl. dividends), $m
  27
  94
  109
  124
  141
  158
  176
  194
  213
  234
  255
  270
  292
  316
  341
  366
  393
  421
  450
  481
  513
  546
  581
  618
  656
  696
  738
  782
  828
  876
  927
Retained Cash Flow (-), $m
  -31
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
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
  81
  96
  111
  127
  143
  161
  179
  197
  217
  231
  252
  274
  297
  321
  346
  372
  399
  427
  457
  487
  520
  554
  589
  626
  665
  705
  748
  793
  839
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
  74
  83
  91
  98
  104
  108
  112
  113
  114
  109
  107
  104
  100
  94
  88
  81
  73
  66
  58
  50
  43
  36
  30
  24
  19
  15
  12
  9
  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 26.7
Price to Sales 2.5
Price to Book 5
Price to Tangible Book
Price to Cash Flow 24.7
Price to Free Cash Flow 36.1
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 10.8% 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 37.623 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 $1.3 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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