Intrinsic value of Artisan Partners Asset Management - APAM

Previous Close

$34.80

  Intrinsic Value

$35.57

stock screener

  Rating & Target

hold

+2%

  Value-price divergence*

-30%

Previous close

$34.80

 
Intrinsic value

$35.57

 
Up/down potential

+2%

 
Rating

hold

 
Value-price divergence*

-30%

Our model is not good at valuating stocks of financial companies, such as APAM.

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of APAM 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 2.7

 

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, %
  -10.43
  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
  721
  735
  752
  772
  793
  817
  844
  873
  904
  937
  973
  1,012
  1,053
  1,096
  1,143
  1,192
  1,244
  1,300
  1,358
  1,420
  1,485
  1,554
  1,627
  1,703
  1,784
  1,869
  1,958
  2,052
  2,151
  2,255
  2,365
Variable operating expenses, $m
 
  315
  323
  331
  340
  351
  362
  374
  388
  402
  417
  434
  452
  470
  490
  511
  534
  558
  583
  609
  637
  667
  698
  731
  765
  802
  840
  880
  923
  968
  1,015
Fixed operating expenses, $m
 
  187
  191
  196
  201
  206
  211
  216
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
  284
  291
  298
  306
  313
  321
  329
  337
  346
  354
  363
  372
  382
Total operating expenses, $m
  487
  502
  514
  527
  541
  557
  573
  590
  610
  629
  650
  673
  697
  721
  747
  775
  804
  835
  867
  900
  935
  973
  1,011
  1,052
  1,094
  1,139
  1,186
  1,234
  1,286
  1,340
  1,397
Operating income, $m
  234
  233
  238
  245
  252
  261
  271
  282
  294
  308
  323
  339
  356
  375
  395
  417
  440
  465
  492
  520
  550
  582
  616
  651
  689
  730
  772
  817
  865
  915
  969
EBITDA, $m
  239
  237
  242
  249
  256
  265
  275
  286
  299
  313
  328
  344
  362
  381
  401
  423
  447
  472
  499
  527
  558
  590
  624
  660
  699
  739
  782
  828
  876
  927
  981
Interest expense (income), $m
  11
  11
  6
  7
  8
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  28
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  67
  71
  76
  82
  87
Earnings before tax, $m
  224
  222
  232
  238
  244
  252
  260
  270
  281
  293
  306
  320
  336
  352
  370
  389
  410
  432
  455
  481
  507
  536
  566
  598
  632
  668
  706
  746
  789
  834
  881
Tax expense, $m
  51
  60
  63
  64
  66
  68
  70
  73
  76
  79
  83
  86
  91
  95
  100
  105
  111
  117
  123
  130
  137
  145
  153
  161
  171
  180
  191
  201
  213
  225
  238
Net income, $m
  73
  162
  170
  174
  178
  184
  190
  197
  205
  214
  223
  234
  245
  257
  270
  284
  299
  315
  332
  351
  370
  391
  413
  436
  461
  487
  515
  545
  576
  609
  643

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  157
  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
  936
  794
  812
  833
  857
  883
  911
  942
  976
  1,012
  1,051
  1,092
  1,137
  1,184
  1,234
  1,287
  1,344
  1,404
  1,467
  1,533
  1,604
  1,678
  1,757
  1,839
  1,926
  2,018
  2,115
  2,216
  2,323
  2,436
  2,554
Adjusted assets (=assets-cash), $m
  779
  794
  812
  833
  857
  883
  911
  942
  976
  1,012
  1,051
  1,092
  1,137
  1,184
  1,234
  1,287
  1,344
  1,404
  1,467
  1,533
  1,604
  1,678
  1,757
  1,839
  1,926
  2,018
  2,115
  2,216
  2,323
  2,436
  2,554
Revenue / Adjusted assets
  0.926
  0.926
  0.926
  0.927
  0.925
  0.925
  0.926
  0.927
  0.926
  0.926
  0.926
  0.927
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
  0.926
Average production assets, $m
  19
  19
  20
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
Working capital, $m
  0
  -160
  -164
  -168
  -173
  -178
  -184
  -190
  -197
  -204
  -212
  -221
  -229
  -239
  -249
  -260
  -271
  -283
  -296
  -310
  -324
  -339
  -355
  -371
  -389
  -407
  -427
  -447
  -469
  -492
  -516
Total debt, $m
  199
  110
  126
  145
  166
  189
  215
  243
  273
  306
  341
  378
  418
  461
  506
  554
  604
  658
  715
  775
  839
  905
  976
  1,050
  1,129
  1,211
  1,298
  1,390
  1,486
  1,587
  1,694
Total liabilities, $m
  804
  715
  731
  750
  771
  794
  820
  848
  878
  911
  946
  983
  1,023
  1,066
  1,111
  1,159
  1,209
  1,263
  1,320
  1,380
  1,444
  1,510
  1,581
  1,655
  1,734
  1,816
  1,903
  1,995
  2,091
  2,192
  2,299
Total equity, $m
  132
  79
  81
  83
  86
  88
  91
  94
  98
  101
  105
  109
  114
  118
  123
  129
  134
  140
  147
  153
  160
  168
  176
  184
  193
  202
  211
  222
  232
  244
  255
Total liabilities and equity, $m
  936
  794
  812
  833
  857
  882
  911
  942
  976
  1,012
  1,051
  1,092
  1,137
  1,184
  1,234
  1,288
  1,343
  1,403
  1,467
  1,533
  1,604
  1,678
  1,757
  1,839
  1,927
  2,018
  2,114
  2,217
  2,323
  2,436
  2,554
Debt-to-equity ratio
  1.508
  1.380
  1.550
  1.740
  1.940
  2.150
  2.360
  2.580
  2.800
  3.020
  3.240
  3.460
  3.680
  3.890
  4.100
  4.300
  4.500
  4.690
  4.880
  5.050
  5.230
  5.400
  5.560
  5.710
  5.860
  6.000
  6.140
  6.270
  6.400
  6.520
  6.630
Adjusted equity ratio
  -0.032
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  73
  162
  170
  174
  178
  184
  190
  197
  205
  214
  223
  234
  245
  257
  270
  284
  299
  315
  332
  351
  370
  391
  413
  436
  461
  487
  515
  545
  576
  609
  643
Depreciation, amort., depletion, $m
  5
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Funds from operations, $m
  257
  166
  174
  178
  182
  188
  194
  202
  210
  219
  228
  239
  250
  263
  276
  290
  306
  322
  340
  358
  378
  399
  421
  445
  470
  497
  525
  555
  587
  620
  656
Change in working capital, $m
  -13
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -21
  -22
  -23
  -24
Cash from operations, $m
  270
  169
  177
  182
  187
  193
  200
  208
  217
  226
  236
  247
  259
  272
  286
  301
  317
  334
  352
  372
  392
  414
  437
  462
  488
  516
  545
  576
  608
  643
  680
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
New CAPEX, $m
  -7
  0
  0
  -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
  -3
  -3
  -3
Cash from investing activities, $m
  -2
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -14
  -14
  -15
Free cash flow, $m
  268
  165
  173
  177
  183
  188
  195
  203
  211
  220
  230
  241
  253
  266
  279
  294
  310
  326
  344
  363
  383
  405
  427
  451
  477
  504
  533
  563
  595
  629
  665
Issuance/(repayment) of debt, $m
  -28
  -89
  16
  19
  21
  23
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  71
  74
  78
  83
  87
  91
  96
  101
  107
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  
  -163
  -89
  16
  19
  21
  23
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  71
  74
  78
  83
  87
  91
  96
  101
  107
Total cash flow (excl. dividends), $m
  106
  76
  189
  196
  204
  212
  221
  231
  241
  253
  265
  279
  293
  308
  324
  342
  360
  380
  401
  423
  447
  471
  498
  526
  555
  587
  620
  655
  691
  730
  772
Retained Cash Flow (-), $m
  -2
  -104
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Prev. year cash balance distribution, $m
 
  157
  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
 
  129
  188
  194
  201
  209
  218
  228
  238
  249
  261
  274
  288
  303
  319
  337
  355
  374
  395
  416
  439
  464
  490
  518
  547
  577
  610
  644
  681
  719
  760
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
 
  123
  172
  169
  166
  162
  158
  154
  149
  143
  137
  130
  123
  115
  107
  99
  90
  81
  73
  64
  56
  48
  41
  34
  28
  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

Artisan Partners Asset Management Inc. is an investment management company. The Company provides a range of the United States, non-United States and global investment strategies, each of which is managed by one of its investment teams. The Company provides investment management services to separate accounts, mutual funds and other pooled investment vehicles. The Company offers its investment management services primarily to institutions and through intermediaries that operate with institutional-like decision-making processes and have long-term investment horizons. The Company provides clients with multiple equity investment strategies spanning market capitalization segments and investing styles in both the United States and non-United States markets. The Company also offers one fixed income strategy, the Artisan High Income strategy. Each strategy is managed by one of the investment teams.

FINANCIAL RATIOS  of  Artisan Partners Asset Management (APAM)

Valuation Ratios
P/E Ratio 35.4
Price to Sales 3.6
Price to Book 19.6
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow 9.8
Growth Rates
Sales Growth Rate -10.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 18.5%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 150.8%
Total Debt to Equity 150.8%
Interest Coverage 21
Management Effectiveness
Return On Assets 8.7%
Ret/ On Assets - 3 Yr. Avg. 10%
Return On Total Capital 22.1%
Ret/ On T. Cap. - 3 Yr. Avg. 24.3%
Return On Equity 55.7%
Return On Equity - 3 Yr. Avg. 71.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 33.3%
EBITDA Margin - 3 Yr. Avg. 34.6%
Operating Margin 32.5%
Oper. Margin - 3 Yr. Avg. 34.8%
Pre-Tax Margin 31.1%
Pre-Tax Margin - 3 Yr. Avg. 32.7%
Net Profit Margin 10.1%
Net Profit Margin - 3 Yr. Avg. 9.6%
Effective Tax Rate 22.8%
Eff/ Tax Rate - 3 Yr. Avg. 19.3%
Payout Ratio 157.5%

APAM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the APAM stock intrinsic value calculation we used $721 million for the last fiscal year's total revenue generated by Artisan Partners Asset Management. The default revenue input number comes from 2016 income statement of Artisan Partners Asset Management. 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 APAM 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 APAM is calculated based on our internal credit rating of Artisan Partners Asset Management, 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 Artisan Partners Asset Management.
    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 APAM stock the variable cost ratio is equal to 42.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $182 million in the base year in the intrinsic value calculation for APAM 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 5.5% for Artisan Partners Asset Management.

Corporate tax rate of 27% is the nominal tax rate for Artisan Partners Asset Management. 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 APAM 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 APAM are equal to 2.6%.

Life of production assets of 3.8 years is the average useful life of capital assets used in Artisan Partners Asset Management 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 APAM is equal to -21.8%. 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 - $132 million for Artisan Partners Asset Management - 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 76.254 million for Artisan Partners Asset Management 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 Artisan Partners Asset Management at the current share price and the inputted number of shares is $2.7 billion.

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COMPANY NEWS

▶ Stocks With Rising Relative Strength: Artisan Partners Asset Management   [Sep-26-17 03:00AM  Investor's Business Daily]
▶ Artisan Partners misses 2Q profit forecasts   [Jul-31-17 09:49PM  Associated Press]
▶ Fed Hikes Rate, Sets Asset Plan: 5 Top Gainers   [Jun-15-17 08:29AM  Zacks]
▶ DOL Fiduciary Rule Arrives June 9Will It Survive?   [May-23-17 12:54PM  Barrons.com]
▶ Artisan Partners beats 1Q profit forecasts   [Apr-27-17 06:58PM  Associated Press]
▶ Southeast Wisconsin stocks that could extend bull-market runs   [Apr-07-17 03:35PM  American City Business Journals]
▶ Active Managers Feel the Urge to Merge   [Feb-24-17 04:20PM  Barrons.com]
▶ Active Managers Feel the Urge to Merge   [04:20PM  at Barrons.com]
▶ Hedge Funds Are Betting On INC Research Holdings Inc (INCR)   [Nov-26-16 06:30AM  at Insider Monkey]
Financial statements of APAM
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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