Intrinsic value of Black Knight Financial Services - BKFS

Previous Close

$43.05

  Intrinsic Value

$21.68

stock screener

  Rating & Target

sell

-50%

  Value-price divergence*

-20%

Previous close

$43.05

 
Intrinsic value

$21.68

 
Up/down potential

-50%

 
Rating

sell

 
Value-price divergence*

-20%

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

We calculate the intrinsic value of BKFS 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 6.6

 

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, %
  10.20
  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
  4.87
Revenue, $m
  1,026
  1,050
  1,077
  1,107
  1,140
  1,177
  1,217
  1,261
  1,307
  1,358
  1,411
  1,469
  1,530
  1,594
  1,663
  1,736
  1,813
  1,895
  1,981
  2,072
  2,168
  2,269
  2,376
  2,489
  2,607
  2,732
  2,863
  3,001
  3,147
  3,300
  3,460
Variable operating expenses, $m
 
  570
  579
  588
  599
  611
  624
  638
  653
  670
  687
  475
  495
  516
  538
  562
  586
  613
  641
  670
  701
  734
  769
  805
  843
  884
  926
  971
  1,018
  1,067
  1,119
Fixed operating expenses, $m
 
  243
  249
  255
  262
  268
  275
  282
  289
  296
  303
  311
  319
  327
  335
  343
  352
  361
  370
  379
  388
  398
  408
  418
  429
  439
  450
  462
  473
  485
  497
Total operating expenses, $m
  793
  813
  828
  843
  861
  879
  899
  920
  942
  966
  990
  786
  814
  843
  873
  905
  938
  974
  1,011
  1,049
  1,089
  1,132
  1,177
  1,223
  1,272
  1,323
  1,376
  1,433
  1,491
  1,552
  1,616
Operating income, $m
  233
  237
  249
  263
  280
  298
  318
  341
  365
  392
  421
  683
  716
  752
  790
  831
  875
  921
  971
  1,023
  1,079
  1,137
  1,200
  1,266
  1,335
  1,409
  1,487
  1,569
  1,656
  1,747
  1,844
EBITDA, $m
  441
  529
  543
  559
  577
  598
  621
  646
  673
  703
  735
  770
  807
  846
  889
  934
  982
  1,034
  1,088
  1,146
  1,207
  1,272
  1,340
  1,413
  1,490
  1,571
  1,656
  1,747
  1,842
  1,943
  2,049
Interest expense (income), $m
  60
  56
  58
  61
  64
  67
  71
  75
  80
  84
  89
  95
  101
  107
  113
  120
  128
  136
  144
  153
  162
  172
  182
  193
  204
  216
  229
  243
  257
  271
  287
Earnings before tax, $m
  159
  181
  191
  202
  216
  231
  247
  266
  286
  308
  332
  588
  615
  645
  677
  711
  747
  786
  827
  870
  916
  965
  1,017
  1,073
  1,131
  1,192
  1,258
  1,326
  1,399
  1,476
  1,557
Tax expense, $m
  26
  49
  52
  55
  58
  62
  67
  72
  77
  83
  90
  159
  166
  174
  183
  192
  202
  212
  223
  235
  247
  261
  275
  290
  305
  322
  340
  358
  378
  399
  420
Net income, $m
  46
  132
  139
  148
  157
  168
  181
  194
  209
  225
  242
  429
  449
  471
  494
  519
  545
  573
  603
  635
  669
  705
  743
  783
  825
  870
  918
  968
  1,021
  1,077
  1,137

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  134
  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
  3,762
  3,709
  3,804
  3,911
  4,030
  4,160
  4,302
  4,455
  4,620
  4,797
  4,987
  5,189
  5,405
  5,634
  5,877
  6,135
  6,407
  6,696
  7,000
  7,322
  7,661
  8,019
  8,396
  8,794
  9,212
  9,653
  10,117
  10,605
  11,119
  11,659
  12,227
Adjusted assets (=assets-cash), $m
  3,628
  3,709
  3,804
  3,911
  4,030
  4,160
  4,302
  4,455
  4,620
  4,797
  4,987
  5,189
  5,405
  5,634
  5,877
  6,135
  6,407
  6,696
  7,000
  7,322
  7,661
  8,019
  8,396
  8,794
  9,212
  9,653
  10,117
  10,605
  11,119
  11,659
  12,227
Revenue / Adjusted assets
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
Average production assets, $m
  936
  957
  982
  1,009
  1,040
  1,074
  1,110
  1,150
  1,192
  1,238
  1,287
  1,339
  1,395
  1,454
  1,517
  1,583
  1,654
  1,728
  1,807
  1,890
  1,977
  2,070
  2,167
  2,270
  2,378
  2,491
  2,611
  2,737
  2,870
  3,009
  3,156
Working capital, $m
  112
  42
  43
  44
  46
  47
  49
  50
  52
  54
  56
  59
  61
  64
  67
  69
  73
  76
  79
  83
  87
  91
  95
  100
  104
  109
  115
  120
  126
  132
  138
Total debt, $m
  1,570
  1,569
  1,644
  1,727
  1,819
  1,920
  2,031
  2,150
  2,278
  2,416
  2,564
  2,721
  2,889
  3,067
  3,256
  3,457
  3,669
  3,893
  4,130
  4,380
  4,644
  4,923
  5,216
  5,526
  5,851
  6,194
  6,555
  6,935
  7,335
  7,755
  8,197
Total liabilities, $m
  2,886
  2,885
  2,960
  3,043
  3,135
  3,236
  3,347
  3,466
  3,594
  3,732
  3,880
  4,037
  4,205
  4,383
  4,572
  4,773
  4,985
  5,209
  5,446
  5,696
  5,960
  6,239
  6,532
  6,842
  7,167
  7,510
  7,871
  8,251
  8,651
  9,071
  9,513
Total equity, $m
  876
  823
  845
  868
  895
  923
  955
  989
  1,026
  1,065
  1,107
  1,152
  1,200
  1,251
  1,305
  1,362
  1,422
  1,486
  1,554
  1,625
  1,701
  1,780
  1,864
  1,952
  2,045
  2,143
  2,246
  2,354
  2,468
  2,588
  2,714
Total liabilities and equity, $m
  3,762
  3,708
  3,805
  3,911
  4,030
  4,159
  4,302
  4,455
  4,620
  4,797
  4,987
  5,189
  5,405
  5,634
  5,877
  6,135
  6,407
  6,695
  7,000
  7,321
  7,661
  8,019
  8,396
  8,794
  9,212
  9,653
  10,117
  10,605
  11,119
  11,659
  12,227
Debt-to-equity ratio
  1.792
  1.910
  1.950
  1.990
  2.030
  2.080
  2.130
  2.170
  2.220
  2.270
  2.320
  2.360
  2.410
  2.450
  2.500
  2.540
  2.580
  2.620
  2.660
  2.690
  2.730
  2.770
  2.800
  2.830
  2.860
  2.890
  2.920
  2.950
  2.970
  3.000
  3.020
Adjusted equity ratio
  0.205
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222
  0.222

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  46
  132
  139
  148
  157
  168
  181
  194
  209
  225
  242
  429
  449
  471
  494
  519
  545
  573
  603
  635
  669
  705
  743
  783
  825
  870
  918
  968
  1,021
  1,077
  1,137
Depreciation, amort., depletion, $m
  208
  293
  294
  296
  298
  300
  302
  305
  308
  311
  314
  87
  91
  94
  98
  103
  107
  112
  117
  123
  128
  134
  141
  147
  154
  162
  170
  178
  186
  195
  205
Funds from operations, $m
  292
  425
  434
  444
  455
  468
  483
  499
  517
  536
  556
  516
  540
  565
  593
  622
  653
  686
  721
  758
  797
  839
  883
  930
  980
  1,032
  1,088
  1,146
  1,208
  1,273
  1,342
Change in working capital, $m
  -34
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
Cash from operations, $m
  326
  424
  432
  443
  454
  467
  481
  497
  515
  534
  554
  514
  537
  563
  590
  619
  650
  682
  717
  754
  794
  835
  879
  926
  975
  1,027
  1,082
  1,140
  1,202
  1,267
  1,335
Maintenance CAPEX, $m
  0
  -61
  -62
  -64
  -66
  -68
  -70
  -72
  -75
  -77
  -80
  -84
  -87
  -91
  -94
  -98
  -103
  -107
  -112
  -117
  -123
  -128
  -134
  -141
  -147
  -154
  -162
  -170
  -178
  -186
  -195
New CAPEX, $m
  -80
  -21
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -52
  -56
  -59
  -63
  -66
  -70
  -74
  -79
  -83
  -88
  -92
  -97
  -103
  -108
  -114
  -120
  -126
  -133
  -139
  -147
Cash from investing activities, $m
  -230
  -82
  -87
  -92
  -97
  -102
  -107
  -112
  -118
  -123
  -129
  -136
  -143
  -150
  -157
  -164
  -173
  -181
  -191
  -200
  -211
  -220
  -231
  -244
  -255
  -268
  -282
  -296
  -311
  -325
  -342
Free cash flow, $m
  96
  342
  346
  351
  358
  366
  375
  386
  397
  410
  425
  378
  395
  413
  433
  454
  476
  501
  526
  554
  583
  614
  647
  683
  720
  759
  801
  845
  892
  941
  993
Issuance/(repayment) of debt, $m
  -5
  62
  74
  83
  92
  101
  110
  119
  129
  138
  148
  157
  168
  178
  189
  200
  212
  224
  237
  250
  264
  278
  294
  309
  326
  343
  361
  380
  400
  420
  442
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  
  -99
  62
  74
  83
  92
  101
  110
  119
  129
  138
  148
  157
  168
  178
  189
  200
  212
  224
  237
  250
  264
  278
  294
  309
  326
  343
  361
  380
  400
  420
  442
Total cash flow (excl. dividends), $m
  -3
  404
  420
  434
  450
  467
  485
  505
  526
  548
  572
  535
  562
  591
  622
  654
  689
  725
  763
  804
  847
  893
  941
  992
  1,045
  1,102
  1,162
  1,225
  1,291
  1,361
  1,435
Retained Cash Flow (-), $m
  -57
  -18
  -21
  -24
  -26
  -29
  -31
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -54
  -57
  -61
  -64
  -68
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
Prev. year cash balance distribution, $m
 
  71
  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
 
  457
  399
  411
  424
  438
  454
  471
  489
  509
  530
  490
  515
  540
  568
  597
  628
  661
  696
  733
  772
  813
  857
  904
  952
  1,004
  1,059
  1,116
  1,177
  1,241
  1,309
Discount rate, %
 
  8.30
  8.72
  9.15
  9.61
  10.09
  10.59
  11.12
  11.68
  12.26
  12.88
  13.52
  14.20
  14.91
  15.65
  16.43
  17.26
  18.12
  19.02
  19.97
  20.97
  22.02
  23.12
  24.28
  25.49
  26.77
  28.11
  29.51
  30.99
  32.54
  34.16
PV of cash for distribution, $m
 
  422
  337
  316
  294
  271
  248
  225
  202
  180
  158
  122
  105
  89
  74
  61
  49
  39
  30
  23
  17
  12
  9
  6
  4
  3
  2
  1
  1
  0
  0
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

Black Knight Financial Services, Inc. is a holding company. The Company, through its subsidiaries, provides integrated technology, workflow automation, and data and analytics to the mortgage and real estate industries. The Company's segments include Technology, and Data and Analytics. The Company's Technology segment offers software and hosting solutions that support loan servicing, loan origination and settlement services. The Technology segment provides applications and services, such as servicing technology and origination technology. Its Data and Analytics segment offers data and analytics solutions to the mortgage, real estate and capital markets industries. These solutions include property ownership data, lien data, servicing data, automated valuation models, collateral risk scores, prepayment and default models, lead generation and other data solutions.

FINANCIAL RATIOS  of  Black Knight Financial Services (BKFS)

Valuation Ratios
P/E Ratio 144
Price to Sales 6.5
Price to Book 7.6
Price to Tangible Book
Price to Cash Flow 20.3
Price to Free Cash Flow 26.9
Growth Rates
Sales Growth Rate 10.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.7%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 172%
Total Debt to Equity 179.2%
Interest Coverage 4
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 1.9%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 5.4%
Return On Equity - 3 Yr. Avg. 2.4%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 41.6%
EBITDA Margin - 3 Yr. Avg. 35.6%
Operating Margin 22.7%
Oper. Margin - 3 Yr. Avg. 15.5%
Pre-Tax Margin 15.5%
Pre-Tax Margin - 3 Yr. Avg. 4.2%
Net Profit Margin 4.5%
Net Profit Margin - 3 Yr. Avg. 2.2%
Effective Tax Rate 16.4%
Eff/ Tax Rate - 3 Yr. Avg. 12.1%
Payout Ratio 106.5%

BKFS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BKFS stock intrinsic value calculation we used $1026 million for the last fiscal year's total revenue generated by Black Knight Financial Services. The default revenue input number comes from 2016 income statement of Black Knight Financial Services. 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 BKFS stock valuation model: a) initial revenue growth rate of 2.3% 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 8.3%, whose default value for BKFS is calculated based on our internal credit rating of Black Knight Financial Services, 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 Black Knight Financial Services.
    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 BKFS stock the variable cost ratio is equal to 54.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $237 million in the base year in the intrinsic value calculation for BKFS 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 3.7% for Black Knight Financial Services.

Corporate tax rate of 27% is the nominal tax rate for Black Knight Financial Services. 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 BKFS 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 BKFS are equal to 91.2%.

Life of production assets of 15.4 years is the average useful life of capital assets used in Black Knight Financial Services 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 BKFS is equal to 4%. 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 - $876 million for Black Knight Financial Services - 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 152.2 million for Black Knight Financial Services 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 Black Knight Financial Services at the current share price and the inputted number of shares is $6.6 billion.

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Financial statements of BKFS
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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