Intrinsic value of Bassett Furniture Industries - BSET

Previous Close

$36.05

  Intrinsic Value

$34.37

stock screener

  Rating & Target

hold

-5%

Previous close

$36.05

 
Intrinsic value

$34.37

 
Up/down potential

-5%

 
Rating

hold

We calculate the intrinsic value of BSET 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 0.4

 

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, %
  0.23
  8.60
  8.24
  7.92
  7.62
  7.36
  7.13
  6.91
  6.72
  6.55
  6.39
  6.26
  6.13
  6.02
  5.92
  5.82
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.39
  5.35
  5.32
  5.29
  5.26
  5.23
  5.21
  5.19
  5.17
Revenue, $m
  432
  469
  508
  548
  590
  633
  678
  725
  774
  825
  877
  932
  989
  1,049
  1,111
  1,176
  1,243
  1,314
  1,387
  1,464
  1,544
  1,628
  1,716
  1,808
  1,904
  2,005
  2,110
  2,221
  2,337
  2,458
  2,585
Variable operating expenses, $m
 
  433
  469
  506
  545
  585
  626
  669
  714
  761
  809
  859
  911
  966
  1,023
  1,083
  1,145
  1,210
  1,278
  1,349
  1,423
  1,500
  1,581
  1,666
  1,754
  1,847
  1,944
  2,046
  2,152
  2,264
  2,381
Fixed operating expenses, $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
Total operating expenses, $m
  404
  433
  469
  506
  545
  585
  626
  669
  714
  761
  809
  859
  911
  966
  1,023
  1,083
  1,145
  1,210
  1,278
  1,349
  1,423
  1,500
  1,581
  1,666
  1,754
  1,847
  1,944
  2,046
  2,152
  2,264
  2,381
Operating income, $m
  28
  36
  39
  42
  45
  49
  52
  56
  60
  64
  68
  73
  78
  83
  88
  93
  98
  103
  109
  115
  122
  128
  135
  142
  150
  158
  166
  175
  184
  194
  204
EBITDA, $m
  40
  49
  53
  57
  61
  66
  70
  75
  80
  86
  91
  97
  103
  109
  115
  122
  129
  136
  144
  152
  160
  169
  178
  188
  198
  208
  219
  230
  242
  255
  268
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
Earnings before tax, $m
  26
  36
  38
  41
  44
  47
  51
  54
  57
  61
  65
  70
  74
  78
  83
  87
  92
  97
  102
  108
  114
  120
  126
  133
  139
  147
  154
  162
  170
  179
  188
Tax expense, $m
  10
  10
  10
  11
  12
  13
  14
  15
  15
  16
  17
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
Net income, $m
  16
  26
  28
  30
  32
  35
  37
  39
  42
  45
  47
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  87
  92
  97
  102
  107
  113
  118
  124
  131
  137

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  58
  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
  278
  239
  259
  279
  300
  322
  345
  369
  394
  420
  447
  475
  504
  534
  566
  599
  633
  669
  706
  745
  786
  829
  874
  921
  970
  1,021
  1,075
  1,131
  1,190
  1,251
  1,316
Adjusted assets (=assets-cash), $m
  220
  239
  259
  279
  300
  322
  345
  369
  394
  420
  447
  475
  504
  534
  566
  599
  633
  669
  706
  745
  786
  829
  874
  921
  970
  1,021
  1,075
  1,131
  1,190
  1,251
  1,316
Revenue / Adjusted assets
  1.964
  1.962
  1.961
  1.964
  1.967
  1.966
  1.965
  1.965
  1.964
  1.964
  1.962
  1.962
  1.962
  1.964
  1.963
  1.963
  1.964
  1.964
  1.965
  1.965
  1.964
  1.964
  1.963
  1.963
  1.963
  1.964
  1.963
  1.964
  1.964
  1.965
  1.964
Average production assets, $m
  107
  116
  125
  135
  146
  156
  168
  179
  191
  204
  217
  230
  244
  259
  274
  290
  307
  324
  343
  362
  381
  402
  424
  447
  470
  495
  521
  549
  577
  607
  638
Working capital, $m
  64
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
Total debt, $m
  7
  12
  20
  29
  38
  48
  57
  68
  78
  89
  101
  113
  125
  138
  152
  166
  180
  196
  212
  228
  246
  264
  283
  303
  324
  346
  369
  393
  418
  444
  472
Total liabilities, $m
  98
  102
  110
  119
  128
  138
  147
  158
  168
  179
  191
  203
  215
  228
  242
  256
  270
  286
  302
  318
  336
  354
  373
  393
  414
  436
  459
  483
  508
  534
  562
Total equity, $m
  181
  137
  148
  160
  172
  185
  198
  212
  226
  241
  256
  272
  289
  306
  324
  343
  363
  383
  405
  427
  451
  475
  501
  528
  556
  585
  616
  648
  682
  717
  754
Total liabilities and equity, $m
  279
  239
  258
  279
  300
  323
  345
  370
  394
  420
  447
  475
  504
  534
  566
  599
  633
  669
  707
  745
  787
  829
  874
  921
  970
  1,021
  1,075
  1,131
  1,190
  1,251
  1,316
Debt-to-equity ratio
  0.039
  0.090
  0.140
  0.180
  0.220
  0.260
  0.290
  0.320
  0.350
  0.370
  0.390
  0.410
  0.430
  0.450
  0.470
  0.480
  0.500
  0.510
  0.520
  0.530
  0.550
  0.560
  0.570
  0.570
  0.580
  0.590
  0.600
  0.610
  0.610
  0.620
  0.630
Adjusted equity ratio
  0.559
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573
  0.573

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  26
  28
  30
  32
  35
  37
  39
  42
  45
  47
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  87
  92
  97
  102
  107
  113
  118
  124
  131
  137
Depreciation, amort., depletion, $m
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  23
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
Funds from operations, $m
  43
  39
  42
  45
  48
  52
  55
  59
  62
  66
  70
  74
  79
  83
  88
  93
  98
  104
  109
  115
  122
  128
  135
  142
  149
  157
  165
  174
  183
  192
  202
Change in working capital, $m
  4
  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
  3
  3
Cash from operations, $m
  39
  38
  41
  44
  47
  51
  54
  58
  61
  65
  69
  73
  78
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
  180
  189
  199
Maintenance CAPEX, $m
  0
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
New CAPEX, $m
  -22
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
Cash from investing activities, $m
  -21
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -37
  -40
  -41
  -44
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -88
  -92
Free cash flow, $m
  18
  18
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  71
  74
  78
  83
  87
  91
  96
  101
  106
Issuance/(repayment) of debt, $m
  -7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Issuance/(repurchase) of shares, $m
  -6
  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  
  -13
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Total cash flow (excl. dividends), $m
  5
  26
  28
  30
  32
  35
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
  115
  121
  128
  134
Retained Cash Flow (-), $m
  -4
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
Prev. year cash balance distribution, $m
 
  55
  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
 
  70
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  51
  54
  57
  61
  64
  68
  71
  75
  79
  83
  88
  92
  97
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
 
  67
  16
  16
  17
  17
  17
  17
  17
  17
  17
  16
  15
  15
  14
  13
  12
  11
  9
  8
  7
  6
  5
  4
  4
  3
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
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Bassett Furniture Industries, Incorporated is a manufacturer, importer and retailer of home furnishings. The Company's segments include Wholesale, Retail - Company-owned stores and Logistical services. Its wholesale home furnishings segment is involved in the design, manufacture, sourcing, sale and distribution of furniture products to a network of Bassett stores (licensee-owned stores and Company-owned stores) and independent furniture retailers. Its retail segment consists of Company-owned stores. It operates its logistical services segment through its subsidiary, Zenith Freight Lines, LLC, which provides shipping, delivery and warehousing services. Its portfolio of products includes Canopy Bed, Nightstands, Baby Bedding, Bedside Tables, Chaise Lounge, Writing Desks, Kitchen Furniture, Computer Hutch, Game Tables and Fabric Ottomans. Its range of furniture products and accessories are sold through a nation-wide network of over 90 retail stores known as Bassett Home Furnishings.

FINANCIAL RATIOS  of  Bassett Furniture Industries (BSET)

Valuation Ratios
P/E Ratio 24.2
Price to Sales 0.9
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 9.9
Price to Free Cash Flow 22.7
Growth Rates
Sales Growth Rate 0.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 57.1%
Cap. Spend. - 3 Yr. Gr. Rate 9.5%
Financial Strength
Quick Ratio 19
Current Ratio 0.1
LT Debt to Equity 2.2%
Total Debt to Equity 3.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 5.7%
Return On Total Capital 8.4%
Ret/ On T. Cap. - 3 Yr. Avg. 8.5%
Return On Equity 8.9%
Return On Equity - 3 Yr. Avg. 8.9%
Asset Turnover 1.5
Profitability Ratios
Gross Margin 61.3%
Gross Margin - 3 Yr. Avg. 57.7%
EBITDA Margin 8.8%
EBITDA Margin - 3 Yr. Avg. 8.3%
Operating Margin 6.5%
Oper. Margin - 3 Yr. Avg. 6.2%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 5.9%
Net Profit Margin 3.7%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate 38.5%
Eff/ Tax Rate - 3 Yr. Avg. 38.7%
Payout Ratio 37.5%

BSET stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BSET stock intrinsic value calculation we used $432 million for the last fiscal year's total revenue generated by Bassett Furniture Industries. The default revenue input number comes from 2016 income statement of Bassett Furniture Industries. 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 BSET stock valuation model: a) initial revenue growth rate of 8.6% 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 BSET is calculated based on our internal credit rating of Bassett Furniture Industries, 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 Bassett Furniture Industries.
    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 BSET stock the variable cost ratio is equal to 92.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BSET 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 Bassett Furniture Industries.

Corporate tax rate of 27% is the nominal tax rate for Bassett Furniture Industries. 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 BSET 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 BSET are equal to 24.7%.

Life of production assets of 9.9 years is the average useful life of capital assets used in Bassett Furniture Industries 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 BSET is equal to 2.1%. 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 - $181 million for Bassett Furniture Industries - 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 10.735 million for Bassett Furniture Industries 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 Bassett Furniture Industries at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Bassett Declares Special Dividend   [08:55AM  GlobeNewswire]
▶ Bassett Declares Quarterly Dividend   [Oct-05-17 02:34PM  GlobeNewswire]
▶ Bassett Furniture Donates Cribs for Hurricane Victims   [Oct-04-17 04:54PM  GlobeNewswire]
▶ Bassett posts 3Q profit   [Sep-28-17 09:41PM  Associated Press]
▶ Bassett Increases Quarterly Dividend   [Jul-13-17 04:18PM  GlobeNewswire]
▶ Bassett posts 2Q profit   [Jun-29-17 07:12PM  Associated Press]
▶ Bassett posts 1Q profit   [09:12AM  Associated Press]
▶ Bassett Declares Quarterly Dividend   [09:00AM  GlobeNewswire]
▶ 8 High-Yield Stocks With Falling Prices   [Feb-21-17 05:51PM  GuruFocus.com]
▶ New Strong Sell Stocks for February 6th   [Feb-06-17 10:12AM  Zacks]
▶ Bassett Declares Quarterly Dividend   [04:24PM  GlobeNewswire]
▶ Bassett Announces Special Dividend   [09:00AM  GlobeNewswire]
▶ Bassett Declares Quarterly Dividend   [09:53AM  GlobeNewswire]
▶ Heres Why These Five Stocks Are in the Spotlight Today   [Sep-29-16 12:46PM  at Insider Monkey]
▶ Top 5 Furniture Stocks of 2016   [Aug-15-16 02:35PM  at Investopedia]
▶ [$$] Bassett Furniture Report Ends Quarterly Growth Streak   [Jun-30-16 02:44PM  at The Wall Street Journal]
Financial statements of BSET
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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