Intrinsic value of Baldwin&Lyons Cl A - BWINA

Previous Close

$22.92

  Intrinsic Value

$39.24

stock screener

  Rating & Target

str. buy

+71%

Previous close

$22.92

 
Intrinsic value

$39.24

 
Up/down potential

+71%

 
Rating

str. buy

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

We calculate the intrinsic value of BWINA 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 0.3

 

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, %
  12.85
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  0
  334
  344
  354
  366
  379
  393
  408
  423
  440
  458
  478
  498
  520
  543
  567
  593
  620
  648
  679
  710
  744
  779
  817
  856
  897
  940
  986
  1,034
  1,084
  1,137
Variable operating expenses, $m
 
  253
  260
  268
  277
  287
  297
  308
  321
  333
  347
  362
  377
  394
  411
  429
  449
  469
  491
  514
  538
  563
  590
  618
  648
  679
  712
  746
  783
  821
  861
Fixed operating expenses, $m
 
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  49
  50
  51
  52
  54
  55
  56
  58
  59
  61
  62
  64
  65
  67
  69
  70
  72
  74
  76
  78
Total operating expenses, $m
  282
  291
  299
  308
  318
  329
  340
  352
  366
  379
  394
  411
  427
  445
  463
  483
  504
  525
  549
  573
  599
  625
  654
  683
  715
  748
  782
  818
  857
  897
  939
Operating income, $m
  43
  43
  45
  46
  48
  50
  53
  55
  58
  61
  64
  68
  71
  75
  80
  84
  89
  94
  100
  106
  112
  119
  126
  133
  141
  149
  158
  168
  177
  188
  199
EBITDA, $m
  67
  43
  45
  46
  48
  50
  53
  55
  58
  61
  64
  68
  71
  75
  80
  84
  89
  94
  100
  106
  112
  119
  126
  133
  141
  149
  158
  168
  177
  188
  199
Interest expense (income), $m
  0
  1
  1
  2
  3
  4
  5
  6
  7
  9
  10
  11
  13
  15
  16
  18
  20
  22
  24
  27
  29
  32
  34
  37
  40
  43
  47
  50
  54
  58
  62
Earnings before tax, $m
  43
  42
  43
  44
  45
  46
  47
  49
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  130
  137
Tax expense, $m
  14
  11
  12
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  33
  35
  37
Net income, $m
  29
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  41
  43
  44
  46
  48
  50
  53
  55
  58
  60
  63
  67
  70
  74
  77
  81
  86
  90
  95
  100

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  1,154
  1,184
  1,218
  1,256
  1,298
  1,344
  1,393
  1,445
  1,501
  1,562
  1,626
  1,694
  1,767
  1,843
  1,925
  2,011
  2,102
  2,198
  2,300
  2,407
  2,519
  2,638
  2,764
  2,896
  3,034
  3,181
  3,334
  3,496
  3,666
  3,845
  4,033
Adjusted assets (=assets-cash), $m
  1,154
  1,184
  1,218
  1,256
  1,298
  1,344
  1,393
  1,445
  1,501
  1,562
  1,626
  1,694
  1,767
  1,843
  1,925
  2,011
  2,102
  2,198
  2,300
  2,407
  2,519
  2,638
  2,764
  2,896
  3,034
  3,181
  3,334
  3,496
  3,666
  3,845
  4,033
Revenue / Adjusted assets
  0.000
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
  0.282
Average production assets, $m
  -15
  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
Working capital, $m
  0
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  71
Total debt, $m
  20
  39
  62
  87
  114
  143
  175
  209
  246
  285
  327
  371
  418
  468
  521
  577
  636
  699
  765
  834
  908
  985
  1,066
  1,152
  1,242
  1,337
  1,437
  1,543
  1,653
  1,769
  1,892
Total liabilities, $m
  750
  769
  792
  817
  844
  873
  905
  939
  976
  1,015
  1,057
  1,101
  1,148
  1,198
  1,251
  1,307
  1,366
  1,429
  1,495
  1,564
  1,638
  1,715
  1,796
  1,882
  1,972
  2,067
  2,167
  2,273
  2,383
  2,499
  2,622
Total equity, $m
  404
  414
  426
  440
  454
  470
  487
  506
  526
  547
  569
  593
  618
  645
  674
  704
  736
  769
  805
  842
  882
  923
  967
  1,013
  1,062
  1,113
  1,167
  1,224
  1,283
  1,346
  1,412
Total liabilities and equity, $m
  1,154
  1,183
  1,218
  1,257
  1,298
  1,343
  1,392
  1,445
  1,502
  1,562
  1,626
  1,694
  1,766
  1,843
  1,925
  2,011
  2,102
  2,198
  2,300
  2,406
  2,520
  2,638
  2,763
  2,895
  3,034
  3,180
  3,334
  3,497
  3,666
  3,845
  4,034
Debt-to-equity ratio
  0.050
  0.090
  0.150
  0.200
  0.250
  0.300
  0.360
  0.410
  0.470
  0.520
  0.570
  0.630
  0.680
  0.730
  0.770
  0.820
  0.860
  0.910
  0.950
  0.990
  1.030
  1.070
  1.100
  1.140
  1.170
  1.200
  1.230
  1.260
  1.290
  1.310
  1.340
Adjusted equity ratio
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350
  0.350

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  29
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  41
  43
  44
  46
  48
  50
  53
  55
  58
  60
  63
  67
  70
  74
  77
  81
  86
  90
  95
  100
Depreciation, amort., depletion, $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
Funds from operations, $m
  -20
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  41
  43
  44
  46
  48
  50
  53
  55
  58
  60
  63
  67
  70
  74
  77
  81
  86
  90
  95
  100
Change in working capital, $m
  -52
  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
  3
  3
  3
Cash from operations, $m
  32
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  97
Maintenance CAPEX, $m
  0
  3
  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
New CAPEX, $m
  -8
  -15
  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 investing activities, $m
  -27
  -12
  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
Free cash flow, $m
  5
  18
  31
  32
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  97
Issuance/(repayment) of debt, $m
  0
  19
  23
  25
  27
  29
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  111
  116
  122
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  
  0
  19
  23
  25
  27
  29
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  111
  116
  122
Total cash flow (excl. dividends), $m
  5
  38
  53
  56
  59
  62
  66
  69
  72
  76
  80
  84
  88
  93
  98
  103
  108
  113
  119
  125
  132
  139
  146
  153
  161
  170
  179
  188
  198
  208
  219
Retained Cash Flow (-), $m
  -9
  -10
  -12
  -13
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -37
  -39
  -42
  -44
  -46
  -49
  -51
  -54
  -57
  -60
  -63
  -66
Prev. year cash balance distribution, $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 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
 
  28
  41
  43
  45
  47
  48
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
  97
  102
  107
  113
  119
  125
  131
  138
  145
  153
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
 
  26
  38
  37
  37
  36
  35
  34
  33
  32
  30
  29
  27
  25
  23
  21
  19
  17
  15
  14
  12
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
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

Baldwin & Lyons, Inc. is a specialty property-casualty insurer providing liability coverage for large and medium-sized trucking and public transportation fleets, as well as coverage for trucking industry independent contractors. Through its divisions and subsidiaries, the Company engages in marketing and underwriting property and casualty insurance, including a limited assumption of risks as a reinsurer of other companies. Its segments include property and casualty insurance, and reinsurance. The property and casualty insurance segment provides multiple line insurance coverage primarily to fleet transportation companies, as well as to independent contractors contracting with fleet transportation companies. Its insurance subsidiaries provide a range of fleet transportation insurance, such as Commercial motor vehicle liability, physical damage and general liability insurance; non-trucking motor vehicle liability insurance for independent contractors, and fidelity and surety bonds.

FINANCIAL RATIOS  of  Baldwin&Lyons Cl A (BWINA)

Valuation Ratios
P/E Ratio 11.9
Price to Sales 1.1
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 10.8
Price to Free Cash Flow 14.4
Growth Rates
Sales Growth Rate 12.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -22.7%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 5%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 2.5%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. 6.6%
Return On Equity 7.3%
Return On Equity - 3 Yr. Avg. 6.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 20.6%
EBITDA Margin - 3 Yr. Avg. 22.2%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 13.5%
Pre-Tax Margin 13.2%
Pre-Tax Margin - 3 Yr. Avg. 13.4%
Net Profit Margin 8.9%
Net Profit Margin - 3 Yr. Avg. 9%
Effective Tax Rate 32.6%
Eff/ Tax Rate - 3 Yr. Avg. 32.2%
Payout Ratio 55.2%

BWINA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BWINA stock intrinsic value calculation we used $325 million for the last fiscal year's total revenue generated by Baldwin&Lyons Cl A. The default revenue input number comes from 2016 income statement of Baldwin&Lyons Cl A. 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 BWINA stock valuation model: a) initial revenue growth rate of 2.7% 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 BWINA is calculated based on our internal credit rating of Baldwin&Lyons Cl A, 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 Baldwin&Lyons Cl A.
    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 BWINA stock the variable cost ratio is equal to 75.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $37 million in the base year in the intrinsic value calculation for BWINA 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 Baldwin&Lyons Cl A.

Corporate tax rate of 27% is the nominal tax rate for Baldwin&Lyons Cl A. 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 BWINA 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 BWINA are equal to 0%.

Life of production assets of -0.6 years is the average useful life of capital assets used in Baldwin&Lyons Cl A 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 BWINA is equal to 6.2%. 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 - $404 million for Baldwin&Lyons Cl A - 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 15.057 million for Baldwin&Lyons Cl A 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 Baldwin&Lyons Cl A at the current share price and the inputted number of shares is $0.3 billion.

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Financial statements of BWINA
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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