Intrinsic value of Dover Downs Gaming&Entertainment - DDE

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$1.12

  Intrinsic Value

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  Value-price divergence*

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

We calculate the intrinsic value of DDE 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 0.0

 

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, %
  -0.55
  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
  182
  187
  191
  196
  201
  207
  214
  221
  229
  238
  247
  257
  267
  278
  290
  303
  316
  330
  345
  360
  377
  394
  413
  432
  453
  474
  497
  521
  546
  572
  600
Variable operating expenses, $m
 
  186
  190
  195
  200
  206
  213
  220
  228
  237
  246
  255
  266
  277
  289
  301
  314
  328
  343
  359
  375
  392
  411
  430
  450
  472
  495
  518
  543
  570
  597
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
  180
  186
  190
  195
  200
  206
  213
  220
  228
  237
  246
  255
  266
  277
  289
  301
  314
  328
  343
  359
  375
  392
  411
  430
  450
  472
  495
  518
  543
  570
  597
Operating income, $m
  2
  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
  3
  3
  3
  3
EBITDA, $m
  10
  9
  9
  10
  10
  10
  10
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
Earnings before tax, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Tax expense, $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
Net income, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  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
  0
Total assets, $m
  170
  166
  170
  174
  179
  185
  191
  197
  204
  212
  220
  229
  238
  248
  258
  269
  281
  294
  307
  321
  336
  351
  368
  385
  403
  422
  443
  464
  486
  510
  535
Adjusted assets (=assets-cash), $m
  158
  166
  170
  174
  179
  185
  191
  197
  204
  212
  220
  229
  238
  248
  258
  269
  281
  294
  307
  321
  336
  351
  368
  385
  403
  422
  443
  464
  486
  510
  535
Revenue / Adjusted assets
  1.152
  1.127
  1.124
  1.126
  1.123
  1.119
  1.120
  1.122
  1.123
  1.123
  1.123
  1.122
  1.122
  1.121
  1.124
  1.126
  1.125
  1.122
  1.124
  1.121
  1.122
  1.123
  1.122
  1.122
  1.124
  1.123
  1.122
  1.123
  1.123
  1.122
  1.121
Average production assets, $m
  143
  151
  155
  159
  163
  168
  174
  180
  186
  193
  200
  208
  217
  226
  235
  245
  256
  268
  280
  292
  306
  320
  335
  351
  367
  385
  403
  422
  443
  464
  487
Working capital, $m
  -20
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
Total debt, $m
  25
  22
  23
  24
  26
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
  52
  56
  59
  63
  67
  72
  76
  81
  86
  92
  97
  103
  109
  116
  123
  130
Total liabilities, $m
  55
  49
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  86
  90
  94
  99
  103
  108
  113
  119
  124
  130
  136
  143
  150
  157
Total equity, $m
  116
  117
  120
  123
  127
  130
  135
  139
  144
  150
  155
  161
  168
  175
  182
  190
  199
  207
  217
  227
  237
  248
  260
  272
  285
  298
  312
  327
  343
  360
  377
Total liabilities and equity, $m
  171
  166
  170
  174
  180
  184
  191
  197
  204
  212
  220
  228
  238
  248
  258
  269
  282
  293
  307
  321
  336
  351
  368
  385
  404
  422
  442
  463
  486
  510
  534
Debt-to-equity ratio
  0.216
  0.190
  0.190
  0.200
  0.200
  0.210
  0.220
  0.220
  0.230
  0.240
  0.240
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.290
  0.290
  0.300
  0.300
  0.310
  0.310
  0.320
  0.320
  0.330
  0.330
  0.330
  0.340
  0.340
  0.340
Adjusted equity ratio
  0.734
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706
  0.706

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Depreciation, amort., depletion, $m
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Funds from operations, $m
  11
  8
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
Change in working capital, $m
  1
  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 operations, $m
  10
  5
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
New CAPEX, $m
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -23
Cash from investing activities, $m
  -3
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -48
Free cash flow, $m
  7
  -6
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
Issuance/(repayment) of debt, $m
  -6
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Issuance/(repurchase) of shares, $m
  0
  8
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
Cash from financing (excl. dividends), $m  
  -6
  9
  6
  6
  7
  9
  9
  10
  11
  11
  12
  14
  15
  16
  16
  17
  18
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  39
Total cash flow (excl. dividends), $m
  1
  -5
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
Retained Cash Flow (-), $m
  -1
  -2
  -3
  -3
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
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
 
  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
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
 
  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
Current shareholders' claim on cash, %
  100
  91.5
  86.6
  81.4
  76.0
  70.7
  65.4
  60.2
  55.2
  50.5
  46.0
  41.8
  37.9
  34.2
  30.9
  27.8
  24.9
  22.4
  20.0
  17.9
  16.0
  14.3
  12.7
  11.3
  10.1
  8.9
  7.9
  7.1
  6.3
  5.5
  4.9

Dover Downs Gaming & Entertainment, Inc., together with its subsidiaries, operates as a gaming and entertainment resort destination in the United States. It operates the Dover Downs Casino, a 165,000 square foot casino complex comprising table games, roulette, card games, slot machines, multi-player electronic table games, poker room, race and sports book operation, and fire and ice lounge, as well as various bars, restaurants, and retail outlets. The company’s operations also comprise the Dover Downs Hotel and Conference Center, a 500 room AAA Four Diamond hotel with fine dining restaurant, spa/salon, conference, banquet, ballroom, and concert hall facilities; and Dover Downs Raceway, a harness racing track with pari-mutuel wagering on live and simulcast horse races. As of December 31, 2015, it operated 2,300 slot machines. Dover Downs Gaming & Entertainment, Inc. was founded in 1969 and is based in Dover, Delaware.

FINANCIAL RATIOS  of  Dover Downs Gaming&Entertainment (DDE)

Valuation Ratios
P/E Ratio 37
Price to Sales 0.2
Price to Book 0.3
Price to Tangible Book
Price to Cash Flow 3.7
Price to Free Cash Flow 5.3
Growth Rates
Sales Growth Rate -0.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 21.6%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.2%
Ret/ On Assets - 3 Yr. Avg. 1.1%
Return On Total Capital 0.7%
Ret/ On T. Cap. - 3 Yr. Avg. 0.5%
Return On Equity 0.9%
Return On Equity - 3 Yr. Avg. 0.6%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 18.1%
Gross Margin - 3 Yr. Avg. 18.4%
EBITDA Margin 5.5%
EBITDA Margin - 3 Yr. Avg. 5.8%
Operating Margin 1.1%
Oper. Margin - 3 Yr. Avg. 1.3%
Pre-Tax Margin 0.5%
Pre-Tax Margin - 3 Yr. Avg. 0.5%
Net Profit Margin 0.5%
Net Profit Margin - 3 Yr. Avg. 0.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 11.1%
Payout Ratio 0%

DDE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DDE stock intrinsic value calculation we used $183 million for the last fiscal year's total revenue generated by Dover Downs Gaming&Entertainment. The default revenue input number comes from 2016 income statement of Dover Downs Gaming&Entertainment. 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 DDE 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 DDE is calculated based on our internal credit rating of Dover Downs Gaming&Entertainment, 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 Dover Downs Gaming&Entertainment.
    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 DDE stock the variable cost ratio is equal to 99.5%.

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 DDE 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 Dover Downs Gaming&Entertainment.

Corporate tax rate of 27% is the nominal tax rate for Dover Downs Gaming&Entertainment. 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 DDE 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 DDE are equal to 81.1%.

Life of production assets of 18.6 years is the average useful life of capital assets used in Dover Downs Gaming&Entertainment 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 DDE is equal to -1.6%. 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 - $115 million for Dover Downs Gaming&Entertainment - 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 31.829 million for Dover Downs Gaming&Entertainment 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 Dover Downs Gaming&Entertainment at the current share price and the inputted number of shares is $0.0 billion.


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▶ 10-Q for Dover Downs Gaming & Entertainment, Inc.   [May-03  08:13PM  at Company Spotlight]
▶ 2015 First Quarter Earnings Release   [09:36AM  at noodls]
▶ 10-K for Dover Downs Gaming & Entertainment, Inc.   [Mar-08  08:08PM  at Company Spotlight]
▶ 2014 Fourth Quarter Earnings Release   [Feb-06  06:28AM  at noodls]
▶ 10-Q for Dover Downs Gaming & Entertainment, Inc.   [Nov-07  07:08PM  Company Spotlight]
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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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