Intrinsic value of Donnelley Financial Solutions - DFIN

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$20.88

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$20.88

 
Intrinsic value

$39.29

 
Up/down potential

+88%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of DFIN 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 0.6

 

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, %
  -6.29
  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
  984
  1,071
  1,096
  1,124
  1,155
  1,190
  1,229
  1,271
  1,316
  1,365
  1,417
  1,473
  1,533
  1,597
  1,664
  1,736
  1,812
  1,893
  1,978
  2,068
  2,163
  2,263
  2,369
  2,480
  2,598
  2,721
  2,852
  2,989
  3,133
  3,285
  3,444
Variable operating expenses, $m
 
  980
  1,002
  1,026
  1,054
  1,084
  1,118
  1,155
  1,194
  1,237
  1,283
  1,287
  1,339
  1,395
  1,454
  1,516
  1,583
  1,653
  1,728
  1,806
  1,889
  1,977
  2,069
  2,166
  2,269
  2,377
  2,491
  2,610
  2,736
  2,869
  3,008
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
  878
  980
  1,002
  1,026
  1,054
  1,084
  1,118
  1,155
  1,194
  1,237
  1,283
  1,287
  1,339
  1,395
  1,454
  1,516
  1,583
  1,653
  1,728
  1,806
  1,889
  1,977
  2,069
  2,166
  2,269
  2,377
  2,491
  2,610
  2,736
  2,869
  3,008
Operating income, $m
  106
  91
  94
  98
  102
  106
  111
  116
  122
  128
  135
  186
  194
  202
  211
  220
  229
  240
  250
  262
  274
  286
  300
  314
  329
  344
  361
  378
  397
  416
  436
EBITDA, $m
  149
  146
  150
  154
  158
  163
  168
  174
  180
  187
  194
  201
  210
  218
  228
  237
  248
  259
  270
  283
  296
  309
  324
  339
  355
  372
  390
  409
  428
  449
  471
Interest expense (income), $m
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
Earnings before tax, $m
  94
  90
  93
  96
  100
  104
  109
  114
  120
  125
  132
  183
  190
  198
  206
  215
  224
  234
  244
  255
  266
  279
  291
  305
  319
  334
  350
  366
  384
  402
  421
Tax expense, $m
  35
  24
  25
  26
  27
  28
  29
  31
  32
  34
  36
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  104
  109
  114
Net income, $m
  59
  66
  68
  70
  73
  76
  80
  83
  87
  92
  96
  134
  139
  145
  151
  157
  164
  171
  178
  186
  195
  203
  213
  223
  233
  244
  255
  267
  280
  293
  307

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  36
  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
  979
  819
  838
  859
  883
  910
  939
  971
  1,006
  1,043
  1,083
  1,126
  1,172
  1,221
  1,272
  1,327
  1,385
  1,447
  1,512
  1,581
  1,654
  1,730
  1,811
  1,896
  1,986
  2,081
  2,180
  2,285
  2,395
  2,511
  2,633
Adjusted assets (=assets-cash), $m
  943
  819
  838
  859
  883
  910
  939
  971
  1,006
  1,043
  1,083
  1,126
  1,172
  1,221
  1,272
  1,327
  1,385
  1,447
  1,512
  1,581
  1,654
  1,730
  1,811
  1,896
  1,986
  2,081
  2,180
  2,285
  2,395
  2,511
  2,633
Revenue / Adjusted assets
  1.043
  1.308
  1.308
  1.308
  1.308
  1.308
  1.309
  1.309
  1.308
  1.309
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
  1.308
Average production assets, $m
  139
  155
  159
  163
  168
  173
  178
  184
  191
  198
  205
  214
  222
  232
  241
  252
  263
  274
  287
  300
  314
  328
  343
  360
  377
  395
  413
  433
  454
  476
  499
Working capital, $m
  144
  62
  64
  65
  67
  69
  71
  74
  76
  79
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  125
  131
  137
  144
  151
  158
  165
  173
  182
  191
  200
Total debt, $m
  587
  32
  37
  42
  47
  53
  60
  67
  75
  84
  93
  103
  114
  125
  137
  149
  163
  177
  192
  208
  224
  242
  261
  280
  301
  323
  345
  370
  395
  422
  450
Total liabilities, $m
  868
  188
  193
  198
  203
  209
  216
  223
  231
  240
  249
  259
  270
  281
  293
  305
  319
  333
  348
  364
  380
  398
  417
  436
  457
  479
  501
  526
  551
  578
  606
Total equity, $m
  111
  630
  645
  662
  680
  701
  723
  748
  775
  803
  834
  867
  902
  940
  980
  1,022
  1,067
  1,114
  1,164
  1,217
  1,273
  1,332
  1,395
  1,460
  1,529
  1,602
  1,679
  1,759
  1,844
  1,934
  2,028
Total liabilities and equity, $m
  979
  818
  838
  860
  883
  910
  939
  971
  1,006
  1,043
  1,083
  1,126
  1,172
  1,221
  1,273
  1,327
  1,386
  1,447
  1,512
  1,581
  1,653
  1,730
  1,812
  1,896
  1,986
  2,081
  2,180
  2,285
  2,395
  2,512
  2,634
Debt-to-equity ratio
  5.288
  0.050
  0.060
  0.060
  0.070
  0.080
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.130
  0.130
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.210
  0.220
  0.220
Adjusted equity ratio
  0.080
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770
  0.770

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  59
  66
  68
  70
  73
  76
  80
  83
  87
  92
  96
  134
  139
  145
  151
  157
  164
  171
  178
  186
  195
  203
  213
  223
  233
  244
  255
  267
  280
  293
  307
Depreciation, amort., depletion, $m
  43
  56
  56
  56
  56
  57
  57
  58
  58
  59
  59
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
  35
Funds from operations, $m
  109
  121
  124
  126
  129
  133
  137
  141
  145
  150
  155
  149
  155
  161
  167
  175
  182
  190
  198
  207
  216
  226
  237
  248
  259
  271
  284
  298
  312
  327
  342
Change in working capital, $m
  3
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
Cash from operations, $m
  106
  113
  122
  125
  128
  131
  134
  138
  143
  147
  152
  145
  151
  157
  164
  170
  178
  185
  193
  202
  211
  221
  231
  241
  252
  264
  277
  290
  303
  318
  333
Maintenance CAPEX, $m
  0
  -11
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
New CAPEX, $m
  -26
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from investing activities, $m
  -29
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -20
  -20
  -22
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -56
Free cash flow, $m
  77
  100
  108
  110
  112
  114
  117
  120
  123
  127
  131
  123
  127
  132
  138
  143
  149
  155
  162
  169
  176
  184
  192
  201
  210
  220
  230
  241
  252
  264
  277
Issuance/(repayment) of debt, $m
  289
  3
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
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  
  -60
  3
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
Total cash flow (excl. dividends), $m
  21
  103
  112
  114
  117
  120
  124
  127
  131
  135
  140
  133
  138
  144
  149
  156
  162
  169
  177
  185
  193
  202
  211
  221
  231
  242
  253
  265
  278
  291
  305
Retained Cash Flow (-), $m
  513
  -12
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -85
  -89
  -94
Prev. year cash balance distribution, $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
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
 
  97
  98
  98
  99
  100
  101
  103
  105
  107
  109
  100
  103
  106
  110
  113
  118
  122
  127
  132
  137
  143
  149
  155
  162
  169
  176
  184
  193
  202
  211
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
 
  93
  89
  85
  81
  77
  73
  69
  65
  61
  57
  47
  44
  40
  37
  33
  30
  27
  23
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
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

Donnelley Financial Solutions, Inc. provides financial communications and data services for the investment and capital markets worldwide. It offers communication tools and services to allow its clients to comply with ongoing regulatory filings, primarily with the SEC; and communications services to create, manage, and deliver registration statements, prospectuses, proxies, and other communications to the SEC and its current and potential shareholders and investors. The company also provides virtual data rooms to facilitate the deal management requirements of capital markets and mergers and acquisitions transactions; and data and analytics services that help professionals uncover intelligence from financial disclosure contained within public filings made with the SEC. In addition, it offers language solutions, including translation, editing, interpreting, proof-reading, and multilingual typesetting; and specialized content services, such as transcreation, copywriting, linguistic validation by subject matter experts, transcription, voice-over, subtitling, and localization, as well as application testing and quality assurance. The company is based in Chicago, Illinois.

FINANCIAL RATIOS  of  Donnelley Financial Solutions (DFIN)

Valuation Ratios
P/E Ratio 11.5
Price to Sales 0.7
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 6.4
Price to Free Cash Flow 8.5
Growth Rates
Sales Growth Rate -6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 528.8%
Total Debt to Equity 528.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 18.1%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 23.3%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 38.8%
EBITDA Margin 13.9%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 11.5%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 37.2%
Eff/ Tax Rate - 3 Yr. Avg. 38.3%
Payout Ratio 0%

DFIN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DFIN stock intrinsic value calculation we used $1050 million for the last fiscal year's total revenue generated by Donnelley Financial Solutions. The default revenue input number comes from 2016 income statement of Donnelley Financial Solutions. 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 DFIN 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 DFIN is calculated based on our internal credit rating of Donnelley Financial Solutions, 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 Donnelley Financial Solutions.
    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 DFIN stock the variable cost ratio is equal to 91.6%.

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 DFIN 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 Donnelley Financial Solutions.

Corporate tax rate of 27% is the nominal tax rate for Donnelley Financial Solutions. 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 DFIN 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 DFIN are equal to 14.5%.

Life of production assets of 14.3 years is the average useful life of capital assets used in Donnelley Financial Solutions 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 DFIN is equal to 5.8%. 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 - $624 million for Donnelley Financial Solutions - 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 29.077 million for Donnelley Financial Solutions 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 Donnelley Financial Solutions at the current share price and the inputted number of shares is $0.6 billion.


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COMPANY NEWS

▶ Donnelley Financial posts 1Q profit   [06:49AM  Associated Press]
▶ Donnelley Financial reports 4Q loss   [06:47AM  Associated Press]
Stock chart of DFIN Financial statements of DFIN Annual reports of DFIN
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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