Intrinsic value of Diamond Hill Investment Group - DHIL

Previous Close

$210.99

  Intrinsic Value

$358.36

stock screener

  Rating & Target

str. buy

+70%

Previous close

$210.99

 
Intrinsic value

$358.36

 
Up/down potential

+70%

 
Rating

str. buy

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

We calculate the intrinsic value of DHIL 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 0.7

 

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, %
  9.68
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.84
  5.76
  5.68
  5.62
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
  5.24
  5.21
  5.19
Revenue, $m
  136
  148
  161
  175
  189
  203
  218
  234
  250
  267
  285
  303
  322
  342
  363
  384
  407
  430
  454
  480
  507
  534
  563
  594
  626
  659
  694
  731
  769
  809
  851
Variable operating expenses, $m
 
  49
  53
  58
  62
  67
  72
  77
  83
  88
  94
  100
  107
  113
  120
  127
  135
  142
  150
  159
  168
  177
  187
  197
  207
  218
  230
  242
  254
  268
  282
Fixed operating expenses, $m
 
  27
  27
  28
  29
  29
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  55
Total operating expenses, $m
  70
  76
  80
  86
  91
  96
  102
  108
  115
  120
  127
  134
  142
  149
  157
  165
  174
  182
  191
  201
  211
  221
  232
  243
  254
  266
  279
  293
  306
  321
  337
Operating income, $m
  66
  73
  81
  89
  98
  106
  116
  126
  136
  146
  157
  169
  180
  193
  206
  219
  233
  248
  263
  279
  296
  314
  332
  351
  372
  393
  415
  438
  462
  488
  515
EBITDA, $m
  67
  73
  81
  89
  98
  106
  116
  126
  136
  146
  157
  169
  180
  193
  206
  219
  233
  248
  263
  279
  296
  314
  332
  351
  372
  393
  415
  438
  462
  488
  515
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
Earnings before tax, $m
  73
  73
  80
  88
  97
  106
  115
  124
  134
  144
  155
  166
  178
  190
  203
  216
  229
  244
  259
  274
  291
  308
  326
  345
  364
  385
  407
  429
  453
  478
  504
Tax expense, $m
  26
  20
  22
  24
  26
  29
  31
  34
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
  79
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
Net income, $m
  46
  53
  59
  65
  71
  77
  84
  91
  98
  105
  113
  121
  130
  139
  148
  157
  168
  178
  189
  200
  212
  225
  238
  252
  266
  281
  297
  313
  331
  349
  368

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  57
  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
  200
  156
  170
  184
  198
  214
  229
  246
  263
  281
  299
  319
  339
  359
  381
  404
  427
  452
  478
  505
  533
  562
  593
  625
  658
  693
  730
  768
  808
  851
  895
Adjusted assets (=assets-cash), $m
  143
  156
  170
  184
  198
  214
  229
  246
  263
  281
  299
  319
  339
  359
  381
  404
  427
  452
  478
  505
  533
  562
  593
  625
  658
  693
  730
  768
  808
  851
  895
Revenue / Adjusted assets
  0.951
  0.949
  0.947
  0.951
  0.955
  0.949
  0.952
  0.951
  0.951
  0.950
  0.953
  0.950
  0.950
  0.953
  0.953
  0.950
  0.953
  0.951
  0.950
  0.950
  0.951
  0.950
  0.949
  0.950
  0.951
  0.951
  0.951
  0.952
  0.952
  0.951
  0.951
Average production assets, $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
Working capital, $m
  0
  -62
  -68
  -73
  -79
  -85
  -91
  -98
  -105
  -112
  -119
  -127
  -135
  -143
  -152
  -161
  -170
  -180
  -190
  -201
  -212
  -224
  -236
  -249
  -262
  -276
  -291
  -306
  -322
  -339
  -357
Total debt, $m
  0
  6
  11
  17
  24
  30
  37
  44
  51
  59
  67
  75
  84
  93
  102
  111
  122
  132
  143
  154
  166
  179
  192
  206
  220
  235
  251
  267
  284
  302
  321
Total liabilities, $m
  60
  67
  72
  78
  85
  91
  98
  105
  112
  120
  128
  136
  145
  154
  163
  172
  183
  193
  204
  215
  227
  240
  253
  267
  281
  296
  312
  328
  345
  363
  382
Total equity, $m
  139
  89
  97
  105
  114
  122
  131
  141
  151
  161
  172
  183
  194
  206
  218
  231
  245
  259
  274
  289
  305
  322
  340
  358
  377
  397
  418
  440
  463
  487
  513
Total liabilities and equity, $m
  199
  156
  169
  183
  199
  213
  229
  246
  263
  281
  300
  319
  339
  360
  381
  403
  428
  452
  478
  504
  532
  562
  593
  625
  658
  693
  730
  768
  808
  850
  895
Debt-to-equity ratio
  0.000
  0.060
  0.120
  0.170
  0.210
  0.250
  0.280
  0.310
  0.340
  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
  0.573
  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
  0.573

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  46
  53
  59
  65
  71
  77
  84
  91
  98
  105
  113
  121
  130
  139
  148
  157
  168
  178
  189
  200
  212
  225
  238
  252
  266
  281
  297
  313
  331
  349
  368
Depreciation, amort., depletion, $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
Funds from operations, $m
  -8
  53
  59
  65
  71
  77
  84
  91
  98
  105
  113
  121
  130
  139
  148
  157
  168
  178
  189
  200
  212
  225
  238
  252
  266
  281
  297
  313
  331
  349
  368
Change in working capital, $m
  -28
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
Cash from operations, $m
  20
  58
  64
  70
  77
  83
  90
  97
  105
  113
  121
  129
  138
  147
  157
  166
  177
  188
  199
  211
  223
  237
  250
  264
  279
  295
  311
  329
  347
  366
  386
Maintenance CAPEX, $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
New CAPEX, $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 investing activities, $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
Free cash flow, $m
  14
  58
  64
  70
  77
  83
  90
  97
  105
  113
  121
  129
  138
  147
  157
  166
  177
  188
  199
  211
  223
  237
  250
  264
  279
  295
  311
  329
  347
  366
  386
Issuance/(repayment) of debt, $m
  0
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
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  
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
Total cash flow (excl. dividends), $m
  20
  64
  70
  76
  83
  90
  97
  104
  112
  120
  129
  137
  146
  156
  166
  176
  187
  198
  210
  223
  235
  249
  263
  278
  294
  310
  327
  345
  364
  384
  405
Retained Cash Flow (-), $m
  -34
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
Prev. year cash balance distribution, $m
 
  57
  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
 
  113
  62
  68
  74
  81
  88
  95
  102
  110
  118
  126
  135
  144
  153
  163
  173
  184
  195
  207
  219
  232
  246
  260
  274
  290
  306
  323
  341
  360
  379
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
 
  109
  57
  59
  61
  63
  64
  64
  64
  63
  62
  60
  58
  55
  51
  48
  44
  40
  36
  32
  28
  24
  20
  17
  14
  11
  9
  7
  5
  4
  3
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

Diamond Hill Investment Group, Inc. provides investment advisory and fund administration services. The Company's subsidiaries include Diamond Hill Capital Management, Inc. (DHCM), Beacon Hill Fund Services, Inc. (BHFS) and BHIL Distributors, Inc. (BHIL). The Company's primary objective is to fulfill its fiduciary duty to clients. The Company provides investment management and administration services to mutual funds, institutional accounts and private investment funds. DHCM is an investment advisor to the Diamond Hill Funds (the Funds), a series of open-end mutual funds, private investment funds (Private Funds), an exchange traded fund and other institutional accounts. In addition, DHCM is administrator for the Funds. BHFS provides compliance, treasury and other fund administration services to investment advisors and mutual funds. BHIL is a subsidiary of BHFS. BHIL provides underwriting services to mutual funds. BHFS and BHIL collectively operate as Beacon Hill.

FINANCIAL RATIOS  of  Diamond Hill Investment Group (DHIL)

Valuation Ratios
P/E Ratio 15.6
Price to Sales 5.3
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow 36
Price to Free Cash Flow 36
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 26.7%
Ret/ On Assets - 3 Yr. Avg. 30.3%
Return On Total Capital 37.7%
Ret/ On T. Cap. - 3 Yr. Avg. 44.3%
Return On Equity 37.7%
Return On Equity - 3 Yr. Avg. 44.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 54.4%
EBITDA Margin - 3 Yr. Avg. 49.9%
Operating Margin 48.5%
Oper. Margin - 3 Yr. Avg. 47%
Pre-Tax Margin 53.7%
Pre-Tax Margin - 3 Yr. Avg. 49.4%
Net Profit Margin 33.8%
Net Profit Margin - 3 Yr. Avg. 31.4%
Effective Tax Rate 35.6%
Eff/ Tax Rate - 3 Yr. Avg. 35.9%
Payout Ratio 43.5%

DHIL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DHIL stock intrinsic value calculation we used $136 million for the last fiscal year's total revenue generated by Diamond Hill Investment Group. The default revenue input number comes from 2016 income statement of Diamond Hill Investment Group. 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 DHIL stock valuation model: a) initial revenue growth rate of 9.1% 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 DHIL is calculated based on our internal credit rating of Diamond Hill Investment Group, 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 Diamond Hill Investment Group.
    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 DHIL stock the variable cost ratio is equal to 33.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $26 million in the base year in the intrinsic value calculation for DHIL 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 Diamond Hill Investment Group.

Corporate tax rate of 27% is the nominal tax rate for Diamond Hill Investment Group. 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 DHIL 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 DHIL are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in Diamond Hill Investment Group 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 DHIL is equal to -41.9%. 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 - $139 million for Diamond Hill Investment Group - 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 3.454 million for Diamond Hill Investment Group 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 Diamond Hill Investment Group at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Diamond Hill Investment Group posts 2Q profit   [Jul-26-17 10:34PM  Associated Press]
▶ Diamond Hill Named A 2017 Top Workplace By Columbus CEO   [May-01-17 04:15PM  PR Newswire]
▶ Diamond Hill Investment Group posts 1Q profit   [Apr-26-17 06:40PM  Associated Press]
▶ Diamond Hill Investment Group posts 4Q profit   [Feb-23-17 05:35PM  Associated Press]
▶ Diamond Hill Announces Lower Fee For Mid Cap Fund   [Jan-09-17 04:15PM  PR Newswire]
▶ 9 Stocks Diamond Hill Continues to Buy   [Dec-19-16 05:19PM  GuruFocus.com]
▶ Is ANI Pharmaceuticals Inc (ANIP) a Good Stock To Buy?   [Dec-04-16 06:30PM  at Insider Monkey]
▶ Diamond Hill Launches Two New Fixed Income Mutual Funds   [Sep-21-16 09:00AM  PR Newswire]
▶ Diamond Hill Investment Group selling off fund-servicing unit   [Jun-24-16 01:30PM  at bizjournals.com]
▶ Recapping the Model 'Saver' Portfolios   [07:00AM  at Morningstar]
▶ Diamond Hill Soft Closes Small-Mid Cap Strategy   [May-04-16 04:21PM  PR Newswire]
▶ Diamond Hill Named A 2016 Top Workplace By Columbus CEO   [May-02-16 09:15AM  PR Newswire]
Financial statements of DHIL
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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