Intrinsic value of Diamond Hill Investment Group - DHIL

Previous Close

$210.89

  Intrinsic Value

$433.38

stock screener

  Rating & Target

str. buy

+106%

Previous close

$210.89

 
Intrinsic value

$433.38

 
Up/down potential

+106%

 
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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  136
  152
  170
  188
  207
  227
  248
  270
  293
  316
  341
  366
  393
  420
  449
  478
  509
  541
  575
  610
  646
  684
  723
  765
  808
  853
  900
  949
  1,000
  1,054
  1,110
Variable operating expenses, $m
 
  50
  56
  62
  69
  75
  82
  89
  97
  105
  113
  121
  130
  139
  148
  158
  169
  179
  190
  202
  214
  226
  239
  253
  267
  282
  298
  314
  331
  349
  367
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
  77
  83
  90
  98
  104
  112
  120
  129
  137
  146
  155
  165
  175
  185
  196
  208
  219
  231
  244
  257
  270
  284
  299
  314
  330
  347
  365
  383
  402
  422
Operating income, $m
  66
  75
  86
  98
  110
  123
  136
  150
  164
  179
  195
  211
  228
  245
  263
  282
  302
  323
  344
  366
  390
  414
  439
  466
  493
  522
  553
  584
  617
  652
  688
EBITDA, $m
  67
  75
  86
  98
  110
  123
  136
  150
  164
  179
  195
  211
  228
  245
  263
  282
  302
  323
  344
  366
  390
  414
  439
  466
  493
  522
  553
  584
  617
  652
  688
Interest expense (income), $m
  0
  0
  0
  1
  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
  14
Earnings before tax, $m
  73
  75
  86
  97
  109
  121
  134
  148
  162
  177
  192
  208
  224
  241
  259
  277
  297
  317
  338
  359
  382
  406
  431
  456
  483
  512
  541
  572
  604
  638
  674
Tax expense, $m
  26
  20
  23
  26
  29
  33
  36
  40
  44
  48
  52
  56
  60
  65
  70
  75
  80
  86
  91
  97
  103
  110
  116
  123
  131
  138
  146
  154
  163
  172
  182
Net income, $m
  46
  55
  63
  71
  80
  89
  98
  108
  118
  129
  140
  152
  164
  176
  189
  203
  217
  231
  247
  262
  279
  296
  314
  333
  353
  374
  395
  418
  441
  466
  492

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
  160
  179
  198
  218
  239
  261
  284
  308
  332
  358
  385
  413
  442
  472
  503
  535
  569
  605
  641
  679
  719
  761
  804
  849
  897
  946
  998
  1,052
  1,108
  1,167
Adjusted assets (=assets-cash), $m
  143
  160
  179
  198
  218
  239
  261
  284
  308
  332
  358
  385
  413
  442
  472
  503
  535
  569
  605
  641
  679
  719
  761
  804
  849
  897
  946
  998
  1,052
  1,108
  1,167
Revenue / Adjusted assets
  0.951
  0.950
  0.950
  0.949
  0.950
  0.950
  0.950
  0.951
  0.951
  0.952
  0.953
  0.951
  0.952
  0.950
  0.951
  0.950
  0.951
  0.951
  0.950
  0.952
  0.951
  0.951
  0.950
  0.951
  0.952
  0.951
  0.951
  0.951
  0.951
  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
  -64
  -71
  -79
  -87
  -95
  -104
  -113
  -123
  -132
  -143
  -153
  -164
  -176
  -188
  -200
  -213
  -227
  -241
  -255
  -271
  -287
  -303
  -320
  -338
  -357
  -377
  -398
  -419
  -442
  -465
Total debt, $m
  0
  7
  15
  23
  32
  41
  50
  60
  70
  81
  92
  103
  115
  128
  140
  154
  168
  182
  197
  213
  229
  246
  264
  282
  302
  322
  343
  365
  388
  412
  437
Total liabilities, $m
  60
  68
  76
  84
  93
  102
  111
  121
  131
  142
  153
  164
  176
  189
  201
  215
  229
  243
  258
  274
  290
  307
  325
  343
  363
  383
  404
  426
  449
  473
  498
Total equity, $m
  139
  92
  102
  113
  125
  137
  149
  163
  176
  190
  205
  221
  237
  253
  270
  288
  307
  326
  346
  367
  389
  412
  436
  461
  487
  514
  542
  572
  603
  635
  669
Total liabilities and equity, $m
  199
  160
  178
  197
  218
  239
  260
  284
  307
  332
  358
  385
  413
  442
  471
  503
  536
  569
  604
  641
  679
  719
  761
  804
  850
  897
  946
  998
  1,052
  1,108
  1,167
Debt-to-equity ratio
  0.000
  0.080
  0.150
  0.210
  0.260
  0.300
  0.340
  0.370
  0.400
  0.420
  0.450
  0.470
  0.490
  0.500
  0.520
  0.530
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.610
  0.620
  0.630
  0.630
  0.640
  0.640
  0.650
  0.650
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
  55
  63
  71
  80
  89
  98
  108
  118
  129
  140
  152
  164
  176
  189
  203
  217
  231
  247
  262
  279
  296
  314
  333
  353
  374
  395
  418
  441
  466
  492
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
  55
  63
  71
  80
  89
  98
  108
  118
  129
  140
  152
  164
  176
  189
  203
  217
  231
  247
  262
  279
  296
  314
  333
  353
  374
  395
  418
  441
  466
  492
Change in working capital, $m
  -28
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Cash from operations, $m
  20
  62
  70
  79
  88
  97
  107
  117
  128
  139
  150
  162
  175
  188
  201
  215
  230
  245
  261
  277
  294
  312
  331
  351
  371
  392
  415
  438
  463
  488
  515
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
  62
  70
  79
  88
  97
  107
  117
  128
  139
  150
  162
  175
  188
  201
  215
  230
  245
  261
  277
  294
  312
  331
  351
  371
  392
  415
  438
  463
  488
  515
Issuance/(repayment) of debt, $m
  0
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
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
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
Total cash flow (excl. dividends), $m
  20
  69
  78
  87
  96
  106
  116
  127
  138
  149
  161
  174
  187
  200
  214
  228
  243
  259
  276
  293
  311
  329
  349
  369
  390
  413
  436
  460
  486
  513
  541
Retained Cash Flow (-), $m
  -34
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
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
 
  116
  67
  76
  85
  94
  104
  114
  124
  135
  146
  158
  171
  183
  197
  210
  225
  240
  255
  272
  289
  306
  325
  344
  364
  385
  408
  431
  455
  480
  507
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
 
  112
  62
  66
  70
  73
  75
  77
  78
  78
  77
  75
  73
  70
  66
  62
  57
  52
  47
  42
  37
  32
  27
  23
  19
  15
  12
  9
  7
  5
  4
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 12.1% 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 3.476 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 4Q profit   [Feb-22-18 05:42PM  Associated Press]
▶ T Rowe Price Buys Kimberly-Clark, Philip Morris   [Jan-16-18 12:07PM  GuruFocus.com]
▶ An Excellent Large Company Fund   [Nov-11-17 11:48PM  Morningstar]
▶ Diamond Hill Investment Group posts 3Q profit   [Oct-26-17 07:27PM  Associated Press]
▶ 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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