Intrinsic value of Diamond Hill Investment Group - DHIL

Previous Close

$190.11

  Intrinsic Value

$561.42

stock screener

  Rating & Target

str. buy

+195%

  Value-price divergence*

0%

Previous close

$190.11

 
Intrinsic value

$561.42

 
Up/down potential

+195%

 
Rating

str. buy

 
Value-price divergence*

0%

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

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

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 0.6

 

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, %
  9.68
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  136
  159
  183
  210
  238
  269
  300
  334
  370
  407
  445
  486
  528
  572
  618
  665
  714
  765
  819
  874
  931
  991
  1,053
  1,118
  1,186
  1,256
  1,329
  1,406
  1,486
  1,569
  1,656
Variable operating expenses, $m
 
  53
  61
  69
  79
  89
  99
  111
  122
  135
  147
  161
  175
  189
  204
  220
  236
  253
  271
  289
  308
  328
  349
  370
  392
  416
  440
  465
  492
  519
  548
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
  80
  88
  97
  108
  118
  129
  142
  154
  167
  180
  195
  210
  225
  241
  258
  275
  293
  312
  331
  351
  372
  394
  416
  439
  464
  489
  516
  544
  572
  603
Operating income, $m
  66
  80
  95
  112
  131
  150
  171
  193
  216
  240
  265
  291
  318
  347
  376
  407
  439
  472
  507
  543
  580
  619
  660
  702
  746
  792
  840
  890
  942
  997
  1,054
EBITDA, $m
  67
  80
  95
  112
  131
  150
  171
  193
  216
  240
  265
  291
  318
  347
  376
  407
  439
  472
  507
  543
  580
  619
  660
  702
  746
  792
  840
  890
  942
  997
  1,054
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  13
  14
  15
  16
  18
  19
  20
  21
  23
Earnings before tax, $m
  73
  80
  95
  112
  130
  149
  169
  190
  212
  236
  260
  286
  313
  341
  370
  400
  431
  463
  497
  532
  569
  607
  647
  688
  731
  776
  822
  871
  922
  975
  1,031
Tax expense, $m
  26
  21
  26
  30
  35
  40
  46
  51
  57
  64
  70
  77
  84
  92
  100
  108
  116
  125
  134
  144
  154
  164
  175
  186
  197
  209
  222
  235
  249
  263
  278
Net income, $m
  46
  58
  69
  82
  95
  108
  123
  139
  155
  172
  190
  209
  228
  249
  270
  292
  315
  338
  363
  389
  415
  443
  472
  502
  533
  566
  600
  636
  673
  712
  753

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
  167
  193
  221
  251
  282
  316
  351
  389
  428
  468
  511
  555
  601
  649
  699
  751
  805
  861
  919
  979
  1,042
  1,108
  1,176
  1,247
  1,321
  1,398
  1,478
  1,562
  1,650
  1,742
Adjusted assets (=assets-cash), $m
  143
  167
  193
  221
  251
  282
  316
  351
  389
  428
  468
  511
  555
  601
  649
  699
  751
  805
  861
  919
  979
  1,042
  1,108
  1,176
  1,247
  1,321
  1,398
  1,478
  1,562
  1,650
  1,742
Revenue / Adjusted assets
  0.951
  0.952
  0.948
  0.950
  0.948
  0.954
  0.949
  0.952
  0.951
  0.951
  0.951
  0.951
  0.951
  0.952
  0.952
  0.951
  0.951
  0.950
  0.951
  0.951
  0.951
  0.951
  0.950
  0.951
  0.951
  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
  -16
  -18
  -21
  -24
  -27
  -30
  -33
  -37
  -41
  -45
  -49
  -53
  -57
  -62
  -66
  -71
  -77
  -82
  -87
  -93
  -99
  -105
  -112
  -119
  -126
  -133
  -141
  -149
  -157
  -166
Total debt, $m
  0
  10
  21
  33
  46
  60
  74
  89
  105
  122
  139
  157
  176
  196
  216
  238
  260
  283
  307
  331
  357
  384
  412
  441
  471
  503
  536
  570
  606
  644
  683
Total liabilities, $m
  60
  71
  82
  94
  107
  121
  135
  150
  166
  183
  200
  218
  237
  257
  277
  299
  321
  344
  368
  392
  418
  445
  473
  502
  532
  564
  597
  631
  667
  705
  744
Total equity, $m
  139
  96
  110
  126
  144
  162
  181
  201
  223
  245
  268
  293
  318
  345
  372
  401
  430
  461
  493
  527
  561
  597
  635
  674
  714
  757
  801
  847
  895
  946
  998
Total liabilities and equity, $m
  199
  167
  192
  220
  251
  283
  316
  351
  389
  428
  468
  511
  555
  602
  649
  700
  751
  805
  861
  919
  979
  1,042
  1,108
  1,176
  1,246
  1,321
  1,398
  1,478
  1,562
  1,651
  1,742
Debt-to-equity ratio
  0.000
  0.110
  0.190
  0.260
  0.320
  0.370
  0.410
  0.440
  0.470
  0.500
  0.520
  0.540
  0.550
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.640
  0.650
  0.650
  0.660
  0.660
  0.670
  0.670
  0.680
  0.680
  0.680
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
  58
  69
  82
  95
  108
  123
  139
  155
  172
  190
  209
  228
  249
  270
  292
  315
  338
  363
  389
  415
  443
  472
  502
  533
  566
  600
  636
  673
  712
  753
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
  58
  69
  82
  95
  108
  123
  139
  155
  172
  190
  209
  228
  249
  270
  292
  315
  338
  363
  389
  415
  443
  472
  502
  533
  566
  600
  636
  673
  712
  753
Change in working capital, $m
  -28
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Cash from operations, $m
  20
  60
  72
  84
  97
  112
  126
  142
  159
  176
  194
  213
  233
  253
  274
  296
  319
  343
  368
  394
  421
  449
  478
  509
  540
  573
  608
  644
  681
  720
  761
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
  60
  72
  84
  97
  112
  126
  142
  159
  176
  194
  213
  233
  253
  274
  296
  319
  343
  368
  394
  421
  449
  478
  509
  540
  573
  608
  644
  681
  720
  761
Issuance/(repayment) of debt, $m
  0
  10
  11
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
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
  10
  11
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
Total cash flow (excl. dividends), $m
  20
  71
  83
  96
  110
  125
  141
  157
  175
  193
  211
  231
  251
  273
  295
  318
  342
  366
  392
  419
  447
  476
  506
  538
  571
  605
  641
  678
  717
  758
  800
Retained Cash Flow (-), $m
  -34
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
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
 
  114
  68
  80
  93
  107
  122
  137
  153
  170
  188
  207
  226
  246
  267
  289
  312
  336
  360
  386
  412
  440
  469
  499
  530
  562
  596
  632
  669
  708
  748
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
  62
  70
  77
  83
  88
  93
  96
  98
  99
  98
  96
  94
  90
  85
  79
  73
  66
  59
  52
  45
  39
  33
  27
  22
  17
  14
  10
  8
  6
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Diamond Hill Investment Group, Inc., together with its subsidiaries, provides investment advisory and fund administration services in the United States. It sponsors, distributes, and offers investment advisory and related services to a range of clients, such as corporations, mutual funds, retirement plans, public pension funds, endowments, foundations, financial institutions, and high net worth individuals. The company also provides fund administration services, including portfolio and regulatory compliance, treasury and financial oversight, and general business management and governance of the mutual fund complex, as well as oversight of back-office service providers, such as the custodian, fund accountant, and transfer agent. It offers investment advisory services to third-party financial intermediaries comprising independent registered investment advisors, brokers, financial planners, and wealth advisers; and fund administration services primarily to investment advisers and mutual funds. The company was founded in 1990 and is based in Columbus, Ohio.

FINANCIAL RATIOS  of  Diamond Hill Investment Group (DHIL)

Valuation Ratios
P/E Ratio 14.1
Price to Sales 4.8
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 32.4
Price to Free Cash Flow 32.4
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 16.7% 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 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 10 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 -10%. 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 3.383 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 $0.6 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]
Stock chart of DHIL 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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