Intrinsic value of FBL Financial Group - FFG

Previous Close

$71.00

  Intrinsic Value

$169.43

stock screener

  Rating & Target

str. buy

+139%

  Value-price divergence*

+43%

Previous close

$71.00

 
Intrinsic value

$169.43

 
Up/down potential

+139%

 
Rating

str. buy

 
Value-price divergence*

+43%

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

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

We calculate the intrinsic value of FFG 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 1.7

 

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, %
  1.38
  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
  0
  749
  766
  786
  808
  832
  859
  888
  920
  954
  991
  1,030
  1,072
  1,116
  1,163
  1,214
  1,267
  1,323
  1,383
  1,446
  1,512
  1,582
  1,656
  1,734
  1,816
  1,902
  1,993
  2,089
  2,190
  2,296
  2,408
Variable operating expenses, $m
 
  586
  600
  615
  632
  652
  673
  696
  720
  747
  776
  806
  839
  874
  911
  950
  992
  1,036
  1,083
  1,132
  1,184
  1,239
  1,297
  1,358
  1,422
  1,490
  1,561
  1,636
  1,715
  1,798
  1,885
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
  587
  586
  600
  615
  632
  652
  673
  696
  720
  747
  776
  806
  839
  874
  911
  950
  992
  1,036
  1,083
  1,132
  1,184
  1,239
  1,297
  1,358
  1,422
  1,490
  1,561
  1,636
  1,715
  1,798
  1,885
Operating income, $m
  147
  162
  166
  170
  175
  181
  186
  193
  200
  207
  215
  223
  233
  242
  252
  263
  275
  287
  300
  314
  328
  343
  359
  376
  394
  413
  433
  453
  475
  498
  522
EBITDA, $m
  178
  162
  166
  170
  175
  181
  186
  193
  200
  207
  215
  223
  233
  242
  252
  263
  275
  287
  300
  314
  328
  343
  359
  376
  394
  413
  433
  453
  475
  498
  522
Interest expense (income), $m
  5
  5
  11
  21
  32
  44
  57
  72
  88
  105
  124
  144
  165
  188
  212
  238
  265
  294
  325
  358
  392
  428
  466
  507
  549
  594
  641
  691
  743
  798
  856
Earnings before tax, $m
  142
  158
  155
  150
  144
  137
  129
  121
  112
  102
  91
  80
  68
  54
  40
  26
  10
  -7
  -25
  -44
  -64
  -85
  -107
  -131
  -155
  -181
  -209
  -238
  -268
  -300
  -334
Tax expense, $m
  46
  43
  42
  40
  39
  37
  35
  33
  30
  28
  25
  22
  18
  15
  11
  7
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  107
  115
  113
  109
  105
  100
  95
  88
  82
  75
  67
  58
  49
  40
  30
  19
  7
  -7
  -25
  -44
  -64
  -85
  -107
  -131
  -155
  -181
  -209
  -238
  -268
  -300
  -334

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  9,566
  9,723
  9,947
  10,202
  10,489
  10,807
  11,156
  11,536
  11,948
  12,391
  12,866
  13,375
  13,918
  14,496
  15,110
  15,762
  16,452
  17,184
  17,957
  18,774
  19,636
  20,547
  21,506
  22,518
  23,584
  24,707
  25,889
  27,133
  28,443
  29,820
  31,269
Adjusted assets (=assets-cash), $m
  9,566
  9,723
  9,947
  10,202
  10,489
  10,807
  11,156
  11,536
  11,948
  12,391
  12,866
  13,375
  13,918
  14,496
  15,110
  15,762
  16,452
  17,184
  17,957
  18,774
  19,636
  20,547
  21,506
  22,518
  23,584
  24,707
  25,889
  27,133
  28,443
  29,820
  31,269
Revenue / Adjusted assets
  0.000
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
  0.077
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
  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 debt, $m
  97
  236
  432
  656
  908
  1,186
  1,492
  1,825
  2,185
  2,573
  2,990
  3,435
  3,911
  4,417
  4,955
  5,526
  6,131
  6,772
  7,449
  8,165
  8,920
  9,718
  10,559
  11,445
  12,379
  13,362
  14,398
  15,488
  16,635
  17,842
  19,111
Total liabilities, $m
  8,378
  8,517
  8,713
  8,937
  9,189
  9,467
  9,773
  10,106
  10,466
  10,854
  11,271
  11,716
  12,192
  12,698
  13,236
  13,807
  14,412
  15,053
  15,730
  16,446
  17,201
  17,999
  18,840
  19,726
  20,660
  21,643
  22,679
  23,769
  24,916
  26,123
  27,392
Total equity, $m
  1,188
  1,206
  1,233
  1,265
  1,301
  1,340
  1,383
  1,430
  1,481
  1,536
  1,595
  1,658
  1,726
  1,797
  1,874
  1,954
  2,040
  2,131
  2,227
  2,328
  2,435
  2,548
  2,667
  2,792
  2,924
  3,064
  3,210
  3,365
  3,527
  3,698
  3,877
Total liabilities and equity, $m
  9,566
  9,723
  9,946
  10,202
  10,490
  10,807
  11,156
  11,536
  11,947
  12,390
  12,866
  13,374
  13,918
  14,495
  15,110
  15,761
  16,452
  17,184
  17,957
  18,774
  19,636
  20,547
  21,507
  22,518
  23,584
  24,707
  25,889
  27,134
  28,443
  29,821
  31,269
Debt-to-equity ratio
  0.082
  0.200
  0.350
  0.520
  0.700
  0.890
  1.080
  1.280
  1.470
  1.670
  1.870
  2.070
  2.270
  2.460
  2.640
  2.830
  3.010
  3.180
  3.350
  3.510
  3.660
  3.810
  3.960
  4.100
  4.230
  4.360
  4.480
  4.600
  4.720
  4.830
  4.930
Adjusted equity ratio
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124
  0.124

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  107
  115
  113
  109
  105
  100
  95
  88
  82
  75
  67
  58
  49
  40
  30
  19
  7
  -7
  -25
  -44
  -64
  -85
  -107
  -131
  -155
  -181
  -209
  -238
  -268
  -300
  -334
Depreciation, amort., depletion, $m
  31
  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
  289
  115
  113
  109
  105
  100
  95
  88
  82
  75
  67
  58
  49
  40
  30
  19
  7
  -7
  -25
  -44
  -64
  -85
  -107
  -131
  -155
  -181
  -209
  -238
  -268
  -300
  -334
Change in working capital, $m
  49
  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
  240
  115
  113
  109
  105
  100
  95
  88
  82
  75
  67
  58
  49
  40
  30
  19
  7
  -7
  -25
  -44
  -64
  -85
  -107
  -131
  -155
  -181
  -209
  -238
  -268
  -300
  -334
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
  -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
Cash from investing activities, $m
  -388
  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
  -148
  115
  113
  109
  105
  100
  95
  88
  82
  75
  67
  58
  49
  40
  30
  19
  7
  -7
  -25
  -44
  -64
  -85
  -107
  -131
  -155
  -181
  -209
  -238
  -268
  -300
  -334
Issuance/(repayment) of debt, $m
  -15
  139
  196
  224
  251
  279
  306
  333
  360
  388
  417
  446
  476
  506
  538
  571
  605
  640
  677
  716
  756
  797
  841
  886
  934
  984
  1,036
  1,090
  1,147
  1,207
  1,269
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  5
  18
  32
  47
  62
  79
  98
  121
  145
  171
  198
  226
  256
  287
  321
  355
  392
  431
  471
  514
Cash from financing (excl. dividends), $m  
  244
  139
  196
  224
  251
  279
  306
  333
  360
  388
  417
  451
  494
  538
  585
  633
  684
  738
  798
  861
  927
  995
  1,067
  1,142
  1,221
  1,305
  1,391
  1,482
  1,578
  1,678
  1,783
Total cash flow (excl. dividends), $m
  96
  255
  309
  333
  356
  379
  400
  421
  442
  463
  483
  509
  543
  578
  614
  652
  691
  731
  773
  817
  863
  910
  960
  1,012
  1,066
  1,123
  1,182
  1,244
  1,309
  1,377
  1,449
Retained Cash Flow (-), $m
  -54
  -18
  -28
  -32
  -36
  -39
  -43
  -47
  -51
  -55
  -59
  -63
  -67
  -72
  -76
  -81
  -86
  -98
  -121
  -145
  -171
  -198
  -226
  -256
  -287
  -321
  -355
  -392
  -431
  -471
  -514
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
 
  237
  281
  302
  321
  339
  357
  374
  391
  408
  424
  446
  476
  506
  538
  571
  605
  633
  652
  672
  692
  712
  734
  756
  779
  802
  827
  852
  879
  906
  935
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
 
  227
  257
  262
  264
  263
  259
  253
  244
  234
  222
  212
  203
  193
  181
  168
  154
  138
  120
  103
  88
  74
  61
  50
  40
  31
  24
  18
  14
  10
  7
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
  99.8
  99.1
  97.8
  96.1
  94.0
  91.5
  88.6
  85.3
  81.6
  77.7
  73.6
  69.4
  65.1
  60.9
  56.6
  52.5
  48.4
  44.5
  40.8
  37.3

FBL Financial Group, Inc., through its subsidiaries, sells annuity and individual life insurance products. The Annuity segment sells various traditional annuity products that primarily consist of fixed rate and indexed annuities, and supplementary contracts. The Life Insurance segment offers whole life, term life, and universal life policies. The company markets its products to Farm Bureau members, and other individuals and businesses through exclusive agents and agency managers principally under the consumer brand name of Farm Bureau Financial Services in the Midwestern and Western sections of the United States. The company was founded in 1945 and is headquartered in West Des Moines, Iowa.

FINANCIAL RATIOS  of  FBL Financial Group (FFG)

Valuation Ratios
P/E Ratio 16.5
Price to Sales 2.4
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 7.8
Growth Rates
Sales Growth Rate 1.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 20%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 8.2%
Total Debt to Equity 8.2%
Interest Coverage 29
Management Effectiveness
Return On Assets 1.2%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital 8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 9.2%
Return On Equity - 3 Yr. Avg. 9.4%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 24.3%
EBITDA Margin - 3 Yr. Avg. 26.1%
Operating Margin 20%
Oper. Margin - 3 Yr. Avg. 21.2%
Pre-Tax Margin 19.3%
Pre-Tax Margin - 3 Yr. Avg. 20.5%
Net Profit Margin 14.6%
Net Profit Margin - 3 Yr. Avg. 15.4%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 31.8%
Payout Ratio 86%

FFG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FFG stock intrinsic value calculation we used $734 million for the last fiscal year's total revenue generated by FBL Financial Group. The default revenue input number comes from 2016 income statement of FBL Financial 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 FFG 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 FFG is calculated based on our internal credit rating of FBL Financial 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 FBL Financial 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 FFG stock the variable cost ratio is equal to 78.3%.

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 FFG 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 4.8% for FBL Financial Group.

Corporate tax rate of 27% is the nominal tax rate for FBL Financial 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 FFG 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 FFG are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in FBL Financial 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 FFG is equal to 0%. 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 - $1188 million for FBL Financial 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 24.467 million for FBL Financial 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 FBL Financial Group at the current share price and the inputted number of shares is $1.7 billion.

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COMPANY NEWS

▶ FBL Financial posts 2Q profit   [03:12AM  Associated Press]
▶ FBL Financial Group Reports Second Quarter 2017 Results   [Aug-03-17 04:15PM  Business Wire]
▶ FBL Financial posts 1Q profit   [May-04-17 07:29PM  Associated Press]
▶ FBL Financial Group Presents 2016 Annual Report   [Mar-31-17 09:15AM  Business Wire]
▶ FBL Financial posts 4Q profit   [Feb-09-17 05:25PM  Associated Press]
▶ Is FBL Financial Group (FFG) A Good Stock to Buy?   [Dec-19-16 06:06AM  at Insider Monkey]
▶ FBL Financial Group Declares Quarterly Dividend   [Nov-16-16 04:47PM  Business Wire]
▶ FBL Financial Group Names Casey Decker CIO   [Jun-30-16 06:39PM  at The Wall Street Journal]
Stock chart of FFG Financial statements of FFG
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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