Intrinsic value of FBL Financial Group - FFG

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$61.70

  Intrinsic Value

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  Value-price divergence*

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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 1.5

 

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
  4.30
  4.37
  4.43
  4.49
  4.54
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.89
  4.91
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
Revenue, $m
  0
  755
  788
  823
  860
  899
  940
  984
  1,030
  1,078
  1,129
  1,183
  1,239
  1,299
  1,361
  1,427
  1,497
  1,570
  1,646
  1,727
  1,812
  1,901
  1,994
  2,092
  2,196
  2,304
  2,418
  2,538
  2,664
  2,796
  2,935
Variable operating expenses, $m
 
  589
  615
  642
  671
  701
  733
  767
  803
  841
  881
  923
  967
  1,013
  1,062
  1,113
  1,167
  1,224
  1,284
  1,347
  1,413
  1,482
  1,555
  1,632
  1,713
  1,797
  1,886
  1,980
  2,078
  2,181
  2,289
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
  589
  615
  642
  671
  701
  733
  767
  803
  841
  881
  923
  967
  1,013
  1,062
  1,113
  1,167
  1,224
  1,284
  1,347
  1,413
  1,482
  1,555
  1,632
  1,713
  1,797
  1,886
  1,980
  2,078
  2,181
  2,289
Operating income, $m
  147
  166
  173
  181
  189
  198
  207
  216
  227
  237
  248
  260
  273
  286
  300
  314
  329
  345
  362
  380
  399
  418
  439
  460
  483
  507
  532
  558
  586
  615
  646
EBITDA, $m
  178
  166
  173
  181
  189
  198
  207
  216
  227
  237
  248
  260
  273
  286
  300
  314
  329
  345
  362
  380
  399
  418
  439
  460
  483
  507
  532
  558
  586
  615
  646
Interest expense (income), $m
  5
  5
  23
  41
  60
  79
  100
  122
  145
  170
  195
  222
  251
  281
  313
  346
  381
  418
  457
  498
  541
  586
  633
  683
  735
  790
  848
  909
  972
  1,039
  1,110
Earnings before tax, $m
  142
  161
  150
  140
  130
  119
  107
  94
  81
  68
  53
  38
  22
  5
  -13
  -32
  -52
  -73
  -95
  -118
  -142
  -168
  -194
  -223
  -252
  -283
  -316
  -350
  -386
  -424
  -464
Tax expense, $m
  46
  43
  40
  38
  35
  32
  29
  26
  22
  18
  14
  10
  6
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  107
  117
  109
  102
  95
  87
  78
  69
  59
  49
  39
  28
  16
  3
  -13
  -32
  -52
  -73
  -95
  -118
  -142
  -168
  -194
  -223
  -252
  -283
  -316
  -350
  -386
  -424
  -464

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
  9,559
  9,976
  10,419
  10,886
  11,381
  11,903
  12,454
  13,035
  13,647
  14,292
  14,972
  15,688
  16,441
  17,234
  18,068
  18,945
  19,868
  20,838
  21,858
  22,931
  24,058
  25,242
  26,487
  27,795
  29,169
  30,613
  32,129
  33,723
  35,397
  37,155
Adjusted assets (=assets-cash), $m
  9,566
  9,559
  9,976
  10,419
  10,886
  11,381
  11,903
  12,454
  13,035
  13,647
  14,292
  14,972
  15,688
  16,441
  17,234
  18,068
  18,945
  19,868
  20,838
  21,858
  22,931
  24,058
  25,242
  26,487
  27,795
  29,169
  30,613
  32,129
  33,723
  35,397
  37,155
Revenue / Adjusted assets
  0.000
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
  0.079
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
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  62
Total debt, $m
  97
  487
  853
  1,241
  1,650
  2,083
  2,541
  3,023
  3,532
  4,069
  4,634
  5,229
  5,856
  6,516
  7,211
  7,942
  8,710
  9,518
  10,368
  11,262
  12,201
  13,188
  14,226
  15,316
  16,462
  17,666
  18,931
  20,259
  21,655
  23,121
  24,662
Total liabilities, $m
  8,378
  8,373
  8,739
  9,127
  9,536
  9,969
  10,427
  10,909
  11,418
  11,955
  12,520
  13,115
  13,742
  14,402
  15,097
  15,828
  16,596
  17,404
  18,254
  19,148
  20,087
  21,074
  22,112
  23,202
  24,348
  25,552
  26,817
  28,145
  29,541
  31,007
  32,548
Total equity, $m
  1,188
  1,185
  1,237
  1,292
  1,350
  1,411
  1,476
  1,544
  1,616
  1,692
  1,772
  1,857
  1,945
  2,039
  2,137
  2,240
  2,349
  2,464
  2,584
  2,710
  2,843
  2,983
  3,130
  3,284
  3,447
  3,617
  3,796
  3,984
  4,182
  4,389
  4,607
Total liabilities and equity, $m
  9,566
  9,558
  9,976
  10,419
  10,886
  11,380
  11,903
  12,453
  13,034
  13,647
  14,292
  14,972
  15,687
  16,441
  17,234
  18,068
  18,945
  19,868
  20,838
  21,858
  22,930
  24,057
  25,242
  26,486
  27,795
  29,169
  30,613
  32,129
  33,723
  35,396
  37,155
Debt-to-equity ratio
  0.082
  0.410
  0.690
  0.960
  1.220
  1.480
  1.720
  1.960
  2.190
  2.400
  2.610
  2.820
  3.010
  3.200
  3.370
  3.540
  3.710
  3.860
  4.010
  4.160
  4.290
  4.420
  4.550
  4.660
  4.780
  4.880
  4.990
  5.090
  5.180
  5.270
  5.350
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
  117
  109
  102
  95
  87
  78
  69
  59
  49
  39
  28
  16
  3
  -13
  -32
  -52
  -73
  -95
  -118
  -142
  -168
  -194
  -223
  -252
  -283
  -316
  -350
  -386
  -424
  -464
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
  117
  109
  102
  95
  87
  78
  69
  59
  49
  39
  28
  16
  3
  -13
  -32
  -52
  -73
  -95
  -118
  -142
  -168
  -194
  -223
  -252
  -283
  -316
  -350
  -386
  -424
  -464
Change in working capital, $m
  49
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Cash from operations, $m
  240
  117
  109
  102
  94
  86
  77
  68
  58
  48
  38
  26
  15
  2
  -15
  -33
  -53
  -74
  -96
  -119
  -144
  -169
  -196
  -225
  -254
  -286
  -318
  -353
  -389
  -427
  -467
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
  117
  109
  102
  94
  86
  77
  68
  58
  48
  38
  26
  15
  2
  -15
  -33
  -53
  -74
  -96
  -119
  -144
  -169
  -196
  -225
  -254
  -286
  -318
  -353
  -389
  -427
  -467
Issuance/(repayment) of debt, $m
  -15
  375
  366
  387
  410
  433
  457
  483
  509
  537
  565
  595
  627
  660
  694
  731
  769
  808
  850
  894
  939
  987
  1,038
  1,090
  1,146
  1,204
  1,265
  1,329
  1,396
  1,466
  1,540
Issuance/(repurchase) of shares, $m
  2
  0
  0
  0
  0
  0
  0
  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  
  244
  375
  366
  387
  410
  433
  457
  483
  509
  537
  565
  595
  627
  660
  694
  731
  769
  808
  850
  894
  939
  987
  1,038
  1,090
  1,146
  1,204
  1,265
  1,329
  1,396
  1,466
  1,540
Total cash flow (excl. dividends), $m
  96
  492
  475
  489
  504
  519
  534
  551
  567
  585
  603
  622
  642
  662
  680
  697
  715
  734
  754
  774
  795
  818
  841
  866
  891
  918
  946
  976
  1,007
  1,039
  1,073
Retained Cash Flow (-), $m
  -54
  -51
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -114
  -120
  -126
  -133
  -140
  -147
  -154
  -162
  -170
  -179
  -188
  -198
  -208
  -218
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
 
  441
  423
  434
  446
  457
  470
  482
  495
  509
  523
  538
  553
  569
  582
  594
  606
  620
  633
  648
  663
  678
  694
  711
  729
  748
  767
  788
  809
  832
  855
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
 
  423
  387
  378
  367
  355
  341
  326
  310
  292
  274
  255
  236
  216
  195
  174
  154
  135
  117
  100
  84
  70
  58
  47
  37
  29
  22
  17
  13
  9
  6
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

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 14.4
Price to Sales 2.1
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 6.4
Price to Free Cash Flow 6.7
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 $724 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 4.3% 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%.

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 0 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 2.1%. 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 - $1134 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 $1.5 billion.


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COMPANY NEWS

▶ 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]
▶ FBL Financial Group Declares Quarterly Dividend   [May-19-16 04:15PM  Business Wire]
Stock chart of FFG Financial statements of FFG Annual reports 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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