Intrinsic value of HC2 Holdings - HCHC

Previous Close

$5.43

  Intrinsic Value

$0.30

stock screener

  Rating & Target

str. sell

-95%

Previous close

$5.43

 
Intrinsic value

$0.30

 
Up/down potential

-95%

 
Rating

str. sell

We calculate the intrinsic value of HCHC 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 2013), $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 0.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2013(a)
   2014
   2015
   2016
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -23.76
  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
  231
  236
  241
  247
  254
  262
  270
  280
  290
  300
  312
  324
  337
  351
  366
  382
  399
  416
  435
  455
  476
  498
  521
  546
  572
  599
  627
  658
  689
  723
  758
Variable operating expenses, $m
 
  276
  283
  290
  298
  307
  317
  328
  340
  352
  366
  380
  395
  412
  429
  448
  467
  488
  510
  533
  558
  583
  611
  639
  670
  702
  735
  770
  808
  847
  888
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
  270
  276
  283
  290
  298
  307
  317
  328
  340
  352
  366
  380
  395
  412
  429
  448
  467
  488
  510
  533
  558
  583
  611
  639
  670
  702
  735
  770
  808
  847
  888
Operating income, $m
  -39
  -41
  -42
  -43
  -44
  -45
  -47
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -66
  -68
  -71
  -75
  -78
  -82
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -118
  -124
  -130
EBITDA, $m
  -15
  -27
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -60
  -62
  -65
  -69
  -72
  -75
  -79
  -83
  -87
Interest expense (income), $m
  10
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  11
  11
Earnings before tax, $m
  -25
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -122
  -128
  -135
  -141
Tax expense, $m
  -7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  112
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -122
  -128
  -135
  -141

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  0
  0
  0
  0
  0
  0
  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
  88
  81
  82
  85
  87
  90
  92
  96
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  149
  156
  163
  170
  178
  187
  195
  205
  215
  225
  236
  247
  259
Adjusted assets (=assets-cash), $m
  79
  81
  82
  85
  87
  90
  92
  96
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  149
  156
  163
  170
  178
  187
  195
  205
  215
  225
  236
  247
  259
Revenue / Adjusted assets
  2.924
  2.914
  2.939
  2.906
  2.920
  2.911
  2.935
  2.917
  2.929
  2.913
  2.916
  2.919
  2.930
  2.925
  2.928
  2.916
  2.934
  2.930
  2.919
  2.917
  2.920
  2.929
  2.927
  2.920
  2.933
  2.922
  2.916
  2.924
  2.919
  2.927
  2.927
Average production assets, $m
  66
  67
  69
  71
  73
  75
  77
  80
  83
  86
  89
  93
  96
  100
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  207
  217
Working capital, $m
  43
  35
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
Total debt, $m
  0
  1
  1
  2
  3
  5
  6
  7
  9
  10
  12
  14
  16
  18
  20
  22
  25
  27
  30
  33
  36
  39
  43
  46
  50
  54
  58
  63
  67
  72
  77
Total liabilities, $m
  33
  35
  35
  36
  37
  39
  40
  41
  43
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
Total equity, $m
  54
  46
  47
  48
  50
  51
  53
  54
  56
  59
  61
  63
  66
  68
  71
  74
  78
  81
  85
  89
  93
  97
  102
  106
  111
  117
  122
  128
  134
  141
  148
Total liabilities and equity, $m
  87
  81
  82
  84
  87
  90
  93
  95
  99
  103
  107
  111
  116
  120
  125
  130
  137
  142
  149
  156
  163
  170
  179
  186
  195
  205
  214
  225
  235
  247
  259
Debt-to-equity ratio
  0.000
  0.010
  0.030
  0.050
  0.070
  0.090
  0.110
  0.130
  0.150
  0.170
  0.190
  0.220
  0.240
  0.260
  0.280
  0.300
  0.320
  0.340
  0.350
  0.370
  0.390
  0.400
  0.420
  0.430
  0.450
  0.460
  0.480
  0.490
  0.500
  0.510
  0.520
Adjusted equity ratio
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570
  0.570

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  112
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -96
  -100
  -105
  -111
  -116
  -122
  -128
  -135
  -141
Depreciation, amort., depletion, $m
  24
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  43
Funds from operations, $m
  -39
  -27
  -28
  -29
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -84
  -89
  -93
  -98
Change in working capital, $m
  -19
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Cash from operations, $m
  -20
  -28
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
  -73
  -76
  -80
  -85
  -89
  -93
  -98
  -103
Maintenance CAPEX, $m
  0
  -13
  -13
  -14
  -14
  -15
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
  -41
New CAPEX, $m
  -13
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
Cash from investing activities, $m
  258
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -22
  -23
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -37
  -38
  -41
  -42
  -45
  -47
  -49
  -51
Free cash flow, $m
  238
  -42
  -44
  -45
  -47
  -48
  -50
  -52
  -55
  -57
  -59
  -62
  -65
  -68
  -71
  -75
  -78
  -82
  -86
  -90
  -95
  -99
  -104
  -110
  -115
  -121
  -127
  -133
  -140
  -147
  -155
Issuance/(repayment) of debt, $m
  -129
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Issuance/(repurchase) of shares, $m
  1
  42
  43
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  69
  72
  75
  79
  83
  87
  91
  95
  100
  105
  110
  116
  122
  128
  134
  141
  148
Cash from financing (excl. dividends), $m  
  -129
  43
  44
  45
  47
  48
  50
  52
  54
  57
  60
  62
  65
  67
  71
  74
  77
  82
  86
  90
  94
  98
  103
  109
  114
  120
  126
  132
  139
  146
  153
Total cash flow (excl. dividends), $m
  107
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Retained Cash Flow (-), $m
  15
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -65
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
  -148
Prev. year cash balance distribution, $m
 
  9
  0
  0
  0
  0
  0
  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
 
  -33
  -43
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -65
  -69
  -72
  -75
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -134
  -141
  -148
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
 
  -31
  -39
  -38
  -38
  -37
  -36
  -34
  -33
  -32
  -30
  -28
  -27
  -25
  -23
  -21
  -19
  -17
  -15
  -13
  -12
  -10
  -8
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
Current shareholders' claim on cash, %
  100
  82.4
  67.7
  55.6
  45.6
  37.4
  30.6
  25.0
  20.4
  16.6
  13.6
  11.0
  9.0
  7.3
  5.9
  4.8
  3.9
  3.2
  2.6
  2.1
  1.7
  1.4
  1.1
  0.9
  0.7
  0.6
  0.5
  0.4
  0.3
  0.2
  0.2

HC2 Holdings, Inc. is a holding company. The Company operates through seven segments: Manufacturing (Schuff), Marine Services (GMSL), Insurance, Telecommunications (PTGi-ICS), Utilities, Life Sciences and Other. Schuff fabricates and erects structural steel for commercial and industrial construction projects, such as high- and low-rise buildings and office complexes, hospitals, dams, bridges, mines and power plants. GMSL is an offshore engineering company focused on specialist subsea services across the market sectors, such as telecommunications, oil and gas, and offshore power. The Insurance segment, CIG, provides long-term care, life and annuity coverage to approximately 99,000 individuals through its Insurance Companies. The PTGi-ICS business unit provides customers with Internet-based protocol and time-division multiplexing (TDM) access and transport of long distance voice minutes. The Life Sciences segment focuses on the development of technologies and products in healthcare. _tck('aft');

FINANCIAL RATIOS  of  HC2 Holdings (HCHC)

Valuation Ratios
P/E Ratio 0.7
Price to Sales 0.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow -3.9
Price to Free Cash Flow -2.3
Growth Rates
Sales Growth Rate -23.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -59.4%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage -2
Management Effectiveness
Return On Assets 61.3%
Ret/ On Assets - 3 Yr. Avg. 23.8%
Return On Total Capital 89.6%
Ret/ On T. Cap. - 3 Yr. Avg. 29.4%
Return On Equity 182.1%
Return On Equity - 3 Yr. Avg. 57.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 4.3%
Gross Margin - 3 Yr. Avg. 5.2%
EBITDA Margin 3.9%
EBITDA Margin - 3 Yr. Avg. 7.5%
Operating Margin -16.9%
Oper. Margin - 3 Yr. Avg. -14.7%
Pre-Tax Margin -10.8%
Pre-Tax Margin - 3 Yr. Avg. -12.3%
Net Profit Margin 48.5%
Net Profit Margin - 3 Yr. Avg. 16.1%
Effective Tax Rate 28%
Eff/ Tax Rate - 3 Yr. Avg. 9.8%
Payout Ratio 108%

HCHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HCHC stock intrinsic value calculation we used $231 million for the last fiscal year's total revenue generated by HC2 Holdings. The default revenue input number comes from 2013 income statement of HC2 Holdings. 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 HCHC 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 HCHC is calculated based on our internal credit rating of HC2 Holdings, 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 HC2 Holdings.
    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 HCHC stock the variable cost ratio is equal to 117.3%.

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 HCHC 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 15.7% for HC2 Holdings.

Corporate tax rate of 27% is the nominal tax rate for HC2 Holdings. 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 HCHC 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 HCHC are equal to 28.6%.

Life of production assets of 4.1 years is the average useful life of capital assets used in HC2 Holdings 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 HCHC is equal to 14.7%. 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 - $54 million for HC2 Holdings - 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 43.013 million for HC2 Holdings 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 HC2 Holdings at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ HC2 to Acquire Assets of Mako Communications   [Sep-13-17 06:09PM  GlobeNewswire]
▶ HC2 Holdings reports 2Q loss   [Aug-09-17 10:31PM  Associated Press]
▶ HC2 to Acquire Majority Interest in DTV America   [Jun-27-17 06:45PM  GlobeNewswire]
▶ ETFs with exposure to HC2 Holdings, Inc. : June 22, 2017   [Jun-22-17 03:48PM  Capital Cube]
▶ Falcone Says He Wishes He Settled With SEC Sooner   [May-30-17 02:25PM  Bloomberg]
▶ HC2 Holdings reports 1Q loss   [May-10-17 04:54PM  Associated Press]
▶ ETFs with exposure to HC2 Holdings, Inc. : April 5, 2017   [Apr-05-17 04:51PM  Capital Cube]
▶ DBM Global to Pay Cash Dividend   [04:01PM  Marketwired]
▶ Is HC2 Holdings Inc (HCHC) A Good Stock To Buy?   [Dec-18-16 09:46PM  at Insider Monkey]
▶ Daily Wrap: The Biggest Hedge Fund Moves of the Day   [Oct-19-16 02:04PM  at Insider Monkey]
▶ Concurrents Appointment of Directors   [09:01AM  GlobeNewswire]
▶ HC2 Holdings posts 2Q profit   [Aug-09-16 07:40PM  AP]
Financial statements of HCHC
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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