Intrinsic value of Hennessy Advisors - HNNA

Previous Close

$15.61

  Intrinsic Value

$47.75

stock screener

  Rating & Target

str. buy

+206%

  Value-price divergence*

0%

Previous close

$15.61

 
Intrinsic value

$47.75

 
Up/down potential

+206%

 
Rating

str. buy

 
Value-price divergence*

0%

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

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

We calculate the intrinsic value of HNNA 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 0.1

 

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, %
  13.33
  8.30
  7.97
  7.67
  7.41
  7.17
  6.95
  6.75
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.75
  5.68
  5.61
  5.55
  5.50
  5.45
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.16
Revenue, $m
  51
  55
  60
  64
  69
  74
  79
  84
  90
  96
  102
  108
  114
  121
  128
  136
  143
  152
  160
  169
  178
  188
  198
  208
  219
  231
  243
  255
  269
  282
  297
Variable operating expenses, $m
 
  28
  30
  33
  35
  38
  40
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  82
  86
  91
  96
  101
  106
  112
  118
  124
  130
  137
  144
  152
Fixed operating expenses, $m
 
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
Total operating expenses, $m
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  55
  58
  61
  65
  68
  72
  76
  80
  85
  89
  94
  99
  104
  110
  116
  122
  128
  134
  141
  148
  156
Operating income, $m
  24
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
  50
  53
  57
  60
  64
  67
  71
  75
  79
  84
  89
  93
  98
  104
  109
  115
  121
  128
  134
  141
EBITDA, $m
  24
  32
  35
  38
  41
  44
  47
  50
  54
  57
  61
  65
  69
  73
  77
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  164
  172
  181
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  23
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
  114
  121
  127
  133
Tax expense, $m
  9
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  33
  34
  36
Net income, $m
  14
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  72
  75
  79
  84
  88
  93
  97

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  0
  0
  0
  0
  0
  0
  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
  85
  88
  95
  102
  109
  117
  125
  134
  143
  152
  161
  171
  182
  193
  204
  215
  228
  240
  254
  268
  282
  298
  314
  330
  348
  366
  385
  405
  426
  448
  472
Adjusted assets (=assets-cash), $m
  81
  88
  95
  102
  109
  117
  125
  134
  143
  152
  161
  171
  182
  193
  204
  215
  228
  240
  254
  268
  282
  298
  314
  330
  348
  366
  385
  405
  426
  448
  472
Revenue / Adjusted assets
  0.630
  0.625
  0.632
  0.627
  0.633
  0.632
  0.632
  0.627
  0.629
  0.632
  0.634
  0.632
  0.626
  0.627
  0.627
  0.633
  0.627
  0.633
  0.630
  0.631
  0.631
  0.631
  0.631
  0.630
  0.629
  0.631
  0.631
  0.630
  0.631
  0.629
  0.629
Average production assets, $m
  69
  74
  80
  86
  93
  99
  106
  113
  121
  129
  137
  145
  154
  163
  172
  182
  193
  203
  215
  227
  239
  252
  265
  279
  294
  310
  326
  343
  361
  379
  399
Working capital, $m
  -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
  -5
  -6
  -6
Total debt, $m
  31
  31
  34
  38
  42
  47
  51
  56
  61
  65
  71
  76
  82
  88
  94
  100
  107
  114
  121
  128
  136
  145
  153
  162
  172
  182
  192
  203
  215
  226
  239
Total liabilities, $m
  48
  48
  51
  55
  59
  64
  68
  73
  78
  82
  88
  93
  99
  105
  111
  117
  124
  131
  138
  145
  153
  162
  170
  179
  189
  199
  209
  220
  232
  243
  256
Total equity, $m
  37
  40
  43
  47
  50
  54
  57
  61
  65
  69
  74
  78
  83
  88
  93
  98
  104
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
  185
  195
  205
  215
Total liabilities and equity, $m
  85
  88
  94
  102
  109
  118
  125
  134
  143
  151
  162
  171
  182
  193
  204
  215
  228
  241
  254
  267
  282
  298
  313
  330
  348
  366
  385
  405
  427
  448
  471
Debt-to-equity ratio
  0.838
  0.760
  0.800
  0.820
  0.850
  0.870
  0.890
  0.910
  0.930
  0.940
  0.960
  0.970
  0.980
  0.990
  1.010
  1.020
  1.020
  1.030
  1.040
  1.050
  1.060
  1.060
  1.070
  1.080
  1.080
  1.090
  1.090
  1.100
  1.100
  1.110
  1.110
Adjusted equity ratio
  0.407
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457
  0.457

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  72
  75
  79
  84
  88
  93
  97
Depreciation, amort., depletion, $m
  0
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  29
  31
  33
  34
  36
  38
  40
Funds from operations, $m
  19
  25
  27
  29
  31
  34
  36
  38
  41
  44
  47
  49
  52
  56
  59
  62
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  118
  124
  131
  137
Change in working capital, $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
Cash from operations, $m
  18
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
  59
  62
  66
  70
  74
  78
  82
  87
  91
  96
  101
  107
  112
  118
  124
  131
  138
Maintenance CAPEX, $m
  0
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -33
  -34
  -36
  -38
New CAPEX, $m
  -12
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -20
  -21
  -22
  -24
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -41
  -43
  -44
  -47
  -50
  -52
  -55
  -58
Free cash flow, $m
  6
  13
  14
  15
  16
  18
  19
  21
  22
  24
  26
  27
  29
  31
  33
  35
  37
  40
  42
  44
  47
  50
  53
  55
  58
  62
  65
  69
  72
  76
  80
Issuance/(repayment) of debt, $m
  -4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
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  
  -4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
Total cash flow (excl. dividends), $m
  2
  16
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  72
  75
  79
  84
  88
  93
Retained Cash Flow (-), $m
  -14
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
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
 
  13
  14
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
Discount rate, %
 
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
PV of cash for distribution, $m
 
  12
  13
  13
  14
  14
  14
  14
  14
  13
  13
  12
  12
  11
  10
  9
  8
  7
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
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
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Hennessy Advisors, Inc. is publicly owned investment manager. It provides its services to Hennessy Funds and investment companies. The firm launches and manages equity, fixed income, and balanced mutual funds. It invests in the public equity and fixed income markets across the globe. The firm primarily invests in growth stocks of companies. It conducts in-house research to make its investments. Hennessy Advisors, Inc. was founded in 1989 and is based in Novato, California with additional offices in Boston, Massachusetts and Chapel Hill, North Carolina.

FINANCIAL RATIOS  of  Hennessy Advisors (HNNA)

Valuation Ratios
P/E Ratio 8.5
Price to Sales 2.3
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 6.6
Price to Free Cash Flow 19.9
Growth Rates
Sales Growth Rate 13.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -10.6%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 73%
Total Debt to Equity 83.8%
Interest Coverage 24
Management Effectiveness
Return On Assets 18.5%
Ret/ On Assets - 3 Yr. Avg. 15.2%
Return On Total Capital 22.2%
Ret/ On T. Cap. - 3 Yr. Avg. 18.2%
Return On Equity 46.7%
Return On Equity - 3 Yr. Avg. 35.7%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 84.3%
Gross Margin - 3 Yr. Avg. 83.1%
EBITDA Margin 47.1%
EBITDA Margin - 3 Yr. Avg. 43.8%
Operating Margin 45.1%
Oper. Margin - 3 Yr. Avg. 44.1%
Pre-Tax Margin 45.1%
Pre-Tax Margin - 3 Yr. Avg. 41.5%
Net Profit Margin 27.5%
Net Profit Margin - 3 Yr. Avg. 24.9%
Effective Tax Rate 39.1%
Eff/ Tax Rate - 3 Yr. Avg. 39.9%
Payout Ratio 14.3%

HNNA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HNNA stock intrinsic value calculation we used $51 million for the last fiscal year's total revenue generated by Hennessy Advisors. The default revenue input number comes from 2016 income statement of Hennessy Advisors. 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 HNNA stock valuation model: a) initial revenue growth rate of 8.3% 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 4.8%, whose default value for HNNA is calculated based on our internal credit rating of Hennessy Advisors, 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 Hennessy Advisors.
    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 HNNA stock the variable cost ratio is equal to 51%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2 million in the base year in the intrinsic value calculation for HNNA 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 Hennessy Advisors.

Corporate tax rate of 27% is the nominal tax rate for Hennessy Advisors. 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 HNNA 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 HNNA are equal to 134.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Hennessy Advisors 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 HNNA is equal to -2%. 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 - $37 million for Hennessy Advisors - 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 5.048 million for Hennessy Advisors 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 Hennessy Advisors at the current share price and the inputted number of shares is $0.1 billion.

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VRTS Virtus Investm 110.20 58.13  str.sell
GROW U.S. Global In 1.32 0.40  str.sell
BEN Franklin Resou 42.83 61.32  buy
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SCHW Charles Schwab 40.74 107.58  str.buy
WDR Waddell&Reed F 18.51 43.49  str.buy

COMPANY NEWS

▶ Hennessy Advisors posts 3Q profit   [Aug-03-17 01:07AM  Associated Press]
▶ Hennessy Advisors posts 2Q profit   [May-01-17 05:12PM  Associated Press]
▶ Hennessy Funds Named 2017 Lipper Fund Award Winner   [Mar-24-17 03:03PM  PR Newswire]
▶ Hennessy Advisors posts 1Q profit   [05:12PM  Associated Press]
▶ Hennessy Funds Receives Seven 2016 MFEA STAR Awards   [Oct-24-16 07:19PM  PR Newswire]
▶ Hennessy Advisors, Inc. to Acquire The Westport Funds   [May-02-16 04:24PM  PR Newswire]
▶ [$$] The Midsize Marvel   [Feb-20-16 12:01AM  at Barrons.com]
▶ 10-Q for Hennessy Advisors, Inc.   [Aug-05  08:09PM  at Company Spotlight]
▶ 10-Q for Hennessy Advisors, Inc.   [May-07  08:09PM  at Company Spotlight]
▶ Hennessy Funds Named 2015 Lipper Fund Award Winner   [Apr-01  02:00AM  PR Newswire]
▶ 10-Q for Hennessy Advisors, Inc.   [Jan-31  07:07PM  at Company Spotlight]
▶ 10-K for Hennessy Advisors, Inc.   [Dec-04  07:07PM  Company Spotlight]
▶ Hennessy Funds Wins Four MFEA STAR Awards   [Oct-28  05:19PM  PR Newswire]
▶ Hennessy Funds Receive National Recognition   [Sep-26  07:00PM  PR Newswire]
▶ Funds Have Trouble Getting Out The Vote   [Sep-24  06:34PM  at Investor's Business Daily]
Stock chart of HNNA Financial statements of HNNA
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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