Intrinsic value of Hennessy Advisors - HNNA

Previous Close

$18.64

  Intrinsic Value

$28.38

stock screener

  Rating & Target

str. buy

+52%

Previous close

$18.64

 
Intrinsic value

$28.38

 
Up/down potential

+52%

 
Rating

str. buy

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

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  3.92
  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
  53
  54
  55
  57
  58
  60
  62
  64
  66
  69
  72
  74
  77
  81
  84
  88
  91
  96
  100
  104
  109
  114
  120
  125
  131
  137
  144
  151
  158
  166
  174
Variable operating expenses, $m
 
  28
  28
  29
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
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
  29
  30
  30
  31
  32
  33
  34
  35
  36
  37
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  68
  71
  74
  77
  81
  84
  88
  92
Operating income, $m
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
  77
  81
EBITDA, $m
  24
  32
  33
  34
  35
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  101
  106
Interest expense (income), $m
  1
  1
  1
  1
  1
  1
  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
Earnings before tax, $m
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  74
  77
Tax expense, $m
  8
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
Net income, $m
  15
  17
  18
  18
  19
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  49
  51
  54
  56

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  16
  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
  98
  84
  86
  88
  90
  93
  96
  99
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  269
Adjusted assets (=assets-cash), $m
  82
  84
  86
  88
  90
  93
  96
  99
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  269
Revenue / Adjusted assets
  0.646
  0.643
  0.640
  0.648
  0.644
  0.645
  0.646
  0.646
  0.641
  0.645
  0.649
  0.643
  0.642
  0.648
  0.646
  0.647
  0.641
  0.649
  0.645
  0.642
  0.645
  0.644
  0.649
  0.644
  0.645
  0.643
  0.646
  0.645
  0.645
  0.646
  0.647
Average production assets, $m
  75
  76
  78
  80
  82
  84
  87
  90
  93
  97
  101
  105
  109
  113
  118
  123
  129
  134
  140
  147
  154
  161
  168
  176
  184
  193
  202
  212
  222
  233
  244
Working capital, $m
  11
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Total debt, $m
  26
  23
  24
  25
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  47
  49
  52
  56
  59
  63
  67
  71
  75
  79
  84
  89
  94
  100
  105
  111
  118
Total liabilities, $m
  46
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  138
Total equity, $m
  52
  41
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  95
  99
  104
  109
  114
  119
  125
  131
Total liabilities and equity, $m
  98
  84
  86
  88
  90
  93
  96
  99
  103
  107
  111
  115
  119
  125
  130
  135
  141
  148
  154
  162
  169
  177
  185
  194
  203
  213
  223
  234
  244
  256
  269
Debt-to-equity ratio
  0.500
  0.560
  0.570
  0.580
  0.600
  0.610
  0.620
  0.640
  0.650
  0.660
  0.680
  0.690
  0.710
  0.720
  0.730
  0.750
  0.760
  0.770
  0.780
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.860
  0.870
  0.870
  0.880
  0.890
  0.900
Adjusted equity ratio
  0.439
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488
  0.488

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  17
  18
  18
  19
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  49
  51
  54
  56
Depreciation, amort., depletion, $m
  0
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
Funds from operations, $m
  20
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
  81
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
  19
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  51
  53
  55
  58
  61
  64
  67
  70
  74
  77
  81
Maintenance CAPEX, $m
  0
  -7
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
New CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
Cash from investing activities, $m
  0
  -9
  -10
  -10
  -10
  -10
  -11
  -12
  -12
  -12
  -14
  -14
  -14
  -16
  -16
  -17
  -17
  -19
  -19
  -20
  -22
  -22
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
Free cash flow, $m
  19
  16
  16
  16
  17
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
Issuance/(repayment) of debt, $m
  -4
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
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
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
Total cash flow (excl. dividends), $m
  14
  17
  17
  17
  18
  18
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  36
  38
  40
  41
  44
  46
  48
  50
  53
Retained Cash Flow (-), $m
  -15
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
Prev. year cash balance distribution, $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
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
 
  28
  16
  16
  17
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  47
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
 
  27
  15
  14
  14
  13
  13
  12
  12
  11
  10
  10
  9
  8
  8
  7
  6
  6
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  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
  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

Hennessy Advisors, Inc. is an investment management company. The Company's business activity is managing, servicing and marketing open-end mutual funds branded as the Hennessy Funds. It provides investment advisory services and shareholder services to the Hennessy Funds. Its investment advisory services include managing the composition of each fund's portfolio, including the purchase, retention and disposition of portfolio securities in accordance with the Fund's investment objectives, policies and restrictions; conducting investment research, and monitoring compliance with each fund's investment restrictions and applicable laws and regulations. It also includes overseeing the selection and continued employment of sub-advisors and monitoring such sub-advisors' investment performance and adherence to investment policies and compliance procedures, overseeing other service providers, and maintaining public relations and marketing programs for each of the Funds.

FINANCIAL RATIOS  of  Hennessy Advisors (HNNA)

Valuation Ratios
P/E Ratio 9.7
Price to Sales 2.7
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 7.6
Price to Free Cash Flow 7.6
Growth Rates
Sales Growth Rate 3.9%
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 4
Current Ratio 0.1
LT Debt to Equity 42.3%
Total Debt to Equity 50%
Interest Coverage 24
Management Effectiveness
Return On Assets 17.1%
Ret/ On Assets - 3 Yr. Avg. 17.1%
Return On Total Capital 20.7%
Ret/ On T. Cap. - 3 Yr. Avg. 20.4%
Return On Equity 33.7%
Return On Equity - 3 Yr. Avg. 39%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 83%
Gross Margin - 3 Yr. Avg. 83.2%
EBITDA Margin 45.3%
EBITDA Margin - 3 Yr. Avg. 45.6%
Operating Margin 45.3%
Oper. Margin - 3 Yr. Avg. 44.9%
Pre-Tax Margin 43.4%
Pre-Tax Margin - 3 Yr. Avg. 43.6%
Net Profit Margin 28.3%
Net Profit Margin - 3 Yr. Avg. 26.7%
Effective Tax Rate 34.8%
Eff/ Tax Rate - 3 Yr. Avg. 38.7%
Payout Ratio 13.3%

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 $53 million for the last fiscal year's total revenue generated by Hennessy Advisors. The default revenue input number comes from 2017 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 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 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 50.9%.

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 3.6% 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 140.6%.

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 -1.9%. 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 - $52 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 7.836 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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COMPANY NEWS

▶ Hennessy Advisors posts 1Q profit   [Jan-25-18 05:35PM  Associated Press]
▶ Hennessy Advisors, Inc. Announces Quarterly Dividend   [Oct-31-17 04:15PM  PR Newswire]
▶ 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]
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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