Intrinsic value of Independence Holding - IHC

Previous Close

$21.05

  Intrinsic Value

$21.67

stock screener

  Rating & Target

hold

+3%

  Value-price divergence*

-31%

Previous close

$21.05

 
Intrinsic value

$21.67

 
Up/down potential

+3%

 
Rating

hold

 
Value-price divergence*

-31%

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

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

We calculate the intrinsic value of IHC 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 0.4

 

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, %
  -40.12
  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
  318
  326
  334
  343
  354
  365
  378
  391
  406
  421
  438
  456
  474
  495
  516
  538
  562
  588
  614
  643
  672
  704
  737
  772
  809
  847
  888
  931
  976
  1,023
Variable operating expenses, $m
 
  290
  296
  304
  312
  321
  332
  343
  355
  368
  382
  392
  408
  425
  443
  463
  483
  504
  527
  551
  576
  603
  631
  661
  692
  725
  760
  796
  835
  875
  918
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
  279
  290
  296
  304
  312
  321
  332
  343
  355
  368
  382
  392
  408
  425
  443
  463
  483
  504
  527
  551
  576
  603
  631
  661
  692
  725
  760
  796
  835
  875
  918
Operating income, $m
  34
  29
  29
  30
  31
  32
  34
  35
  36
  38
  39
  45
  47
  49
  51
  53
  56
  58
  61
  64
  66
  70
  73
  76
  80
  84
  88
  92
  96
  101
  106
EBITDA, $m
  36
  33
  34
  35
  36
  37
  38
  39
  41
  42
  44
  46
  48
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
Interest expense (income), $m
  2
  0
  1
  3
  5
  7
  9
  11
  14
  17
  20
  23
  26
  30
  34
  38
  42
  47
  52
  57
  63
  69
  75
  82
  88
  96
  103
  111
  120
  129
  138
Earnings before tax, $m
  32
  29
  28
  27
  27
  26
  25
  24
  23
  21
  20
  23
  21
  19
  17
  15
  13
  11
  9
  6
  4
  1
  -2
  -5
  -9
  -12
  -16
  -20
  -24
  -28
  -32
Tax expense, $m
  9
  8
  8
  7
  7
  7
  7
  6
  6
  6
  5
  6
  6
  5
  5
  4
  4
  3
  2
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  123
  21
  21
  20
  19
  19
  18
  17
  16
  16
  14
  16
  15
  14
  13
  11
  10
  8
  6
  4
  3
  1
  -2
  -5
  -9
  -12
  -16
  -20
  -24
  -28
  -32

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
  1,134
  1,157
  1,184
  1,214
  1,248
  1,286
  1,328
  1,373
  1,422
  1,475
  1,531
  1,592
  1,656
  1,725
  1,798
  1,876
  1,958
  2,045
  2,137
  2,234
  2,337
  2,445
  2,560
  2,680
  2,807
  2,941
  3,081
  3,229
  3,385
  3,549
  3,722
Adjusted assets (=assets-cash), $m
  1,134
  1,157
  1,184
  1,214
  1,248
  1,286
  1,328
  1,373
  1,422
  1,475
  1,531
  1,592
  1,656
  1,725
  1,798
  1,876
  1,958
  2,045
  2,137
  2,234
  2,337
  2,445
  2,560
  2,680
  2,807
  2,941
  3,081
  3,229
  3,385
  3,549
  3,722
Revenue / Adjusted assets
  0.000
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
  0.275
Average production assets, $m
  7
  7
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
  21
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
  0
  15
  31
  50
  71
  94
  120
  147
  178
  210
  245
  282
  322
  364
  409
  457
  507
  561
  617
  677
  740
  807
  877
  951
  1,029
  1,111
  1,198
  1,289
  1,385
  1,486
  1,592
Total liabilities, $m
  698
  712
  728
  747
  768
  791
  817
  844
  875
  907
  942
  979
  1,019
  1,061
  1,106
  1,154
  1,204
  1,258
  1,314
  1,374
  1,437
  1,504
  1,574
  1,648
  1,726
  1,808
  1,895
  1,986
  2,082
  2,183
  2,289
Total equity, $m
  437
  446
  456
  467
  481
  495
  511
  529
  547
  568
  590
  613
  638
  664
  692
  722
  754
  787
  823
  860
  900
  941
  985
  1,032
  1,081
  1,132
  1,186
  1,243
  1,303
  1,366
  1,433
Total liabilities and equity, $m
  1,135
  1,158
  1,184
  1,214
  1,249
  1,286
  1,328
  1,373
  1,422
  1,475
  1,532
  1,592
  1,657
  1,725
  1,798
  1,876
  1,958
  2,045
  2,137
  2,234
  2,337
  2,445
  2,559
  2,680
  2,807
  2,940
  3,081
  3,229
  3,385
  3,549
  3,722
Debt-to-equity ratio
  0.000
  0.030
  0.070
  0.110
  0.150
  0.190
  0.230
  0.280
  0.320
  0.370
  0.420
  0.460
  0.500
  0.550
  0.590
  0.630
  0.670
  0.710
  0.750
  0.790
  0.820
  0.860
  0.890
  0.920
  0.950
  0.980
  1.010
  1.040
  1.060
  1.090
  1.110
Adjusted equity ratio
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385
  0.385

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  123
  21
  21
  20
  19
  19
  18
  17
  16
  16
  14
  16
  15
  14
  13
  11
  10
  8
  6
  4
  3
  1
  -2
  -5
  -9
  -12
  -16
  -20
  -24
  -28
  -32
Depreciation, amort., depletion, $m
  2
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Funds from operations, $m
  -101
  25
  25
  25
  24
  23
  23
  22
  21
  20
  19
  17
  16
  14
  13
  12
  10
  9
  7
  5
  3
  1
  -2
  -5
  -8
  -11
  -15
  -19
  -23
  -27
  -31
Change in working capital, $m
  -70
  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
  -31
  25
  25
  25
  24
  23
  23
  22
  21
  20
  19
  17
  16
  14
  13
  12
  10
  9
  7
  5
  3
  1
  -2
  -5
  -8
  -11
  -15
  -19
  -23
  -27
  -31
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
New CAPEX, $m
  0
  0
  0
  0
  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
Cash from investing activities, $m
  99
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Free cash flow, $m
  68
  25
  25
  24
  23
  23
  22
  21
  20
  19
  18
  16
  15
  14
  12
  11
  9
  8
  6
  4
  2
  0
  -3
  -6
  -9
  -13
  -16
  -20
  -24
  -29
  -33
Issuance/(repayment) of debt, $m
  -43
  15
  16
  19
  21
  23
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
  106
Issuance/(repurchase) of shares, $m
  -4
  0
  0
  0
  0
  0
  0
  0
  2
  5
  7
  7
  10
  12
  16
  19
  22
  25
  29
  33
  37
  41
  46
  52
  57
  64
  70
  77
  84
  91
  99
Cash from financing (excl. dividends), $m  
  -63
  15
  16
  19
  21
  23
  26
  28
  32
  37
  42
  44
  50
  54
  61
  67
  73
  79
  86
  93
  100
  108
  116
  126
  135
  146
  157
  168
  180
  192
  205
Total cash flow (excl. dividends), $m
  5
  40
  41
  43
  45
  46
  48
  49
  53
  57
  60
  60
  64
  68
  73
  77
  82
  87
  92
  97
  102
  108
  114
  120
  126
  133
  140
  147
  155
  163
  171
Retained Cash Flow (-), $m
  -114
  -9
  -10
  -12
  -13
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -32
  -34
  -35
  -37
  -40
  -42
  -46
  -52
  -57
  -64
  -70
  -77
  -84
  -91
  -99
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
 
  31
  31
  31
  31
  32
  32
  32
  34
  36
  39
  37
  39
  42
  45
  47
  50
  53
  56
  59
  63
  66
  67
  68
  69
  69
  70
  71
  71
  72
  73
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
 
  30
  28
  27
  26
  24
  23
  21
  21
  21
  20
  18
  17
  16
  15
  14
  13
  12
  10
  9
  8
  7
  6
  4
  4
  3
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  99.4
  98.4
  96.9
  95.5
  93.7
  91.6
  89.0
  86.2
  83.1
  79.8
  76.4
  72.9
  69.2
  65.6
  61.9
  58.2
  54.5
  50.9
  47.3
  43.9
  40.5
  37.4
  34.4

Independence Holding Company, through its subsidiaries, engages in life and health insurance business primarily in the District of Columbia, the Virgin Islands, and Puerto Rico. The company provides dental portfolio comprises indemnity and preferred provider organization plans for employer groups of two or more lives, and for individuals within affinity groups; vision plans that offer a flat reimbursement amount for exams and materials; and short-term medical products for people with temporary needs for health coverage. It also provides supplemental products, including hospital indemnity, fixed indemnity limited benefit, critical illness, accident medical coverage, and life insurance products; and pet insurance and occupational accident insurance products. In addition, the company offers group long-term and short-term disability products to employers that provide benefit to their employees; New York short-term disability plan that offers temporary cash payments to replace wages lost; group term life products, such as group term life, accidental death and dismemberment (AD&D), supplemental life and AD&D, and dependent life products; and reinsurance products. It markets its products through independent and affiliated brokers, producers, and agents. The company was founded in 1980 and is headquartered in Stamford, Connecticut. Independence Holding Company is a subsidiary of Geneve Corporation.

FINANCIAL RATIOS  of  Independence Holding (IHC)

Valuation Ratios
P/E Ratio 2.9
Price to Sales 1.2
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow -11.6
Price to Free Cash Flow -11.6
Growth Rates
Sales Growth Rate -40.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 17
Management Effectiveness
Return On Assets 10.7%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 30.6%
Ret/ On T. Cap. - 3 Yr. Avg. 14.7%
Return On Equity 32.4%
Return On Equity - 3 Yr. Avg. 15.9%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 11.5%
EBITDA Margin - 3 Yr. Avg. 9.1%
Operating Margin 10.6%
Oper. Margin - 3 Yr. Avg. 7.9%
Pre-Tax Margin 10.3%
Pre-Tax Margin - 3 Yr. Avg. 7.6%
Net Profit Margin 39.4%
Net Profit Margin - 3 Yr. Avg. 16.1%
Effective Tax Rate 28.1%
Eff/ Tax Rate - 3 Yr. Avg. 31%
Payout Ratio 1.6%

IHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IHC stock intrinsic value calculation we used $312 million for the last fiscal year's total revenue generated by Independence Holding. The default revenue input number comes from 2016 income statement of Independence Holding. 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 IHC 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 IHC is calculated based on our internal credit rating of Independence Holding, 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 Independence Holding.
    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 IHC stock the variable cost ratio is equal to 91%.

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 IHC 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 9.3% for Independence Holding.

Corporate tax rate of 27% is the nominal tax rate for Independence Holding. 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 IHC 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 IHC are equal to 2.1%.

Life of production assets of 25.5 years is the average useful life of capital assets used in Independence Holding 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 IHC 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 - $437 million for Independence Holding - 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 17.068 million for Independence Holding 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 Independence Holding at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Independence Holding posts 2Q profit   [Aug-09-17 10:32PM  Associated Press]
▶ Independence Holding posts 1Q profit   [Jun-16-17 04:20PM  Associated Press]
▶ Independence Holding posts 4Q profit   [May-22-17 05:51PM  Associated Press]
▶ Independence Holding Company Repurchases Shares   [Jan-30-17 08:00AM  GlobeNewswire]
▶ American Independence Corp. Receives NASDAQ Letter   [May-20-16 04:26PM  GlobeNewswire]
▶ American Independence Corp. Receives NASDAQ Letter   [Apr-15-16 05:52PM  GlobeNewswire]
▶ American Independence Corp. Files Form 12b-25   [Mar-15-16 08:24PM  GlobeNewswire]
▶ 10-Q for Independence Holding Co.   [Aug-09  08:13PM  at Company Spotlight]
Stock chart of IHC Financial statements of IHC
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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