Intrinsic value of Nord Anglia Education - NORD

Previous Close

$32.58

  Intrinsic Value

$21.56

stock screener

  Rating & Target

sell

-34%

  Value-price divergence*

-138%

Previous close

$32.58

 
Intrinsic value

$21.56

 
Up/down potential

-34%

 
Rating

sell

 
Value-price divergence*

-138%

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

We calculate the intrinsic value of NORD 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 3.4

 

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, %
  49.39
  6.60
  6.44
  6.30
  6.17
  6.05
  5.94
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.08
Revenue, $m
  856
  912
  971
  1,032
  1,096
  1,162
  1,231
  1,304
  1,379
  1,457
  1,539
  1,625
  1,714
  1,807
  1,905
  2,007
  2,114
  2,226
  2,344
  2,466
  2,595
  2,730
  2,871
  3,019
  3,174
  3,337
  3,508
  3,687
  3,875
  4,072
  4,278
Variable operating expenses, $m
 
  716
  755
  796
  839
  884
  930
  978
  1,029
  1,081
  1,136
  1,090
  1,150
  1,213
  1,278
  1,347
  1,419
  1,494
  1,572
  1,655
  1,741
  1,832
  1,926
  2,026
  2,130
  2,239
  2,354
  2,474
  2,600
  2,732
  2,871
Fixed operating expenses, $m
 
  55
  57
  58
  60
  61
  63
  64
  66
  67
  69
  71
  73
  74
  76
  78
  80
  82
  84
  86
  88
  91
  93
  95
  98
  100
  103
  105
  108
  111
  113
Total operating expenses, $m
  731
  771
  812
  854
  899
  945
  993
  1,042
  1,095
  1,148
  1,205
  1,161
  1,223
  1,287
  1,354
  1,425
  1,499
  1,576
  1,656
  1,741
  1,829
  1,923
  2,019
  2,121
  2,228
  2,339
  2,457
  2,579
  2,708
  2,843
  2,984
Operating income, $m
  125
  141
  159
  178
  197
  218
  239
  261
  284
  308
  334
  464
  491
  520
  551
  582
  615
  650
  687
  725
  765
  807
  852
  898
  947
  998
  1,052
  1,108
  1,167
  1,229
  1,294
EBITDA, $m
  190
  273
  293
  314
  335
  358
  381
  406
  431
  458
  485
  515
  545
  577
  610
  645
  682
  720
  760
  802
  847
  893
  942
  993
  1,046
  1,103
  1,162
  1,223
  1,289
  1,357
  1,429
Interest expense (income), $m
  63
  61
  68
  76
  84
  92
  101
  110
  119
  129
  140
  150
  162
  173
  186
  198
  212
  226
  240
  256
  272
  289
  306
  325
  344
  365
  386
  408
  432
  457
  482
Earnings before tax, $m
  62
  81
  91
  102
  114
  126
  138
  151
  165
  179
  194
  313
  330
  347
  365
  384
  404
  425
  446
  469
  493
  519
  545
  573
  602
  633
  665
  699
  735
  773
  812
Tax expense, $m
  13
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  85
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147
  155
  163
  171
  180
  189
  198
  209
  219
Net income, $m
  47
  59
  66
  74
  83
  92
  101
  110
  120
  131
  142
  229
  241
  253
  266
  280
  295
  310
  326
  343
  360
  379
  398
  418
  440
  462
  486
  511
  537
  564
  593

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  372
  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
  2,368
  2,521
  2,683
  2,852
  3,028
  3,211
  3,402
  3,601
  3,809
  4,025
  4,251
  4,488
  4,735
  4,993
  5,263
  5,545
  5,841
  6,150
  6,474
  6,813
  7,168
  7,541
  7,931
  8,340
  8,769
  9,219
  9,690
  10,185
  10,703
  11,247
  11,818
Adjusted assets (=assets-cash), $m
  1,996
  2,521
  2,683
  2,852
  3,028
  3,211
  3,402
  3,601
  3,809
  4,025
  4,251
  4,488
  4,735
  4,993
  5,263
  5,545
  5,841
  6,150
  6,474
  6,813
  7,168
  7,541
  7,931
  8,340
  8,769
  9,219
  9,690
  10,185
  10,703
  11,247
  11,818
Revenue / Adjusted assets
  0.429
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
  0.362
Average production assets, $m
  735
  784
  834
  887
  942
  998
  1,058
  1,120
  1,184
  1,252
  1,322
  1,395
  1,472
  1,553
  1,636
  1,724
  1,816
  1,912
  2,013
  2,119
  2,229
  2,345
  2,466
  2,593
  2,727
  2,867
  3,013
  3,167
  3,328
  3,497
  3,675
Working capital, $m
  -179
  -91
  -97
  -103
  -110
  -116
  -123
  -130
  -138
  -146
  -154
  -162
  -171
  -181
  -191
  -201
  -211
  -223
  -234
  -247
  -259
  -273
  -287
  -302
  -317
  -334
  -351
  -369
  -387
  -407
  -428
Total debt, $m
  1,128
  1,263
  1,405
  1,554
  1,708
  1,869
  2,037
  2,212
  2,395
  2,585
  2,784
  2,992
  3,209
  3,436
  3,673
  3,921
  4,181
  4,453
  4,737
  5,036
  5,348
  5,675
  6,018
  6,378
  6,755
  7,150
  7,565
  7,999
  8,455
  8,933
  9,435
Total liabilities, $m
  2,082
  2,216
  2,358
  2,507
  2,661
  2,822
  2,990
  3,165
  3,348
  3,538
  3,737
  3,945
  4,162
  4,389
  4,626
  4,874
  5,134
  5,406
  5,690
  5,989
  6,301
  6,628
  6,971
  7,331
  7,708
  8,103
  8,518
  8,952
  9,408
  9,886
  10,388
Total equity, $m
  287
  305
  325
  345
  366
  389
  412
  436
  461
  487
  514
  543
  573
  604
  637
  671
  707
  744
  783
  824
  867
  912
  960
  1,009
  1,061
  1,115
  1,172
  1,232
  1,295
  1,361
  1,430
Total liabilities and equity, $m
  2,369
  2,521
  2,683
  2,852
  3,027
  3,211
  3,402
  3,601
  3,809
  4,025
  4,251
  4,488
  4,735
  4,993
  5,263
  5,545
  5,841
  6,150
  6,473
  6,813
  7,168
  7,540
  7,931
  8,340
  8,769
  9,218
  9,690
  10,184
  10,703
  11,247
  11,818
Debt-to-equity ratio
  3.930
  4.140
  4.330
  4.500
  4.660
  4.810
  4.950
  5.080
  5.200
  5.310
  5.410
  5.510
  5.600
  5.690
  5.770
  5.840
  5.920
  5.980
  6.050
  6.110
  6.170
  6.220
  6.270
  6.320
  6.370
  6.410
  6.450
  6.490
  6.530
  6.560
  6.600
Adjusted equity ratio
  -0.043
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121
  0.121

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  47
  59
  66
  74
  83
  92
  101
  110
  120
  131
  142
  229
  241
  253
  266
  280
  295
  310
  326
  343
  360
  379
  398
  418
  440
  462
  486
  511
  537
  564
  593
Depreciation, amort., depletion, $m
  65
  132
  134
  136
  138
  140
  142
  144
  147
  149
  152
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116
  121
  128
  134
Funds from operations, $m
  60
  191
  201
  210
  221
  232
  243
  255
  267
  280
  294
  280
  294
  310
  326
  343
  361
  380
  399
  420
  442
  464
  488
  513
  539
  567
  596
  626
  658
  692
  727
Change in working capital, $m
  -65
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
Cash from operations, $m
  125
  197
  206
  217
  227
  238
  250
  262
  275
  288
  302
  288
  303
  319
  336
  353
  372
  391
  411
  432
  454
  478
  502
  528
  555
  583
  613
  644
  677
  711
  748
Maintenance CAPEX, $m
  0
  -27
  -29
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -73
  -77
  -81
  -86
  -90
  -95
  -100
  -105
  -110
  -116
  -121
  -128
New CAPEX, $m
  -96
  -49
  -50
  -53
  -55
  -57
  -59
  -62
  -65
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -96
  -101
  -105
  -111
  -116
  -121
  -127
  -133
  -140
  -147
  -154
  -161
  -169
  -178
Cash from investing activities, $m
  40
  -76
  -79
  -83
  -87
  -91
  -95
  -101
  -106
  -110
  -116
  -121
  -128
  -134
  -141
  -148
  -155
  -162
  -171
  -178
  -188
  -197
  -207
  -217
  -228
  -240
  -252
  -264
  -277
  -290
  -306
Free cash flow, $m
  165
  121
  127
  134
  140
  147
  154
  161
  169
  177
  186
  166
  176
  185
  195
  206
  217
  228
  241
  253
  267
  281
  295
  311
  327
  344
  362
  380
  400
  421
  442
Issuance/(repayment) of debt, $m
  -9
  140
  143
  148
  155
  161
  168
  175
  182
  190
  199
  208
  217
  227
  237
  248
  260
  272
  285
  298
  312
  327
  343
  360
  377
  395
  414
  435
  456
  478
  502
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  
  -11
  140
  143
  148
  155
  161
  168
  175
  182
  190
  199
  208
  217
  227
  237
  248
  260
  272
  285
  298
  312
  327
  343
  360
  377
  395
  414
  435
  456
  478
  502
Total cash flow (excl. dividends), $m
  147
  261
  270
  282
  295
  308
  322
  336
  352
  368
  385
  374
  393
  412
  433
  454
  477
  500
  525
  551
  579
  608
  638
  670
  704
  739
  776
  815
  856
  899
  944
Retained Cash Flow (-), $m
  -10
  -18
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -60
  -63
  -66
  -69
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
 
  243
  250
  262
  273
  286
  299
  312
  327
  341
  357
  346
  363
  381
  400
  420
  441
  463
  486
  510
  536
  563
  591
  621
  652
  685
  719
  755
  793
  833
  875
Discount rate, %
 
  7.80
  8.19
  8.60
  9.03
  9.48
  9.95
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.11
PV of cash for distribution, $m
 
  225
  214
  204
  194
  182
  169
  156
  142
  128
  114
  93
  81
  69
  59
  49
  40
  32
  25
  19
  15
  11
  8
  5
  4
  3
  2
  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

Nord Anglia Education, Inc., an investment holding company, operates premium international schools. As of November 29, 2016, it provided education services to approximately 37,000 students from kindergarten through to the end of secondary education at its 43 international schools in China, Europe, the Middle East, Southeast Asia, and North America. The company was founded in 1972 and is headquartered in Central, Hong Kong. Nord Anglia Education, Inc. is a subsidiary of Premier Education Holdings Limited.

FINANCIAL RATIOS  of  Nord Anglia Education (NORD)

Valuation Ratios
P/E Ratio 72.2
Price to Sales 4
Price to Book 11.8
Price to Tangible Book
Price to Cash Flow 27.1
Price to Free Cash Flow 117
Growth Rates
Sales Growth Rate 49.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 32%
Financial Strength
Quick Ratio 62
Current Ratio 0
LT Debt to Equity 390.9%
Total Debt to Equity 393%
Interest Coverage 2
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 3.2%
Ret/ On T. Cap. - 3 Yr. Avg. -2.8%
Return On Equity 16.7%
Return On Equity - 3 Yr. Avg. -21.6%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 39%
Gross Margin - 3 Yr. Avg. 39.2%
EBITDA Margin 22.2%
EBITDA Margin - 3 Yr. Avg. 16.2%
Operating Margin 14.6%
Oper. Margin - 3 Yr. Avg. 7.9%
Pre-Tax Margin 7.2%
Pre-Tax Margin - 3 Yr. Avg. -1%
Net Profit Margin 5.5%
Net Profit Margin - 3 Yr. Avg. -4.1%
Effective Tax Rate 21%
Eff/ Tax Rate - 3 Yr. Avg. 14.2%
Payout Ratio 2.1%

NORD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NORD stock intrinsic value calculation we used $856 million for the last fiscal year's total revenue generated by Nord Anglia Education. The default revenue input number comes from 2016 income statement of Nord Anglia Education. 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 NORD stock valuation model: a) initial revenue growth rate of 6.6% 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 7.8%, whose default value for NORD is calculated based on our internal credit rating of Nord Anglia Education, 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 Nord Anglia Education.
    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 NORD stock the variable cost ratio is equal to 79.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $54 million in the base year in the intrinsic value calculation for NORD 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 5.4% for Nord Anglia Education.

Corporate tax rate of 27% is the nominal tax rate for Nord Anglia Education. 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 NORD 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 NORD are equal to 85.9%.

Life of production assets of 27.4 years is the average useful life of capital assets used in Nord Anglia Education 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 NORD is equal to -10%. 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 - $287 million for Nord Anglia Education - 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 104.051 million for Nord Anglia Education 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 Nord Anglia Education at the current share price and the inputted number of shares is $3.4 billion.

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▶ Why Credit Suisse Is Now Positive on Education Stocks   [Feb-03-16 01:15PM  at 24/7 Wall St.]
Stock chart of NORD Financial statements of NORD
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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