Intrinsic value of National Security Group - NSEC

Previous Close

$12.65

  Intrinsic Value

$43.26

stock screener

  Rating & Target

str. buy

+242%

  Value-price divergence*

0%

Previous close

$12.65

 
Intrinsic value

$43.26

 
Up/down potential

+242%

 
Rating

str. buy

 
Value-price divergence*

0%

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

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

We calculate the intrinsic value of NSEC 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 0.0

 

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, %
  4.69
  4.70
  4.73
  4.76
  4.78
  4.80
  4.82
  4.84
  4.86
  4.87
  4.88
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
  4.98
  4.98
  4.98
  4.98
  4.99
Revenue, $m
  0
  70
  73
  77
  81
  85
  89
  93
  97
  102
  107
  112
  118
  124
  130
  136
  143
  150
  157
  165
  173
  182
  191
  200
  210
  221
  232
  243
  256
  268
  282
Variable operating expenses, $m
 
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  139
  146
  153
  160
  168
  177
  185
  195
  204
  215
  225
  236
  248
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
  61
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  99
  104
  109
  114
  120
  126
  132
  139
  146
  153
  160
  168
  177
  185
  195
  204
  215
  225
  236
  248
Operating income, $m
  5
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
EBITDA, $m
  9
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  34
Interest expense (income), $m
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
Earnings before tax, $m
  4
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  21
  22
Tax expense, $m
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
Net income, $m
  3
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16

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
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
  250
  262
  275
  288
  303
  318
  333
  350
  367
  385
  404
  424
  446
  468
  491
  515
  541
  568
  596
  626
Adjusted assets (=assets-cash), $m
  149
  156
  163
  171
  179
  188
  197
  206
  216
  227
  238
  250
  262
  275
  288
  303
  318
  333
  350
  367
  385
  404
  424
  446
  468
  491
  515
  541
  568
  596
  626
Revenue / Adjusted assets
  0.000
  0.449
  0.448
  0.450
  0.453
  0.452
  0.452
  0.451
  0.449
  0.449
  0.450
  0.448
  0.450
  0.451
  0.451
  0.449
  0.450
  0.450
  0.449
  0.450
  0.449
  0.450
  0.450
  0.448
  0.449
  0.450
  0.450
  0.449
  0.451
  0.450
  0.450
Average production assets, $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
Working capital, $m
  0
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
Total debt, $m
  17
  22
  27
  32
  38
  43
  49
  56
  63
  70
  77
  85
  94
  102
  112
  121
  131
  142
  153
  165
  177
  190
  204
  218
  233
  249
  265
  283
  301
  320
  341
Total liabilities, $m
  101
  106
  111
  116
  122
  127
  133
  140
  147
  154
  161
  169
  178
  186
  196
  205
  215
  226
  237
  249
  261
  274
  288
  302
  317
  333
  349
  367
  385
  404
  425
Total equity, $m
  48
  50
  53
  55
  58
  60
  63
  66
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
  113
  118
  124
  130
  137
  143
  151
  158
  166
  174
  183
  192
  202
Total liabilities and equity, $m
  149
  156
  164
  171
  180
  187
  196
  206
  217
  227
  238
  249
  262
  274
  289
  302
  317
  333
  350
  367
  385
  404
  425
  445
  468
  491
  515
  541
  568
  596
  627
Debt-to-equity ratio
  0.354
  0.430
  0.510
  0.580
  0.650
  0.720
  0.780
  0.840
  0.900
  0.960
  1.010
  1.060
  1.110
  1.160
  1.200
  1.240
  1.280
  1.320
  1.360
  1.390
  1.430
  1.460
  1.490
  1.520
  1.550
  1.570
  1.600
  1.620
  1.650
  1.670
  1.690
Adjusted equity ratio
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322
  0.322

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
Depreciation, amort., depletion, $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
Funds from operations, $m
  -6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
Change in working capital, $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
Cash from operations, $m
  1
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Maintenance CAPEX, $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
New CAPEX, $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 investing activities, $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
Free cash flow, $m
  2
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
Issuance/(repayment) of debt, $m
  -1
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
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  
  -1
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  1
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
Retained Cash Flow (-), $m
  -3
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
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
 
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
Discount rate, %
 
  4.90
  5.15
  5.40
  5.67
  5.96
  6.25
  6.57
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.19
  10.70
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.05
  15.80
  16.59
  17.42
  18.29
  19.21
  20.17
PV of cash for distribution, $m
 
  8
  8
  7
  7
  7
  7
  6
  6
  6
  5
  5
  5
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  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

The National Security Group, Inc. is an insurance holding company. The Company, through its subsidiaries, operates through two segments: property and casualty insurance, and life insurance. Its property and casualty insurance business is conducted through National Security Fire and Casualty Company (NSFC), a subsidiary of the Company, and Omega One Insurance Company (Omega), a subsidiary of NSFC. NSFC is licensed to write property and casualty insurance in Alabama, Arkansas, Florida, Georgia, Kentucky, Mississippi, Oklahoma, South Carolina, Tennessee and West Virginia, and operates in the state of Louisiana. Omega is licensed to write insurance in Alabama and Louisiana. National Security Insurance Company (NSIC) conducts the Company's life insurance business. NSIC is licensed to write insurance in over seven states: Alabama, Florida, Georgia, Mississippi, South Carolina, Tennessee and Texas. NSIC's products are life insurance, mainly whole life, and health and accident insurance.

FINANCIAL RATIOS  of  National Security Group (NSEC)

Valuation Ratios
P/E Ratio 10.6
Price to Sales 0.5
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 31.9
Price to Free Cash Flow 31.9
Growth Rates
Sales Growth Rate 4.7%
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 0
Current Ratio NaN
LT Debt to Equity 31.3%
Total Debt to Equity 35.4%
Interest Coverage 0
Management Effectiveness
Return On Assets 2%
Ret/ On Assets - 3 Yr. Avg. 3.7%
Return On Total Capital 4.7%
Ret/ On T. Cap. - 3 Yr. Avg. 8.7%
Return On Equity 6.5%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 11.9%
EBITDA Margin - 3 Yr. Avg. 16%
Operating Margin 9%
Oper. Margin - 3 Yr. Avg. 12.4%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 9.8%
Net Profit Margin 4.5%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 17.6%
Payout Ratio 0%

NSEC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NSEC stock intrinsic value calculation we used $67 million for the last fiscal year's total revenue generated by National Security Group. The default revenue input number comes from 2016 income statement of National Security Group. 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 NSEC stock valuation model: a) initial revenue growth rate of 4.7% 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 4.9%, whose default value for NSEC is calculated based on our internal credit rating of National Security Group, 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 National Security Group.
    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 NSEC stock the variable cost ratio is equal to 88.1%.

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 NSEC 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 National Security Group.

Corporate tax rate of 27% is the nominal tax rate for National Security Group. 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 NSEC 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 NSEC are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in National Security Group 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 NSEC is equal to 3%. 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 - $48 million for National Security Group - 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 2.459 million for National Security Group 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 National Security Group at the current share price and the inputted number of shares is $0.0 billion.

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HRTG Heritage Insur 15.96 63.71  str.buy
HCI HCI Group 39.05 86.31  str.buy
AIZ Assurant 101.80 143.53  buy
MET MetLife 52.80 243.89  str.buy
GNW Genworth Finan 3.89 40.35  str.buy
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COMPANY NEWS

▶ The National Security Group, Inc. Declares Cash Dividend   [Jul-24-17 04:00PM  Business Wire]
▶ The National Security Group, Inc. Declares Cash Dividend   [Apr-14-17 02:15PM  Business Wire]
▶ The National Security Group, Inc. Releases Earnings   [Nov-11-16 04:30PM  Business Wire]
▶ The National Security Group, Inc. Declares Cash Dividend   [Apr-11-16 07:19PM  Business Wire]
▶ Quarterly Dividend Rate   [Feb-01-16 03:19AM  at noodls]
▶ Cyber crime: states use hackers to do digital dirty work   [Sep-04  01:07PM  at Financial Times]
▶ 10-Q for National Security Group, Inc.   [Aug-15  08:10PM  at Company Spotlight]
▶ 10-Q for National Security Group, Inc.   [May-16  08:09PM  at Company Spotlight]
▶ 10-K for National Security Group, Inc.   [May-02  08:09PM  at Company Spotlight]
▶ Quarterly Dividend Rate   [Apr-21  02:16PM  at noodls]
▶ 4th Quarter Financial Report   [Feb-27  03:48AM  at noodls]
▶ 10-Q for National Security Group, Inc.   [Nov-15  07:07PM  Company Spotlight]
▶ National Security Group Inc Stock Downgraded (NSEC)   [May-12  11:18AM  at TheStreet]
Financial statements of NSEC
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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