Intrinsic value of OneBeacon Insurance Group Cl A - OB

Previous Close

$18.09

  Intrinsic Value

$8.39

stock screener

  Rating & Target

str. sell

-54%

  Value-price divergence*

-115%

Previous close

$18.09

 
Intrinsic value

$8.39

 
Up/down potential

-54%

 
Rating

str. sell

 
Value-price divergence*

-115%

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

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

We calculate the intrinsic value of OB 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 1.7

 

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, %
  0.67
  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
  1,218
  1,246
  1,278
  1,314
  1,354
  1,397
  1,445
  1,497
  1,552
  1,612
  1,675
  1,743
  1,816
  1,893
  1,974
  2,061
  2,152
  2,249
  2,352
  2,460
  2,574
  2,694
  2,821
  2,954
  3,095
  3,243
  3,399
  3,563
  3,735
  3,917
Variable operating expenses, $m
 
  1,179
  1,206
  1,237
  1,272
  1,310
  1,353
  1,399
  1,449
  1,502
  1,560
  1,622
  1,687
  1,758
  1,832
  1,911
  1,995
  2,083
  2,177
  2,276
  2,381
  2,491
  2,608
  2,730
  2,860
  2,996
  3,139
  3,290
  3,449
  3,616
  3,791
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
  1,085
  1,179
  1,206
  1,237
  1,272
  1,310
  1,353
  1,399
  1,449
  1,502
  1,560
  1,622
  1,687
  1,758
  1,832
  1,911
  1,995
  2,083
  2,177
  2,276
  2,381
  2,491
  2,608
  2,730
  2,860
  2,996
  3,139
  3,290
  3,449
  3,616
  3,791
Operating income, $m
  109
  39
  40
  41
  42
  43
  45
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  95
  99
  104
  109
  114
  120
  125
EBITDA, $m
  109
  39
  40
  41
  42
  43
  45
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  95
  99
  104
  109
  114
  120
  125
Interest expense (income), $m
  13
  13
  15
  18
  22
  25
  30
  34
  39
  44
  50
  56
  63
  70
  77
  85
  94
  102
  112
  122
  132
  144
  155
  168
  181
  195
  209
  224
  241
  257
  275
Earnings before tax, $m
  96
  26
  24
  23
  20
  18
  15
  12
  9
  5
  2
  -3
  -7
  -12
  -17
  -22
  -28
  -34
  -40
  -47
  -54
  -61
  -69
  -78
  -86
  -96
  -105
  -116
  -127
  -138
  -150
Tax expense, $m
  -13
  7
  7
  6
  5
  5
  4
  3
  2
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  107
  19
  18
  16
  15
  13
  11
  9
  7
  4
  1
  -3
  -7
  -12
  -17
  -22
  -28
  -34
  -40
  -47
  -54
  -61
  -69
  -78
  -86
  -96
  -105
  -116
  -127
  -138
  -150

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
  3,590
  3,657
  3,741
  3,838
  3,946
  4,065
  4,196
  4,339
  4,494
  4,661
  4,840
  5,031
  5,235
  5,452
  5,684
  5,929
  6,188
  6,464
  6,754
  7,062
  7,386
  7,728
  8,090
  8,470
  8,871
  9,293
  9,738
  10,206
  10,699
  11,217
  11,762
Adjusted assets (=assets-cash), $m
  3,590
  3,657
  3,741
  3,838
  3,946
  4,065
  4,196
  4,339
  4,494
  4,661
  4,840
  5,031
  5,235
  5,452
  5,684
  5,929
  6,188
  6,464
  6,754
  7,062
  7,386
  7,728
  8,090
  8,470
  8,871
  9,293
  9,738
  10,206
  10,699
  11,217
  11,762
Revenue / Adjusted assets
  0.000
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
  0.333
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
  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
  273
  323
  383
  452
  529
  615
  709
  811
  922
  1,041
  1,169
  1,306
  1,452
  1,608
  1,773
  1,949
  2,135
  2,332
  2,540
  2,760
  2,992
  3,238
  3,496
  3,769
  4,056
  4,358
  4,676
  5,012
  5,364
  5,735
  6,125
Total liabilities, $m
  2,569
  2,619
  2,679
  2,748
  2,825
  2,911
  3,005
  3,107
  3,218
  3,337
  3,465
  3,602
  3,748
  3,904
  4,069
  4,245
  4,431
  4,628
  4,836
  5,056
  5,288
  5,534
  5,792
  6,065
  6,352
  6,654
  6,972
  7,308
  7,660
  8,031
  8,421
Total equity, $m
  1,021
  1,039
  1,063
  1,090
  1,121
  1,154
  1,192
  1,232
  1,276
  1,324
  1,374
  1,429
  1,487
  1,548
  1,614
  1,684
  1,758
  1,836
  1,918
  2,006
  2,098
  2,195
  2,297
  2,406
  2,519
  2,639
  2,766
  2,899
  3,038
  3,186
  3,340
Total liabilities and equity, $m
  3,590
  3,658
  3,742
  3,838
  3,946
  4,065
  4,197
  4,339
  4,494
  4,661
  4,839
  5,031
  5,235
  5,452
  5,683
  5,929
  6,189
  6,464
  6,754
  7,062
  7,386
  7,729
  8,089
  8,471
  8,871
  9,293
  9,738
  10,207
  10,698
  11,217
  11,761
Debt-to-equity ratio
  0.267
  0.310
  0.360
  0.410
  0.470
  0.530
  0.590
  0.660
  0.720
  0.790
  0.850
  0.910
  0.980
  1.040
  1.100
  1.160
  1.210
  1.270
  1.320
  1.380
  1.430
  1.480
  1.520
  1.570
  1.610
  1.650
  1.690
  1.730
  1.770
  1.800
  1.830
Adjusted equity ratio
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284
  0.284

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  107
  19
  18
  16
  15
  13
  11
  9
  7
  4
  1
  -3
  -7
  -12
  -17
  -22
  -28
  -34
  -40
  -47
  -54
  -61
  -69
  -78
  -86
  -96
  -105
  -116
  -127
  -138
  -150
Depreciation, amort., depletion, $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
Funds from operations, $m
  33
  19
  18
  16
  15
  13
  11
  9
  7
  4
  1
  -3
  -7
  -12
  -17
  -22
  -28
  -34
  -40
  -47
  -54
  -61
  -69
  -78
  -86
  -96
  -105
  -116
  -127
  -138
  -150
Change in working capital, $m
  -14
  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
  47
  19
  18
  16
  15
  13
  11
  9
  7
  4
  1
  -3
  -7
  -12
  -17
  -22
  -28
  -34
  -40
  -47
  -54
  -61
  -69
  -78
  -86
  -96
  -105
  -116
  -127
  -138
  -150
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
  -3
  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
  20
  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
  67
  19
  18
  16
  15
  13
  11
  9
  7
  4
  1
  -3
  -7
  -12
  -17
  -22
  -28
  -34
  -40
  -47
  -54
  -61
  -69
  -78
  -86
  -96
  -105
  -116
  -127
  -138
  -150
Issuance/(repayment) of debt, $m
  -2
  50
  60
  69
  77
  86
  94
  102
  111
  119
  128
  137
  146
  156
  165
  176
  186
  197
  208
  220
  232
  245
  259
  272
  287
  302
  318
  335
  353
  371
  390
Issuance/(repurchase) of shares, $m
  -12
  0
  6
  11
  16
  21
  26
  32
  37
  43
  50
  57
  65
  73
  82
  92
  101
  112
  123
  134
  146
  159
  172
  186
  200
  216
  232
  249
  266
  285
  305
Cash from financing (excl. dividends), $m  
  -13
  50
  66
  80
  93
  107
  120
  134
  148
  162
  178
  194
  211
  229
  247
  268
  287
  309
  331
  354
  378
  404
  431
  458
  487
  518
  550
  584
  619
  656
  695
Total cash flow (excl. dividends), $m
  53
  69
  84
  96
  108
  120
  131
  143
  155
  167
  179
  191
  204
  217
  231
  245
  260
  275
  291
  307
  324
  342
  361
  381
  401
  422
  445
  468
  493
  518
  545
Retained Cash Flow (-), $m
  -20
  -18
  -24
  -27
  -31
  -34
  -37
  -41
  -44
  -47
  -51
  -57
  -65
  -73
  -82
  -92
  -101
  -112
  -123
  -134
  -146
  -159
  -172
  -186
  -200
  -216
  -232
  -249
  -266
  -285
  -305
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
 
  51
  60
  69
  77
  86
  94
  102
  111
  119
  128
  135
  139
  144
  149
  154
  158
  163
  168
  173
  179
  184
  189
  195
  201
  207
  213
  219
  226
  233
  240
Discount rate, %
 
  5.80
  6.09
  6.39
  6.71
  7.05
  7.40
  7.77
  8.16
  8.57
  9.00
  9.45
  9.92
  10.42
  10.94
  11.48
  12.06
  12.66
  13.29
  13.96
  14.66
  15.39
  16.16
  16.97
  17.81
  18.71
  19.64
  20.62
  21.65
  22.74
  23.87
PV of cash for distribution, $m
 
  48
  54
  57
  60
  61
  61
  61
  59
  57
  54
  50
  45
  40
  35
  30
  26
  22
  18
  14
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
Current shareholders' claim on cash, %
  100
  100.0
  99.7
  99.0
  98.2
  97.1
  95.8
  94.3
  92.6
  90.8
  88.8
  86.7
  84.4
  82.0
  79.4
  76.8
  74.2
  71.4
  68.7
  66.0
  63.2
  60.5
  57.8
  55.1
  52.5
  49.9
  47.5
  45.0
  42.7
  40.4
  38.2

OneBeacon Insurance Group, Ltd. (OneBeacon) is a specialty property and casualty insurance writer that offers a range of insurance products in the United States. The Company's segments include Specialty Products, Specialty Industries, and Investing, Financing and Corporate. As of December 31, 2016, the Specialty Products segment consisted of 10 underwriting operating segments representing an aggregation based on those that offer products, coverages and services to customers across the United States. As of December 31, 2016, the Specialty Industries segment consisted of six underwriting operating segments representing an aggregation based on those that focus on solving the needs of a particular customer or industry group. The Investing, Financing and Corporate segment includes the investing and financing activities for OneBeacon on a consolidated basis, and certain other activities conducted through the Company and its intermediate subsidiaries.

FINANCIAL RATIOS  of  OneBeacon Insurance Group Cl A (OB)

Valuation Ratios
P/E Ratio 16
Price to Sales 1.4
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 36.3
Price to Free Cash Flow 38.8
Growth Rates
Sales Growth Rate 0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -75%
Cap. Spend. - 3 Yr. Gr. Rate -21.4%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 26.7%
Total Debt to Equity 26.7%
Interest Coverage 8
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 8.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 10.6%
Return On Equity - 3 Yr. Avg. 5.8%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 9.1%
EBITDA Margin - 3 Yr. Avg. 5.5%
Operating Margin 9.1%
Oper. Margin - 3 Yr. Avg. 5.5%
Pre-Tax Margin 8%
Pre-Tax Margin - 3 Yr. Avg. 4.5%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate -13.5%
Eff/ Tax Rate - 3 Yr. Avg. -33.2%
Payout Ratio 73.8%

OB stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OB stock intrinsic value calculation we used $1194 million for the last fiscal year's total revenue generated by OneBeacon Insurance Group Cl A. The default revenue input number comes from 2016 income statement of OneBeacon Insurance Group Cl A. 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 OB 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 5.8%, whose default value for OB is calculated based on our internal credit rating of OneBeacon Insurance Group Cl A, 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 OneBeacon Insurance Group Cl A.
    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 OB stock the variable cost ratio is equal to 96.8%.

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 OB 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 4.8% for OneBeacon Insurance Group Cl A.

Corporate tax rate of 27% is the nominal tax rate for OneBeacon Insurance Group Cl A. 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 OB 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 OB are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in OneBeacon Insurance Group Cl A 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 OB 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 - $1021 million for OneBeacon Insurance Group Cl A - 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 94.454 million for OneBeacon Insurance Group Cl A 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 OneBeacon Insurance Group Cl A at the current share price and the inputted number of shares is $1.7 billion.

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Financial statements of OB
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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