Intrinsic value of Pzena Investment Management - PZN

Previous Close

$10.17

  Intrinsic Value

$49.13

stock screener

  Rating & Target

str. buy

+383%

  Value-price divergence*

0%

Previous close

$10.17

 
Intrinsic value

$49.13

 
Up/down potential

+383%

 
Rating

str. buy

 
Value-price divergence*

0%

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

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

We calculate the intrinsic value of PZN 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 0.7

 

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, %
  -7.69
  23.10
  21.29
  19.66
  18.19
  16.88
  15.69
  14.62
  13.66
  12.79
  12.01
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
Revenue, $m
  108
  133
  161
  193
  228
  267
  308
  353
  402
  453
  508
  565
  625
  689
  755
  824
  895
  970
  1,048
  1,129
  1,213
  1,300
  1,391
  1,485
  1,584
  1,686
  1,792
  1,902
  2,017
  2,137
  2,263
Variable operating expenses, $m
 
  14
  16
  20
  23
  27
  31
  36
  41
  46
  52
  58
  64
  70
  77
  84
  91
  99
  107
  115
  124
  133
  142
  152
  162
  172
  183
  194
  206
  218
  231
Fixed operating expenses, $m
 
  51
  53
  54
  55
  57
  58
  59
  61
  62
  64
  66
  67
  69
  71
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
  93
  95
  97
  100
  102
  105
Total operating expenses, $m
  61
  65
  69
  74
  78
  84
  89
  95
  102
  108
  116
  124
  131
  139
  148
  156
  165
  175
  185
  195
  206
  217
  228
  240
  252
  265
  278
  291
  306
  320
  336
Operating income, $m
  47
  68
  92
  119
  150
  183
  219
  258
  300
  344
  392
  442
  494
  549
  607
  667
  730
  795
  863
  934
  1,007
  1,084
  1,163
  1,246
  1,332
  1,421
  1,514
  1,611
  1,712
  1,817
  1,927
EBITDA, $m
  48
  69
  93
  121
  151
  185
  221
  260
  303
  348
  395
  446
  499
  554
  612
  673
  736
  802
  870
  942
  1,016
  1,093
  1,173
  1,256
  1,343
  1,433
  1,526
  1,624
  1,726
  1,832
  1,942
Interest expense (income), $m
  0
  0
  1
  2
  3
  5
  6
  8
  10
  12
  15
  17
  20
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  64
  69
  74
  79
  84
  89
Earnings before tax, $m
  -1
  68
  92
  118
  146
  178
  212
  250
  290
  332
  377
  425
  475
  527
  582
  639
  699
  761
  826
  893
  963
  1,036
  1,111
  1,190
  1,271
  1,356
  1,445
  1,537
  1,633
  1,734
  1,838
Tax expense, $m
  -55
  18
  25
  32
  40
  48
  57
  67
  78
  90
  102
  115
  128
  142
  157
  173
  189
  205
  223
  241
  260
  280
  300
  321
  343
  366
  390
  415
  441
  468
  496
Net income, $m
  16
  50
  67
  86
  107
  130
  155
  182
  211
  242
  275
  310
  346
  385
  425
  467
  510
  556
  603
  652
  703
  756
  811
  868
  928
  990
  1,055
  1,122
  1,192
  1,265
  1,342

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  44
  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
  179
  186
  226
  270
  319
  373
  431
  494
  562
  634
  710
  790
  875
  963
  1,055
  1,152
  1,252
  1,357
  1,466
  1,579
  1,696
  1,819
  1,946
  2,078
  2,215
  2,357
  2,506
  2,661
  2,822
  2,989
  3,164
Adjusted assets (=assets-cash), $m
  135
  186
  226
  270
  319
  373
  431
  494
  562
  634
  710
  790
  875
  963
  1,055
  1,152
  1,252
  1,357
  1,466
  1,579
  1,696
  1,819
  1,946
  2,078
  2,215
  2,357
  2,506
  2,661
  2,822
  2,989
  3,164
Revenue / Adjusted assets
  0.800
  0.715
  0.712
  0.715
  0.715
  0.716
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.714
  0.715
  0.716
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
  0.715
Average production assets, $m
  8
  9
  11
  13
  16
  18
  21
  24
  28
  31
  35
  39
  43
  48
  52
  57
  62
  67
  72
  78
  84
  90
  96
  102
  109
  116
  124
  131
  139
  147
  156
Working capital, $m
  0
  -13
  -16
  -19
  -23
  -27
  -31
  -35
  -40
  -45
  -51
  -56
  -63
  -69
  -75
  -82
  -90
  -97
  -105
  -113
  -121
  -130
  -139
  -149
  -158
  -169
  -179
  -190
  -202
  -214
  -226
Total debt, $m
  0
  16
  52
  92
  136
  185
  237
  294
  355
  419
  488
  560
  636
  716
  799
  886
  976
  1,070
  1,168
  1,270
  1,376
  1,486
  1,600
  1,719
  1,842
  1,971
  2,104
  2,244
  2,388
  2,539
  2,697
Total liabilities, $m
  151
  167
  203
  243
  287
  336
  388
  445
  506
  570
  639
  711
  787
  867
  950
  1,037
  1,127
  1,221
  1,319
  1,421
  1,527
  1,637
  1,751
  1,870
  1,993
  2,122
  2,255
  2,395
  2,539
  2,690
  2,848
Total equity, $m
  28
  19
  23
  27
  32
  37
  43
  49
  56
  63
  71
  79
  87
  96
  106
  115
  125
  136
  147
  158
  170
  182
  195
  208
  221
  236
  251
  266
  282
  299
  316
Total liabilities and equity, $m
  179
  186
  226
  270
  319
  373
  431
  494
  562
  633
  710
  790
  874
  963
  1,056
  1,152
  1,252
  1,357
  1,466
  1,579
  1,697
  1,819
  1,946
  2,078
  2,214
  2,358
  2,506
  2,661
  2,821
  2,989
  3,164
Debt-to-equity ratio
  0.000
  0.880
  2.300
  3.400
  4.270
  4.950
  5.500
  5.950
  6.310
  6.620
  6.870
  7.090
  7.270
  7.430
  7.570
  7.690
  7.790
  7.890
  7.970
  8.040
  8.110
  8.170
  8.220
  8.270
  8.320
  8.360
  8.400
  8.430
  8.460
  8.490
  8.520
Adjusted equity ratio
  -0.119
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  50
  67
  86
  107
  130
  155
  182
  211
  242
  275
  310
  346
  385
  425
  467
  510
  556
  603
  652
  703
  756
  811
  868
  928
  990
  1,055
  1,122
  1,192
  1,265
  1,342
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
Funds from operations, $m
  63
  51
  68
  87
  108
  132
  157
  185
  214
  246
  279
  314
  351
  390
  430
  472
  516
  562
  610
  660
  711
  765
  821
  879
  939
  1,002
  1,067
  1,135
  1,206
  1,280
  1,357
Change in working capital, $m
  4
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from operations, $m
  59
  53
  71
  90
  112
  136
  161
  189
  219
  251
  284
  320
  357
  396
  437
  479
  524
  570
  618
  668
  720
  774
  830
  888
  949
  1,012
  1,078
  1,146
  1,218
  1,292
  1,370
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
New CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Cash from investing activities, $m
  0
  -3
  -3
  -3
  -3
  -5
  -5
  -5
  -5
  -7
  -7
  -8
  -8
  -8
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -24
Free cash flow, $m
  59
  51
  68
  87
  108
  131
  157
  184
  213
  244
  277
  312
  349
  387
  427
  469
  513
  558
  606
  655
  706
  759
  815
  872
  932
  994
  1,059
  1,126
  1,197
  1,270
  1,346
Issuance/(repayment) of debt, $m
  0
  16
  36
  40
  44
  48
  53
  57
  61
  65
  69
  72
  76
  80
  83
  87
  90
  94
  98
  102
  106
  110
  114
  119
  123
  128
  134
  139
  145
  151
  157
Issuance/(repurchase) of shares, $m
  -2
  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  
  -44
  16
  36
  40
  44
  48
  53
  57
  61
  65
  69
  72
  76
  80
  83
  87
  90
  94
  98
  102
  106
  110
  114
  119
  123
  128
  134
  139
  145
  151
  157
Total cash flow (excl. dividends), $m
  14
  67
  104
  127
  152
  180
  209
  241
  274
  309
  346
  384
  425
  467
  511
  556
  603
  653
  704
  757
  812
  869
  929
  991
  1,055
  1,123
  1,193
  1,266
  1,342
  1,421
  1,504
Retained Cash Flow (-), $m
  -10
  -19
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
Prev. year cash balance distribution, $m
 
  28
  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
 
  76
  100
  123
  147
  174
  203
  234
  267
  302
  338
  376
  416
  458
  501
  546
  593
  642
  693
  745
  800
  857
  916
  978
  1,042
  1,108
  1,178
  1,250
  1,326
  1,404
  1,486
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
 
  73
  91
  107
  121
  135
  148
  158
  167
  173
  177
  179
  178
  174
  168
  160
  151
  140
  128
  115
  102
  89
  76
  64
  53
  43
  34
  27
  21
  15
  11
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

Pzena Investment Management, Inc. is a publicly owned investment manager. The firm manages equity mutual funds for its clients. It invests in the public equity markets. Pzena Investment Management, Inc. was founded in 2007 and is based in New York City with additional offices in Melbourne, Australia and London, United Kingdom.

FINANCIAL RATIOS  of  Pzena Investment Management (PZN)

Valuation Ratios
P/E Ratio 43.1
Price to Sales 6.4
Price to Book 24.6
Price to Tangible Book
Price to Cash Flow 11.7
Price to Free Cash Flow 11.7
Growth Rates
Sales Growth Rate -7.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
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 0
Management Effectiveness
Return On Assets 10.9%
Ret/ On Assets - 3 Yr. Avg. 8.8%
Return On Total Capital 69.6%
Ret/ On T. Cap. - 3 Yr. Avg. 53.7%
Return On Equity 69.6%
Return On Equity - 3 Yr. Avg. 53.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 0%
EBITDA Margin - 3 Yr. Avg. 31.9%
Operating Margin 43.5%
Oper. Margin - 3 Yr. Avg. 48.5%
Pre-Tax Margin -0.9%
Pre-Tax Margin - 3 Yr. Avg. 31.3%
Net Profit Margin 14.8%
Net Profit Margin - 3 Yr. Avg. 9.6%
Effective Tax Rate 5500%
Eff/ Tax Rate - 3 Yr. Avg. 1837.7%
Payout Ratio 37.5%

PZN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PZN stock intrinsic value calculation we used $108 million for the last fiscal year's total revenue generated by Pzena Investment Management. The default revenue input number comes from 2016 income statement of Pzena Investment Management. 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 PZN stock valuation model: a) initial revenue growth rate of 23.1% 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 PZN is calculated based on our internal credit rating of Pzena Investment Management, 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 Pzena Investment Management.
    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 PZN stock the variable cost ratio is equal to 10.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $50 million in the base year in the intrinsic value calculation for PZN 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 Pzena Investment Management.

Corporate tax rate of 27% is the nominal tax rate for Pzena Investment Management. 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 PZN 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 PZN are equal to 6.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Pzena Investment Management 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 PZN 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 - $28 million for Pzena Investment Management - 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 67.217 million for Pzena Investment Management 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 Pzena Investment Management at the current share price and the inputted number of shares is $0.7 billion.

RELATED COMPANIES Price Int.Val. Rating
GROW U.S. Global In 1.27 0.40  str.sell
DHIL Diamond Hill I 194.50 561.42  str.buy
NTRS Northern Trust 88.69 90.50  hold
AINC Ashford 57.73 8.95  str.sell
MN Manning&Napier 3.60 75.62  str.buy
SAMG Silvercrest As 12.35 48.50  str.buy
VRTS Virtus Investm 112.85 58.13  str.sell
AMG Affiliated Man 178.90 182.51  hold

COMPANY NEWS

▶ Pzena posts 2Q profit   [Jul-18-17 04:49PM  Associated Press]
▶ Pzena posts 1Q profit   [Apr-18-17 04:54PM  Associated Press]
▶ Pzena posts 4Q profit   [Feb-07-17 06:57PM  Associated Press]
▶ Is Pzena Investment Management, Inc. (PZN) A Good Stock to Buy?   [Dec-16-16 07:42PM  at Insider Monkey]
▶ Pzenas Biggest Q3 Moves: Hilton, Exxon, Seagate, More   [Dec-01-16 08:31AM  at Insider Monkey]
▶ 3 Mutual Funds From Pzena for Retail Investors   [Jul-06-16 06:50PM  at Investopedia]
Stock chart of PZN Financial statements of PZN
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.