Intrinsic value of State National - SNC

Previous Close

$21.04

  Intrinsic Value

$190.95

stock screener

  Rating & Target

str. buy

+808%

Previous close

$21.04

 
Intrinsic value

$190.95

 
Up/down potential

+808%

 
Rating

str. buy

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

We calculate the intrinsic value of SNC 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 0.9

 

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, %
  9.05
  20.40
  18.86
  17.47
  16.23
  15.10
  14.09
  13.18
  12.37
  11.63
  10.97
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
  6.36
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  0
  261
  311
  365
  424
  488
  557
  630
  708
  791
  877
  968
  1,063
  1,163
  1,266
  1,374
  1,487
  1,603
  1,725
  1,851
  1,982
  2,118
  2,260
  2,407
  2,560
  2,720
  2,886
  3,059
  3,239
  3,427
  3,623
Variable operating expenses, $m
 
  160
  190
  223
  260
  299
  341
  386
  433
  484
  537
  592
  650
  711
  775
  841
  909
  981
  1,055
  1,132
  1,212
  1,296
  1,382
  1,472
  1,566
  1,663
  1,765
  1,871
  1,981
  2,096
  2,216
Fixed operating expenses, $m
 
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  10
Total operating expenses, $m
  138
  165
  195
  228
  266
  305
  347
  392
  439
  490
  543
  599
  657
  718
  782
  848
  916
  989
  1,063
  1,140
  1,220
  1,304
  1,391
  1,481
  1,575
  1,672
  1,775
  1,881
  1,991
  2,106
  2,226
Operating income, $m
  79
  96
  115
  136
  159
  184
  210
  239
  269
  300
  334
  369
  406
  445
  485
  527
  570
  615
  662
  711
  762
  814
  869
  926
  985
  1,047
  1,111
  1,178
  1,248
  1,321
  1,397
EBITDA, $m
  83
  101
  120
  142
  166
  192
  220
  249
  280
  314
  349
  385
  424
  464
  505
  549
  594
  641
  690
  741
  794
  849
  906
  965
  1,027
  1,091
  1,158
  1,228
  1,301
  1,377
  1,456
Interest expense (income), $m
  2
  2
  26
  53
  82
  114
  149
  186
  225
  267
  311
  358
  407
  458
  512
  567
  626
  686
  749
  814
  882
  953
  1,026
  1,102
  1,181
  1,264
  1,350
  1,439
  1,532
  1,629
  1,730
Earnings before tax, $m
  77
  94
  89
  83
  77
  70
  62
  53
  44
  34
  23
  12
  -1
  -13
  -27
  -41
  -56
  -71
  -87
  -103
  -120
  -138
  -157
  -176
  -196
  -217
  -238
  -261
  -284
  -308
  -334
Tax expense, $m
  28
  25
  24
  22
  21
  19
  17
  14
  12
  9
  6
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  49
  69
  65
  61
  56
  51
  45
  39
  32
  24
  17
  8
  -1
  -13
  -27
  -41
  -56
  -71
  -87
  -103
  -120
  -138
  -157
  -176
  -196
  -217
  -238
  -261
  -284
  -308
  -334

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
  2,877
  3,484
  4,141
  4,864
  5,653
  6,507
  7,424
  8,403
  9,442
  10,540
  11,696
  12,909
  14,178
  15,504
  16,886
  18,325
  19,823
  21,380
  22,998
  24,679
  26,426
  28,242
  30,130
  32,094
  34,137
  36,263
  38,477
  40,784
  43,188
  45,696
  48,312
Adjusted assets (=assets-cash), $m
  2,877
  3,484
  4,141
  4,864
  5,653
  6,507
  7,424
  8,403
  9,442
  10,540
  11,696
  12,909
  14,178
  15,504
  16,886
  18,325
  19,823
  21,380
  22,998
  24,679
  26,426
  28,242
  30,130
  32,094
  34,137
  36,263
  38,477
  40,784
  43,188
  45,696
  48,312
Revenue / Adjusted assets
  0.000
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
  0.075
Average production assets, $m
  23
  28
  33
  39
  45
  52
  59
  67
  75
  84
  93
  103
  113
  123
  134
  146
  158
  170
  183
  196
  210
  225
  240
  255
  271
  288
  306
  324
  343
  363
  384
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
  44
  588
  1,177
  1,826
  2,534
  3,300
  4,123
  5,001
  5,933
  6,918
  7,955
  9,043
  10,181
  11,370
  12,610
  13,901
  15,244
  16,640
  18,092
  19,600
  21,167
  22,796
  24,490
  26,251
  28,084
  29,991
  31,977
  34,046
  36,203
  38,452
  40,799
Total liabilities, $m
  2,580
  3,125
  3,714
  4,363
  5,071
  5,837
  6,660
  7,538
  8,470
  9,455
  10,492
  11,580
  12,718
  13,907
  15,147
  16,438
  17,781
  19,177
  20,629
  22,137
  23,704
  25,333
  27,027
  28,788
  30,621
  32,528
  34,514
  36,583
  38,740
  40,989
  43,336
Total equity, $m
  296
  359
  426
  501
  582
  670
  765
  866
  973
  1,086
  1,205
  1,330
  1,460
  1,597
  1,739
  1,888
  2,042
  2,202
  2,369
  2,542
  2,722
  2,909
  3,103
  3,306
  3,516
  3,735
  3,963
  4,201
  4,448
  4,707
  4,976
Total liabilities and equity, $m
  2,876
  3,484
  4,140
  4,864
  5,653
  6,507
  7,425
  8,404
  9,443
  10,541
  11,697
  12,910
  14,178
  15,504
  16,886
  18,326
  19,823
  21,379
  22,998
  24,679
  26,426
  28,242
  30,130
  32,094
  34,137
  36,263
  38,477
  40,784
  43,188
  45,696
  48,312
Debt-to-equity ratio
  0.149
  1.640
  2.760
  3.640
  4.350
  4.920
  5.390
  5.780
  6.100
  6.370
  6.600
  6.800
  6.970
  7.120
  7.250
  7.360
  7.470
  7.560
  7.640
  7.710
  7.780
  7.840
  7.890
  7.940
  7.990
  8.030
  8.070
  8.100
  8.140
  8.170
  8.200
Adjusted equity ratio
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  49
  69
  65
  61
  56
  51
  45
  39
  32
  24
  17
  8
  -1
  -13
  -27
  -41
  -56
  -71
  -87
  -103
  -120
  -138
  -157
  -176
  -196
  -217
  -238
  -261
  -284
  -308
  -334
Depreciation, amort., depletion, $m
  4
  5
  5
  6
  7
  8
  9
  11
  12
  13
  15
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  35
  37
  39
  42
  44
  47
  50
  53
  56
  59
Funds from operations, $m
  87
  73
  70
  67
  63
  59
  54
  49
  44
  38
  31
  24
  17
  6
  -6
  -18
  -31
  -45
  -59
  -73
  -88
  -104
  -120
  -137
  -154
  -172
  -191
  -211
  -231
  -252
  -274
Change in working capital, $m
  16
  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
  71
  73
  70
  67
  63
  59
  54
  49
  44
  38
  31
  24
  17
  6
  -6
  -18
  -31
  -45
  -59
  -73
  -88
  -104
  -120
  -137
  -154
  -172
  -191
  -211
  -231
  -252
  -274
Maintenance CAPEX, $m
  0
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -39
  -42
  -44
  -47
  -50
  -53
  -56
New CAPEX, $m
  -1
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -8
  -9
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -44
  -46
  -50
  -53
  -55
  -59
  -62
  -65
  -69
  -73
  -77
Free cash flow, $m
  63
  65
  61
  56
  51
  45
  39
  32
  25
  17
  9
  0
  -9
  -22
  -36
  -51
  -66
  -81
  -98
  -115
  -132
  -150
  -169
  -189
  -210
  -231
  -253
  -276
  -300
  -325
  -351
Issuance/(repayment) of debt, $m
  0
  544
  589
  649
  708
  766
  823
  878
  932
  985
  1,037
  1,088
  1,139
  1,189
  1,240
  1,291
  1,343
  1,396
  1,451
  1,508
  1,567
  1,629
  1,694
  1,761
  1,832
  1,907
  1,986
  2,069
  2,157
  2,249
  2,347
Issuance/(repurchase) of shares, $m
  -13
  0
  3
  14
  25
  37
  49
  62
  75
  89
  102
  117
  131
  150
  169
  189
  210
  231
  253
  276
  300
  325
  351
  378
  406
  436
  466
  498
  532
  567
  603
Cash from financing (excl. dividends), $m  
  -13
  544
  592
  663
  733
  803
  872
  940
  1,007
  1,074
  1,139
  1,205
  1,270
  1,339
  1,409
  1,480
  1,553
  1,627
  1,704
  1,784
  1,867
  1,954
  2,045
  2,139
  2,238
  2,343
  2,452
  2,567
  2,689
  2,816
  2,950
Total cash flow (excl. dividends), $m
  50
  609
  653
  719
  784
  848
  911
  973
  1,032
  1,091
  1,148
  1,205
  1,261
  1,317
  1,373
  1,430
  1,487
  1,546
  1,607
  1,670
  1,736
  1,804
  1,875
  1,950
  2,029
  2,112
  2,199
  2,291
  2,388
  2,491
  2,599
Retained Cash Flow (-), $m
  -33
  -63
  -68
  -75
  -81
  -88
  -94
  -101
  -107
  -113
  -119
  -125
  -131
  -150
  -169
  -189
  -210
  -231
  -253
  -276
  -300
  -325
  -351
  -378
  -406
  -436
  -466
  -498
  -532
  -567
  -603
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
 
  546
  585
  644
  703
  760
  817
  872
  925
  978
  1,029
  1,080
  1,129
  1,167
  1,204
  1,240
  1,277
  1,315
  1,354
  1,394
  1,435
  1,479
  1,524
  1,572
  1,623
  1,676
  1,733
  1,793
  1,857
  1,924
  1,996
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
 
  523
  536
  561
  579
  589
  593
  589
  578
  562
  540
  513
  482
  444
  404
  364
  325
  286
  249
  215
  182
  153
  126
  103
  83
  65
  51
  38
  29
  21
  15
Current shareholders' claim on cash, %
  100
  100.0
  99.7
  98.6
  97.0
  95.0
  92.7
  90.3
  87.7
  85.1
  82.5
  80.0
  77.4
  74.8
  72.3
  69.8
  67.3
  64.8
  62.4
  60.1
  57.8
  55.6
  53.4
  51.3
  49.3
  47.4
  45.5
  43.6
  41.9
  40.2
  38.5

State National Companies, Inc. is a specialty provider of property and casualty insurance. The Company's segments include Program Services, Lender Services and Corporate. In the Program Services segment, the Company operates an issuing carrier (fronting) business to provide insurance capacity access to the United States property and casualty insurance markets. In the Lender Services segment, the Company specializes in providing collateral protection insurance, which insures automobiles held as collateral for loans made by financial institutions. The Company writes its insurance business through its insurance company subsidiaries, which include State National Insurance Company, Inc. (SNIC), National Specialty Insurance Company (NSIC) and United Specialty Insurance Company (USIC). As of December 31, 2016, SNIC and NSIC were admitted carriers licensed to write property and casualty business in all 50 states and the District of Columbia. USIC is an admitted carrier in Delaware.

FINANCIAL RATIOS  of  State National (SNC)

Valuation Ratios
P/E Ratio 18
Price to Sales 4.1
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 12.6
Growth Rates
Sales Growth Rate 9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 14.9%
Total Debt to Equity 14.9%
Interest Coverage 40
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 1.9%
Return On Total Capital 15.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.6%
Return On Equity 17.5%
Return On Equity - 3 Yr. Avg. 13.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 38.2%
EBITDA Margin - 3 Yr. Avg. 27.2%
Operating Margin 36.4%
Oper. Margin - 3 Yr. Avg. 25.1%
Pre-Tax Margin 35.5%
Pre-Tax Margin - 3 Yr. Avg. 23.8%
Net Profit Margin 22.6%
Net Profit Margin - 3 Yr. Avg. 17.5%
Effective Tax Rate 36.4%
Eff/ Tax Rate - 3 Yr. Avg. -309.3%
Payout Ratio 20.4%

SNC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SNC stock intrinsic value calculation we used $217 million for the last fiscal year's total revenue generated by State National. The default revenue input number comes from 2016 income statement of State National. 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 SNC stock valuation model: a) initial revenue growth rate of 20.4% 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 SNC is calculated based on our internal credit rating of State National, 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 State National.
    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 SNC stock the variable cost ratio is equal to 61.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5 million in the base year in the intrinsic value calculation for SNC 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 4.5% for State National.

Corporate tax rate of 27% is the nominal tax rate for State National. 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 SNC 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 SNC are equal to 10.6%.

Life of production assets of 6.5 years is the average useful life of capital assets used in State National 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 SNC 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 - $296 million for State National - 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 42.173 million for State National 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 State National at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Should You Sell State National Companies Inc (SNC) At $20.97?   [Oct-03-17 02:06PM  Simply Wall St.]
▶ [$$] Markel to Buy State National for $919 Million   [09:43AM  The Wall Street Journal]
▶ Markel to acquire State National   [08:47AM  PR Newswire]
▶ Markel to acquire State National   [08:09AM  CNW Group]
▶ Oil Down, Everything Else Up on the Day   [May-25-17 06:50PM  Zacks]
▶ New CEO, New Approach for Chicago Bridge & Iron   [May-22-17 07:00AM  Morningstar]
▶ Is American Vanguard Corp. (AVD) Worthy of Your Portfolio?   [Dec-12-16 10:54AM  at Insider Monkey]
Financial statements of SNC
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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