Intrinsic value of State National - SNC

Previous Close

$20.93

  Intrinsic Value

$162.68

stock screener

  Rating & Target

str. buy

+677%

  Value-price divergence*

-115%

Previous close

$20.93

 
Intrinsic value

$162.68

 
Up/down potential

+677%

 
Rating

str. buy

 
Value-price divergence*

-115%

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

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

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
  18.00
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
Revenue, $m
  0
  256
  299
  345
  395
  449
  506
  566
  629
  696
  766
  839
  915
  994
  1,077
  1,163
  1,252
  1,345
  1,441
  1,541
  1,645
  1,754
  1,866
  1,983
  2,105
  2,233
  2,365
  2,503
  2,647
  2,798
  2,955
Variable operating expenses, $m
 
  157
  183
  211
  242
  275
  310
  346
  385
  426
  469
  513
  560
  608
  659
  711
  766
  822
  881
  943
  1,006
  1,073
  1,141
  1,213
  1,288
  1,365
  1,446
  1,531
  1,619
  1,711
  1,807
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
  162
  188
  216
  248
  281
  316
  352
  391
  432
  475
  520
  567
  615
  666
  718
  773
  830
  889
  951
  1,014
  1,081
  1,150
  1,222
  1,297
  1,374
  1,456
  1,541
  1,629
  1,721
  1,817
Operating income, $m
  79
  94
  111
  128
  148
  168
  190
  213
  238
  264
  291
  319
  349
  379
  411
  444
  479
  515
  552
  591
  631
  673
  716
  762
  809
  858
  909
  962
  1,018
  1,076
  1,137
EBITDA, $m
  83
  97
  114
  132
  152
  173
  196
  220
  245
  271
  299
  328
  358
  390
  423
  457
  492
  529
  567
  607
  648
  691
  736
  783
  831
  881
  934
  989
  1,046
  1,106
  1,168
Interest expense (income), $m
  2
  2
  24
  47
  72
  99
  127
  158
  190
  224
  260
  298
  337
  378
  421
  465
  512
  560
  610
  661
  715
  771
  830
  890
  953
  1,019
  1,087
  1,159
  1,233
  1,311
  1,392
Earnings before tax, $m
  77
  92
  87
  82
  76
  70
  63
  56
  48
  39
  30
  21
  11
  1
  -10
  -21
  -33
  -45
  -58
  -71
  -84
  -99
  -113
  -129
  -145
  -161
  -178
  -196
  -215
  -234
  -254
Tax expense, $m
  28
  25
  23
  22
  21
  19
  17
  15
  13
  11
  8
  6
  3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  49
  67
  63
  60
  56
  51
  46
  41
  35
  29
  22
  16
  8
  1
  -10
  -21
  -33
  -45
  -58
  -71
  -84
  -99
  -113
  -129
  -145
  -161
  -178
  -196
  -215
  -234
  -254

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
  3,414
  3,984
  4,603
  5,269
  5,982
  6,741
  7,543
  8,390
  9,279
  10,210
  11,183
  12,199
  13,256
  14,357
  15,502
  16,692
  17,929
  19,214
  20,550
  21,938
  23,381
  24,883
  26,446
  28,073
  29,768
  31,534
  33,375
  35,296
  37,301
  39,395
Adjusted assets (=assets-cash), $m
  2,877
  3,414
  3,984
  4,603
  5,269
  5,982
  6,741
  7,543
  8,390
  9,279
  10,210
  11,183
  12,199
  13,256
  14,357
  15,502
  16,692
  17,929
  19,214
  20,550
  21,938
  23,381
  24,883
  26,446
  28,073
  29,768
  31,534
  33,375
  35,296
  37,301
  39,395
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
  27
  32
  37
  42
  48
  54
  60
  67
  74
  81
  89
  97
  105
  114
  123
  133
  143
  153
  163
  174
  186
  198
  210
  223
  237
  251
  265
  281
  297
  313
Working capital, $m
  24
  28
  33
  38
  44
  50
  56
  63
  70
  77
  85
  93
  102
  110
  120
  129
  139
  149
  160
  171
  183
  195
  207
  220
  234
  248
  263
  278
  294
  311
  328
Total debt, $m
  44
  525
  1,037
  1,592
  2,190
  2,829
  3,509
  4,229
  4,989
  5,786
  6,621
  7,494
  8,405
  9,354
  10,341
  11,368
  12,436
  13,545
  14,698
  15,896
  17,141
  18,436
  19,783
  21,185
  22,644
  24,165
  25,749
  27,401
  29,124
  30,922
  32,800
Total liabilities, $m
  2,580
  3,062
  3,574
  4,129
  4,727
  5,366
  6,046
  6,766
  7,526
  8,323
  9,158
  10,031
  10,942
  11,891
  12,878
  13,905
  14,973
  16,082
  17,235
  18,433
  19,678
  20,973
  22,320
  23,722
  25,181
  26,702
  28,286
  29,938
  31,661
  33,459
  35,337
Total equity, $m
  296
  352
  410
  474
  543
  616
  694
  777
  864
  956
  1,052
  1,152
  1,256
  1,365
  1,479
  1,597
  1,719
  1,847
  1,979
  2,117
  2,260
  2,408
  2,563
  2,724
  2,892
  3,066
  3,248
  3,438
  3,636
  3,842
  4,058
Total liabilities and equity, $m
  2,876
  3,414
  3,984
  4,603
  5,270
  5,982
  6,740
  7,543
  8,390
  9,279
  10,210
  11,183
  12,198
  13,256
  14,357
  15,502
  16,692
  17,929
  19,214
  20,550
  21,938
  23,381
  24,883
  26,446
  28,073
  29,768
  31,534
  33,376
  35,297
  37,301
  39,395
Debt-to-equity ratio
  0.149
  1.490
  2.530
  3.360
  4.030
  4.590
  5.050
  5.440
  5.770
  6.050
  6.300
  6.510
  6.690
  6.850
  6.990
  7.120
  7.230
  7.330
  7.430
  7.510
  7.590
  7.660
  7.720
  7.780
  7.830
  7.880
  7.930
  7.970
  8.010
  8.050
  8.080
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
  67
  63
  60
  56
  51
  46
  41
  35
  29
  22
  16
  8
  1
  -10
  -21
  -33
  -45
  -58
  -71
  -84
  -99
  -113
  -129
  -145
  -161
  -178
  -196
  -215
  -234
  -254
Depreciation, amort., depletion, $m
  4
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
Funds from operations, $m
  87
  70
  67
  64
  60
  56
  52
  47
  42
  36
  31
  24
  18
  11
  2
  -9
  -20
  -31
  -42
  -54
  -67
  -80
  -94
  -108
  -122
  -138
  -153
  -170
  -187
  -205
  -223
Change in working capital, $m
  16
  4
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
Cash from operations, $m
  71
  66
  62
  58
  54
  50
  45
  40
  35
  29
  23
  16
  10
  2
  -8
  -18
  -29
  -41
  -53
  -66
  -79
  -92
  -106
  -121
  -136
  -152
  -168
  -185
  -203
  -221
  -241
Maintenance CAPEX, $m
  0
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
New CAPEX, $m
  -1
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
Cash from investing activities, $m
  -8
  -6
  -8
  -8
  -9
  -10
  -11
  -11
  -13
  -14
  -14
  -16
  -17
  -18
  -20
  -20
  -21
  -23
  -24
  -26
  -27
  -28
  -31
  -32
  -34
  -35
  -38
  -40
  -42
  -44
  -47
Free cash flow, $m
  63
  59
  55
  50
  45
  40
  35
  28
  22
  15
  8
  0
  -7
  -16
  -27
  -39
  -51
  -64
  -78
  -91
  -106
  -121
  -137
  -153
  -170
  -187
  -206
  -225
  -245
  -265
  -287
Issuance/(repayment) of debt, $m
  0
  481
  511
  555
  598
  639
  680
  720
  759
  797
  835
  873
  911
  949
  987
  1,027
  1,067
  1,109
  1,153
  1,198
  1,245
  1,295
  1,347
  1,402
  1,459
  1,520
  1,584
  1,652
  1,723
  1,798
  1,878
Issuance/(repurchase) of shares, $m
  -13
  0
  0
  4
  13
  23
  32
  42
  52
  63
  74
  85
  96
  108
  123
  139
  155
  172
  190
  208
  227
  247
  268
  290
  312
  336
  360
  386
  413
  441
  470
Cash from financing (excl. dividends), $m  
  -13
  481
  511
  559
  611
  662
  712
  762
  811
  860
  909
  958
  1,007
  1,057
  1,110
  1,166
  1,222
  1,281
  1,343
  1,406
  1,472
  1,542
  1,615
  1,692
  1,771
  1,856
  1,944
  2,038
  2,136
  2,239
  2,348
Total cash flow (excl. dividends), $m
  50
  541
  566
  609
  656
  702
  747
  791
  833
  876
  917
  958
  1,000
  1,041
  1,084
  1,127
  1,172
  1,218
  1,265
  1,315
  1,367
  1,421
  1,478
  1,539
  1,602
  1,669
  1,739
  1,813
  1,891
  1,974
  2,061
Retained Cash Flow (-), $m
  -33
  -56
  -59
  -64
  -69
  -73
  -78
  -83
  -87
  -92
  -96
  -100
  -105
  -109
  -123
  -139
  -155
  -172
  -190
  -208
  -227
  -247
  -268
  -290
  -312
  -336
  -360
  -386
  -413
  -441
  -470
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
 
  485
  508
  546
  588
  629
  669
  708
  746
  784
  821
  858
  895
  932
  961
  988
  1,016
  1,045
  1,075
  1,107
  1,139
  1,174
  1,210
  1,249
  1,290
  1,333
  1,379
  1,427
  1,479
  1,533
  1,591
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
 
  465
  465
  475
  484
  487
  485
  478
  466
  450
  431
  407
  382
  355
  323
  290
  258
  227
  198
  170
  145
  121
  100
  82
  66
  52
  40
  31
  23
  17
  12
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  99.7
  98.8
  97.4
  95.7
  93.9
  91.8
  89.6
  87.4
  85.1
  82.8
  80.5
  78.1
  75.7
  73.4
  71.0
  68.6
  66.3
  64.0
  61.8
  59.6
  57.4
  55.3
  53.2
  51.2
  49.3
  47.4
  45.5
  43.8

State National Companies, Inc., through its subsidiaries, provides property and casualty insurance in the United States. It operates in two segments, Program Services and Lender Services. The Program Services segment acts as an issuing carrier for foreign and domestic insurance and reinsurance companies. This segment writes a range of insurance products, principally including general liability insurance, commercial liability insurance, commercial multi-peril insurance, property insurance, and workers compensation insurance. The Lender Services segment provides collateral protection insurance, which insures personal automobiles and other vehicles held as collateral for loans made by credit unions, banks, and specialty finance companies, as well as offers ancillary insurance products. The company was founded in 1973 and is headquartered in Bedford, Texas.

FINANCIAL RATIOS  of  State National (SNC)

Valuation Ratios
P/E Ratio 17.9
Price to Sales 4
Price to Book 3
Price to Tangible Book
Price to Cash Flow 12.4
Price to Free Cash Flow 12.5
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 0
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 18% 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 10 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 11.1%. 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 42.441 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

▶ [$$] 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]
▶ State National Companies Announces Quarterly Cash Dividend   [Sep-01-16 04:02PM  GlobeNewswire]
Stock chart of SNC 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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