Intrinsic value of Simpson Manufacturing - SSD

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$41.72

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$41.72

 
Intrinsic value

$50.81

 
Up/down potential

+22%

 
Rating

buy

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

We calculate the intrinsic value of SSD 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 2.0

 

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, %
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
Revenue, $m
  861
  931
  1,003
  1,079
  1,157
  1,238
  1,323
  1,411
  1,502
  1,597
  1,696
  1,800
  1,907
  2,019
  2,136
  2,258
  2,385
  2,518
  2,657
  2,802
  2,954
  3,113
  3,279
  3,453
  3,635
  3,826
  4,026
  4,235
  4,455
  4,685
  4,926
Variable operating expenses, $m
 
  500
  538
  577
  618
  661
  705
  751
  799
  849
  901
  942
  999
  1,057
  1,118
  1,182
  1,249
  1,319
  1,391
  1,467
  1,547
  1,630
  1,717
  1,808
  1,904
  2,003
  2,108
  2,218
  2,333
  2,453
  2,579
Fixed operating expenses, $m
 
  271
  277
  284
  291
  299
  306
  314
  322
  330
  338
  346
  355
  364
  373
  382
  392
  402
  412
  422
  433
  443
  454
  466
  478
  489
  502
  514
  527
  540
  554
Total operating expenses, $m
  721
  771
  815
  861
  909
  960
  1,011
  1,065
  1,121
  1,179
  1,239
  1,288
  1,354
  1,421
  1,491
  1,564
  1,641
  1,721
  1,803
  1,889
  1,980
  2,073
  2,171
  2,274
  2,382
  2,492
  2,610
  2,732
  2,860
  2,993
  3,133
Operating income, $m
  139
  160
  188
  217
  247
  279
  312
  346
  382
  419
  458
  511
  554
  598
  645
  693
  744
  798
  854
  913
  975
  1,040
  1,108
  1,179
  1,254
  1,333
  1,416
  1,504
  1,595
  1,692
  1,793
EBITDA, $m
  167
  193
  222
  253
  285
  318
  353
  389
  427
  466
  507
  550
  595
  642
  691
  742
  796
  853
  912
  974
  1,039
  1,107
  1,179
  1,254
  1,333
  1,417
  1,504
  1,596
  1,692
  1,793
  1,900
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
Earnings before tax, $m
  139
  160
  188
  216
  246
  277
  310
  344
  379
  416
  454
  507
  549
  593
  639
  687
  738
  791
  846
  905
  966
  1,030
  1,097
  1,168
  1,242
  1,321
  1,403
  1,489
  1,580
  1,675
  1,775
Tax expense, $m
  49
  43
  51
  58
  67
  75
  84
  93
  102
  112
  123
  137
  148
  160
  173
  186
  199
  214
  229
  244
  261
  278
  296
  315
  335
  357
  379
  402
  427
  452
  479
Net income, $m
  90
  117
  137
  158
  180
  203
  226
  251
  277
  304
  332
  370
  401
  433
  467
  502
  539
  577
  618
  660
  705
  752
  801
  853
  907
  964
  1,024
  1,087
  1,153
  1,223
  1,296

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  227
  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
  980
  814
  878
  944
  1,012
  1,083
  1,157
  1,234
  1,314
  1,398
  1,484
  1,574
  1,669
  1,767
  1,869
  1,975
  2,087
  2,203
  2,325
  2,452
  2,585
  2,724
  2,869
  3,021
  3,181
  3,348
  3,522
  3,706
  3,898
  4,099
  4,310
Adjusted assets (=assets-cash), $m
  753
  814
  878
  944
  1,012
  1,083
  1,157
  1,234
  1,314
  1,398
  1,484
  1,574
  1,669
  1,767
  1,869
  1,975
  2,087
  2,203
  2,325
  2,452
  2,585
  2,724
  2,869
  3,021
  3,181
  3,348
  3,522
  3,706
  3,898
  4,099
  4,310
Revenue / Adjusted assets
  1.143
  1.144
  1.142
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.142
  1.143
  1.144
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
Average production assets, $m
  249
  269
  290
  312
  334
  358
  382
  408
  434
  462
  490
  520
  551
  584
  617
  653
  689
  728
  768
  810
  854
  900
  948
  998
  1,051
  1,106
  1,164
  1,224
  1,287
  1,354
  1,424
Working capital, $m
  476
  269
  290
  312
  334
  358
  382
  408
  434
  462
  490
  520
  551
  584
  617
  653
  689
  728
  768
  810
  854
  900
  948
  998
  1,051
  1,106
  1,164
  1,224
  1,287
  1,354
  1,424
Total debt, $m
  0
  9
  19
  28
  39
  50
  61
  72
  84
  97
  110
  124
  138
  153
  168
  184
  201
  219
  237
  256
  276
  297
  319
  342
  366
  391
  418
  446
  475
  505
  537
Total liabilities, $m
  114
  123
  133
  142
  153
  164
  175
  186
  198
  211
  224
  238
  252
  267
  282
  298
  315
  333
  351
  370
  390
  411
  433
  456
  480
  505
  532
  560
  589
  619
  651
Total equity, $m
  866
  691
  745
  801
  859
  920
  983
  1,048
  1,116
  1,187
  1,260
  1,337
  1,417
  1,500
  1,587
  1,677
  1,772
  1,871
  1,974
  2,082
  2,194
  2,312
  2,436
  2,565
  2,700
  2,842
  2,990
  3,146
  3,309
  3,480
  3,659
Total liabilities and equity, $m
  980
  814
  878
  943
  1,012
  1,084
  1,158
  1,234
  1,314
  1,398
  1,484
  1,575
  1,669
  1,767
  1,869
  1,975
  2,087
  2,204
  2,325
  2,452
  2,584
  2,723
  2,869
  3,021
  3,180
  3,347
  3,522
  3,706
  3,898
  4,099
  4,310
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.040
  0.050
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
Adjusted equity ratio
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  90
  117
  137
  158
  180
  203
  226
  251
  277
  304
  332
  370
  401
  433
  467
  502
  539
  577
  618
  660
  705
  752
  801
  853
  907
  964
  1,024
  1,087
  1,153
  1,223
  1,296
Depreciation, amort., depletion, $m
  28
  33
  34
  36
  38
  39
  41
  43
  45
  47
  49
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  97
  102
  107
Funds from operations, $m
  58
  150
  171
  194
  217
  242
  267
  294
  322
  351
  381
  409
  442
  477
  513
  551
  591
  632
  676
  721
  769
  820
  872
  928
  986
  1,047
  1,111
  1,179
  1,250
  1,325
  1,403
Change in working capital, $m
  -37
  20
  21
  22
  23
  24
  24
  25
  26
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
  61
  63
  66
  70
Cash from operations, $m
  95
  137
  150
  172
  195
  218
  243
  269
  295
  323
  352
  379
  411
  445
  479
  516
  554
  594
  636
  679
  725
  774
  824
  878
  933
  992
  1,054
  1,118
  1,187
  1,258
  1,333
Maintenance CAPEX, $m
  0
  -19
  -20
  -22
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -87
  -92
  -97
  -102
New CAPEX, $m
  -42
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -63
  -66
  -70
Cash from investing activities, $m
  -49
  -39
  -41
  -44
  -46
  -49
  -51
  -54
  -57
  -61
  -64
  -67
  -70
  -73
  -78
  -81
  -86
  -90
  -95
  -100
  -105
  -110
  -116
  -121
  -128
  -134
  -141
  -148
  -155
  -163
  -172
Free cash flow, $m
  46
  98
  109
  129
  149
  170
  192
  214
  238
  263
  289
  313
  341
  371
  402
  434
  468
  503
  541
  580
  621
  664
  709
  756
  806
  858
  913
  970
  1,031
  1,095
  1,162
Issuance/(repayment) of debt, $m
  0
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
Issuance/(repurchase) of shares, $m
  -46
  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  
  -46
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
Total cash flow (excl. dividends), $m
  1
  107
  119
  138
  159
  180
  203
  226
  250
  276
  302
  326
  355
  385
  417
  450
  485
  521
  559
  599
  641
  685
  731
  779
  830
  883
  939
  998
  1,060
  1,125
  1,194
Retained Cash Flow (-), $m
  -16
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -123
  -129
  -135
  -142
  -148
  -156
  -163
  -171
  -179
Prev. year cash balance distribution, $m
 
  227
  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
 
  281
  65
  83
  101
  120
  140
  161
  182
  205
  229
  250
  275
  302
  330
  360
  390
  422
  456
  491
  528
  567
  607
  650
  694
  741
  791
  843
  897
  954
  1,015
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
 
  270
  59
  72
  83
  93
  102
  109
  114
  118
  120
  119
  118
  115
  111
  106
  99
  92
  84
  76
  67
  59
  50
  43
  35
  29
  23
  18
  14
  10
  8
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

Simpson Manufacturing Co., Inc., through its subsidiaries, designs, engineers, manufactures, and sells building construction products. The company offers wood construction products, including connectors, truss plates, fastening systems, fasteners, and pre-fabricated lateral systems used in light-frame construction; and concrete construction products comprising adhesives, specialty chemicals, mechanical anchors, carbide drill bits, powder actuated tools, and fiber reinforced materials for use in concrete, masonry, and steel construction, as well as for concrete repair, protection, and strengthening applications. It also provides wood shrinkage compensating devices; cold formed steel bridging and kneewall connections; structural screws for wood, metal, and composite decking applications; and mechanical anchors for use in hollow wall conditions and for overhead applications. The company markets its products to the residential construction, light industrial and commercial construction, remodeling, and do-it-yourself markets primarily in the United States, Canada, France, the United Kingdom, Germany, Denmark, Switzerland, Portugal, Poland, Australia, New Zealand, South Africa, China, Taiwan, and Vietnam, as well as in Mexico, Chile, and the Middle East. Simpson Manufacturing Co., Inc. was founded in 1956 and is based in Pleasanton, California.

FINANCIAL RATIOS  of  Simpson Manufacturing (SSD)

Valuation Ratios
P/E Ratio 22
Price to Sales 2.3
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 20.8
Price to Free Cash Flow 37.3
Growth Rates
Sales Growth Rate 8.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 23.5%
Cap. Spend. - 3 Yr. Gr. Rate 19.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.3%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 10.5%
Ret/ On T. Cap. - 3 Yr. Avg. 8.6%
Return On Equity 10.5%
Return On Equity - 3 Yr. Avg. 8.6%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 47.9%
Gross Margin - 3 Yr. Avg. 46.2%
EBITDA Margin 19.4%
EBITDA Margin - 3 Yr. Avg. 17.8%
Operating Margin 16.3%
Oper. Margin - 3 Yr. Avg. 14.4%
Pre-Tax Margin 16.1%
Pre-Tax Margin - 3 Yr. Avg. 14.3%
Net Profit Margin 10.5%
Net Profit Margin - 3 Yr. Avg. 9.2%
Effective Tax Rate 35.3%
Eff/ Tax Rate - 3 Yr. Avg. 36.1%
Payout Ratio 36.7%

SSD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SSD stock intrinsic value calculation we used $861 million for the last fiscal year's total revenue generated by Simpson Manufacturing. The default revenue input number comes from 2016 income statement of Simpson Manufacturing. 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 SSD stock valuation model: a) initial revenue growth rate of 8.1% 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 SSD is calculated based on our internal credit rating of Simpson Manufacturing, 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 Simpson Manufacturing.
    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 SSD stock the variable cost ratio is equal to 53.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $264 million in the base year in the intrinsic value calculation for SSD 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 Simpson Manufacturing.

Corporate tax rate of 27% is the nominal tax rate for Simpson Manufacturing. 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 SSD 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 SSD are equal to 28.9%.

Life of production assets of 13.3 years is the average useful life of capital assets used in Simpson Manufacturing 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 SSD is equal to 28.9%. 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 - $866 million for Simpson Manufacturing - 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 47.807 million for Simpson Manufacturing 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 Simpson Manufacturing at the current share price and the inputted number of shares is $2.0 billion.


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COMPANY NEWS

▶ Simpson Manufacturing posts 4Q profit   [Feb-02-17 06:15PM  Associated Press]
▶ Do Hedge Funds Love Simpson Manufacturing Co, Inc. (SSD)?   [Dec-15-16 10:25AM  at Insider Monkey]
Stock chart of SSD Financial statements of SSD
Valuation of Stocks

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