Intrinsic value of Simpson Manufacturing - SSD

Previous Close

$58.78

  Intrinsic Value

$74.62

stock screener

  Rating & Target

buy

+27%

Previous close

$58.78

 
Intrinsic value

$74.62

 
Up/down potential

+27%

 
Rating

buy

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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.62
  8.25
  7.93
  7.64
  7.37
  7.14
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
  5.54
  5.49
  5.44
  5.40
Revenue, $m
  861
  976
  1,099
  1,229
  1,365
  1,509
  1,659
  1,816
  1,980
  2,151
  2,328
  2,513
  2,705
  2,904
  3,111
  3,327
  3,550
  3,783
  4,025
  4,277
  4,540
  4,813
  5,098
  5,395
  5,705
  6,029
  6,366
  6,719
  7,088
  7,474
  7,877
Variable operating expenses, $m
 
  524
  588
  656
  727
  802
  881
  963
  1,049
  1,138
  1,231
  1,316
  1,416
  1,521
  1,629
  1,742
  1,859
  1,981
  2,108
  2,240
  2,377
  2,520
  2,669
  2,825
  2,987
  3,157
  3,333
  3,518
  3,711
  3,913
  4,124
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
  795
  865
  940
  1,018
  1,101
  1,187
  1,277
  1,371
  1,468
  1,569
  1,662
  1,771
  1,885
  2,002
  2,124
  2,251
  2,383
  2,520
  2,662
  2,810
  2,963
  3,123
  3,291
  3,465
  3,646
  3,835
  4,032
  4,238
  4,453
  4,678
Operating income, $m
  139
  182
  234
  289
  347
  408
  472
  539
  609
  682
  759
  851
  933
  1,020
  1,109
  1,202
  1,300
  1,401
  1,506
  1,616
  1,730
  1,850
  1,974
  2,104
  2,240
  2,383
  2,531
  2,687
  2,850
  3,020
  3,199
EBITDA, $m
  167
  216
  270
  328
  389
  453
  520
  591
  665
  742
  822
  905
  992
  1,083
  1,177
  1,275
  1,377
  1,483
  1,593
  1,709
  1,829
  1,954
  2,085
  2,222
  2,364
  2,514
  2,670
  2,833
  3,004
  3,183
  3,370
Interest expense (income), $m
  0
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  9
  10
  11
  12
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  31
Earnings before tax, $m
  139
  182
  233
  288
  345
  405
  469
  535
  605
  677
  753
  844
  926
  1,011
  1,100
  1,192
  1,288
  1,388
  1,492
  1,601
  1,714
  1,833
  1,956
  2,085
  2,219
  2,360
  2,507
  2,661
  2,823
  2,991
  3,168
Tax expense, $m
  49
  49
  63
  78
  93
  109
  127
  145
  163
  183
  203
  228
  250
  273
  297
  322
  348
  375
  403
  432
  463
  495
  528
  563
  599
  637
  677
  719
  762
  808
  855
Net income, $m
  90
  133
  170
  210
  252
  296
  342
  391
  442
  494
  550
  616
  676
  738
  803
  870
  940
  1,013
  1,089
  1,169
  1,252
  1,338
  1,428
  1,522
  1,620
  1,723
  1,830
  1,943
  2,060
  2,184
  2,313

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
  854
  962
  1,075
  1,195
  1,320
  1,452
  1,589
  1,732
  1,882
  2,037
  2,198
  2,366
  2,541
  2,722
  2,910
  3,106
  3,310
  3,522
  3,742
  3,972
  4,211
  4,460
  4,720
  4,991
  5,274
  5,570
  5,879
  6,201
  6,539
  6,891
Adjusted assets (=assets-cash), $m
  753
  854
  962
  1,075
  1,195
  1,320
  1,452
  1,589
  1,732
  1,882
  2,037
  2,198
  2,366
  2,541
  2,722
  2,910
  3,106
  3,310
  3,522
  3,742
  3,972
  4,211
  4,460
  4,720
  4,991
  5,274
  5,570
  5,879
  6,201
  6,539
  6,891
Revenue / Adjusted assets
  1.143
  1.143
  1.142
  1.143
  1.142
  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
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
  1.143
Average production assets, $m
  249
  282
  318
  355
  395
  436
  480
  525
  572
  622
  673
  726
  782
  839
  899
  961
  1,026
  1,093
  1,163
  1,236
  1,312
  1,391
  1,473
  1,559
  1,649
  1,742
  1,840
  1,942
  2,048
  2,160
  2,276
Working capital, $m
  476
  282
  318
  355
  395
  436
  480
  525
  572
  622
  673
  726
  782
  839
  899
  961
  1,026
  1,093
  1,163
  1,236
  1,312
  1,391
  1,473
  1,559
  1,649
  1,742
  1,840
  1,942
  2,048
  2,160
  2,276
Total debt, $m
  0
  15
  31
  48
  66
  85
  105
  126
  148
  170
  194
  218
  243
  270
  297
  325
  355
  386
  418
  451
  486
  522
  559
  599
  640
  682
  727
  774
  822
  873
  927
Total liabilities, $m
  114
  129
  145
  162
  180
  199
  219
  240
  262
  284
  308
  332
  357
  384
  411
  439
  469
  500
  532
  565
  600
  636
  673
  713
  754
  796
  841
  888
  936
  987
  1,041
Total equity, $m
  866
  725
  816
  913
  1,014
  1,121
  1,232
  1,349
  1,471
  1,597
  1,729
  1,866
  2,009
  2,157
  2,311
  2,471
  2,637
  2,810
  2,990
  3,177
  3,372
  3,575
  3,787
  4,007
  4,238
  4,478
  4,729
  4,991
  5,265
  5,551
  5,851
Total liabilities and equity, $m
  980
  854
  961
  1,075
  1,194
  1,320
  1,451
  1,589
  1,733
  1,881
  2,037
  2,198
  2,366
  2,541
  2,722
  2,910
  3,106
  3,310
  3,522
  3,742
  3,972
  4,211
  4,460
  4,720
  4,992
  5,274
  5,570
  5,879
  6,201
  6,538
  6,892
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.070
  0.080
  0.090
  0.090
  0.100
  0.110
  0.110
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
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
  133
  170
  210
  252
  296
  342
  391
  442
  494
  550
  616
  676
  738
  803
  870
  940
  1,013
  1,089
  1,169
  1,252
  1,338
  1,428
  1,522
  1,620
  1,723
  1,830
  1,943
  2,060
  2,184
  2,313
Depreciation, amort., depletion, $m
  28
  34
  36
  39
  42
  45
  48
  52
  55
  59
  63
  55
  59
  63
  68
  72
  77
  82
  87
  93
  99
  105
  111
  117
  124
  131
  138
  146
  154
  162
  171
Funds from operations, $m
  58
  167
  207
  249
  294
  341
  391
  443
  497
  554
  613
  671
  735
  801
  870
  942
  1,017
  1,096
  1,177
  1,262
  1,350
  1,442
  1,539
  1,639
  1,744
  1,854
  1,969
  2,089
  2,214
  2,346
  2,484
Change in working capital, $m
  -37
  33
  35
  37
  40
  41
  43
  45
  47
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  107
  111
  117
Cash from operations, $m
  95
  133
  171
  212
  254
  300
  347
  397
  450
  504
  561
  617
  679
  744
  811
  880
  953
  1,028
  1,107
  1,189
  1,274
  1,363
  1,456
  1,553
  1,655
  1,760
  1,871
  1,987
  2,108
  2,235
  2,367
Maintenance CAPEX, $m
  0
  -19
  -21
  -24
  -27
  -30
  -33
  -36
  -39
  -43
  -47
  -51
  -55
  -59
  -63
  -68
  -72
  -77
  -82
  -87
  -93
  -99
  -105
  -111
  -117
  -124
  -131
  -138
  -146
  -154
  -162
New CAPEX, $m
  -42
  -33
  -35
  -37
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -86
  -90
  -93
  -98
  -102
  -107
  -111
  -117
Cash from investing activities, $m
  -49
  -52
  -56
  -61
  -67
  -71
  -76
  -81
  -86
  -92
  -98
  -104
  -110
  -117
  -123
  -130
  -137
  -144
  -152
  -160
  -169
  -178
  -187
  -197
  -207
  -217
  -229
  -240
  -253
  -265
  -279
Free cash flow, $m
  46
  81
  114
  150
  188
  229
  271
  316
  363
  412
  463
  513
  569
  627
  688
  750
  816
  884
  955
  1,029
  1,106
  1,186
  1,269
  1,357
  1,448
  1,543
  1,642
  1,747
  1,855
  1,969
  2,088
Issuance/(repayment) of debt, $m
  0
  15
  16
  17
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
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
  15
  16
  17
  18
  19
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
Total cash flow (excl. dividends), $m
  1
  96
  131
  167
  206
  247
  291
  337
  384
  434
  487
  538
  594
  653
  715
  779
  845
  915
  987
  1,062
  1,140
  1,222
  1,307
  1,396
  1,489
  1,586
  1,687
  1,793
  1,904
  2,020
  2,142
Retained Cash Flow (-), $m
  -16
  -86
  -91
  -96
  -102
  -107
  -112
  -117
  -122
  -127
  -132
  -137
  -143
  -148
  -154
  -160
  -166
  -173
  -180
  -187
  -195
  -203
  -212
  -221
  -230
  -240
  -251
  -262
  -274
  -286
  -300
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
 
  237
  40
  71
  105
  141
  179
  220
  263
  308
  355
  401
  452
  505
  561
  619
  679
  742
  807
  875
  945
  1,019
  1,095
  1,175
  1,259
  1,345
  1,436
  1,531
  1,630
  1,734
  1,842
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
 
  227
  36
  62
  86
  109
  130
  149
  164
  177
  186
  190
  193
  192
  188
  182
  173
  161
  149
  135
  120
  105
  91
  77
  64
  52
  42
  33
  25
  19
  14
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 subsidiary, Simpson Strong-Tie Company Inc. (SST), designs, engineers and manufactures wood construction products, including connectors, truss plates, fastening systems, fasteners and pre-fabricated lateral systems used in light-frame construction. The Company's segments are North America, Europe, Asia/Pacific, and Administrative & All Other. The North America segment includes operations primarily in the United States and Canada. The Europe segment includes operations primarily in France, the United Kingdom, Germany, Denmark, Switzerland, Portugal, Poland, the Netherlands and Belgium. The Asia/Pacific segment includes operations primarily in Australia, New Zealand, South Africa, China, Taiwan and Vietnam. The Company manufactures concrete construction products used for concrete, masonry, steel construction and for concrete repair, protection and strengthening, including adhesives, chemicals and mechanical anchors.

FINANCIAL RATIOS  of  Simpson Manufacturing (SSD)

Valuation Ratios
P/E Ratio 31
Price to Sales 3.2
Price to Book 3.2
Price to Tangible Book
Price to Cash Flow 29.4
Price to Free Cash Flow 52.6
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 13.4% 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 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 47.727 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 $2.8 billion.

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COMPANY NEWS

▶ Simpson Manufacturing posts 3Q profit   [Oct-30-17 04:57PM  Associated Press]
▶ Worst-Performing Gurus' Stocks   [May-23-17 05:00PM  GuruFocus.com]
▶ Simpson Manufacturing posts 1Q profit   [Apr-27-17 07:24PM  Associated Press]
▶ 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]
Financial statements of SSD
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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