Intrinsic value of Schweitzer-Mauduit International - SWM

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$43.11

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$43.11

 
Intrinsic value

$33.74

 
Up/down potential

-22%

 
Rating

sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of SWM 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 1.3

 

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, %
  9.95
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  840
  857
  877
  899
  924
  952
  983
  1,017
  1,053
  1,092
  1,134
  1,179
  1,226
  1,277
  1,331
  1,389
  1,450
  1,514
  1,582
  1,654
  1,730
  1,811
  1,895
  1,984
  2,078
  2,177
  2,281
  2,391
  2,506
  2,628
  2,755
Variable operating expenses, $m
 
  741
  757
  776
  797
  821
  846
  875
  905
  938
  973
  987
  1,027
  1,070
  1,115
  1,163
  1,214
  1,268
  1,325
  1,386
  1,449
  1,517
  1,587
  1,662
  1,741
  1,824
  1,911
  2,003
  2,099
  2,201
  2,308
Fixed operating expenses, $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
Total operating expenses, $m
  734
  741
  757
  776
  797
  821
  846
  875
  905
  938
  973
  987
  1,027
  1,070
  1,115
  1,163
  1,214
  1,268
  1,325
  1,386
  1,449
  1,517
  1,587
  1,662
  1,741
  1,824
  1,911
  2,003
  2,099
  2,201
  2,308
Operating income, $m
  106
  116
  119
  123
  127
  132
  137
  142
  148
  154
  161
  191
  199
  207
  216
  226
  235
  246
  257
  269
  281
  294
  308
  322
  337
  354
  370
  388
  407
  427
  447
EBITDA, $m
  151
  171
  175
  179
  184
  190
  196
  202
  210
  217
  226
  235
  244
  254
  265
  277
  289
  302
  315
  329
  345
  361
  377
  395
  414
  434
  454
  476
  499
  523
  549
Interest expense (income), $m
  13
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  65
Earnings before tax, $m
  93
  101
  104
  107
  110
  114
  118
  123
  128
  133
  139
  168
  175
  181
  189
  197
  205
  214
  223
  233
  243
  254
  266
  278
  291
  304
  318
  333
  349
  365
  383
Tax expense, $m
  15
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  45
  47
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  99
  103
Net income, $m
  83
  74
  76
  78
  80
  83
  86
  90
  93
  97
  101
  123
  127
  132
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  232
  243
  255
  267
  279

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  107
  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
  1,174
  1,089
  1,114
  1,142
  1,174
  1,210
  1,249
  1,292
  1,338
  1,387
  1,441
  1,498
  1,558
  1,623
  1,692
  1,765
  1,842
  1,924
  2,011
  2,102
  2,199
  2,301
  2,408
  2,521
  2,641
  2,766
  2,899
  3,038
  3,185
  3,339
  3,501
Adjusted assets (=assets-cash), $m
  1,067
  1,089
  1,114
  1,142
  1,174
  1,210
  1,249
  1,292
  1,338
  1,387
  1,441
  1,498
  1,558
  1,623
  1,692
  1,765
  1,842
  1,924
  2,011
  2,102
  2,199
  2,301
  2,408
  2,521
  2,641
  2,766
  2,899
  3,038
  3,185
  3,339
  3,501
Revenue / Adjusted assets
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
  0.787
Average production assets, $m
  507
  517
  529
  542
  557
  574
  593
  613
  635
  658
  684
  711
  740
  770
  803
  838
  874
  913
  954
  998
  1,043
  1,092
  1,143
  1,197
  1,253
  1,313
  1,376
  1,442
  1,511
  1,585
  1,662
Working capital, $m
  228
  127
  130
  133
  137
  141
  145
  150
  156
  162
  168
  174
  182
  189
  197
  206
  215
  224
  234
  245
  256
  268
  280
  294
  308
  322
  338
  354
  371
  389
  408
Total debt, $m
  440
  450
  466
  483
  503
  525
  550
  576
  605
  636
  669
  704
  742
  782
  825
  870
  918
  969
  1,023
  1,079
  1,139
  1,203
  1,269
  1,340
  1,414
  1,492
  1,574
  1,661
  1,752
  1,847
  1,948
Total liabilities, $m
  665
  676
  692
  709
  729
  751
  776
  802
  831
  862
  895
  930
  968
  1,008
  1,051
  1,096
  1,144
  1,195
  1,249
  1,305
  1,365
  1,429
  1,495
  1,566
  1,640
  1,718
  1,800
  1,887
  1,978
  2,073
  2,174
Total equity, $m
  508
  413
  422
  433
  445
  459
  473
  490
  507
  526
  546
  568
  591
  615
  641
  669
  698
  729
  762
  797
  833
  872
  913
  956
  1,001
  1,048
  1,099
  1,151
  1,207
  1,265
  1,327
Total liabilities and equity, $m
  1,173
  1,089
  1,114
  1,142
  1,174
  1,210
  1,249
  1,292
  1,338
  1,388
  1,441
  1,498
  1,559
  1,623
  1,692
  1,765
  1,842
  1,924
  2,011
  2,102
  2,198
  2,301
  2,408
  2,522
  2,641
  2,766
  2,899
  3,038
  3,185
  3,338
  3,501
Debt-to-equity ratio
  0.866
  1.090
  1.100
  1.120
  1.130
  1.150
  1.160
  1.180
  1.190
  1.210
  1.220
  1.240
  1.260
  1.270
  1.290
  1.300
  1.310
  1.330
  1.340
  1.350
  1.370
  1.380
  1.390
  1.400
  1.410
  1.420
  1.430
  1.440
  1.450
  1.460
  1.470
Adjusted equity ratio
  0.376
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379
  0.379

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  83
  74
  76
  78
  80
  83
  86
  90
  93
  97
  101
  123
  127
  132
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  212
  222
  232
  243
  255
  267
  279
Depreciation, amort., depletion, $m
  45
  55
  55
  56
  57
  58
  59
  60
  62
  63
  65
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  97
  101
Funds from operations, $m
  122
  128
  131
  134
  137
  141
  145
  150
  155
  160
  166
  166
  172
  179
  187
  195
  203
  212
  221
  231
  241
  252
  264
  276
  289
  302
  316
  331
  347
  363
  381
Change in working capital, $m
  -8
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
Cash from operations, $m
  130
  108
  128
  131
  134
  137
  141
  145
  150
  155
  160
  159
  165
  172
  179
  186
  194
  202
  211
  220
  230
  240
  251
  263
  275
  287
  301
  315
  330
  345
  362
Maintenance CAPEX, $m
  0
  -31
  -32
  -32
  -33
  -34
  -35
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -84
  -88
  -92
  -97
New CAPEX, $m
  -31
  -10
  -12
  -14
  -15
  -17
  -19
  -20
  -22
  -24
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -66
  -70
  -73
  -77
Cash from investing activities, $m
  -22
  -41
  -44
  -46
  -48
  -51
  -54
  -56
  -59
  -63
  -65
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -101
  -107
  -112
  -118
  -124
  -130
  -136
  -143
  -150
  -158
  -165
  -174
Free cash flow, $m
  108
  67
  85
  85
  85
  86
  87
  89
  90
  92
  94
  91
  93
  96
  99
  103
  106
  110
  114
  119
  123
  128
  134
  139
  145
  151
  158
  165
  172
  180
  188
Issuance/(repayment) of debt, $m
  -135
  13
  16
  18
  20
  22
  24
  26
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
Issuance/(repurchase) of shares, $m
  -1
  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  
  -137
  13
  16
  18
  20
  22
  24
  26
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  60
  63
  67
  70
  74
  78
  82
  87
  91
  96
  101
Total cash flow (excl. dividends), $m
  -30
  80
  100
  103
  105
  108
  112
  115
  119
  123
  128
  126
  131
  136
  142
  148
  154
  161
  168
  175
  183
  192
  200
  209
  219
  229
  240
  251
  263
  276
  289
Retained Cash Flow (-), $m
  -40
  -9
  -9
  -11
  -12
  -13
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -58
  -61
Prev. year cash balance distribution, $m
 
  104
  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
 
  176
  91
  92
  93
  95
  97
  99
  102
  104
  107
  104
  108
  112
  116
  120
  125
  130
  135
  141
  147
  153
  160
  167
  174
  182
  190
  199
  208
  217
  227
Discount rate, %
 
  5.50
  5.78
  6.06
  6.37
  6.69
  7.02
  7.37
  7.74
  8.13
  8.53
  8.96
  9.41
  9.88
  10.37
  10.89
  11.43
  12.01
  12.61
  13.24
  13.90
  14.59
  15.32
  16.09
  16.89
  17.74
  18.62
  19.56
  20.53
  21.56
  22.64
PV of cash for distribution, $m
 
  166
  81
  77
  73
  69
  64
  60
  56
  52
  47
  41
  37
  33
  29
  26
  22
  19
  16
  13
  11
  9
  7
  5
  4
  3
  2
  2
  1
  1
  0
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

Schweitzer-Mauduit International, Inc., together with its subsidiaries, provides engineered solutions and advanced materials for various industries worldwide. The company operates through two segments, Engineered Papers and Advanced Materials & Structures. The Engineered Papers segment produces and sells cigarette papers, reconstituted tobacco leaf, and wrapper and binder products to cigarette and cigar manufacturers; and other non-tobacco commercial and industrial paper products. It also offers porous papers used to wrap various parts of a cigarette; low ignition propensity cigarette paper; and lightweight papers for printing and writing, flooring laminates, and food service packaging. The Advanced Materials & Structures segment manufactures resin-based products, such as films, nets, foams, and other non-wovens for filtration, surface protection, medical, and industrial applications. Schweitzer-Mauduit International, Inc. was founded in 1995 and is headquartered in Alpharetta, Georgia.

FINANCIAL RATIOS  of  Schweitzer-Mauduit International (SWM)

Valuation Ratios
P/E Ratio 15.9
Price to Sales 1.6
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 10.1
Price to Free Cash Flow 13.3
Growth Rates
Sales Growth Rate 9.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 24%
Cap. Spend. - 3 Yr. Gr. Rate 0.7%
Financial Strength
Quick Ratio 36
Current Ratio 0.2
LT Debt to Equity 86%
Total Debt to Equity 86.6%
Interest Coverage 8
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 7.8%
Return On Total Capital 8.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9%
Return On Equity 17%
Return On Equity - 3 Yr. Avg. 17.7%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 30.6%
Gross Margin - 3 Yr. Avg. 29.2%
EBITDA Margin 18%
EBITDA Margin - 3 Yr. Avg. 19.4%
Operating Margin 12.6%
Oper. Margin - 3 Yr. Avg. 13.2%
Pre-Tax Margin 11.1%
Pre-Tax Margin - 3 Yr. Avg. 12.8%
Net Profit Margin 9.9%
Net Profit Margin - 3 Yr. Avg. 11%
Effective Tax Rate 16.1%
Eff/ Tax Rate - 3 Yr. Avg. 18.5%
Payout Ratio 59%

SWM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SWM stock intrinsic value calculation we used $840 million for the last fiscal year's total revenue generated by Schweitzer-Mauduit International. The default revenue input number comes from 2016 income statement of Schweitzer-Mauduit International. 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 SWM stock valuation model: a) initial revenue growth rate of 2% 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 5.5%, whose default value for SWM is calculated based on our internal credit rating of Schweitzer-Mauduit International, 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 Schweitzer-Mauduit International.
    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 SWM stock the variable cost ratio is equal to 86.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SWM 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 Schweitzer-Mauduit International.

Corporate tax rate of 27% is the nominal tax rate for Schweitzer-Mauduit International. 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 SWM 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 SWM are equal to 60.3%.

Life of production assets of 16.4 years is the average useful life of capital assets used in Schweitzer-Mauduit International 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 SWM is equal to 14.8%. 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 - $508 million for Schweitzer-Mauduit International - 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 30.42 million for Schweitzer-Mauduit International 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 Schweitzer-Mauduit International at the current share price and the inputted number of shares is $1.3 billion.


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COMPANY NEWS

▶ SWM ANNOUNCES CEO TRANSITION AND BOARD APPOINTMENTS   [Mar-30-17 08:21AM  GlobeNewswire]
▶ Schweitzer-Mauduit posts 4Q profit   [Feb-15-17 06:52PM  Associated Press]
▶ SWM INTL Announces Capacity Expansion for Filigree Papers   [Jan-17-17 03:31PM  GlobeNewswire]
▶ SWM ANNOUNCES SECOND QUARTER 2016 RESULTS   [Aug-03-16 04:32PM  GlobeNewswire]
▶ SWM ANNOUNCES SENIOR LEADERSHIP CHANGES   [Jul-05-16 04:32PM  GlobeNewswire]
▶ SWM ANNOUNCES FIRST QUARTER 2016 RESULTS   [04:58PM  GlobeNewswire]
Stock chart of SWM Financial statements of SWM
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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