Intrinsic value of Liberty Tax - TAX

Previous Close

$13.60

  Intrinsic Value

$7.63

stock screener

  Rating & Target

sell

-44%

  Value-price divergence*

-105%

Previous close

$13.60

 
Intrinsic value

$7.63

 
Up/down potential

-44%

 
Rating

sell

 
Value-price divergence*

-105%

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

We calculate the intrinsic value of TAX 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 0.2

 

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, %
  6.79
  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
  173
  176
  181
  185
  190
  196
  202
  209
  217
  225
  234
  243
  253
  263
  274
  286
  299
  312
  326
  341
  356
  373
  390
  409
  428
  448
  470
  492
  516
  541
  567
Variable operating expenses, $m
 
  160
  164
  168
  173
  178
  184
  190
  197
  204
  212
  220
  229
  238
  248
  259
  270
  282
  295
  309
  323
  338
  353
  370
  388
  406
  426
  446
  468
  490
  514
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
  141
  160
  164
  168
  173
  178
  184
  190
  197
  204
  212
  220
  229
  238
  248
  259
  270
  282
  295
  309
  323
  338
  353
  370
  388
  406
  426
  446
  468
  490
  514
Operating income, $m
  32
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  54
EBITDA, $m
  39
  20
  21
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  39
  41
  42
  44
  46
  49
  51
  53
  56
  59
  62
  65
Interest expense (income), $m
  2
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
Earnings before tax, $m
  30
  15
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
Tax expense, $m
  11
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
Net income, $m
  19
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  15
  15
  15
  16
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10
  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
  193
  187
  191
  196
  201
  208
  214
  222
  229
  238
  247
  257
  267
  278
  290
  303
  316
  330
  345
  361
  377
  395
  413
  432
  453
  474
  497
  521
  546
  573
  601
Adjusted assets (=assets-cash), $m
  183
  187
  191
  196
  201
  208
  214
  222
  229
  238
  247
  257
  267
  278
  290
  303
  316
  330
  345
  361
  377
  395
  413
  432
  453
  474
  497
  521
  546
  573
  601
Revenue / Adjusted assets
  0.945
  0.941
  0.948
  0.944
  0.945
  0.942
  0.944
  0.941
  0.948
  0.945
  0.947
  0.946
  0.948
  0.946
  0.945
  0.944
  0.946
  0.945
  0.945
  0.945
  0.944
  0.944
  0.944
  0.947
  0.945
  0.945
  0.946
  0.944
  0.945
  0.944
  0.943
Average production assets, $m
  34
  34
  35
  36
  37
  38
  39
  41
  42
  44
  45
  47
  49
  51
  53
  55
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
  96
  100
  105
  110
Working capital, $m
  50
  47
  48
  49
  51
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
Total debt, $m
  23
  19
  20
  22
  25
  27
  30
  33
  36
  40
  43
  47
  52
  56
  61
  66
  72
  77
  83
  90
  97
  104
  111
  119
  128
  137
  146
  156
  166
  177
  188
Total liabilities, $m
  82
  77
  78
  80
  83
  85
  88
  91
  94
  98
  101
  105
  110
  114
  119
  124
  130
  135
  141
  148
  155
  162
  169
  177
  186
  195
  204
  214
  224
  235
  246
Total equity, $m
  112
  110
  113
  116
  119
  122
  126
  131
  135
  140
  146
  152
  158
  164
  171
  179
  186
  195
  203
  213
  222
  233
  244
  255
  267
  280
  293
  307
  322
  338
  354
Total liabilities and equity, $m
  194
  187
  191
  196
  202
  207
  214
  222
  229
  238
  247
  257
  268
  278
  290
  303
  316
  330
  344
  361
  377
  395
  413
  432
  453
  475
  497
  521
  546
  573
  600
Debt-to-equity ratio
  0.205
  0.170
  0.180
  0.190
  0.210
  0.220
  0.240
  0.250
  0.270
  0.280
  0.300
  0.310
  0.330
  0.340
  0.360
  0.370
  0.380
  0.400
  0.410
  0.420
  0.430
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.510
  0.520
  0.530
Adjusted equity ratio
  0.557
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590
  0.590

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  15
  15
  15
  16
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
Depreciation, amort., depletion, $m
  7
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
Funds from operations, $m
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  39
Change in working capital, $m
  -16
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Cash from operations, $m
  30
  14
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  24
  25
  26
  27
  29
  30
  31
  32
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
New CAPEX, $m
  -15
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
Cash from investing activities, $m
  -29
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -13
  -15
  -15
  -15
Free cash flow, $m
  1
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  15
  15
  16
  16
  17
Issuance/(repayment) of debt, $m
  -4
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -3
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
Total cash flow (excl. dividends), $m
  -2
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
Retained Cash Flow (-), $m
  -13
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
Prev. year cash balance distribution, $m
 
  4
  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
 
  13
  9
  9
  9
  8
  8
  8
  8
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
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
 
  12
  8
  8
  7
  7
  6
  6
  5
  5
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  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
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Liberty Tax, Inc., together with its subsidiaries, provides tax preparation services and solutions in the United States and Canada. The company also facilitates refund-based tax settlement financial products, such as refund transfer products, refund-based loans, and personal income tax refund discounting, as well as provides an online digital Do-It-Yourself tax program in the United States. Its customers include taxpayers who, for reasons of complexity, convenience, or the need for prompt tax refunds, seek assisted tax preparation services. Liberty Tax, Inc. offers its products and services through a network of company-owned offices and franchised locations under the Liberty Tax, Liberty Tax Service, Liberty Income Tax, Liberty Canada, and SiempreTax+ brand names. The company was formerly known as JTH Holding, Inc. and changed its name to Liberty Tax, Inc. in July 2014. Liberty Tax, Inc. was founded in 1996 and is headquartered in Virginia Beach, Virginia.

FINANCIAL RATIOS  of  Liberty Tax (TAX)

Valuation Ratios
P/E Ratio 9.2
Price to Sales 1
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 11.7
Growth Rates
Sales Growth Rate 6.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate -3.6%
Financial Strength
Quick Ratio 2
Current Ratio 0.4
LT Debt to Equity 15.2%
Total Debt to Equity 20.5%
Interest Coverage 16
Management Effectiveness
Return On Assets 10.8%
Ret/ On Assets - 3 Yr. Avg. 9.3%
Return On Total Capital 14.7%
Ret/ On T. Cap. - 3 Yr. Avg. 13.1%
Return On Equity 18%
Return On Equity - 3 Yr. Avg. 16.5%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 22.5%
EBITDA Margin - 3 Yr. Avg. 21.8%
Operating Margin 18.5%
Oper. Margin - 3 Yr. Avg. 16.5%
Pre-Tax Margin 17.3%
Pre-Tax Margin - 3 Yr. Avg. 16.2%
Net Profit Margin 11%
Net Profit Margin - 3 Yr. Avg. 10.1%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 37.1%
Payout Ratio 47.4%

TAX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TAX stock intrinsic value calculation we used $173 million for the last fiscal year's total revenue generated by Liberty Tax. The default revenue input number comes from 2016 income statement of Liberty Tax. 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 TAX 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 4.3%, whose default value for TAX is calculated based on our internal credit rating of Liberty Tax, 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 Liberty Tax.
    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 TAX stock the variable cost ratio is equal to 90.8%.

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 TAX 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 8.3% for Liberty Tax.

Corporate tax rate of 27% is the nominal tax rate for Liberty Tax. 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 TAX 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 TAX are equal to 19.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Liberty Tax 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 TAX is equal to 26.6%. 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 - $112 million for Liberty Tax - 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 12.669 million for Liberty Tax 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 Liberty Tax at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ ETFs with exposure to Liberty Tax, Inc. : August 11, 2017   [Aug-11-17 06:45PM  Capital Cube]
▶ ETFs with exposure to Liberty Tax, Inc. : July 31, 2017   [Jul-31-17 05:13PM  Capital Cube]
▶ H&R Block Stock: Time to Consider Selling?   [Jun-21-17 05:26PM  Investopedia]
▶ Liberty Tax posts 4Q profit   [06:54AM  Associated Press]
▶ Liberty Tax Service Partners with NFL Alumni Association   [Jun-01-17 08:00AM  GlobeNewswire]
▶ ETFs with exposure to Liberty Tax, Inc. : April 17, 2017   [Apr-17-17 01:08PM  Capital Cube]
▶ ETFs with exposure to Liberty Tax, Inc. : April 5, 2017   [Apr-05-17 05:33PM  Capital Cube]
▶ [$$] Why More Than a Million Taxpayers Are Reaching for Refund Loans   [Mar-13-17 12:49AM  The Wall Street Journal]
▶ [$$] Why More Than a Million Taxpayers Are Reaching for Refund Loans   [Mar-11-17 08:00AM  at The Wall Street Journal]
▶ How Tax Company Earnings Fared In Q4   [Mar-08-17 05:16PM  Benzinga]
▶ Why H&R Block Stock Is Surging Today   [01:57PM  Motley Fool]
▶ Liberty Tax posts 3Q profit   [06:38AM  Associated Press]
▶ Guide to 7 Top Tax Software Programs, 2017   [Feb-23-17 03:20PM  at Kiplinger]
▶ Liberty Tax Anticipates Busy February for Tax Preparers   [Feb-01-17 11:51AM  Marketwired]
▶ Goodbye Overregulation, Hello Small Business Growth   [Jan-17-17 08:00AM  Marketwired]
▶ Liberty Tax Stock Trades Ex-Dividend Tuesday   [Jan-09-17 08:42PM  at Investopedia]
Stock chart of TAX Financial statements of TAX
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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