Intrinsic value of Orchids Paper Products - TIS

Previous Close

$13.99

  Intrinsic Value

$4.06

stock screener

  Rating & Target

str. sell

-71%

  Value-price divergence*

+3%

Previous close

$13.99

 
Intrinsic value

$4.06

 
Up/down potential

-71%

 
Rating

str. sell

 
Value-price divergence*

+3%

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

We calculate the intrinsic value of TIS 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 0.1

 

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, %
  -2.38
  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
  164
  167
  171
  176
  180
  186
  192
  198
  206
  213
  221
  230
  239
  249
  260
  271
  283
  296
  309
  323
  338
  353
  370
  387
  406
  425
  445
  467
  489
  513
  538
Variable operating expenses, $m
 
  125
  128
  132
  135
  139
  144
  149
  154
  160
  166
  171
  178
  186
  194
  202
  211
  220
  230
  241
  252
  263
  276
  289
  302
  317
  332
  348
  365
  382
  401
Fixed operating expenses, $m
 
  25
  25
  26
  26
  27
  28
  29
  29
  30
  31
  31
  32
  33
  34
  35
  36
  37
  37
  38
  39
  40
  41
  42
  43
  44
  46
  47
  48
  49
  50
Total operating expenses, $m
  146
  150
  153
  158
  161
  166
  172
  178
  183
  190
  197
  202
  210
  219
  228
  237
  247
  257
  267
  279
  291
  303
  317
  331
  345
  361
  378
  395
  413
  431
  451
Operating income, $m
  19
  17
  18
  18
  19
  19
  20
  21
  22
  24
  25
  27
  29
  30
  32
  34
  37
  39
  41
  44
  47
  50
  53
  56
  60
  64
  68
  72
  77
  82
  87
EBITDA, $m
  32
  31
  32
  32
  33
  35
  36
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  62
  65
  69
  73
  77
  81
  86
  91
  96
  102
  108
  114
  121
  128
Interest expense (income), $m
  3
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
Earnings before tax, $m
  17
  13
  13
  13
  14
  14
  15
  15
  16
  17
  18
  20
  22
  23
  24
  26
  28
  30
  32
  34
  36
  38
  41
  44
  47
  50
  53
  57
  60
  64
  69
Tax expense, $m
  4
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  19
Net income, $m
  13
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  320
  317
  325
  333
  342
  353
  364
  377
  390
  405
  420
  437
  454
  473
  493
  515
  537
  561
  586
  613
  641
  671
  702
  735
  770
  807
  845
  886
  929
  974
  1,021
Adjusted assets (=assets-cash), $m
  311
  317
  325
  333
  342
  353
  364
  377
  390
  405
  420
  437
  454
  473
  493
  515
  537
  561
  586
  613
  641
  671
  702
  735
  770
  807
  845
  886
  929
  974
  1,021
Revenue / Adjusted assets
  0.527
  0.527
  0.526
  0.529
  0.526
  0.527
  0.527
  0.525
  0.528
  0.526
  0.526
  0.526
  0.526
  0.526
  0.527
  0.526
  0.527
  0.528
  0.527
  0.527
  0.527
  0.526
  0.527
  0.527
  0.527
  0.527
  0.527
  0.527
  0.526
  0.527
  0.527
Average production assets, $m
  227
  231
  236
  242
  249
  257
  265
  274
  284
  294
  306
  318
  331
  344
  359
  374
  391
  408
  427
  446
  467
  488
  511
  535
  560
  587
  615
  645
  676
  709
  743
Working capital, $m
  27
  25
  26
  27
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
Total debt, $m
  141
  138
  142
  147
  152
  158
  165
  172
  180
  188
  197
  207
  217
  228
  240
  252
  265
  279
  293
  309
  325
  342
  361
  380
  400
  421
  443
  467
  492
  518
  545
Total liabilities, $m
  187
  184
  188
  193
  198
  204
  211
  218
  226
  234
  243
  253
  263
  274
  286
  298
  311
  325
  339
  355
  371
  388
  407
  426
  446
  467
  489
  513
  538
  564
  591
Total equity, $m
  133
  134
  137
  140
  144
  149
  153
  159
  164
  170
  177
  184
  191
  199
  208
  217
  226
  236
  247
  258
  270
  282
  296
  309
  324
  340
  356
  373
  391
  410
  430
Total liabilities and equity, $m
  320
  318
  325
  333
  342
  353
  364
  377
  390
  404
  420
  437
  454
  473
  494
  515
  537
  561
  586
  613
  641
  670
  703
  735
  770
  807
  845
  886
  929
  974
  1,021
Debt-to-equity ratio
  1.060
  1.030
  1.040
  1.050
  1.060
  1.070
  1.080
  1.090
  1.100
  1.110
  1.120
  1.130
  1.130
  1.140
  1.150
  1.160
  1.170
  1.180
  1.190
  1.200
  1.200
  1.210
  1.220
  1.230
  1.230
  1.240
  1.250
  1.250
  1.260
  1.260
  1.270
Adjusted equity ratio
  0.399
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421
  0.421

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50
Depreciation, amort., depletion, $m
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  18
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
Funds from operations, $m
  22
  23
  23
  24
  25
  25
  26
  27
  28
  30
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  62
  65
  69
  73
  77
  82
  86
  91
Change in working capital, $m
  -6
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
Cash from operations, $m
  28
  22
  23
  23
  24
  25
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  70
  74
  78
  83
  88
Maintenance CAPEX, $m
  0
  -13
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
New CAPEX, $m
  -89
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
Cash from investing activities, $m
  -78
  -18
  -18
  -19
  -20
  -22
  -22
  -24
  -25
  -27
  -27
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -73
Free cash flow, $m
  -50
  5
  5
  4
  4
  3
  3
  3
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  13
  14
Issuance/(repayment) of debt, $m
  66
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
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  
  68
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
Total cash flow (excl. dividends), $m
  18
  9
  9
  9
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  26
  28
  29
  32
  34
  36
  39
  41
Retained Cash Flow (-), $m
  1
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
Prev. year cash balance distribution, $m
 
  2
  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
 
  8
  6
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
Discount rate, %
 
  7.40
  7.77
  8.16
  8.57
  8.99
  9.44
  9.92
  10.41
  10.93
  11.48
  12.05
  12.66
  13.29
  13.95
  14.65
  15.38
  16.15
  16.96
  17.81
  18.70
  19.63
  20.62
  21.65
  22.73
  23.87
  25.06
  26.31
  27.63
  29.01
  30.46
PV of cash for distribution, $m
 
  8
  5
  4
  4
  3
  3
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  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
  100.0
  100.0
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Orchids Paper Products Company is a supplier of consumer tissue products. The Company produces bulk tissue paper, known as parent rolls, and converts parent rolls into finished products, including paper towels, bathroom tissue and paper napkins. The Company offers customers a range of private label products across the value, premium and ultra-premium market segments. The Company sells its products to grocery stores, grocery wholesalers and cooperatives, convenience stores, janitorial supply stores and stores in the food service market. The Company's products are sold primarily under its customers' private labels and, to a lesser extent, under its brand names, such as Orchids Supreme, Clean Scents, Tackle, Colortex, My Size, Velvet and Big Mopper. The Company sells its products under private labels to its core customer base in the at home market, which consists primarily of dollar stores, discount retailers and grocery stores that offer alternatives across a range of products.

FINANCIAL RATIOS  of  Orchids Paper Products (TIS)

Valuation Ratios
P/E Ratio 11.1
Price to Sales 0.9
Price to Book 1.1
Price to Tangible Book
Price to Cash Flow 5.1
Price to Free Cash Flow -2.4
Growth Rates
Sales Growth Rate -2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 41.3%
Cap. Spend. - 3 Yr. Gr. Rate 49.3%
Financial Strength
Quick Ratio 1
Current Ratio 0.1
LT Debt to Equity 100.8%
Total Debt to Equity 106%
Interest Coverage 7
Management Effectiveness
Return On Assets 5.4%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 5.4%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 9.7%
Return On Equity - 3 Yr. Avg. 10.4%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 18.3%
Gross Margin - 3 Yr. Avg. 18.5%
EBITDA Margin 20.1%
EBITDA Margin - 3 Yr. Avg. 18.9%
Operating Margin 11%
Oper. Margin - 3 Yr. Avg. 10.9%
Pre-Tax Margin 10.4%
Pre-Tax Margin - 3 Yr. Avg. 10.7%
Net Profit Margin 7.9%
Net Profit Margin - 3 Yr. Avg. 7.5%
Effective Tax Rate 23.5%
Eff/ Tax Rate - 3 Yr. Avg. 29.7%
Payout Ratio 107.7%

TIS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TIS stock intrinsic value calculation we used $164 million for the last fiscal year's total revenue generated by Orchids Paper Products. The default revenue input number comes from 2016 income statement of Orchids Paper Products. 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 TIS 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 7.4%, whose default value for TIS is calculated based on our internal credit rating of Orchids Paper Products, 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 Orchids Paper Products.
    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 TIS stock the variable cost ratio is equal to 75%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $24 million in the base year in the intrinsic value calculation for TIS 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 Orchids Paper Products.

Corporate tax rate of 27% is the nominal tax rate for Orchids Paper Products. 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 TIS 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 TIS are equal to 138.1%.

Life of production assets of 18 years is the average useful life of capital assets used in Orchids Paper Products 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 TIS is equal to 15.2%. 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 - $133 million for Orchids Paper Products - 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 10.429 million for Orchids Paper Products 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 Orchids Paper Products at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Orchids Paper reports 2Q loss   [Aug-07-17 10:35PM  Associated Press]
▶ New Strong Sell Stocks for July 6th   [Jul-06-17 11:18AM  Zacks]
▶ Orchids Paper reports 1Q loss   [05:00AM  Associated Press]
▶ Orchids Paper meets 4Q profit forecasts   [05:03AM  Associated Press]
▶ Small Caps With Big Yields   [Dec-14-16 09:30AM  at Forbes]
▶ New Trades In The Smart Alpha Equity Income Portfolio   [Mar-19-16 10:01AM  at Forbes]
Financial statements of TIS
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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