Intrinsic value of Virco Manufacturing - VIRC

Previous Close

$5.80

  Intrinsic Value

$0.95

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

-113%

Previous close

$5.80

 
Intrinsic value

$0.95

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

-113%

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

We calculate the intrinsic value of VIRC 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 2017), $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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.37
  9.50
  9.05
  8.64
  8.28
  7.95
  7.66
  7.39
  7.15
  6.94
  6.74
  6.57
  6.41
  6.27
  6.14
  6.03
  5.93
  5.83
  5.75
  5.68
  5.61
  5.55
  5.49
  5.44
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
Revenue, $m
  173
  189
  207
  224
  243
  262
  282
  303
  325
  348
  371
  395
  421
  447
  475
  503
  533
  564
  597
  630
  666
  703
  741
  782
  824
  868
  914
  963
  1,013
  1,066
  1,122
Variable operating expenses, $m
 
  184
  201
  218
  236
  255
  274
  295
  316
  337
  360
  384
  409
  434
  461
  489
  518
  548
  579
  612
  646
  682
  720
  759
  800
  843
  888
  935
  984
  1,035
  1,089
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
  169
  184
  201
  218
  236
  255
  274
  295
  316
  337
  360
  384
  409
  434
  461
  489
  518
  548
  579
  612
  646
  682
  720
  759
  800
  843
  888
  935
  984
  1,035
  1,089
Operating income, $m
  5
  5
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  29
  31
  33
EBITDA, $m
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  36
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
Interest expense (income), $m
  1
  1
  2
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  16
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
Earnings before tax, $m
  5
  5
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
Tax expense, $m
  -18
  1
  1
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Net income, $m
  23
  3
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  108
  117
  128
  139
  150
  162
  175
  188
  201
  215
  229
  245
  260
  276
  293
  311
  330
  349
  369
  390
  412
  435
  458
  483
  509
  537
  565
  595
  627
  659
  694
Adjusted assets (=assets-cash), $m
  107
  117
  128
  139
  150
  162
  175
  188
  201
  215
  229
  245
  260
  276
  293
  311
  330
  349
  369
  390
  412
  435
  458
  483
  509
  537
  565
  595
  627
  659
  694
Revenue / Adjusted assets
  1.617
  1.615
  1.617
  1.612
  1.620
  1.617
  1.611
  1.612
  1.617
  1.619
  1.620
  1.612
  1.619
  1.620
  1.621
  1.617
  1.615
  1.616
  1.618
  1.615
  1.617
  1.616
  1.618
  1.619
  1.619
  1.616
  1.618
  1.618
  1.616
  1.618
  1.617
Average production assets, $m
  35
  38
  41
  45
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  94
  100
  106
  112
  119
  125
  132
  140
  148
  156
  164
  173
  182
  192
  202
  212
  223
Working capital, $m
  26
  27
  30
  33
  35
  38
  41
  44
  47
  50
  54
  57
  61
  65
  69
  73
  77
  82
  86
  91
  97
  102
  107
  113
  119
  126
  133
  140
  147
  155
  163
Total debt, $m
  5
  10
  15
  20
  25
  30
  36
  42
  48
  54
  61
  68
  75
  83
  90
  99
  107
  116
  125
  135
  145
  155
  166
  177
  189
  202
  215
  229
  243
  258
  274
Total liabilities, $m
  49
  54
  59
  64
  69
  74
  80
  86
  92
  98
  105
  112
  119
  127
  134
  143
  151
  160
  169
  179
  189
  199
  210
  221
  233
  246
  259
  273
  287
  302
  318
Total equity, $m
  59
  63
  69
  75
  81
  88
  95
  102
  109
  116
  124
  133
  141
  150
  159
  169
  179
  189
  200
  211
  223
  236
  248
  262
  276
  291
  306
  323
  340
  357
  376
Total liabilities and equity, $m
  108
  117
  128
  139
  150
  162
  175
  188
  201
  214
  229
  245
  260
  277
  293
  312
  330
  349
  369
  390
  412
  435
  458
  483
  509
  537
  565
  596
  627
  659
  694
Debt-to-equity ratio
  0.085
  0.150
  0.210
  0.260
  0.300
  0.340
  0.380
  0.410
  0.440
  0.470
  0.490
  0.510
  0.530
  0.550
  0.570
  0.580
  0.600
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.710
  0.720
  0.720
  0.730
Adjusted equity ratio
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542
  0.542

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  23
  3
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
Depreciation, amort., depletion, $m
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
Funds from operations, $m
  -1
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
  14
  14
  15
  15
  16
  16
  17
  17
  17
  18
  19
  19
  20
  20
  21
  22
Change in working capital, $m
  -7
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
Cash from operations, $m
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
New CAPEX, $m
  -4
  -3
  -3
  -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
  -11
  -11
Cash from investing activities, $m
  -4
  -8
  -8
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -15
  -16
  -16
  -17
  -18
  -20
  -21
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
Free cash flow, $m
  2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -28
Issuance/(repayment) of debt, $m
  -1
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
Issuance/(repurchase) of shares, $m
  0
  2
  3
  3
  3
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
  29
Cash from financing (excl. dividends), $m  
  -1
  7
  8
  8
  8
  9
  10
  11
  12
  12
  14
  14
  15
  16
  17
  18
  19
  21
  22
  24
  25
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
Total cash flow (excl. dividends), $m
  0
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
Retained Cash Flow (-), $m
  -26
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -23
  -24
  -26
  -27
  -29
Prev. year cash balance distribution, $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
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
 
  1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -10
  -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
 
  1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  97.7
  95.2
  92.5
  89.8
  87.0
  84.2
  81.4
  78.6
  75.9
  73.1
  70.4
  67.8
  65.2
  62.7
  60.2
  57.7
  55.3
  52.9
  50.6
  48.3
  46.1
  44.0
  41.9
  40.0
  38.0
  36.2
  34.4
  32.7
  31.0
  29.5

Virco Mfg. Corporation (Virco) is engaged in the designing, producing and distributing of furniture for a range family of customers. The Company is a manufacturer and supplier of moveable educational furniture and equipment for the preschool through 12th grade market in the United States. It manufactures an assortment of products, including mobile tables, mobile storage equipment, desks, computer furniture, chairs, folding chairs and folding tables. Its primary furniture lines are constructed of tubular metal legs and frames, combined with wood and plastic tops, plastic seats and backs, upholstered seats and backs, and upholstered rigid polyethylene and polypropylene shells. Virco also has flat metal forming capabilities to enable the production of desks, returns, bookcases, filing cabinets, mobile pedestals and related items. Its ZUMA line includes cantilever chairs; tablet arm chairs with a fixed or articulating work surface and a compact footprint, and steel-frame rockers.

FINANCIAL RATIOS  of  Virco Manufacturing (VIRC)

Valuation Ratios
P/E Ratio 3.8
Price to Sales 0.5
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 14.7
Price to Free Cash Flow 44
Growth Rates
Sales Growth Rate 2.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 8.5%
Total Debt to Equity 8.5%
Interest Coverage 6
Management Effectiveness
Return On Assets 28%
Ret/ On Assets - 3 Yr. Avg. 12.5%
Return On Total Capital 44.2%
Ret/ On T. Cap. - 3 Yr. Avg. 20.3%
Return On Equity 50%
Return On Equity - 3 Yr. Avg. 23.9%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 36.4%
Gross Margin - 3 Yr. Avg. 35.2%
EBITDA Margin 6.4%
EBITDA Margin - 3 Yr. Avg. 5.5%
Operating Margin 2.3%
Oper. Margin - 3 Yr. Avg. 2%
Pre-Tax Margin 2.9%
Pre-Tax Margin - 3 Yr. Avg. 2.2%
Net Profit Margin 13.3%
Net Profit Margin - 3 Yr. Avg. 5.6%
Effective Tax Rate -360%
Eff/ Tax Rate - 3 Yr. Avg. -120%
Payout Ratio 0%

VIRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VIRC stock intrinsic value calculation we used $173 million for the last fiscal year's total revenue generated by Virco Manufacturing. The default revenue input number comes from 2017 income statement of Virco 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 VIRC stock valuation model: a) initial revenue growth rate of 9.5% 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 VIRC is calculated based on our internal credit rating of Virco 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 Virco 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 VIRC stock the variable cost ratio is equal to 97.1%.

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 VIRC 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 16.7% for Virco Manufacturing.

Corporate tax rate of 27% is the nominal tax rate for Virco 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 VIRC 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 VIRC are equal to 19.9%.

Life of production assets of 6.9 years is the average useful life of capital assets used in Virco 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 VIRC is equal to 14.5%. 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 - $59 million for Virco 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 15.49 million for Virco 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 Virco Manufacturing at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
KEQU Kewaunee Scien 30.30 26.06  hold
MLHR Herman Miller 35.50 40.44  buy
HNI HNI 42.69 41.29  hold
KNL Knoll Inc. 19.85 31.15  str.buy
SCS Steelcase 15.30 17.02  buy
FLXS Flexsteel Indu 50.25 33.35  sell

COMPANY NEWS

▶ Virco Reports Improved Second Quarter and YTD Results   [Sep-14-17 10:08AM  GlobeNewswire]
▶ Is It Too Late To Buy Virco Mfg Corporation (VIRC)?   [Sep-13-17 07:01AM  Simply Wall St.]
▶ Top Ranked Value Stocks to Buy for July 11th   [Jul-11-17 09:51AM  Zacks]
▶ Top Ranked Momentum Stocks to Buy for July 10th   [Jul-10-17 10:35AM  Zacks]
▶ Virco Reports Third Quarter Results   [10:25AM  GlobeNewswire]
▶ Virco Reports Second Quarter Results   [09:30AM  GlobeNewswire]
▶ Virco Reports Financial Results for 1st Quarter of FYE 2017   [Jun-10-16 09:00AM  GlobeNewswire]
▶ Virco Reports Stronger Results for FYE 2016   [Apr-22-16 09:30AM  GlobeNewswire]
▶ Virco Reports Second Quarter Results   [Sep-10  09:30AM  GlobeNewswire]
▶ Virco Reports Third Quarter Results   [09:30AM  GlobeNewswire]
▶ Virco Manufacturing (VIRC) Downgraded From Hold to Sell   [Dec-04  03:50AM  at TheStreet]
▶ Virco Reports Second Quarter Results   [Sep-11  02:00PM  GlobeNewswire]
▶ Virco Announces First Quarter Results   [04:37PM  GlobeNewswire]
▶ Virco to reduce board to five members   [05:10AM  at theflyonthewall.com]
▶ Virco Announces Board Reorganization   [May-12  08:30PM  GlobeNewswire]
Financial statements of VIRC
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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