Intrinsic value of World Acceptance - WRLD

Previous Close

$78.98

  Intrinsic Value

$130.85

stock screener

  Rating & Target

str. buy

+66%

  Value-price divergence*

-67%

Previous close

$78.98

 
Intrinsic value

$130.85

 
Up/down potential

+66%

 
Rating

str. buy

 
Value-price divergence*

-67%

Our model is not good at valuating stocks of financial companies, such as WRLD.

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

We calculate the intrinsic value of WRLD 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 0.7

 

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, %
  -4.49
  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
  532
  543
  555
  569
  585
  603
  623
  644
  667
  692
  718
  746
  777
  809
  843
  880
  918
  959
  1,002
  1,048
  1,096
  1,147
  1,200
  1,257
  1,316
  1,379
  1,445
  1,514
  1,587
  1,664
  1,745
Variable operating expenses, $m
 
  81
  83
  85
  88
  90
  93
  96
  100
  104
  107
  111
  116
  120
  126
  131
  137
  143
  149
  156
  163
  171
  179
  187
  196
  205
  215
  225
  236
  248
  260
Fixed operating expenses, $m
 
  353
  361
  370
  380
  389
  399
  409
  419
  430
  440
  451
  463
  474
  486
  498
  511
  523
  537
  550
  564
  578
  592
  607
  622
  638
  654
  670
  687
  704
  722
Total operating expenses, $m
  418
  434
  444
  455
  468
  479
  492
  505
  519
  534
  547
  562
  579
  594
  612
  629
  648
  666
  686
  706
  727
  749
  771
  794
  818
  843
  869
  895
  923
  952
  982
Operating income, $m
  114
  109
  110
  114
  118
  124
  130
  138
  148
  158
  170
  184
  198
  214
  232
  250
  271
  293
  316
  342
  369
  398
  429
  463
  498
  536
  576
  619
  664
  713
  764
EBITDA, $m
  121
  115
  117
  120
  125
  131
  138
  146
  156
  166
  179
  192
  207
  223
  241
  260
  281
  303
  327
  353
  381
  411
  442
  476
  512
  551
  592
  635
  681
  730
  783
Interest expense (income), $m
  19
  17
  17
  18
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
Earnings before tax, $m
  114
  92
  93
  96
  100
  105
  111
  118
  127
  137
  148
  160
  174
  189
  205
  222
  241
  262
  284
  308
  333
  361
  390
  421
  455
  490
  528
  569
  612
  657
  706
Tax expense, $m
  40
  25
  25
  26
  27
  28
  30
  32
  34
  37
  40
  43
  47
  51
  55
  60
  65
  71
  77
  83
  90
  97
  105
  114
  123
  132
  143
  154
  165
  177
  191
Net income, $m
  74
  67
  68
  70
  73
  76
  81
  86
  93
  100
  108
  117
  127
  138
  149
  162
  176
  191
  207
  225
  243
  263
  285
  308
  332
  358
  386
  415
  446
  480
  515

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  15
  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
  801
  802
  820
  841
  865
  891
  920
  951
  985
  1,021
  1,061
  1,103
  1,147
  1,195
  1,246
  1,299
  1,356
  1,417
  1,480
  1,548
  1,619
  1,694
  1,773
  1,856
  1,944
  2,037
  2,134
  2,237
  2,345
  2,458
  2,578
Adjusted assets (=assets-cash), $m
  786
  802
  820
  841
  865
  891
  920
  951
  985
  1,021
  1,061
  1,103
  1,147
  1,195
  1,246
  1,299
  1,356
  1,417
  1,480
  1,548
  1,619
  1,694
  1,773
  1,856
  1,944
  2,037
  2,134
  2,237
  2,345
  2,458
  2,578
Revenue / Adjusted assets
  0.677
  0.677
  0.677
  0.677
  0.676
  0.677
  0.677
  0.677
  0.677
  0.678
  0.677
  0.676
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
  0.677
Average production assets, $m
  30
  30
  31
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  44
  46
  48
  51
  53
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  92
  96
Working capital, $m
  0
  -15
  -16
  -16
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -47
  -49
Total debt, $m
  295
  302
  310
  319
  329
  341
  353
  367
  381
  397
  414
  432
  452
  472
  494
  518
  542
  568
  596
  625
  656
  688
  723
  759
  797
  837
  879
  924
  970
  1,019
  1,071
Total liabilities, $m
  340
  347
  355
  364
  374
  386
  398
  412
  426
  442
  459
  477
  497
  517
  539
  563
  587
  613
  641
  670
  701
  733
  768
  804
  842
  882
  924
  969
  1,015
  1,064
  1,116
Total equity, $m
  461
  454
  465
  477
  490
  505
  521
  539
  558
  579
  601
  625
  651
  678
  706
  737
  769
  803
  839
  878
  918
  960
  1,005
  1,053
  1,102
  1,155
  1,210
  1,268
  1,329
  1,394
  1,462
Total liabilities and equity, $m
  801
  801
  820
  841
  864
  891
  919
  951
  984
  1,021
  1,060
  1,102
  1,148
  1,195
  1,245
  1,300
  1,356
  1,416
  1,480
  1,548
  1,619
  1,693
  1,773
  1,857
  1,944
  2,037
  2,134
  2,237
  2,344
  2,458
  2,578
Debt-to-equity ratio
  0.640
  0.660
  0.670
  0.670
  0.670
  0.670
  0.680
  0.680
  0.680
  0.690
  0.690
  0.690
  0.690
  0.700
  0.700
  0.700
  0.710
  0.710
  0.710
  0.710
  0.710
  0.720
  0.720
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.730
Adjusted equity ratio
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567
  0.567

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  74
  67
  68
  70
  73
  76
  81
  86
  93
  100
  108
  117
  127
  138
  149
  162
  176
  191
  207
  225
  243
  263
  285
  308
  332
  358
  386
  415
  446
  480
  515
Depreciation, amort., depletion, $m
  7
  6
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
Funds from operations, $m
  223
  73
  75
  77
  80
  84
  88
  94
  100
  108
  116
  125
  135
  146
  159
  172
  186
  202
  218
  236
  255
  276
  298
  321
  346
  373
  401
  431
  464
  498
  534
Change in working capital, $m
  4
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  219
  74
  75
  77
  80
  84
  89
  95
  101
  108
  117
  126
  136
  147
  160
  173
  187
  203
  219
  237
  257
  277
  299
  323
  348
  375
  403
  433
  466
  500
  536
Maintenance CAPEX, $m
  0
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
New CAPEX, $m
  -11
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Cash from investing activities, $m
  -132
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -8
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -19
  -20
  -20
  -21
  -22
Free cash flow, $m
  87
  68
  68
  70
  73
  77
  81
  87
  93
  100
  108
  117
  126
  137
  149
  162
  176
  191
  207
  224
  243
  263
  284
  307
  331
  357
  385
  414
  445
  479
  514
Issuance/(repayment) of debt, $m
  -80
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  -84
  7
  8
  9
  10
  11
  12
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
Total cash flow (excl. dividends), $m
  3
  75
  76
  79
  83
  88
  94
  100
  108
  116
  125
  135
  146
  158
  171
  185
  200
  217
  234
  253
  273
  295
  318
  343
  369
  397
  427
  458
  492
  528
  566
Retained Cash Flow (-), $m
  -69
  -8
  -10
  -12
  -13
  -15
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -68
Prev. year cash balance distribution, $m
 
  15
  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
 
  81
  66
  68
  70
  73
  77
  82
  88
  95
  103
  111
  120
  131
  142
  154
  168
  182
  198
  215
  233
  253
  273
  296
  319
  345
  372
  400
  431
  463
  498
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
 
  78
  60
  59
  58
  57
  56
  56
  55
  55
  54
  53
  51
  50
  48
  45
  43
  40
  36
  33
  30
  26
  23
  19
  16
  13
  11
  9
  7
  5
  4
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

World Acceptance Corporation operates a small-loan consumer finance business in 15 states and Mexico as of March 31, 2016. The Company offers short-term small installment loans, medium-term larger installment loans, related credit insurance and ancillary products and services to individuals. The Company offers standardized installment loans generally between $300 and $4,000 through 1,339 branches in Alabama, Georgia, Idaho, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Missouri, New Mexico, Oklahoma, South Carolina, Texas, Tennessee, Wisconsin and Mexico as of March 31, 2016. The Company generally serves individuals with limited access to other sources of consumer credit, such as banks, credit unions, other consumer finance businesses and credit card lenders. In the United States branches, the Company also offers income tax return preparation services to its loan customers and other individuals.

FINANCIAL RATIOS  of  World Acceptance (WRLD)

Valuation Ratios
P/E Ratio 9.4
Price to Sales 1.3
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 3.2
Price to Free Cash Flow 3.3
Growth Rates
Sales Growth Rate -4.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 22.2%
Cap. Spend. - 3 Yr. Gr. Rate 6.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 64%
Total Debt to Equity 64%
Interest Coverage 7
Management Effectiveness
Return On Assets 10.7%
Ret/ On Assets - 3 Yr. Avg. 12.5%
Return On Total Capital 9.7%
Ret/ On T. Cap. - 3 Yr. Avg. 11.4%
Return On Equity 17.4%
Return On Equity - 3 Yr. Avg. 25.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 95.9%
Gross Margin - 3 Yr. Avg. 95.8%
EBITDA Margin 26.3%
EBITDA Margin - 3 Yr. Avg. 30.3%
Operating Margin 21.4%
Oper. Margin - 3 Yr. Avg. 25%
Pre-Tax Margin 21.4%
Pre-Tax Margin - 3 Yr. Avg. 25%
Net Profit Margin 13.9%
Net Profit Margin - 3 Yr. Avg. 15.9%
Effective Tax Rate 35.1%
Eff/ Tax Rate - 3 Yr. Avg. 36.3%
Payout Ratio 0%

WRLD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WRLD stock intrinsic value calculation we used $532 million for the last fiscal year's total revenue generated by World Acceptance. The default revenue input number comes from 2017 income statement of World Acceptance. 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 WRLD 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 WRLD is calculated based on our internal credit rating of World Acceptance, 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 World Acceptance.
    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 WRLD stock the variable cost ratio is equal to 15%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $344 million in the base year in the intrinsic value calculation for WRLD 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 5.7% for World Acceptance.

Corporate tax rate of 27% is the nominal tax rate for World Acceptance. 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 WRLD 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 WRLD are equal to 5.5%.

Life of production assets of 5.1 years is the average useful life of capital assets used in World Acceptance 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 WRLD is equal to -2.8%. 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 - $461 million for World Acceptance - 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 8.838 million for World Acceptance 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 World Acceptance at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

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▶ World Acceptance posts 4Q profit   [08:07AM  Associated Press]
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Financial statements of WRLD
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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