Intrinsic value of Brady Corporation - BRC

Previous Close

$47.58

  Intrinsic Value

$35.67

stock screener

  Rating & Target

sell

-25%

Previous close

$47.58

 
Intrinsic value

$35.67

 
Up/down potential

-25%

 
Rating

sell

We calculate the intrinsic value of BRC 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 0001), $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 2.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  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
  1,197
  1,225
  1,257
  1,292
  1,331
  1,374
  1,421
  1,471
  1,526
  1,585
  1,647
  1,714
  1,785
  1,861
  1,941
  2,026
  2,116
  2,212
  2,312
  2,418
  2,530
  2,649
  2,773
  2,905
  3,043
  3,188
  3,342
  3,503
  3,673
  3,851
Variable operating expenses, $m
  767
  783
  802
  823
  847
  873
  901
  931
  964
  1,000
  991
  1,031
  1,074
  1,120
  1,168
  1,219
  1,273
  1,331
  1,391
  1,455
  1,522
  1,594
  1,669
  1,748
  1,831
  1,918
  2,011
  2,108
  2,210
  2,317
Fixed operating expenses, $m
  281
  287
  294
  300
  307
  313
  320
  327
  334
  342
  349
  357
  365
  373
  381
  390
  398
  407
  416
  425
  434
  444
  454
  464
  474
  484
  495
  506
  517
  528
Total operating expenses, $m
  1,048
  1,070
  1,096
  1,123
  1,154
  1,186
  1,221
  1,258
  1,298
  1,342
  1,340
  1,388
  1,439
  1,493
  1,549
  1,609
  1,671
  1,738
  1,807
  1,880
  1,956
  2,038
  2,123
  2,212
  2,305
  2,402
  2,506
  2,614
  2,727
  2,845
Operating income, $m
  150
  155
  161
  168
  177
  188
  200
  213
  227
  243
  307
  326
  346
  368
  392
  418
  445
  474
  505
  538
  574
  611
  651
  693
  738
  786
  836
  890
  946
  1,006
EBITDA, $m
  211
  216
  223
  231
  240
  251
  264
  277
  293
  309
  328
  347
  369
  392
  417
  443
  472
  502
  534
  569
  606
  645
  686
  730
  777
  826
  879
  934
  993
  1,055
Interest expense (income), $m
  6
  3
  3
  4
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
  35
  38
Earnings before tax, $m
  147
  151
  157
  164
  173
  183
  194
  206
  220
  235
  298
  316
  336
  357
  380
  404
  430
  458
  488
  520
  553
  589
  628
  668
  711
  757
  805
  856
  911
  968
Tax expense, $m
  40
  41
  42
  44
  47
  49
  52
  56
  59
  64
  81
  85
  91
  96
  103
  109
  116
  124
  132
  140
  149
  159
  169
  180
  192
  204
  217
  231
  246
  261
Net income, $m
  107
  111
  115
  120
  126
  133
  142
  151
  161
  172
  218
  231
  245
  261
  277
  295
  314
  334
  356
  379
  404
  430
  458
  488
  519
  553
  588
  625
  665
  707

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  1,078
  1,103
  1,131
  1,163
  1,198
  1,237
  1,279
  1,324
  1,374
  1,426
  1,483
  1,543
  1,607
  1,675
  1,747
  1,824
  1,905
  1,991
  2,081
  2,177
  2,278
  2,384
  2,496
  2,614
  2,739
  2,870
  3,008
  3,153
  3,306
  3,466
Adjusted assets (=assets-cash), $m
  1,078
  1,103
  1,131
  1,163
  1,198
  1,237
  1,279
  1,324
  1,374
  1,426
  1,483
  1,543
  1,607
  1,675
  1,747
  1,824
  1,905
  1,991
  2,081
  2,177
  2,278
  2,384
  2,496
  2,614
  2,739
  2,870
  3,008
  3,153
  3,306
  3,466
Revenue / Adjusted assets
  1.110
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.112
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
  1.111
Average production assets, $m
  342
  350
  359
  369
  381
  393
  406
  421
  436
  453
  471
  490
  511
  532
  555
  580
  605
  632
  661
  692
  724
  758
  793
  831
  870
  912
  956
  1,002
  1,050
  1,101
Working capital, $m
  101
  103
  106
  109
  112
  115
  119
  124
  128
  133
  138
  144
  150
  156
  163
  170
  178
  186
  194
  203
  213
  222
  233
  244
  256
  268
  281
  294
  308
  323
Total debt, $m
  58
  65
  74
  83
  93
  104
  116
  129
  143
  159
  175
  192
  211
  230
  251
  273
  296
  321
  347
  375
  404
  434
  467
  501
  537
  574
  614
  656
  700
  746
Total liabilities, $m
  310
  318
  326
  335
  345
  356
  368
  381
  396
  411
  427
  444
  463
  482
  503
  525
  549
  573
  599
  627
  656
  687
  719
  753
  789
  827
  866
  908
  952
  998
Total equity, $m
  767
  785
  805
  828
  853
  881
  911
  943
  978
  1,015
  1,056
  1,098
  1,144
  1,193
  1,244
  1,299
  1,356
  1,417
  1,482
  1,550
  1,622
  1,697
  1,777
  1,861
  1,950
  2,043
  2,142
  2,245
  2,354
  2,468
Total liabilities and equity, $m
  1,077
  1,103
  1,131
  1,163
  1,198
  1,237
  1,279
  1,324
  1,374
  1,426
  1,483
  1,542
  1,607
  1,675
  1,747
  1,824
  1,905
  1,990
  2,081
  2,177
  2,278
  2,384
  2,496
  2,614
  2,739
  2,870
  3,008
  3,153
  3,306
  3,466
Debt-to-equity ratio
  0.080
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.250
  0.260
  0.260
  0.270
  0.280
  0.280
  0.290
  0.290
  0.300
  0.300
Adjusted equity ratio
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712
  0.712

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  107
  111
  115
  120
  126
  133
  142
  151
  161
  172
  218
  231
  245
  261
  277
  295
  314
  334
  356
  379
  404
  430
  458
  488
  519
  553
  588
  625
  665
  707
Depreciation, amort., depletion, $m
  61
  62
  62
  63
  63
  64
  64
  65
  66
  66
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
Funds from operations, $m
  169
  172
  177
  183
  189
  197
  206
  215
  226
  238
  239
  253
  268
  284
  302
  321
  341
  362
  385
  410
  436
  464
  493
  525
  558
  593
  630
  670
  711
  755
Change in working capital, $m
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
Cash from operations, $m
  167
  170
  174
  180
  186
  193
  202
  211
  222
  233
  233
  247
  262
  278
  295
  313
  333
  354
  377
  401
  427
  454
  483
  514
  546
  581
  617
  656
  697
  740
Maintenance CAPEX, $m
  -15
  -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
  -46
New CAPEX, $m
  -6
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
Cash from investing activities, $m
  -21
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -35
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -63
  -66
  -70
  -73
  -77
  -81
  -84
  -88
  -93
  -97
Free cash flow, $m
  146
  147
  150
  154
  158
  164
  171
  179
  187
  197
  195
  207
  220
  234
  248
  265
  282
  300
  320
  341
  364
  388
  414
  441
  470
  501
  533
  568
  604
  643
Issuance/(repayment) of debt, $m
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
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
Cash from financing (excl. dividends), $m  
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
Total cash flow (excl. dividends), $m
  151
  154
  158
  163
  169
  175
  183
  192
  202
  212
  212
  224
  238
  253
  269
  287
  305
  325
  346
  369
  393
  419
  446
  475
  506
  538
  573
  609
  648
  689
Retained Cash Flow (-), $m
  -15
  -18
  -20
  -23
  -25
  -28
  -30
  -32
  -35
  -38
  -40
  -43
  -46
  -48
  -51
  -55
  -58
  -61
  -64
  -68
  -72
  -76
  -80
  -84
  -89
  -93
  -98
  -103
  -109
  -114
Prev. year cash balance distribution, $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 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
  136
  136
  138
  140
  144
  148
  153
  159
  167
  175
  171
  181
  193
  205
  218
  232
  247
  264
  282
  301
  321
  343
  366
  391
  417
  445
  475
  506
  539
  575
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
  130
  125
  120
  115
  111
  107
  103
  100
  96
  92
  81
  77
  73
  69
  64
  59
  54
  49
  43
  38
  33
  28
  24
  20
  16
  13
  10
  8
  6
  4
Current shareholders' claim on cash, %
  100.0
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Brady Corporation is a manufacturer and supplier of identification solutions and workplace safety products that identify and protect premises, products and people. The Company has two segments: Identification Solutions (IDS) and Workplace Safety (WPS). The IDS segment includes identification and healthcare products, and the WPS segment includes workplace safety and compliance products. The IDS segment offers products that are manufactured under various brands, including the Brady brand, and are primarily sold through distribution to a range of maintenance, repair and operations (MRO) and original equipment manufacturing (OEM) customers, and through other channels. The WPS segment offers a range of product categories, such as safety and compliance signs, tags, and labels; informational and architectural signage; industrial warehouse and office equipment, and labor law compliance posters. Its brands include Electromark, Identicard, PromoVision, Scafftag, Seton and Emedco.

FINANCIAL RATIOS  of  Brady Corporation (BRC)

Valuation Ratios
P/E Ratio 25.5
Price to Sales 2.2
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 17
Price to Free Cash Flow 18.9
Growth Rates
Sales Growth Rate -0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.8%
Cap. Spend. - 3 Yr. Gr. Rate -19%
Financial Strength
Quick Ratio 45
Current Ratio 0
LT Debt to Equity 7.3%
Total Debt to Equity 7.7%
Interest Coverage 22
Management Effectiveness
Return On Assets 9.6%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 13.2%
Ret/ On T. Cap. - 3 Yr. Avg. 8.3%
Return On Equity 14.7%
Return On Equity - 3 Yr. Avg. 9.5%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 50.1%
Gross Margin - 3 Yr. Avg. 49.2%
EBITDA Margin 14.4%
EBITDA Margin - 3 Yr. Avg. 11.4%
Operating Margin 11.8%
Oper. Margin - 3 Yr. Avg. 8.5%
Pre-Tax Margin 11.4%
Pre-Tax Margin - 3 Yr. Avg. 7.8%
Net Profit Margin 8.6%
Net Profit Margin - 3 Yr. Avg. 5.3%
Effective Tax Rate 24.4%
Eff/ Tax Rate - 3 Yr. Avg. 43.7%
Payout Ratio 43.8%

BRC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BRC stock intrinsic value calculation we used $1174 million for the last fiscal year's total revenue generated by Brady Corporation. The default revenue input number comes from 0001 income statement of Brady Corporation. 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 BRC 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 BRC is calculated based on our internal credit rating of Brady Corporation, 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 Brady Corporation.
    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 BRC stock the variable cost ratio is equal to 64.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $275 million in the base year in the intrinsic value calculation for BRC 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 5.4% for Brady Corporation.

Corporate tax rate of 27% is the nominal tax rate for Brady Corporation. 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 BRC 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 BRC are equal to 28.6%.

Life of production assets of 22.6 years is the average useful life of capital assets used in Brady Corporation 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 BRC is equal to 8.4%. 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 - $752.112 million for Brady Corporation - 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 52.689 million for Brady Corporation 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 Brady Corporation at the current share price and the inputted number of shares is $2.5 billion.

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