Intrinsic value of Differential Brands Group - DFBG

Previous Close

$5.09

  Intrinsic Value

$0.54

stock screener

  Rating & Target

str. sell

-89%

Previous close

$5.09

 
Intrinsic value

$0.54

 
Up/down potential

-89%

 
Rating

str. sell

We calculate the intrinsic value of DFBG 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 0.1

 

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
  167
  171
  176
  181
  186
  192
  199
  206
  213
  221
  230
  240
  249
  260
  271
  283
  296
  309
  323
  338
  354
  370
  388
  406
  425
  446
  467
  489
  513
  538
Variable operating expenses, $m
  41
  41
  42
  43
  44
  45
  46
  48
  49
  51
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  71
  75
  78
  82
  86
  90
  95
  99
Fixed operating expenses, $m
  129
  132
  135
  137
  140
  144
  147
  150
  153
  157
  160
  164
  167
  171
  175
  178
  182
  186
  191
  195
  199
  203
  208
  212
  217
  222
  227
  232
  237
  242
Total operating expenses, $m
  170
  173
  177
  180
  184
  189
  193
  198
  202
  208
  202
  208
  213
  219
  225
  230
  237
  243
  251
  257
  264
  271
  279
  287
  295
  304
  313
  322
  332
  341
Operating income, $m
  -2
  -2
  -1
  0
  1
  3
  5
  8
  11
  14
  28
  32
  36
  41
  47
  52
  59
  66
  73
  81
  89
  98
  108
  119
  130
  142
  154
  167
  182
  197
EBITDA, $m
  11
  11
  12
  13
  15
  17
  19
  22
  25
  28
  32
  37
  41
  46
  52
  58
  65
  72
  79
  88
  97
  106
  116
  127
  138
  150
  163
  177
  192
  208
Interest expense (income), $m
  5
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
Earnings before tax, $m
  -11
  -11
  -11
  -10
  -9
  -8
  -6
  -4
  -2
  1
  14
  17
  21
  25
  30
  35
  41
  46
  53
  60
  67
  75
  83
  92
  102
  113
  124
  135
  148
  161
Tax expense, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  4
  5
  6
  7
  8
  9
  11
  13
  14
  16
  18
  20
  23
  25
  28
  30
  33
  37
  40
  44
Net income, $m
  -11
  -11
  -11
  -10
  -9
  -8
  -6
  -4
  -2
  1
  10
  13
  16
  19
  22
  26
  30
  34
  39
  44
  49
  55
  61
  68
  75
  82
  90
  99
  108
  118

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
  177
  181
  186
  191
  197
  203
  210
  218
  226
  235
  244
  254
  264
  275
  287
  300
  313
  327
  342
  358
  375
  392
  411
  430
  450
  472
  495
  519
  544
  570
Adjusted assets (=assets-cash), $m
  177
  181
  186
  191
  197
  203
  210
  218
  226
  235
  244
  254
  264
  275
  287
  300
  313
  327
  342
  358
  375
  392
  411
  430
  450
  472
  495
  519
  544
  570
Revenue / Adjusted assets
  0.944
  0.945
  0.946
  0.948
  0.944
  0.946
  0.948
  0.945
  0.942
  0.940
  0.943
  0.945
  0.943
  0.945
  0.944
  0.943
  0.946
  0.945
  0.944
  0.944
  0.944
  0.944
  0.944
  0.944
  0.944
  0.945
  0.943
  0.942
  0.943
  0.944
Average production assets, $m
  60
  62
  63
  65
  67
  69
  71
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  122
  127
  133
  140
  146
  153
  160
  168
  176
  185
  194
Working capital, $m
  37
  38
  39
  40
  41
  43
  44
  46
  48
  49
  51
  53
  56
  58
  60
  63
  66
  69
  72
  75
  79
  83
  86
  91
  95
  99
  104
  109
  114
  120
Total debt, $m
  99
  102
  106
  109
  114
  119
  124
  129
  135
  142
  149
  156
  164
  172
  181
  190
  200
  210
  222
  233
  246
  259
  272
  287
  302
  318
  335
  352
  371
  391
Total liabilities, $m
  132
  135
  138
  142
  146
  151
  156
  162
  168
  174
  181
  188
  196
  204
  213
  223
  232
  243
  254
  266
  278
  291
  305
  319
  334
  350
  367
  385
  403
  423
Total equity, $m
  46
  47
  48
  49
  51
  52
  54
  56
  58
  61
  63
  65
  68
  71
  74
  77
  81
  84
  88
  92
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
Total liabilities and equity, $m
  178
  182
  186
  191
  197
  203
  210
  218
  226
  235
  244
  253
  264
  275
  287
  300
  313
  327
  342
  358
  375
  392
  411
  430
  450
  472
  495
  519
  543
  570
Debt-to-equity ratio
  2.170
  2.180
  2.200
  2.220
  2.240
  2.260
  2.280
  2.300
  2.320
  2.340
  2.360
  2.380
  2.400
  2.420
  2.440
  2.460
  2.470
  2.490
  2.510
  2.530
  2.540
  2.560
  2.570
  2.580
  2.600
  2.610
  2.620
  2.630
  2.640
  2.660
Adjusted equity ratio
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258
  0.258

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -11
  -11
  -11
  -10
  -9
  -8
  -6
  -4
  -2
  1
  10
  13
  16
  19
  22
  26
  30
  34
  39
  44
  49
  55
  61
  68
  75
  82
  90
  99
  108
  118
Depreciation, amort., depletion, $m
  13
  13
  13
  13
  14
  14
  14
  14
  14
  14
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
Funds from operations, $m
  2
  2
  2
  3
  4
  6
  8
  10
  13
  15
  15
  18
  21
  24
  27
  31
  36
  40
  45
  50
  56
  62
  69
  76
  83
  91
  100
  109
  118
  129
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
Cash from operations, $m
  1
  1
  1
  2
  3
  5
  6
  8
  11
  13
  13
  16
  18
  21
  25
  29
  33
  37
  42
  47
  53
  58
  65
  72
  79
  87
  95
  104
  113
  123
Maintenance CAPEX, $m
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
New CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -9
  -11
  -11
  -11
  -11
  -13
  -13
  -13
  -15
  -15
  -16
  -17
  -17
  -19
  -19
Free cash flow, $m
  -3
  -4
  -4
  -3
  -2
  -1
  0
  2
  4
  6
  5
  8
  10
  13
  16
  19
  23
  26
  31
  35
  40
  45
  51
  57
  64
  71
  78
  86
  95
  104
Issuance/(repayment) of debt, $m
  3
  3
  3
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
Issuance/(repurchase) of shares, $m
  12
  12
  12
  11
  11
  9
  8
  6
  4
  1
  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  
  15
  15
  15
  15
  15
  14
  13
  12
  10
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
Total cash flow (excl. dividends), $m
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  12
  15
  18
  21
  24
  28
  32
  37
  42
  47
  52
  58
  65
  72
  79
  87
  95
  104
  113
  123
Retained Cash Flow (-), $m
  -12
  -12
  -12
  -11
  -11
  -9
  -8
  -6
  -4
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
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
  -1
  -1
  0
  1
  2
  3
  5
  7
  10
  12
  10
  12
  15
  18
  21
  25
  29
  33
  38
  43
  48
  54
  60
  67
  74
  81
  89
  98
  107
  116
Discount rate, %
  10.90
  11.45
  12.02
  12.62
  13.25
  13.91
  14.61
  15.34
  16.10
  16.91
  17.75
  18.64
  19.57
  20.55
  21.58
  22.66
  23.79
  24.98
  26.23
  27.54
  28.92
  30.37
  31.89
  33.48
  35.15
  36.91
  38.76
  40.69
  42.73
  44.87
PV of cash for distribution, $m
  -1
  -1
  0
  0
  1
  2
  2
  2
  3
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  85.2
  72.9
  62.7
  54.5
  48.0
  43.0
  39.4
  36.9
  35.5
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9
  34.9

Differential Brands Group Inc., formerly Joe's Jeans Inc., is engaged in the design, development and marketing of apparel products, which include denim jeans, related casual wear and accessories. The Company offers its products under various brands, such as Hudson, Robert Graham and SWIMS. Its segments are Wholesale and Retail. Its Wholesale segment consists of sales of Hudson products to retailers, specialty stores and international distributors. Its Retail segment consists of sales of its products to consumers through its retail Internet sites for Hudson products. The Hudson product line includes women's, men's and children's denim jeans, pants and other bottoms. The Robert Graham product line includes men's sport shirts, pants, sweaters, knits, t-shirts, sportcoats, outerwear and swimwear. Through SWIMS brand, it distributes a range of footwear, swimwear, outerwear, ready-to-wear and accessories across the world through department stores, independent specialty and luxury resorts.

FINANCIAL RATIOS  of  Differential Brands Group (DFBG)

Valuation Ratios
P/E Ratio -3.7
Price to Sales 0.5
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow -4
Price to Free Cash Flow -3.5
Growth Rates
Sales Growth Rate 86.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 162.2%
Total Debt to Equity 193.3%
Interest Coverage -3
Management Effectiveness
Return On Assets -11%
Ret/ On Assets - 3 Yr. Avg. -12%
Return On Total Capital -20.6%
Ret/ On T. Cap. - 3 Yr. Avg. -23.3%
Return On Equity -64.3%
Return On Equity - 3 Yr. Avg. -79.9%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 53%
Gross Margin - 3 Yr. Avg. 46.9%
EBITDA Margin -4.7%
EBITDA Margin - 3 Yr. Avg. -20.4%
Operating Margin -6.7%
Oper. Margin - 3 Yr. Avg. -28.3%
Pre-Tax Margin -12.1%
Pre-Tax Margin - 3 Yr. Avg. -34.2%
Net Profit Margin -12.1%
Net Profit Margin - 3 Yr. Avg. -28.5%
Effective Tax Rate 5.6%
Eff/ Tax Rate - 3 Yr. Avg. 10.2%
Payout Ratio 0%

DFBG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DFBG stock intrinsic value calculation we used $164.053 million for the last fiscal year's total revenue generated by Differential Brands Group. The default revenue input number comes from 0001 income statement of Differential Brands Group. 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 DFBG 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 10.9%, whose default value for DFBG is calculated based on our internal credit rating of Differential Brands Group, 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 Differential Brands Group.
    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 DFBG stock the variable cost ratio is equal to 24.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $126 million in the base year in the intrinsic value calculation for DFBG 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 9.6% for Differential Brands Group.

Corporate tax rate of 27% is the nominal tax rate for Differential Brands Group. 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 DFBG 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 DFBG are equal to 36%.

Life of production assets of 17.9 years is the average useful life of capital assets used in Differential Brands Group 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 DFBG is equal to 22.3%. 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 - $44.743 million for Differential Brands Group - 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 13.975 million for Differential Brands Group 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 Differential Brands Group at the current share price and the inputted number of shares is $0.1 billion.

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