Intrinsic value of Donnelley Financial Solutions - DFIN

Previous Close

$19.30

  Intrinsic Value

$24.24

stock screener

  Rating & Target

buy

+26%

Previous close

$19.30

 
Intrinsic value

$24.24

 
Up/down potential

+26%

 
Rating

buy

We calculate the intrinsic value of DFIN 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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  2.20
  2.48
  2.73
  2.96
  3.16
  3.35
  3.51
  3.66
  3.79
  3.92
  4.02
  4.12
  4.21
  4.29
  4.36
  4.42
  4.48
  4.53
  4.58
  4.62
  4.66
  4.69
  4.72
  4.75
  4.78
  4.80
  4.82
  4.84
  4.85
  4.87
Revenue, $m
  1,027
  1,053
  1,081
  1,113
  1,149
  1,187
  1,229
  1,274
  1,322
  1,374
  1,429
  1,488
  1,551
  1,617
  1,688
  1,762
  1,841
  1,925
  2,013
  2,106
  2,204
  2,307
  2,416
  2,531
  2,652
  2,779
  2,913
  3,054
  3,202
  3,358
Variable operating expenses, $m
  916
  937
  962
  989
  1,018
  1,050
  1,085
  1,123
  1,164
  1,207
  1,201
  1,251
  1,303
  1,359
  1,418
  1,481
  1,547
  1,618
  1,692
  1,770
  1,852
  1,939
  2,031
  2,127
  2,229
  2,336
  2,448
  2,567
  2,692
  2,823
Fixed operating expenses, $m
  -1
  -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
  -2
  -2
  -2
  -2
Total operating expenses, $m
  915
  936
  961
  988
  1,017
  1,049
  1,084
  1,122
  1,163
  1,206
  1,200
  1,250
  1,302
  1,358
  1,417
  1,480
  1,546
  1,617
  1,690
  1,768
  1,850
  1,937
  2,029
  2,125
  2,227
  2,334
  2,446
  2,565
  2,690
  2,821
Operating income, $m
  112
  116
  121
  126
  132
  138
  144
  152
  159
  168
  229
  239
  249
  259
  271
  283
  295
  309
  323
  337
  353
  370
  387
  405
  425
  445
  467
  489
  513
  538
EBITDA, $m
  223
  229
  235
  242
  250
  258
  267
  277
  287
  298
  310
  323
  337
  351
  366
  383
  400
  418
  437
  457
  478
  501
  524
  549
  575
  603
  632
  663
  695
  728
Interest expense (income), $m
  0
  38
  39
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  67
  71
  75
  79
  84
  88
  93
  99
  104
  110
  117
  123
  130
  138
  145
  153
  162
  171
Earnings before tax, $m
  75
  77
  80
  84
  87
  91
  96
  100
  105
  111
  169
  175
  182
  189
  196
  204
  212
  220
  229
  239
  249
  259
  271
  282
  295
  308
  321
  336
  351
  367
Tax expense, $m
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  46
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  80
  83
  87
  91
  95
  99
Net income, $m
  54
  56
  59
  61
  64
  67
  70
  73
  77
  81
  124
  128
  133
  138
  143
  149
  155
  161
  167
  174
  182
  189
  197
  206
  215
  225
  235
  245
  256
  268

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
  913
  936
  961
  990
  1,021
  1,055
  1,092
  1,132
  1,175
  1,221
  1,270
  1,323
  1,378
  1,437
  1,500
  1,566
  1,637
  1,711
  1,789
  1,872
  1,959
  2,051
  2,148
  2,250
  2,357
  2,471
  2,590
  2,715
  2,847
  2,985
Adjusted assets (=assets-cash), $m
  913
  936
  961
  990
  1,021
  1,055
  1,092
  1,132
  1,175
  1,221
  1,270
  1,323
  1,378
  1,437
  1,500
  1,566
  1,637
  1,711
  1,789
  1,872
  1,959
  2,051
  2,148
  2,250
  2,357
  2,471
  2,590
  2,715
  2,847
  2,985
Revenue / Adjusted assets
  1.125
  1.125
  1.125
  1.124
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.126
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
  1.125
Average production assets, $m
  583
  598
  614
  632
  652
  674
  698
  723
  751
  780
  812
  845
  881
  918
  959
  1,001
  1,046
  1,093
  1,143
  1,196
  1,252
  1,311
  1,372
  1,438
  1,506
  1,579
  1,655
  1,735
  1,819
  1,908
Working capital, $m
  -45
  -46
  -48
  -49
  -51
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -97
  -102
  -106
  -111
  -117
  -122
  -128
  -134
  -141
  -148
Total debt, $m
  474
  493
  514
  538
  564
  593
  624
  657
  693
  731
  772
  816
  862
  911
  963
  1,019
  1,077
  1,139
  1,204
  1,273
  1,346
  1,422
  1,503
  1,588
  1,677
  1,772
  1,871
  1,975
  2,085
  2,200
Total liabilities, $m
  761
  779
  801
  824
  850
  879
  910
  943
  979
  1,017
  1,058
  1,102
  1,148
  1,197
  1,250
  1,305
  1,363
  1,425
  1,490
  1,559
  1,632
  1,708
  1,789
  1,874
  1,964
  2,058
  2,157
  2,261
  2,371
  2,487
Total equity, $m
  152
  156
  161
  165
  170
  176
  182
  189
  196
  204
  212
  221
  230
  240
  251
  262
  273
  286
  299
  313
  327
  343
  359
  376
  394
  413
  432
  453
  475
  499
Total liabilities and equity, $m
  913
  935
  962
  989
  1,020
  1,055
  1,092
  1,132
  1,175
  1,221
  1,270
  1,323
  1,378
  1,437
  1,501
  1,567
  1,636
  1,711
  1,789
  1,872
  1,959
  2,051
  2,148
  2,250
  2,358
  2,471
  2,589
  2,714
  2,846
  2,986
Debt-to-equity ratio
  3.110
  3.160
  3.210
  3.260
  3.310
  3.360
  3.420
  3.470
  3.530
  3.580
  3.640
  3.690
  3.740
  3.800
  3.850
  3.890
  3.940
  3.990
  4.030
  4.070
  4.110
  4.150
  4.190
  4.230
  4.260
  4.290
  4.330
  4.360
  4.390
  4.410
Adjusted equity ratio
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167
  0.167

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  54
  56
  59
  61
  64
  67
  70
  73
  77
  81
  124
  128
  133
  138
  143
  149
  155
  161
  167
  174
  182
  189
  197
  206
  215
  225
  235
  245
  256
  268
Depreciation, amort., depletion, $m
  111
  113
  114
  116
  118
  120
  123
  125
  128
  131
  81
  85
  88
  92
  96
  100
  105
  109
  114
  120
  125
  131
  137
  144
  151
  158
  165
  173
  182
  191
Funds from operations, $m
  166
  169
  173
  177
  182
  187
  193
  198
  205
  212
  205
  213
  221
  230
  239
  249
  259
  270
  282
  294
  307
  320
  335
  350
  366
  382
  400
  419
  438
  458
Change in working capital, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  167
  170
  174
  179
  183
  189
  194
  200
  207
  214
  207
  215
  224
  232
  242
  252
  263
  274
  286
  298
  311
  325
  340
  355
  371
  388
  406
  425
  445
  465
Maintenance CAPEX, $m
  -57
  -58
  -60
  -61
  -63
  -65
  -67
  -70
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -137
  -144
  -151
  -158
  -165
  -173
  -182
New CAPEX, $m
  -13
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -84
  -89
Cash from investing activities, $m
  -70
  -72
  -76
  -79
  -83
  -87
  -91
  -96
  -99
  -104
  -109
  -114
  -121
  -126
  -132
  -138
  -145
  -152
  -159
  -167
  -176
  -184
  -193
  -202
  -213
  -223
  -234
  -245
  -257
  -271
Free cash flow, $m
  97
  97
  98
  99
  100
  102
  103
  105
  107
  110
  98
  101
  103
  107
  110
  114
  118
  122
  126
  131
  136
  141
  147
  152
  159
  165
  172
  179
  187
  195
Issuance/(repayment) of debt, $m
  16
  19
  21
  24
  26
  28
  31
  33
  36
  38
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
  115
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  
  16
  19
  21
  24
  26
  28
  31
  33
  36
  38
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  94
  99
  104
  110
  115
Total cash flow (excl. dividends), $m
  113
  116
  119
  123
  126
  130
  134
  138
  143
  148
  139
  144
  150
  156
  162
  169
  176
  184
  191
  200
  208
  218
  227
  237
  248
  259
  271
  284
  297
  310
Retained Cash Flow (-), $m
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
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
  7
  7
  7
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
Cash available for distribution, $m
  109
  112
  115
  118
  121
  124
  128
  132
  136
  140
  130
  135
  141
  146
  152
  158
  164
  171
  178
  186
  194
  202
  211
  220
  230
  240
  251
  263
  275
  287
Discount rate, %
  9.40
  9.87
  10.36
  10.88
  11.43
  12.00
  12.60
  13.23
  13.89
  14.58
  15.31
  16.08
  16.88
  17.73
  18.61
  19.54
  20.52
  21.54
  22.62
  23.75
  24.94
  26.19
  27.50
  28.87
  30.32
  31.83
  33.42
  35.09
  36.85
  38.69
PV of cash for distribution, $m
  100
  93
  86
  78
  70
  63
  56
  49
  42
  36
  27
  23
  18
  15
  12
  9
  7
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  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

Donnelley Financial Solutions, Inc. is a financial communications services company that supports global capital markets compliance and transaction needs for its corporate clients and their advisors (such as law firms and investment bankers), and global investment markets compliance and analytics needs for mutual fund companies, variable annuity providers and broker/dealers. The Company provides content management, multi-channel content distribution, data management and analytics services, collaborative workflow and business reporting tools, and translations and other language services in support of its clients' communications requirements. The Company operates in two business segments: United States and International. The United States segment consists of three reporting units: capital markets, investment markets, and language solutions and other. The International segment includes its operations in Asia, Europe, Latin America and Canada.

FINANCIAL RATIOS  of  Donnelley Financial Solutions (DFIN)

Valuation Ratios
P/E Ratio 10.7
Price to Sales 0.6
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 5.9
Price to Free Cash Flow 7.9
Growth Rates
Sales Growth Rate -6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.7%
Cap. Spend. - 3 Yr. Gr. Rate 5.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 528.8%
Total Debt to Equity 528.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 9.8%
Return On Total Capital 8.7%
Ret/ On T. Cap. - 3 Yr. Avg. 18.1%
Return On Equity 16.1%
Return On Equity - 3 Yr. Avg. 23.3%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 37.1%
Gross Margin - 3 Yr. Avg. 38.8%
EBITDA Margin 13.9%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 11.9%
Pre-Tax Margin 9.6%
Pre-Tax Margin - 3 Yr. Avg. 11.5%
Net Profit Margin 6%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 37.2%
Eff/ Tax Rate - 3 Yr. Avg. 38.3%
Payout Ratio 0%

DFIN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DFIN stock intrinsic value calculation we used $1005 million for the last fiscal year's total revenue generated by Donnelley Financial Solutions. The default revenue input number comes from 2017 income statement of Donnelley Financial Solutions. 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 DFIN stock valuation model: a) initial revenue growth rate of 2.2% 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 9.4%, whose default value for DFIN is calculated based on our internal credit rating of Donnelley Financial Solutions, 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 Donnelley Financial Solutions.
    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 DFIN stock the variable cost ratio is equal to 89.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $-1 million in the base year in the intrinsic value calculation for DFIN 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 8.2% for Donnelley Financial Solutions.

Corporate tax rate of 27% is the nominal tax rate for Donnelley Financial Solutions. 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 DFIN stock is equal to 0.7%.

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 DFIN are equal to 56.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Donnelley Financial Solutions 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 DFIN is equal to -4.4%. 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 - $149 million for Donnelley Financial Solutions - 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 33 million for Donnelley Financial Solutions 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 Donnelley Financial Solutions at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Donnelley Financial: 2Q Earnings Snapshot   [09:12AM  Associated Press]
▶ Raven Industries Announces Appointment of Two New Directors   [Jul-12-18 07:00AM  GlobeNewswire]
▶ Donnelley Financial: 1Q Earnings Snapshot   [May-02-18 06:51AM  Associated Press]
▶ Donnelley Financial Solutions Prepares for GDPR Compliance   [Apr-30-18 07:16AM  Business Wire]
▶ Donnelley Financial reports 4Q loss   [Feb-28-18 06:47AM  Associated Press]
▶ Donnelley Financial beats 3Q profit forecasts   [Nov-02-17 06:47AM  Associated Press]
▶ M&A and Private Equity Dealmakers Gather in Chicago   [Oct-12-17 06:30AM  Business Wire]
▶ Donnelley Financial posts 2Q profit   [Aug-02-17 09:21PM  Associated Press]
▶ Donnelley Financial posts 1Q profit   [06:49AM  Associated Press]
▶ Donnelley Financial reports 4Q loss   [06:47AM  Associated Press]
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