Intrinsic value of Donnelley Financial Solutions - DFIN

Previous Close

$16.79

  Intrinsic Value

$25.29

stock screener

  Rating & Target

str. buy

+51%

Previous close

$16.79

 
Intrinsic value

$25.29

 
Up/down potential

+51%

 
Rating

str. 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 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 0.6

 

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
  1,025
  1,049
  1,076
  1,106
  1,139
  1,176
  1,216
  1,259
  1,306
  1,356
  1,410
  1,467
  1,528
  1,593
  1,662
  1,734
  1,811
  1,893
  1,979
  2,070
  2,166
  2,267
  2,374
  2,486
  2,605
  2,729
  2,860
  2,998
  3,144
  3,296
Variable operating expenses, $m
  914
  934
  957
  982
  1,010
  1,041
  1,075
  1,111
  1,151
  1,193
  1,185
  1,233
  1,284
  1,339
  1,396
  1,458
  1,522
  1,591
  1,663
  1,740
  1,820
  1,905
  1,995
  2,089
  2,189
  2,294
  2,404
  2,520
  2,642
  2,770
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
  913
  933
  956
  981
  1,009
  1,040
  1,074
  1,110
  1,150
  1,192
  1,184
  1,232
  1,283
  1,338
  1,395
  1,457
  1,521
  1,590
  1,661
  1,738
  1,818
  1,903
  1,993
  2,087
  2,187
  2,292
  2,402
  2,518
  2,640
  2,768
Operating income, $m
  112
  116
  120
  125
  130
  136
  142
  149
  157
  165
  226
  235
  245
  256
  267
  278
  291
  304
  317
  332
  347
  363
  380
  398
  417
  437
  458
  480
  504
  528
EBITDA, $m
  189
  193
  198
  204
  210
  216
  224
  232
  240
  250
  259
  270
  281
  293
  306
  319
  333
  348
  364
  381
  398
  417
  436
  457
  479
  501
  526
  551
  577
  605
Interest expense (income), $m
  0
  38
  39
  40
  42
  44
  46
  48
  50
  53
  56
  59
  62
  66
  69
  73
  77
  82
  87
  91
  97
  102
  108
  114
  121
  128
  135
  142
  150
  159
  167
Earnings before tax, $m
  74
  77
  80
  83
  86
  90
  94
  99
  104
  109
  167
  173
  180
  186
  193
  201
  209
  217
  226
  235
  245
  255
  266
  278
  290
  303
  316
  330
  345
  361
Tax expense, $m
  20
  21
  22
  22
  23
  24
  25
  27
  28
  29
  45
  47
  48
  50
  52
  54
  56
  59
  61
  63
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
Net income, $m
  54
  56
  58
  60
  63
  66
  69
  72
  76
  80
  122
  126
  131
  136
  141
  147
  152
  158
  165
  172
  179
  186
  194
  203
  212
  221
  231
  241
  252
  263

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
  911
  932
  956
  983
  1,013
  1,045
  1,081
  1,120
  1,161
  1,206
  1,253
  1,304
  1,358
  1,416
  1,477
  1,542
  1,610
  1,683
  1,759
  1,840
  1,925
  2,015
  2,110
  2,210
  2,315
  2,426
  2,543
  2,665
  2,794
  2,930
Adjusted assets (=assets-cash), $m
  911
  932
  956
  983
  1,013
  1,045
  1,081
  1,120
  1,161
  1,206
  1,253
  1,304
  1,358
  1,416
  1,477
  1,542
  1,610
  1,683
  1,759
  1,840
  1,925
  2,015
  2,110
  2,210
  2,315
  2,426
  2,543
  2,665
  2,794
  2,930
Revenue / Adjusted assets
  1.125
  1.126
  1.126
  1.125
  1.124
  1.125
  1.125
  1.124
  1.125
  1.124
  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
  1.125
  1.125
  1.125
Average production assets, $m
  309
  316
  324
  333
  343
  354
  366
  379
  393
  408
  424
  442
  460
  479
  500
  522
  545
  570
  596
  623
  652
  682
  715
  748
  784
  821
  861
  903
  946
  992
Working capital, $m
  32
  33
  33
  34
  35
  36
  38
  39
  40
  42
  44
  45
  47
  49
  52
  54
  56
  59
  61
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  102
Total debt, $m
  473
  491
  511
  533
  558
  585
  615
  647
  681
  718
  758
  801
  846
  894
  945
  998
  1,055
  1,116
  1,180
  1,247
  1,318
  1,393
  1,472
  1,555
  1,643
  1,735
  1,832
  1,934
  2,042
  2,155
Total liabilities, $m
  759
  776
  796
  819
  844
  871
  900
  933
  967
  1,004
  1,044
  1,086
  1,131
  1,179
  1,230
  1,284
  1,341
  1,402
  1,465
  1,533
  1,604
  1,679
  1,758
  1,841
  1,929
  2,021
  2,118
  2,220
  2,328
  2,441
Total equity, $m
  152
  156
  160
  164
  169
  175
  181
  187
  194
  201
  209
  218
  227
  236
  247
  257
  269
  281
  294
  307
  322
  337
  352
  369
  387
  405
  425
  445
  467
  489
Total liabilities and equity, $m
  911
  932
  956
  983
  1,013
  1,046
  1,081
  1,120
  1,161
  1,205
  1,253
  1,304
  1,358
  1,415
  1,477
  1,541
  1,610
  1,683
  1,759
  1,840
  1,926
  2,016
  2,110
  2,210
  2,316
  2,426
  2,543
  2,665
  2,795
  2,930
Debt-to-equity ratio
  3.110
  3.150
  3.200
  3.250
  3.300
  3.350
  3.400
  3.460
  3.510
  3.570
  3.620
  3.680
  3.730
  3.780
  3.830
  3.880
  3.930
  3.970
  4.020
  4.060
  4.100
  4.140
  4.180
  4.210
  4.250
  4.280
  4.310
  4.350
  4.380
  4.400
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
  58
  60
  63
  66
  69
  72
  76
  80
  122
  126
  131
  136
  141
  147
  152
  158
  165
  172
  179
  186
  194
  203
  212
  221
  231
  241
  252
  263
Depreciation, amort., depletion, $m
  77
  77
  78
  79
  80
  80
  81
  82
  84
  85
  33
  35
  36
  37
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  71
  74
  78
Funds from operations, $m
  131
  134
  136
  139
  143
  146
  150
  155
  159
  164
  155
  161
  167
  173
  180
  187
  195
  203
  211
  220
  230
  240
  250
  261
  273
  285
  298
  311
  326
  341
Change in working capital, $m
  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
  5
  5
Cash from operations, $m
  130
  133
  135
  138
  142
  145
  149
  153
  158
  163
  154
  159
  165
  171
  178
  185
  193
  200
  209
  218
  227
  237
  247
  258
  269
  281
  294
  307
  321
  336
Maintenance CAPEX, $m
  -24
  -24
  -25
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -71
  -74
New CAPEX, $m
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -36
  -38
  -39
  -42
  -44
  -46
Cash from investing activities, $m
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
  -71
  -74
  -78
  -81
  -85
  -90
  -94
  -99
  -103
  -109
  -115
  -120
Free cash flow, $m
  101
  102
  103
  104
  106
  107
  109
  112
  114
  117
  106
  109
  112
  116
  120
  124
  129
  133
  138
  144
  149
  155
  161
  168
  175
  182
  190
  198
  207
  216
Issuance/(repayment) of debt, $m
  15
  17
  20
  22
  25
  27
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  108
  113
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  
  15
  17
  20
  22
  25
  27
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
  88
  92
  97
  102
  108
  113
Total cash flow (excl. dividends), $m
  116
  119
  123
  126
  130
  135
  139
  144
  149
  154
  145
  151
  157
  164
  171
  178
  186
  194
  202
  211
  220
  230
  240
  251
  263
  275
  287
  301
  315
  329
Retained Cash Flow (-), $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -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
  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
  113
  116
  119
  122
  125
  129
  133
  137
  142
  147
  137
  143
  148
  154
  161
  167
  174
  182
  189
  197
  206
  215
  225
  235
  245
  256
  268
  280
  293
  306
Discount rate, %
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
  104
  96
  89
  82
  75
  67
  60
  53
  46
  40
  31
  26
  21
  17
  14
  11
  8
  6
  5
  3
  2
  2
  1
  1
  0
  0
  0
  0
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Current shareholders' claim on cash, %
  100.0
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  100.0
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  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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  100.0
  100.0
  100.0
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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 9.3
Price to Sales 0.6
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 5.2
Price to Free Cash Flow 6.8
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 $1004.9 million for the last fiscal year's total revenue generated by Donnelley Financial Solutions. The default revenue input number comes from 0001 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% 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%, 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%.

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 30.1%.

Life of production assets of 12.8 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 3.1%. 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 - $149.4 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 34 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]

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