Intrinsic value of Donnelley Financial Solutions - DFIN

Previous Close

$19.78

  Intrinsic Value

$33.36

stock screener

  Rating & Target

str. buy

+69%

Previous close

$19.78

 
Intrinsic value

$33.36

 
Up/down potential

+69%

 
Rating

str. buy

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

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 2016), $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
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -6.29
  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
  984
  1,004
  1,027
  1,053
  1,083
  1,116
  1,152
  1,191
  1,233
  1,279
  1,328
  1,381
  1,437
  1,496
  1,560
  1,627
  1,698
  1,774
  1,854
  1,938
  2,027
  2,121
  2,220
  2,324
  2,435
  2,550
  2,672
  2,801
  2,936
  3,078
  3,228
Variable operating expenses, $m
 
  837
  855
  876
  900
  926
  954
  985
  1,019
  1,055
  1,093
  1,090
  1,135
  1,182
  1,232
  1,285
  1,341
  1,401
  1,464
  1,530
  1,601
  1,675
  1,753
  1,836
  1,922
  2,014
  2,110
  2,212
  2,319
  2,431
  2,549
Fixed operating expenses, $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 operating expenses, $m
  878
  837
  855
  876
  900
  926
  954
  985
  1,019
  1,055
  1,093
  1,090
  1,135
  1,182
  1,232
  1,285
  1,341
  1,401
  1,464
  1,530
  1,601
  1,675
  1,753
  1,836
  1,922
  2,014
  2,110
  2,212
  2,319
  2,431
  2,549
Operating income, $m
  106
  166
  171
  177
  183
  190
  198
  206
  215
  224
  235
  290
  302
  315
  328
  342
  357
  373
  390
  408
  426
  446
  467
  489
  512
  536
  562
  589
  618
  647
  679
EBITDA, $m
  149
  222
  227
  232
  239
  246
  254
  263
  272
  282
  293
  305
  317
  330
  344
  359
  375
  391
  409
  428
  447
  468
  490
  513
  537
  563
  590
  618
  648
  679
  712
Interest expense (income), $m
  0
  21
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  44
  46
  49
  51
  54
  57
  60
  64
  67
  71
  75
  79
  83
Earnings before tax, $m
  94
  146
  151
  156
  161
  167
  174
  181
  189
  197
  206
  260
  270
  281
  293
  305
  318
  332
  346
  361
  378
  395
  413
  432
  452
  473
  495
  518
  543
  569
  596
Tax expense, $m
  35
  39
  41
  42
  44
  45
  47
  49
  51
  53
  56
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  107
  111
  117
  122
  128
  134
  140
  147
  154
  161
Net income, $m
  59
  107
  110
  114
  118
  122
  127
  132
  138
  144
  150
  190
  197
  205
  214
  223
  232
  242
  253
  264
  276
  288
  301
  315
  330
  345
  361
  378
  396
  415
  435

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  36
  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
  979
  962
  984
  1,010
  1,038
  1,070
  1,104
  1,142
  1,182
  1,226
  1,273
  1,324
  1,377
  1,435
  1,495
  1,560
  1,628
  1,701
  1,777
  1,858
  1,943
  2,034
  2,129
  2,229
  2,334
  2,445
  2,562
  2,685
  2,815
  2,951
  3,095
Adjusted assets (=assets-cash), $m
  943
  962
  984
  1,010
  1,038
  1,070
  1,104
  1,142
  1,182
  1,226
  1,273
  1,324
  1,377
  1,435
  1,495
  1,560
  1,628
  1,701
  1,777
  1,858
  1,943
  2,034
  2,129
  2,229
  2,334
  2,445
  2,562
  2,685
  2,815
  2,951
  3,095
Revenue / Adjusted assets
  1.043
  1.044
  1.044
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.044
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
  1.043
Average production assets, $m
  139
  142
  145
  148
  153
  157
  162
  168
  174
  180
  187
  195
  203
  211
  220
  229
  239
  250
  261
  273
  286
  299
  313
  328
  343
  360
  377
  395
  414
  434
  455
Working capital, $m
  144
  110
  113
  116
  119
  123
  127
  131
  136
  141
  146
  152
  158
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
  256
  268
  281
  294
  308
  323
  339
  355
Total debt, $m
  587
  585
  605
  628
  653
  682
  713
  747
  783
  823
  865
  910
  959
  1,010
  1,065
  1,123
  1,184
  1,250
  1,318
  1,391
  1,468
  1,549
  1,635
  1,725
  1,820
  1,920
  2,025
  2,136
  2,252
  2,375
  2,504
Total liabilities, $m
  868
  866
  886
  909
  934
  963
  994
  1,028
  1,064
  1,104
  1,146
  1,191
  1,240
  1,291
  1,346
  1,404
  1,465
  1,531
  1,599
  1,672
  1,749
  1,830
  1,916
  2,006
  2,101
  2,201
  2,306
  2,417
  2,533
  2,656
  2,785
Total equity, $m
  111
  96
  98
  101
  104
  107
  110
  114
  118
  123
  127
  132
  138
  143
  150
  156
  163
  170
  178
  186
  194
  203
  213
  223
  233
  245
  256
  269
  281
  295
  309
Total liabilities and equity, $m
  979
  962
  984
  1,010
  1,038
  1,070
  1,104
  1,142
  1,182
  1,227
  1,273
  1,323
  1,378
  1,434
  1,496
  1,560
  1,628
  1,701
  1,777
  1,858
  1,943
  2,033
  2,129
  2,229
  2,334
  2,446
  2,562
  2,686
  2,814
  2,951
  3,094
Debt-to-equity ratio
  5.288
  6.080
  6.150
  6.220
  6.290
  6.370
  6.460
  6.540
  6.620
  6.710
  6.790
  6.880
  6.960
  7.040
  7.120
  7.200
  7.270
  7.350
  7.420
  7.490
  7.550
  7.620
  7.680
  7.740
  7.800
  7.850
  7.900
  7.950
  8.000
  8.050
  8.090
Adjusted equity ratio
  0.080
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  59
  107
  110
  114
  118
  122
  127
  132
  138
  144
  150
  190
  197
  205
  214
  223
  232
  242
  253
  264
  276
  288
  301
  315
  330
  345
  361
  378
  396
  415
  435
Depreciation, amort., depletion, $m
  43
  55
  55
  56
  56
  56
  57
  57
  57
  58
  58
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  30
  32
  33
Funds from operations, $m
  109
  162
  165
  169
  173
  178
  183
  189
  195
  202
  209
  204
  212
  221
  230
  239
  250
  260
  272
  284
  297
  310
  324
  339
  355
  372
  389
  407
  427
  447
  468
Change in working capital, $m
  3
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
Cash from operations, $m
  106
  159
  163
  166
  170
  175
  179
  185
  190
  197
  203
  198
  206
  214
  223
  232
  242
  252
  263
  275
  287
  300
  313
  328
  343
  359
  376
  393
  412
  431
  452
Maintenance CAPEX, $m
  0
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
New CAPEX, $m
  -26
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -29
  -13
  -13
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -25
  -27
  -29
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -41
  -43
  -46
  -48
  -50
  -53
Free cash flow, $m
  77
  147
  149
  152
  155
  159
  163
  167
  172
  177
  183
  177
  184
  191
  198
  206
  215
  224
  233
  244
  254
  266
  277
  290
  303
  317
  332
  347
  364
  381
  399
Issuance/(repayment) of debt, $m
  289
  -2
  20
  23
  26
  28
  31
  34
  37
  39
  42
  45
  48
  51
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  111
  117
  123
  129
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
  0
Cash from financing (excl. dividends), $m  
  -60
  -2
  20
  23
  26
  28
  31
  34
  37
  39
  42
  45
  48
  51
  55
  58
  62
  65
  69
  73
  77
  81
  85
  90
  95
  100
  105
  111
  117
  123
  129
Total cash flow (excl. dividends), $m
  21
  145
  169
  175
  181
  187
  194
  201
  209
  217
  225
  223
  232
  242
  253
  264
  276
  289
  302
  316
  331
  347
  363
  380
  398
  417
  437
  458
  480
  504
  528
Retained Cash Flow (-), $m
  513
  -21
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
Prev. year cash balance distribution, $m
 
  36
  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
 
  159
  167
  172
  178
  184
  190
  197
  205
  212
  221
  218
  227
  237
  247
  258
  270
  282
  295
  308
  323
  338
  353
  370
  388
  406
  426
  446
  467
  490
  514
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
 
  144
  134
  122
  111
  99
  87
  76
  65
  55
  46
  36
  29
  23
  18
  14
  10
  7
  5
  4
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
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

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 10.9
Price to Sales 0.7
Price to Book 5.8
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow 8.1
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 $984 million for the last fiscal year's total revenue generated by Donnelley Financial Solutions. The default revenue input number comes from 2016 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 10.9%, 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 83.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 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 3.5% 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 14.1%.

Life of production assets of 13.6 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 11%. 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 - $111 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 32.787 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 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]
Financial statements of DFIN
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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