Intrinsic value of Greenhill - GHL

Previous Close

$31.50

  Intrinsic Value

$152.85

stock screener

  Rating & Target

str. buy

+385%

Previous close

$31.50

 
Intrinsic value

$152.85

 
Up/down potential

+385%

 
Rating

str. buy

Our model is not good at valuating stocks of financial companies, such as GHL.

We calculate the intrinsic value of GHL 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 1.0

 

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, %
  2.00
  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
  244
  249
  256
  263
  271
  280
  289
  300
  311
  323
  335
  349
  363
  379
  395
  412
  431
  450
  471
  492
  515
  539
  565
  591
  619
  649
  680
  713
  748
  784
Variable operating expenses, $m
  36
  36
  37
  38
  39
  40
  41
  43
  44
  46
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  73
  76
  80
  84
  88
  92
  96
  101
Fixed operating expenses, $m
  203
  208
  212
  217
  222
  227
  232
  237
  242
  247
  253
  258
  264
  270
  276
  282
  288
  294
  301
  308
  314
  321
  328
  335
  343
  350
  358
  366
  374
  382
Total operating expenses, $m
  239
  244
  249
  255
  261
  267
  273
  280
  286
  293
  296
  303
  311
  319
  327
  335
  344
  352
  362
  371
  380
  390
  401
  411
  423
  434
  446
  458
  470
  483
Operating income, $m
  5
  5
  6
  8
  10
  13
  16
  20
  24
  30
  39
  46
  53
  60
  68
  77
  87
  98
  109
  121
  134
  149
  164
  180
  197
  215
  235
  255
  277
  301
EBITDA, $m
  68
  70
  72
  76
  80
  84
  90
  96
  104
  112
  120
  130
  140
  152
  164
  177
  191
  207
  223
  240
  259
  279
  300
  322
  346
  372
  399
  428
  458
  490
Interest expense (income), $m
  3
  1
  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
Earnings before tax, $m
  4
  5
  6
  8
  10
  13
  16
  20
  24
  30
  39
  46
  53
  60
  68
  77
  87
  98
  109
  121
  134
  149
  164
  180
  197
  215
  235
  255
  277
  301
Tax expense, $m
  1
  1
  2
  2
  3
  3
  4
  5
  7
  8
  11
  12
  14
  16
  18
  21
  24
  26
  29
  33
  36
  40
  44
  49
  53
  58
  63
  69
  75
  81
Net income, $m
  3
  4
  5
  6
  7
  9
  12
  15
  18
  22
  29
  33
  38
  44
  50
  57
  64
  71
  80
  89
  98
  108
  119
  131
  144
  157
  171
  186
  202
  220

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
  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
Adjusted assets (=assets-cash), $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
Revenue / Adjusted assets
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Average production assets, $m
  589
  603
  618
  635
  655
  676
  699
  724
  751
  779
  810
  843
  878
  915
  955
  997
  1,041
  1,088
  1,137
  1,189
  1,245
  1,303
  1,364
  1,429
  1,497
  1,568
  1,644
  1,723
  1,806
  1,894
Working capital, $m
  -188
  -193
  -198
  -203
  -209
  -216
  -224
  -232
  -240
  -249
  -259
  -270
  -281
  -293
  -305
  -319
  -333
  -348
  -364
  -381
  -398
  -417
  -436
  -457
  -479
  -502
  -526
  -551
  -578
  -606
Total debt, $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 liabilities, $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 equity, $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 liabilities and equity, $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
Debt-to-equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  4
  5
  6
  7
  9
  12
  15
  18
  22
  29
  33
  38
  44
  50
  57
  64
  71
  80
  89
  98
  108
  119
  131
  144
  157
  171
  186
  202
  220
Depreciation, amort., depletion, $m
  63
  64
  66
  68
  70
  72
  74
  76
  79
  82
  81
  84
  88
  92
  95
  100
  104
  109
  114
  119
  124
  130
  136
  143
  150
  157
  164
  172
  181
  189
Funds from operations, $m
  66
  68
  71
  73
  77
  81
  86
  91
  97
  104
  110
  118
  126
  135
  145
  156
  168
  180
  193
  208
  223
  239
  256
  274
  293
  314
  336
  359
  383
  409
Change in working capital, $m
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
Cash from operations, $m
  69
  73
  75
  79
  83
  88
  93
  99
  106
  113
  120
  128
  137
  147
  158
  170
  182
  195
  209
  224
  240
  257
  275
  295
  315
  337
  360
  384
  410
  437
Maintenance CAPEX, $m
  -58
  -59
  -60
  -62
  -64
  -65
  -68
  -70
  -72
  -75
  -78
  -81
  -84
  -88
  -92
  -95
  -100
  -104
  -109
  -114
  -119
  -124
  -130
  -136
  -143
  -150
  -157
  -164
  -172
  -181
New CAPEX, $m
  -11
  -14
  -15
  -17
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -39
  -42
  -44
  -47
  -49
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -75
  -79
  -83
  -88
Cash from investing activities, $m
  -69
  -73
  -75
  -79
  -83
  -86
  -91
  -95
  -99
  -104
  -109
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -158
  -166
  -174
  -182
  -191
  -201
  -211
  -222
  -232
  -243
  -255
  -269
Free cash flow, $m
  1
  0
  0
  0
  0
  1
  3
  4
  6
  9
  11
  14
  18
  22
  27
  32
  38
  44
  51
  58
  66
  75
  84
  94
  104
  115
  127
  140
  154
  169
Issuance/(repayment) of debt, $m
  -22
  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
Issuance/(repurchase) of shares, $m
  20
  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  
  -2
  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 cash flow (excl. dividends), $m
  -2
  0
  0
  0
  0
  1
  3
  4
  6
  9
  11
  14
  18
  22
  27
  32
  38
  44
  51
  58
  66
  75
  84
  94
  104
  115
  127
  140
  154
  169
Retained Cash Flow (-), $m
  -22
  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
Prev. year cash balance distribution, $m
  22
  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
  41
  41
  0
  0
  45
  46
  48
  49
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  105
  110
  116
  121
  127
Cash available for distribution, $m
  -2
  0
  0
  0
  0
  1
  3
  4
  6
  9
  11
  14
  18
  22
  27
  32
  38
  44
  51
  58
  66
  75
  84
  94
  104
  115
  127
  140
  154
  169
Discount rate, %
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
  0.00
PV of cash for distribution, $m
  -2
  0
  0
  0
  0
  1
  3
  4
  6
  9
  11
  14
  18
  22
  27
  32
  38
  44
  51
  58
  66
  75
  84
  94
  104
  115
  127
  140
  154
  169
Current shareholders' claim on cash, %
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Greenhill & Co., Inc. is an investment bank. The Company provides financial and strategic advice on domestic and cross-border mergers and acquisitions, divestitures, restructurings, financings, capital raising and other transactions to a diverse client base, including corporations, partnerships, institutions and governments globally. The Company also provides advice in connection with defense preparedness, activist response strategies and other mission critical situations. The Company acts for clients located across the world from its offices located in the United States, Australia, Brazil, Canada, Germany, Hong Kong, Japan, Sweden, and the United Kingdom. The Company's subsidiaries provide advisory services in various jurisdictions. Its operating entities include Greenhill & Co., LLC (G&Co), Greenhill & Co. International LLP (GCI), Greenhill & Co. Europe LLP (GCE), Greenhill & Co. Australia Pty Limited (Greenhill Australia) and Greenhill Cogent, LP (GC LP).

FINANCIAL RATIOS  of  Greenhill (GHL)

Valuation Ratios
P/E Ratio 15
Price to Sales 2.7
Price to Book 3.1
Price to Tangible Book
Price to Cash Flow 7.4
Price to Free Cash Flow 7.5
Growth Rates
Sales Growth Rate 28.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 27.8%
Total Debt to Equity 27.8%
Interest Coverage 30
Management Effectiveness
Return On Assets 14.3%
Ret/ On Assets - 3 Yr. Avg. 11.4%
Return On Total Capital 16.7%
Ret/ On T. Cap. - 3 Yr. Avg. 13%
Return On Equity 21.3%
Return On Equity - 3 Yr. Avg. 15.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 28%
EBITDA Margin - 3 Yr. Avg. 24%
Operating Margin 27.4%
Oper. Margin - 3 Yr. Avg. 23.2%
Pre-Tax Margin 26.2%
Pre-Tax Margin - 3 Yr. Avg. 22.3%
Net Profit Margin 18.2%
Net Profit Margin - 3 Yr. Avg. 14.6%
Effective Tax Rate 30.7%
Eff/ Tax Rate - 3 Yr. Avg. 35.3%
Payout Ratio 101.6%

GHL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GHL stock intrinsic value calculation we used $239 million for the last fiscal year's total revenue generated by Greenhill. The default revenue input number comes from 2017 income statement of Greenhill. 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 GHL 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 0%, whose default value for GHL is calculated based on our internal credit rating of Greenhill, 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 Greenhill.
    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 GHL stock the variable cost ratio is equal to 14.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $199 million in the base year in the intrinsic value calculation for GHL 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 Greenhill.

Corporate tax rate of 27% is the nominal tax rate for Greenhill. 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 GHL stock is equal to 17%.

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 GHL are equal to 241.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Greenhill 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 GHL is equal to -77.3%. 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 - $0 million for Greenhill - 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 million for Greenhill 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 Greenhill at the current share price and the inputted number of shares is $1.0 billion.

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COMPANY NEWS

▶ Canada Is Already Trying to Sell Trans Mountain   [May-31-18 10:34AM  Bloomberg]
▶ [$$] TGI Fridays owner Electra Private Equity set for sale   [May-24-18 02:43AM  Financial Times]
▶ Greenhill & Co. Reports First Quarter 2018 Earnings   [May-03-18 04:05PM  PR Newswire]
▶ Greenhill & Co Inc. (NYSE:GHL) Is Expected To Breakeven   [Mar-02-18 07:23AM  Simply Wall St.]
▶ This Boutique Bank Stands Out, But Not in a Good Way   [Feb-06-18 05:38PM  Bloomberg]
▶ Comparing Blackstones Valuations to Its Peers   [Dec-28-17 07:30AM  Market Realist]
▶ The Brain Drain Behind Greenhill's Deal Drought   [Nov-03-17 07:30AM  Bloomberg]
▶ Greenhill reports 3Q loss   [Oct-18-17 04:40PM  Associated Press]
▶ 2 Picks in Financial Advisors Ahead of Q3 Earnings   [Oct-10-17 11:40AM  Barrons.com]
▶ [$$] Deal Boutique Greenhill Lands a Lifeline   [01:25AM  The Wall Street Journal]
▶ [$$] Deal Boutique Greenhill Lands a Lifeline   [Sep-25-17 10:37PM  The Wall Street Journal]
▶ Baring Private Equity Restarts Sale of SAI Assurance   [Sep-13-17 03:25AM  Bloomberg]
▶ Hiroshi Yoshioka Joins Greenhill as Senior Advisor   [Sep-05-17 04:01PM  PR Newswire]
▶ [$$] Industry Data   [Aug-29-17 10:22AM  The Wall Street Journal]
▶ Greenhill's Path to a Turnaround   [Aug-11-17 07:30AM  Bloomberg]
▶ [$$] Boutique doldrums   [Aug-08-17 12:10AM  Financial Times]
▶ [$$] Greenhill: twice bitten   [Aug-07-17 12:55PM  Financial Times]
▶ Greenhill posts 2Q profit   [Jul-27-17 10:17PM  Associated Press]
▶ [$$] Secondary Market Set Price, Volume Records in the First Half   [Jul-21-17 05:53PM  The Wall Street Journal]
▶ Juan BĂ©jar Joins Greenhill as Senior Advisor   [Jul-10-17 07:01AM  PR Newswire]
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