Intrinsic value of Heidrick&Struggles International - HSII

Previous Close

$20.75

  Intrinsic Value

$44.74

stock screener

  Rating & Target

str. buy

+116%

Previous close

$20.75

 
Intrinsic value

$44.74

 
Up/down potential

+116%

 
Rating

str. buy

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

We calculate the intrinsic value of HSII 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 0.4

 

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, %
  9.67
  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
  601
  613
  627
  643
  661
  681
  703
  727
  753
  781
  811
  843
  877
  914
  953
  994
  1,037
  1,083
  1,132
  1,184
  1,238
  1,295
  1,356
  1,420
  1,487
  1,558
  1,632
  1,711
  1,793
  1,880
  1,971
Variable operating expenses, $m
 
  575
  588
  602
  619
  637
  657
  679
  703
  728
  756
  770
  801
  834
  869
  907
  947
  989
  1,033
  1,080
  1,130
  1,182
  1,238
  1,296
  1,357
  1,422
  1,490
  1,561
  1,637
  1,716
  1,799
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
  566
  575
  588
  602
  619
  637
  657
  679
  703
  728
  756
  770
  801
  834
  869
  907
  947
  989
  1,033
  1,080
  1,130
  1,182
  1,238
  1,296
  1,357
  1,422
  1,490
  1,561
  1,637
  1,716
  1,799
Operating income, $m
  35
  38
  40
  41
  43
  44
  46
  48
  51
  53
  56
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108
  113
  118
  124
  130
  136
  142
  149
  157
  164
  172
EBITDA, $m
  51
  58
  59
  61
  63
  65
  67
  69
  71
  74
  77
  80
  83
  87
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
  141
  148
  155
  162
  170
  178
  187
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
Earnings before tax, $m
  38
  38
  39
  40
  42
  43
  45
  46
  48
  50
  52
  70
  72
  75
  77
  80
  83
  86
  90
  93
  97
  101
  105
  110
  114
  119
  124
  130
  136
  142
  148
Tax expense, $m
  23
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  19
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
Net income, $m
  15
  28
  29
  30
  30
  31
  33
  34
  35
  37
  38
  51
  53
  54
  56
  58
  61
  63
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  165
  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
  582
  425
  435
  446
  459
  473
  488
  505
  523
  542
  563
  585
  609
  634
  661
  690
  720
  752
  786
  821
  859
  899
  941
  985
  1,032
  1,081
  1,133
  1,187
  1,244
  1,305
  1,368
Adjusted assets (=assets-cash), $m
  417
  425
  435
  446
  459
  473
  488
  505
  523
  542
  563
  585
  609
  634
  661
  690
  720
  752
  786
  821
  859
  899
  941
  985
  1,032
  1,081
  1,133
  1,187
  1,244
  1,305
  1,368
Revenue / Adjusted assets
  1.441
  1.442
  1.441
  1.442
  1.440
  1.440
  1.441
  1.440
  1.440
  1.441
  1.440
  1.441
  1.440
  1.442
  1.442
  1.441
  1.440
  1.440
  1.440
  1.442
  1.441
  1.440
  1.441
  1.442
  1.441
  1.441
  1.440
  1.441
  1.441
  1.441
  1.441
Average production assets, $m
  56
  56
  58
  59
  61
  63
  65
  67
  69
  72
  75
  78
  81
  84
  88
  91
  95
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
Working capital, $m
  77
  -90
  -92
  -94
  -97
  -99
  -103
  -106
  -110
  -114
  -118
  -123
  -128
  -133
  -139
  -145
  -151
  -158
  -165
  -173
  -181
  -189
  -198
  -207
  -217
  -227
  -238
  -250
  -262
  -274
  -288
Total debt, $m
  0
  7
  14
  23
  33
  43
  55
  68
  82
  97
  113
  131
  149
  169
  189
  211
  235
  260
  286
  314
  343
  374
  406
  441
  477
  515
  555
  597
  641
  688
  737
Total liabilities, $m
  323
  330
  337
  346
  356
  366
  378
  391
  405
  420
  436
  454
  472
  492
  512
  534
  558
  583
  609
  637
  666
  697
  729
  764
  800
  838
  878
  920
  964
  1,011
  1,060
Total equity, $m
  259
  96
  98
  100
  103
  106
  110
  114
  118
  122
  127
  132
  137
  143
  149
  155
  162
  169
  177
  185
  193
  202
  212
  222
  232
  243
  255
  267
  280
  294
  308
Total liabilities and equity, $m
  582
  426
  435
  446
  459
  472
  488
  505
  523
  542
  563
  586
  609
  635
  661
  689
  720
  752
  786
  822
  859
  899
  941
  986
  1,032
  1,081
  1,133
  1,187
  1,244
  1,305
  1,368
Debt-to-equity ratio
  0.000
  0.070
  0.150
  0.230
  0.320
  0.410
  0.500
  0.600
  0.700
  0.800
  0.890
  0.990
  1.090
  1.180
  1.270
  1.360
  1.450
  1.540
  1.620
  1.700
  1.770
  1.850
  1.920
  1.990
  2.050
  2.120
  2.180
  2.240
  2.290
  2.340
  2.400
Adjusted equity ratio
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225
  0.225

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  28
  29
  30
  30
  31
  33
  34
  35
  37
  38
  51
  53
  54
  56
  58
  61
  63
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108
Depreciation, amort., depletion, $m
  16
  20
  20
  20
  20
  20
  20
  21
  21
  21
  21
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
Funds from operations, $m
  9
  48
  49
  50
  51
  52
  53
  54
  56
  58
  59
  57
  59
  61
  64
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  103
  108
  112
  117
  123
Change in working capital, $m
  -16
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
Cash from operations, $m
  25
  50
  51
  52
  53
  55
  56
  58
  60
  62
  64
  62
  64
  67
  69
  72
  75
  78
  81
  84
  88
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
New CAPEX, $m
  -5
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Cash from investing activities, $m
  -28
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -7
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -22
Free cash flow, $m
  -3
  44
  45
  46
  47
  48
  49
  51
  52
  54
  55
  53
  55
  57
  59
  61
  63
  66
  69
  71
  74
  77
  81
  84
  88
  91
  95
  100
  104
  109
  114
Issuance/(repayment) of debt, $m
  0
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
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  
  -10
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  47
  49
Total cash flow (excl. dividends), $m
  -15
  51
  52
  54
  57
  59
  61
  63
  66
  69
  71
  70
  73
  76
  80
  83
  87
  91
  95
  99
  103
  108
  113
  118
  124
  130
  136
  142
  148
  155
  163
Retained Cash Flow (-), $m
  -4
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -14
Prev. year cash balance distribution, $m
 
  165
  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
 
  214
  50
  52
  54
  56
  58
  60
  62
  64
  67
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  205
  46
  45
  44
  43
  42
  40
  39
  37
  35
  31
  29
  27
  25
  23
  20
  18
  16
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
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

Heidrick & Struggles International, Inc. is an advisory firm providing executive search, leadership consulting and culture shaping services to businesses and business leaders around the world. Its segments include Executive Search, Leadership Consulting and Culture Shaping. It operates its executive search services in three geographic regions: the Americas (which includes the countries in North and South America); Europe (which includes the continents of Europe and Africa), and Asia Pacific (which includes Asia and the region generally known as the Middle East). Its Leadership Consulting segment operates globally. Its Culture Shaping segment operates in the Americas and Europe. In addition to executive search, it provides leadership consulting expertise and culture shaping services including executive leadership assessment; leadership, team and board development; succession planning; talent strategy; people performance; inter-team collaboration, and organizational transformation.

FINANCIAL RATIOS  of  Heidrick&Struggles International (HSII)

Valuation Ratios
P/E Ratio 25.7
Price to Sales 0.6
Price to Book 1.5
Price to Tangible Book
Price to Cash Flow 15.4
Price to Free Cash Flow 19.3
Growth Rates
Sales Growth Rate 9.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -68.8%
Cap. Spend. - 3 Yr. Gr. Rate 4.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 5.8%
Ret/ On T. Cap. - 3 Yr. Avg. 4.9%
Return On Equity 5.8%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 1
Profitability Ratios
Gross Margin 96.8%
Gross Margin - 3 Yr. Avg. 96.7%
EBITDA Margin 9%
EBITDA Margin - 3 Yr. Avg. 8.4%
Operating Margin 5.8%
Oper. Margin - 3 Yr. Avg. 5.7%
Pre-Tax Margin 6.3%
Pre-Tax Margin - 3 Yr. Avg. 5.6%
Net Profit Margin 2.5%
Net Profit Margin - 3 Yr. Avg. 2.3%
Effective Tax Rate 60.5%
Eff/ Tax Rate - 3 Yr. Avg. 59.4%
Payout Ratio 66.7%

HSII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSII stock intrinsic value calculation we used $601 million for the last fiscal year's total revenue generated by Heidrick&Struggles International. The default revenue input number comes from 2016 income statement of Heidrick&Struggles International. 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 HSII 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 4.3%, whose default value for HSII is calculated based on our internal credit rating of Heidrick&Struggles International, 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 Heidrick&Struggles International.
    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 HSII stock the variable cost ratio is equal to 93.8%.

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 HSII 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 Heidrick&Struggles International.

Corporate tax rate of 27% is the nominal tax rate for Heidrick&Struggles International. 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 HSII 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 HSII are equal to 9.2%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Heidrick&Struggles International 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 HSII is equal to -14.6%. 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 - $259 million for Heidrick&Struggles International - 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 18.785 million for Heidrick&Struggles International 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 Heidrick&Struggles International at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Heidrick & Struggles Commits to Paradigm for Parity┬«   [Aug-24-17 08:00AM  PR Newswire]
▶ [$$] Avon CEO to Step Down Amid Investor Pressure   [Aug-04-17 12:19AM  The Wall Street Journal]
▶ [$$] Avon CEO to Step Down Amid Activist Investor Pressure   [Aug-03-17 06:18PM  The Wall Street Journal]
▶ Heidrick & Struggles Declares Quarterly Cash Dividend   [Jul-25-17 10:27AM  PR Newswire]
▶ Heidrick & Struggles reports 2Q loss   [Jul-24-17 09:26PM  Associated Press]
▶ [$$] Avon chief Sheri McCoy to step down   [Jun-15-17 03:22PM  Financial Times]
▶ [$$] Industry Data   [May-01-17 09:32AM  The Wall Street Journal]
▶ New Strong Buy Stocks for April 28th   [Apr-28-17 10:10AM  Zacks]
▶ Heidrick & Struggles misses Street 1Q forecasts   [Apr-24-17 04:21PM  Associated Press]
▶ Differences Emerge in CEOs' Route to the Top   [Apr-20-17 04:00AM  PR Newswire]
▶ Mondelez lays groundwork to replace its CEO -WSJ   [Apr-09-17 04:38PM  Reuters]
▶ [$$] Asian PE Compensation Growth Slows   [Apr-05-17 10:46AM  The Wall Street Journal]
▶ Heidrick & Struggles Promotes Six New Partners   [Mar-02-17 08:00AM  PR Newswire]
▶ Heidrick & Struggles Declares Quarterly Cash Dividend   [Jan-24-17 08:00AM  PR Newswire]
Financial statements of HSII
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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