Intrinsic value of Westwood Holdings Group - WHG

Previous Close

$39.96

  Intrinsic Value

$52.52

stock screener

  Rating & Target

buy

+31%

Previous close

$39.96

 
Intrinsic value

$52.52

 
Up/down potential

+31%

 
Rating

buy

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

We calculate the intrinsic value of WHG 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 0.4

 

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
  136
  140
  143
  147
  152
  157
  162
  168
  174
  181
  188
  195
  203
  212
  221
  231
  241
  252
  263
  276
  288
  302
  316
  331
  347
  363
  381
  399
  419
  439
Variable operating expenses, $m
  99
  101
  103
  106
  109
  113
  116
  120
  124
  129
  129
  135
  140
  146
  152
  159
  166
  174
  182
  190
  199
  208
  218
  228
  239
  250
  262
  275
  288
  302
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
  99
  101
  103
  106
  109
  113
  116
  120
  124
  129
  129
  135
  140
  146
  152
  159
  166
  174
  182
  190
  199
  208
  218
  228
  239
  250
  262
  275
  288
  302
Operating income, $m
  38
  39
  40
  41
  42
  44
  46
  47
  49
  51
  58
  61
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  137
EBITDA, $m
  44
  45
  46
  48
  49
  51
  52
  54
  56
  58
  61
  63
  66
  68
  71
  75
  78
  81
  85
  89
  93
  97
  102
  107
  112
  117
  123
  129
  135
  142
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
Earnings before tax, $m
  38
  39
  40
  41
  42
  44
  45
  47
  49
  51
  58
  60
  62
  65
  68
  71
  74
  77
  80
  84
  88
  92
  96
  100
  105
  110
  115
  121
  126
  132
Tax expense, $m
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
Net income, $m
  28
  28
  29
  30
  31
  32
  33
  34
  36
  37
  42
  44
  46
  47
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97

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
  121
  124
  127
  130
  134
  139
  143
  148
  154
  160
  166
  173
  180
  188
  196
  204
  213
  223
  233
  244
  255
  267
  280
  293
  307
  322
  337
  353
  370
  388
Adjusted assets (=assets-cash), $m
  121
  124
  127
  130
  134
  139
  143
  148
  154
  160
  166
  173
  180
  188
  196
  204
  213
  223
  233
  244
  255
  267
  280
  293
  307
  322
  337
  353
  370
  388
Revenue / Adjusted assets
  1.124
  1.129
  1.126
  1.131
  1.134
  1.129
  1.133
  1.135
  1.130
  1.131
  1.133
  1.127
  1.128
  1.128
  1.128
  1.132
  1.131
  1.130
  1.129
  1.131
  1.129
  1.131
  1.129
  1.130
  1.130
  1.127
  1.131
  1.130
  1.132
  1.131
Average production assets, $m
  29
  29
  30
  31
  32
  33
  34
  35
  37
  38
  39
  41
  43
  45
  46
  48
  51
  53
  55
  58
  61
  63
  66
  70
  73
  76
  80
  84
  88
  92
Working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
Total debt, $m
  1
  2
  3
  4
  5
  6
  8
  9
  11
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  38
  42
  45
  49
  53
  58
  62
  67
  72
  77
  83
Total liabilities, $m
  37
  38
  39
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  119
Total equity, $m
  84
  86
  88
  90
  93
  96
  99
  103
  107
  111
  115
  120
  125
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  203
  213
  223
  234
  245
  257
  270
Total liabilities and equity, $m
  121
  124
  127
  130
  134
  138
  143
  148
  154
  160
  166
  173
  180
  187
  196
  205
  213
  223
  233
  244
  255
  267
  280
  293
  307
  321
  337
  353
  370
  389
Debt-to-equity ratio
  0.010
  0.020
  0.030
  0.040
  0.050
  0.060
  0.080
  0.090
  0.100
  0.110
  0.130
  0.140
  0.150
  0.160
  0.170
  0.190
  0.200
  0.210
  0.220
  0.230
  0.240
  0.250
  0.250
  0.260
  0.270
  0.280
  0.290
  0.290
  0.300
  0.310
Adjusted equity ratio
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  28
  28
  29
  30
  31
  32
  33
  34
  36
  37
  42
  44
  46
  47
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
Depreciation, amort., depletion, $m
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
Funds from operations, $m
  34
  35
  35
  36
  37
  38
  40
  41
  42
  44
  44
  46
  48
  50
  52
  54
  57
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  102
Change in working capital, $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 operations, $m
  34
  35
  35
  36
  37
  38
  40
  41
  42
  44
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  74
  77
  81
  84
  88
  93
  97
  102
Maintenance CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
New CAPEX, $m
  -1
  -1
  -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
Cash from investing activities, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
Free cash flow, $m
  32
  32
  33
  34
  35
  36
  37
  38
  39
  40
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
Issuance/(repayment) of debt, $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
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  
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
Total cash flow (excl. dividends), $m
  32
  33
  34
  35
  36
  37
  38
  39
  41
  42
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81
  85
  89
  93
  98
Retained Cash Flow (-), $m
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Prev. year cash balance distribution, $m
  74
  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
  105
  31
  32
  32
  33
  34
  35
  36
  37
  38
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  59
  62
  65
  68
  71
  74
  78
  82
  85
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
  101
  29
  28
  27
  26
  25
  24
  22
  21
  20
  18
  17
  16
  14
  13
  12
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
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

Westwood Holdings Group, Inc. (Westwood) is a holding company. The Company operates through two segments: Advisory and Trust. The Company, through its subsidiaries, manages investment assets and provides services for its clients. Its subsidiaries include Westwood Management Corp. and Westwood Advisors, LLC (together, Westwood Management), Westwood International Advisors Inc. (Westwood International) and Westwood Trust. The Company's advisory segment includes Westwood Management and Westwood International, and encompasses three distinct investment teams: the United States Value Team, the Global Convertible Securities Team, and the Global and Emerging Markets Equity Team. The Company, through Westwood Trust, provides fiduciary and investment services to high net worth individuals and families, non-profit endowments and foundations, public and private retirement plans and individual retirement accounts (IRAs).

FINANCIAL RATIOS  of  Westwood Holdings Group (WHG)

Valuation Ratios
P/E Ratio 15.3
Price to Sales 2.9
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 7.5
Price to Free Cash Flow 7.8
Growth Rates
Sales Growth Rate -6.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
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 12.7%
Ret/ On Assets - 3 Yr. Avg. 16.9%
Return On Total Capital 16.4%
Ret/ On T. Cap. - 3 Yr. Avg. 21.9%
Return On Equity 16.4%
Return On Equity - 3 Yr. Avg. 21.9%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 30.1%
EBITDA Margin - 3 Yr. Avg. 34.2%
Operating Margin 27.6%
Oper. Margin - 3 Yr. Avg. 32.3%
Pre-Tax Margin 27.6%
Pre-Tax Margin - 3 Yr. Avg. 32.3%
Net Profit Margin 18.7%
Net Profit Margin - 3 Yr. Avg. 21.1%
Effective Tax Rate 32.4%
Eff/ Tax Rate - 3 Yr. Avg. 34.6%
Payout Ratio 82.6%

WHG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WHG stock intrinsic value calculation we used $133.785 million for the last fiscal year's total revenue generated by Westwood Holdings Group. The default revenue input number comes from 0001 income statement of Westwood Holdings Group. 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 WHG 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 WHG is calculated based on our internal credit rating of Westwood Holdings Group, 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 Westwood Holdings Group.
    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 WHG stock the variable cost ratio is equal to 72.4%.

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 WHG 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 Westwood Holdings Group.

Corporate tax rate of 27% is the nominal tax rate for Westwood Holdings Group. 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 WHG 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 WHG are equal to 21%.

Life of production assets of 17.8 years is the average useful life of capital assets used in Westwood Holdings Group 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 WHG is equal to 0.8%. 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 - $156.396 million for Westwood Holdings Group - 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 9.027 million for Westwood Holdings Group 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 Westwood Holdings Group at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ Westwood Holdings: 3Q Earnings Snapshot   [Oct-24-18 06:41PM  Associated Press]
▶ 5 Stocks With Falling Prices and Growing Yields   [Sep-25-18 04:50PM  GuruFocus.com]
▶ Westwood Holdings: 2Q Earnings Snapshot   [Jul-25-18 06:57PM  Associated Press]
▶ May Top Financial Dividend Stock   [May-17-18 01:02PM  Simply Wall St.]
▶ 7 Under-the-Radar Financial Stock Favorites   [May-10-18 05:00PM  TheStreet.com]
▶ Westwood Holdings: 1Q Earnings Snapshot   [05:46PM  Associated Press]
▶ Westwood Holdings posts 4Q profit   [05:01AM  Associated Press]
▶ NYSE Favorite Dividend Stocks   [Jan-23-18 08:02AM  Simply Wall St.]
▶ Top Dividend Yielding Stocks To Profit From   [08:02AM  Simply Wall St.]
▶ Westwood Holdings posts 3Q profit   [Oct-25-17 07:08PM  Associated Press]
▶ Westwood Holdings Group, Inc. Settles Lawsuit   [Oct-19-17 05:00PM  GlobeNewswire]
▶ Westwood Holdings posts 2Q profit   [Jul-27-17 02:56PM  Associated Press]
▶ Westwood Trust Launches Select Equity Tax Managed Strategy   [May-04-17 06:02PM  GlobeNewswire]
▶ Westwood Holdings posts 1Q profit   [Apr-26-17 06:34PM  Associated Press]
▶ Westwood Holdings posts 4Q profit   [05:18PM  Associated Press]
▶ Westwood Funds Launches Low Volatility Equity Fund   [Jan-05-17 03:45PM  GlobeNewswire]

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