SWM - Mark Moore

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Valuation AnalysisThere are two valuation analyses to perform in order to determine Schweitzer-Mauduit’svalue; the methods of comparables and the intrinsic valuation. The methods of comparables area set of ratios used to develop current stock prices. However, the analysis is not back by theory,therefore cannot be relied on too much. We calculated average industry prices, excluding SWM,and set SWM equal to that in order to derive its comparable price. This was performed similarto other ratios. The comparables prices were then compared to SWM’s observed price of $50.95on November 2, 2009. We used a 15% fairly valued interval, meaning anywhere in between$43.31 and $58.60 is considered fairly valued. Any price above $58.60 would mean SWM isundervalued, and any price below $43.31 would mean SWM is overvalued. The methods ofcomparables have many flaws, which is why we were not able to calculate some of the ratios.This was also because most of SWM’s competitors did not have numbers to go off of, or theywere negative. Usually because of this we would not take into account what the ratios havedetermined the value to be, but they ended up being true to SWM’s value as being highlyovervalued.The second valuation analysis is the intrinsic analysis, which is much more precisecompared to the methods of comparables. Each model is backed by financial theory and servesas a sufficient way to determine SWM’s value. The five models analyzed include the discounteddividends model, discounted free cash flows model, residual income model, long run residualincome model, and the abnormal earnings growth model. The discounted dividends and thediscounted free cash flows models both were the least reliable because they use dividends asthe main figure to forecast. Dividends are paid on management’s discretion; therefore it is hardfor one outside the company to forecast. The next three models are of high explanatory power,which is where most would determine a firm’s value. All of the models create a model shareprice that is brought up to time consistent prices as of November 2, 2009. These prices arecompared to the observed price of $50.95 the same way they were compared in the methods ofcomparables; a 15% fairly valued interval. In the case of SWM, all five models have shown thefirm to be highly overvalued. This being said, we are confident in saying that Schweitzer-Mauduit is an overvalued company.16
Company OverviewSchweitzer-Mauduit International, Inc. was formed as a wholly owned subsidiary in theKimberly-Clark Corporation on December 1, 1995. They produce tobacco paper and is the“world's largest supplier of fine papers to the tobacco industry,” (SWN 10-k). The basis ofSchweitzer-Mauduit is the 9 mills it has acquired nationwide since Peter J. Schweitzer startedimporting cigarette paper into the United States from France in 1908. These 9 mills have beenleading paper manufacturers, as well as producing other products over the past 464 years.Headquartered in Alpharetta, Georgia, Schweitzer-Mauduit has extended their operations fromthe United States to France, Brazil, Indonesia, the Philippines and China. Stemming fromcigarette paper, Schweitzer-Mauduit also manufactures premium specialty paper for printing,writing, labeling, and even paper for drinking straws.Peter J. Schweitzer’s family-owned business started in New Jersey by importing cigarettepaper from France and expanding the manufacturing to specialty paper for various productsover a decade later. Schweitzer led the tobacco paper industry in North America to becomewhat it is today.The two main divisions of Schweitzer-Mauduit include tobacco industry products andcommercial and industrial products. Within the divisions, several raw materials must bepurchased to manufacture their products that include wood pulp, tobacco leaf by-products,cellulose fibers, flax straw and calcium carbonate. Schweitzer-Mauduit is now dominating thepaper manufacturing industry from all over the world. The tobacco industry contributed to 90percent of their net sales from 2006 through 2008. Their major customers include Philip MorrisUSA Inc., Philip Morris International, British American Tobacco (BAT), and JTI. Thesecompanies accounted for 60 percent of the Company’s 2008 net sales. “Since January 1, 1993,the company has been the single source of supply of cigarette papers to Altria Group's U.S.cigarette manufacturing operations, or Philip Morris USA,” (Schweitzer-Mauduit 10-K). They areknown for being the largest cigarette and cigar related paper manufacturers in the industry(fundinguniverse.com). Schweitzer-Mauduit’s main competitors include Universal Corporation(UVV), and Alliance One International, Inc. (AOI), which are mainly leaf tobacco manufacturers.17
Page 1 and 2: Schweitzer-Mauduit International,
Page 3 and 4: Buyers Willingness to Switch……
Page 5 and 6: Net Sales/Accounts Receivable……
Page 7: Enterprise/EBITDA………………
Page 11 and 12: Competitive ForceRivalry Among Exis
Page 13 and 14: they spend money devoted to R & D.
Page 15: The next part of our financial anal
Page 19 and 20: table also shows that SWM’s sales
Page 21 and 22: Competitive ForceDegree of Competit
Page 23 and 24: The size of the firms in the indust
Page 25 and 26: Total Assets 3500 3000 2500 2000 1
Page 27 and 28: Excess CapacityExcess capacity aris
Page 29 and 30: scale in the industry is vital to a
Page 31 and 32: 1400 1200 1000 800 600 400 200 0 Pr
Page 33 and 34: RelationshipsThe relationships of t
Page 35 and 36: its product (indirectly), the threa
Page 37 and 38: it is easy for them to dictate the
Page 39 and 40: As far as the purpose of tobacco pa
Page 41 and 42: Volume per BuyersThe volume a buyer
Page 43 and 44: (SWM 10-K). Considering the overall
Page 45 and 46: Cost LeadershipCost leadership mean
Page 47 and 48: likely for the customer to return a
Page 49 and 50: of pride in being the “the world
Page 51 and 52: educing product costs. The governme
Page 53 and 54: It is evident when reading the tabl
Page 55 and 56: The second of the two accounting po
Page 57 and 58: SWM for the most part does a suffic
Page 59 and 60: Schweitzer-Mauduit and its competit
Page 61 and 62: their economic activity. If firms h
Page 63 and 64: contracts and, to a lesser extent,
Page 65 and 66: The ability to do this gives firms
Page 67 and 68:
their sales in U.S. dollars to mini
Page 69 and 70:
Schweitzer Mauduit 2004 2005 2006 2
Page 71 and 72:
ConclusionThe accounting strategy a
Page 73 and 74:
Schweitzer-Mauduit2004 2007 2006 20
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than capitalized. The only reason t
Page 77 and 78:
5 Δ Sales/Cash from Sales 4 3 2
Page 79 and 80:
Δ Net Sales/Accounts Receivable
Page 81 and 82:
Δ Net Sales/Inventory 30 25 20 1
Page 83 and 84:
0.3 CFFO/OI 0.25 0.2 0.15 0.1 0.05
Page 85 and 86:
12 CFFO/NOA 10 8 6 4 2 SWM AOI UVV
Page 87 and 88:
200 Δ Asset Turnover 150 100 50
Page 89 and 90:
4 Δ Total Accurals/ Sales 2 0 -
Page 91 and 92:
ConclusionThe ratios examined above
Page 93:
of a firm’s financials. The firm
Page 96 and 97:
Restated Income Statement For ye
Page 98 and 99:
Research and Development Schweitz
Page 100 and 101:
New taxes on Net IncomeIn millions
Page 102 and 103:
Amortized Goodwill
Page 104 and 105:
obligations in the past five years,
Page 106 and 107:
1.200 Quick Asset Ratio 1.000 0.8
Page 108 and 109:
2004 2005 2006 2007 2008SWM 25.9881
Page 110 and 111:
comparison. A small ratio shows inv
Page 112 and 113:
6 Inventory Turnover 5 4 3 2 1 SWM
Page 114 and 115:
2004 2005 2006 2007 2008SWM 79.5248
Page 116 and 117:
Profitability Ratio AnalysisProfita
Page 118 and 119:
Operating Expense RatioThe operatin
Page 120 and 121:
15 Operating Pro`it Margin 10 5 0
Page 122 and 123:
Net Profit Margin 2004 2005 2006 20
Page 124 and 125:
Return on AssetsThe return on asset
Page 126 and 127:
40 Return on Equity 20 0 -20 -40
Page 128 and 129:
Internal Growth Rate 2004 2005 2006
Page 130 and 131:
industry average as much as it did
Page 132 and 133:
Debt/Equity RatioThe debt-to-equity
Page 134 and 135:
Schweitzer-Mauduit is at a low 1.61
Page 136 and 137:
Mauduit has stayed pretty stable th
Page 138 and 139:
it looks to keep declining, meaning
Page 140:
Gross profit is the next step in fo
Page 143 and 144:
Balance Sheet143
Page 145 and 146:
liabilities, we take the already fo
Page 147 and 148:
Statement of Cash FlowsThe statemen
Page 149 and 150:
Estimating Cost of CapitalCost of E
Page 151 and 152:
Size-Adjusted Cost of EquityThe CAP
Page 153 and 154:
The table below shows the liability
Page 155 and 156:
The cost of capital is the interest
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declared overvalued. Prices falling
Page 159 and 160:
P/E ForecastedCompany PPS EPS P/E F
Page 161 and 162:
Dividends/Price RatioCompany PPS DP
Page 163 and 164:
Price/EBITDACompany Market Cap EBIT
Page 165 and 166:
Price/Free Cash FlowCompany Market
Page 167 and 168:
November 2, 2009 we had to calculat
Page 169 and 170:
Schweitzer-‐Mauduit's Free Ca
Page 171 and 172:
Now that we have calculated the tot
Page 173 and 174:
subtracting the normal earnings for
Page 175 and 176:
Long-Run Residual Income Valuation
Page 177 and 178:
Cost of EquityReturn on Equity-0.14
Page 179 and 180:
Growth RateReturn on Equity-0.14 -0
Page 181 and 182:
Return on Equity RestatedGrowth Rat
Page 183 and 184:
Once the industry analysis had been
Page 185 and 186:
AppendicesSales Manipulation Diagno
Page 187 and 188:
CFFO/ OI Change 2004 2005 2006
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UVV 2.170832 2.687889 2.78523 2
Page 191 and 192:
Capital Structure RatiosDebt to Equ
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3MonthRatesSUMMARY OUTPUT Regressio
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Coefficients Intercept 0.035115 X
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Total 71 0.987349 Intercept X Vari
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Total 35 0.775347 Intercept X Vari
Page 201 and 202:
Total 59 1 2 0.939751 Coefficients
Page 203 and 204:
Total 23 3 5 0.624714 Coefficients
Page 205 and 206:
Residual Total 46 47 0.624852 0.848
Page 207 and 208:
Residual Total 70 71 1 1 6 0.7615
Page 209 and 210:
Residual Total 34 35 0.519917 0.775
Page 211 and 212:
Price Earnings Growth(P.E.G.)Compan
Page 213 and 214:
Discounted Free Cash Flowt 0 1 2 3
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Price(11/1/1988)Initial Costof Equi
Page 217 and 218:
Figures in Millions (Except per S
Page 219 and 220:
Growth Rate RestatedReturn on Equit
Page 221 and 222:
Return on EquityGrowth RateKe -30%
Page 223 and 224:
Schweitzer-‐Mauduit Restated
Page 225:
Heakal, Reem. "What Are Economies o
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SWM - Mark Moore

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