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GFI Group (FRA:GDH1) Earnings Power Value (EPV) : €45.89 (As of Sep15)


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What is GFI Group Earnings Power Value (EPV)?

As of Sep15, GFI Group's earnings power value is €45.89. *

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

Margin of Safety is 88.21

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future. Assumption: Current profitability is sustainable.


GFI Group Earnings Power Value (EPV) Historical Data

The historical data trend for GFI Group's Earnings Power Value (EPV) can be seen below:

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* Premium members only.

GFI Group Earnings Power Value (EPV) Chart

GFI Group Annual Data
Trend Dec05 Dec06 Dec07 Dec08 Dec09 Dec10 Dec11 Dec12 Dec13 Dec14
Earnings Power Value (EPV)
Get a 7-Day Free Trial Premium Member Only Premium Member Only 12.14 14.18 13.25 48.29 -

GFI Group Quarterly Data
Dec10 Mar11 Jun11 Sep11 Dec11 Mar12 Jun12 Sep12 Dec12 Mar13 Jun13 Sep13 Dec13 Mar14 Jun14 Sep14 Dec14 Mar15 Jun15 Sep15
Earnings Power Value (EPV) Get a 7-Day Free Trial Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only Premium Member Only 56.92 - - - -

Competitive Comparison of GFI Group's Earnings Power Value (EPV)

For the Capital Markets subindustry, GFI Group's Earnings Power Value (EPV), along with its competitors' market caps and Earnings Power Value (EPV) data, can be viewed below:

* Competitive companies are chosen from companies within the same industry, with headquarter located in same country, with closest market capitalization; x-axis shows the market cap, and y-axis shows the term value; the bigger the dot, the larger the market cap. Note that "N/A" values will not show up in the chart.


GFI Group's Earnings Power Value (EPV) Distribution in the Capital Markets Industry

For the Capital Markets industry and Financial Services sector, GFI Group's Earnings Power Value (EPV) distribution charts can be found below:

* The bar in red indicates where GFI Group's Earnings Power Value (EPV) falls into.



GFI Group Earnings Power Value (EPV) Calculation

Earnings Power Value also known as just Earnings Power is a valuation technique popularised by Bruce Greenwald, an authority on value investing at Columbia University. It is arguably a better way to analyze stocks than Discounted Cash Flow analysis that relies on highly speculative growth assumptions many years into the future.

The basic concept of EPV is that one should value a stock based on the current free cash flow of a company and not on future projections which may, or may not, come true. This valuation tool excludes the potential growth that a company may have so that needs to be looked at separately. Since future growth is excluded from the analysis, only the maintenance capital expenditures are subtracted from after-tax EBIT (earnings before interest and taxes) and growth capex is ignored.

GFI Group's "Earning Power" Calculation:

Average of Last 20 Quarters Last Quarter
Revenue 697.0
DDA 26.8
Operating Margin % 6.23
SGA * 25% 132.8
Tax Rate % -232.22
Maintenance Capex 11.7
Cash and Cash Equivalents 114.8
Short-Term Debt 66.8
Long-Term Debt 213.8
Shares Outstanding (Diluted) 127.8

1. Start with "Earnings" not including accounting adjustments (one-time charges not excluded unless policy has changed). "Earnings" are "Operating Income.

2. Look at average margins over a business/Industry cycle: Average Operating Margin = 6.23%

To normalize margins and eliminate the effects on profitability of valuing the firm at different points in the business cycle, it is usually best to take a long-term average of operating margins. Ideally this would be as long as 10 years and include at least one economic downturn. However, since most of companies do not have as long as 10-year history, here GuruFocus uses the latest 5 years data to do the calculation. To smooth out unusual years but reflect recent developments, we take an average of the 5 year margin.

3. Multiply average margins by sustainable revenues and then adjust for maintenance SGA. This yields "normalized" EBIT:

To be conservative, GuruFocus uses an average of the 5 year revenues as the sustainable revenue.
EPV analysis recognises that part of SG&A expenditure is made to maintain and replace the existing assets, while part is made to grow sales. Since EPV is only interested in what it costs a going concern to maintain its existing asset base, it adds back a percentage of SG&A (between 15% and 50% - this is a matter of judgment and industry knowledge) to make up for the fact that some of this expenditure went to fund growth and shouldn't be accounted for. To start off, we assume 25% for the sake of prudence.
Sustainable Revenue = €697.0 Mil, Average Operating Margin = 6.23%, Average Adjusted SGA = 132.8,
therefore "Normalized" EBIT = Sustainable Revenue * Average Operating Margin + Average Adjusted SGA = 697.0 * 6.23% +132.8 = €176.25522908 Mil.

4. Multiply by one minus Average Tax Rate (NOPAT):

Same as average operating margin calculation, GuruFocus takes an average of the 5 years tax rates.
Average Tax Rate = -232.22%, and "Normalized" EBIT = €176.25522908 Mil,
therefore After-tax "Normalized" EBIT = "Normalized" EBIT * ( 1 - Average Tax Rate ) = 176.25522908 * ( 1 - -232.22% ) = €585.55688460187 Mil.

5. Add back Excess Depreciation (after tax at 1/2 average tax rate). This yields "normalized" Earnings:

Excess Depreciation = Average DDA * % of Excess Depreciation (after tax at 1/2 average tax rate) = 26.8 * 0.5 * -232.22% = €-31.141300542 Mil.
"Normalized" Earnings = After-tax "Normalized" EBIT + Excess Depreciation = 585.55688460187 + -31.141300542 = €554.41558405987 Mil.

6. Adjusted for Maintenance Capital Expenditure:

First, calculate the revenue change regarding to the previous year. If the revenue decreased from the previous year, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
Second, if the revenue increased from the previous year, then calculate the percentage of Net PPE as of corresponding Revenue.
Third, calculate Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was negative, then the Maintenance Capital Expenditure = Capital Expenditure (positive).
If [Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase] was positive, then the Maintenance Capital Expenditure = Capital Expenditure (positive) - percentage of Net PPE as of corresponding Revenue * revenue increase.
Fourth, GuruFocus uses an average of the 5 year maintenance capital expenditures as maintenance CAPEX.
GFI Group's Average Maintenance CAPEX = €11.7 Mil *.
* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.

7. Investors require a return of "WACC" for the risk they are taking: WACC = 9%

8. GFI Group's current cash and cash equivalent = €114.8 Mil.
GFI Group's current interest bearing debt = Long-Term Debt & Capital Lease Obligation + Short-Term Debt & Capital Lease Obligation = 213.8 + 66.8 = €280.665 Mil.
GFI Group's current Shares Outstanding (Diluted Average) = 127.8 Mil.

GFI Group's Earnings Power Value (EPV) for Sep15 is calculated as:

EPV = ( ( Norm. Earnings-Maint. CAPEX *) / WACC + CashandEquiv - Int. Bearing Debt ) / Shares Outstanding (Diluted Average)
= ( ( 554.41558405987 - 11.7)/ 9%+114.8-280.665 )/127.8
=45.89

Margin of Safety (EPV)=( Earnings Power Value (EPV)-Current Price )/Earnings Power Value (EPV)
=( 45.889809182702-5.41 )/45.889809182702
= 88.21%

* For Operating Data section: All numbers are indicated by the unit behind each term and all currency related amount are in USD.
* For other sections: All numbers are in millions except for per share data, ratio, and percentage. All currency related amount are indicated in the company's associated stock exchange currency.

* GuruFocus does not store EPV value into our database if Average Maintenance CAPEX is 0.


GFI Group  (FRA:GDH1) Earnings Power Value (EPV) Explanation

Assumption: Current profitability is sustainable.

Earnings power value (EPV) uses a very basic equation which assumes no growth, although it does rely on an assumption about the cost of capital as well as the fact that current earnings are sustainable. It also involves several adjustments to clean up the underlying Earnings figures.


Be Aware

Though using today's earnings in calculating Earnings Power Value, GuruFocus is normalizing these earnings to the business cycle. This eliminates the effects on profitability of valuing the firm at different points in the business cycle. This means that we are considering the average earnings over 5 years.


GFI Group Earnings Power Value (EPV) Related Terms

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GFI Group Business Description

Traded in Other Exchanges
N/A
Address
GFI Group Inc was incorporated under the laws of the State of Delaware in 2001. The Company provides wholesale brokerage services, clearing services and electronic execution and trading support products for financial markets. It provide brokerage and trade execution services, clearing services, market data and trading platform and other software products to institutional customers in markets for a range of fixed income, financial, equity and commodity instruments. The Company provides execution services for its institutional wholesale customers by either matching their trading needs with counterparties having reciprocal interests or directing their orders to an exchange or other trading venue. The Company offers its customers a hybrid brokerage approach, combining a range of telephonic and electronic trade execution services, depending on the nature of the products and the specific needs of its customers. The Company operates in five business segments: Americas Brokerage; Europe, the Middle East and Africa Brokerage; Asia Brokerage, Clearing and Backed Trading and All Other. Its brokerage operations provide brokerage services in four product categories: fixed income, financial, equity and commodity. It's Clearing and Backed Trading segment encompasses its clearing, risk management, settlement and other back-office services, as well as the capital the Company provide to start-up trading groups, small hedge funds, market-makers and individual traders. The All Other segment captures revenues and costs that are not directly assignable to the brokerage or clearing and backed trading operating business segments, consisting of Company's corporate business activities and operations and commercial revenues from sales and licensing of trading systems software, analytic and market data. The Company offers products and services including Fixed Income Products, Financial Products, Equity Products, Commodity Products, Clearing and Settlement Services, and Software, Analytic and Market Data. The Company's competitors include ICAP Plc, Tullett Prebon Plc, CME, the Chicago Board Options Exchange, and Eurex and Euronext. The Company's businesses are subject to extensive regulation by government and self-regulatory organizations both in the United States and abroad.

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