Intrinsic value of Genworth MI Canada Inc. - MIC

Previous Close

$35.99

  Intrinsic Value

$85.61

stock screener

  Rating & Target

str. buy

+138%

  Value-price divergence*

+135%

Previous close

$35.99

 
Intrinsic value

$85.61

 
Up/down potential

+138%

 
Rating

str. buy

 
Value-price divergence*

+135%

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

We calculate the intrinsic value of MIC 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 3.3

 

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, %
  9.87
  10.70
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.45
  7.21
  6.99
  6.79
  6.61
  6.45
  6.30
  6.17
  6.06
  5.95
  5.86
  5.77
  5.69
  5.62
  5.56
  5.51
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
Revenue, $m
  0
  752
  828
  907
  990
  1,077
  1,167
  1,261
  1,358
  1,460
  1,565
  1,674
  1,788
  1,906
  2,029
  2,157
  2,290
  2,428
  2,573
  2,724
  2,881
  3,045
  3,216
  3,395
  3,582
  3,777
  3,982
  4,195
  4,419
  4,653
  4,898
Variable operating expenses, $m
 
  79
  87
  95
  103
  112
  122
  131
  142
  152
  163
  173
  185
  197
  210
  223
  237
  251
  266
  282
  298
  315
  332
  351
  370
  390
  412
  434
  457
  481
  506
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
  103
  79
  87
  95
  103
  112
  122
  131
  142
  152
  163
  173
  185
  197
  210
  223
  237
  251
  266
  282
  298
  315
  332
  351
  370
  390
  412
  434
  457
  481
  506
Operating income, $m
  575
  673
  741
  812
  887
  965
  1,045
  1,129
  1,217
  1,308
  1,402
  1,501
  1,603
  1,709
  1,819
  1,934
  2,053
  2,177
  2,307
  2,442
  2,583
  2,730
  2,884
  3,044
  3,212
  3,387
  3,570
  3,762
  3,962
  4,172
  4,392
EBITDA, $m
  641
  676
  745
  816
  891
  969
  1,050
  1,134
  1,222
  1,313
  1,407
  1,506
  1,608
  1,714
  1,825
  1,940
  2,060
  2,184
  2,314
  2,450
  2,591
  2,739
  2,893
  3,053
  3,222
  3,397
  3,581
  3,773
  3,974
  4,185
  4,406
Interest expense (income), $m
  22
  22
  38
  55
  72
  91
  110
  130
  151
  172
  195
  218
  242
  268
  294
  321
  349
  379
  410
  442
  475
  510
  546
  584
  624
  666
  709
  754
  802
  851
  903
Earnings before tax, $m
  566
  651
  703
  758
  815
  874
  936
  1,000
  1,066
  1,135
  1,207
  1,283
  1,361
  1,441
  1,525
  1,613
  1,704
  1,799
  1,897
  2,000
  2,108
  2,220
  2,337
  2,460
  2,587
  2,721
  2,861
  3,007
  3,161
  3,321
  3,489
Tax expense, $m
  149
  176
  190
  205
  220
  236
  253
  270
  288
  307
  326
  346
  367
  389
  412
  435
  460
  486
  512
  540
  569
  599
  631
  664
  699
  735
  772
  812
  853
  897
  942
Net income, $m
  417
  475
  513
  553
  595
  638
  683
  730
  778
  829
  881
  937
  993
  1,052
  1,113
  1,177
  1,244
  1,313
  1,385
  1,460
  1,539
  1,621
  1,706
  1,795
  1,889
  1,986
  2,089
  2,195
  2,307
  2,424
  2,547

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
  0
Total assets, $m
  6,612
  7,298
  8,037
  8,810
  9,616
  10,457
  11,332
  12,241
  13,187
  14,170
  15,192
  16,253
  17,356
  18,504
  19,697
  20,939
  22,231
  23,578
  24,981
  26,443
  27,969
  29,561
  31,224
  32,960
  34,775
  36,672
  38,655
  40,731
  42,902
  45,175
  47,555
Adjusted assets (=assets-cash), $m
  6,612
  7,298
  8,037
  8,810
  9,616
  10,457
  11,332
  12,241
  13,187
  14,170
  15,192
  16,253
  17,356
  18,504
  19,697
  20,939
  22,231
  23,578
  24,981
  26,443
  27,969
  29,561
  31,224
  32,960
  34,775
  36,672
  38,655
  40,731
  42,902
  45,175
  47,555
Revenue / Adjusted assets
  0.000
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
  0.103
Average production assets, $m
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
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
  0
Total debt, $m
  433
  739
  1,071
  1,417
  1,778
  2,155
  2,547
  2,954
  3,378
  3,818
  4,276
  4,751
  5,246
  5,760
  6,294
  6,850
  7,430
  8,033
  8,661
  9,317
  10,000
  10,714
  11,458
  12,236
  13,049
  13,899
  14,788
  15,717
  16,690
  17,708
  18,775
Total liabilities, $m
  2,963
  3,269
  3,601
  3,947
  4,308
  4,685
  5,077
  5,484
  5,908
  6,348
  6,806
  7,281
  7,776
  8,290
  8,824
  9,380
  9,960
  10,563
  11,191
  11,847
  12,530
  13,244
  13,988
  14,766
  15,579
  16,429
  17,318
  18,247
  19,220
  20,238
  21,305
Total equity, $m
  3,649
  4,028
  4,436
  4,863
  5,308
  5,772
  6,255
  6,757
  7,279
  7,822
  8,386
  8,972
  9,581
  10,214
  10,873
  11,558
  12,272
  13,015
  13,789
  14,597
  15,439
  16,318
  17,236
  18,194
  19,196
  20,243
  21,338
  22,483
  23,682
  24,937
  26,250
Total liabilities and equity, $m
  6,612
  7,297
  8,037
  8,810
  9,616
  10,457
  11,332
  12,241
  13,187
  14,170
  15,192
  16,253
  17,357
  18,504
  19,697
  20,938
  22,232
  23,578
  24,980
  26,444
  27,969
  29,562
  31,224
  32,960
  34,775
  36,672
  38,656
  40,730
  42,902
  45,175
  47,555
Debt-to-equity ratio
  0.119
  0.180
  0.240
  0.290
  0.330
  0.370
  0.410
  0.440
  0.460
  0.490
  0.510
  0.530
  0.550
  0.560
  0.580
  0.590
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.660
  0.670
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
  0.720
Adjusted equity ratio
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552
  0.552

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  417
  475
  513
  553
  595
  638
  683
  730
  778
  829
  881
  937
  993
  1,052
  1,113
  1,177
  1,244
  1,313
  1,385
  1,460
  1,539
  1,621
  1,706
  1,795
  1,889
  1,986
  2,089
  2,195
  2,307
  2,424
  2,547
Depreciation, amort., depletion, $m
  66
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Funds from operations, $m
  643
  478
  517
  557
  599
  642
  687
  734
  783
  834
  887
  941
  998
  1,057
  1,119
  1,183
  1,250
  1,320
  1,392
  1,468
  1,547
  1,629
  1,715
  1,805
  1,899
  1,997
  2,100
  2,207
  2,320
  2,437
  2,560
Change in working capital, $m
  99
  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
  544
  478
  517
  557
  599
  642
  687
  734
  783
  834
  887
  941
  998
  1,057
  1,119
  1,183
  1,250
  1,320
  1,392
  1,468
  1,547
  1,629
  1,715
  1,805
  1,899
  1,997
  2,100
  2,207
  2,320
  2,437
  2,560
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -5
  -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
  -3
Cash from investing activities, $m
  -654
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
Free cash flow, $m
  -110
  475
  514
  553
  595
  638
  683
  730
  778
  829
  881
  935
  992
  1,051
  1,112
  1,176
  1,242
  1,311
  1,383
  1,459
  1,537
  1,619
  1,704
  1,793
  1,887
  1,984
  2,086
  2,193
  2,305
  2,422
  2,544
Issuance/(repayment) of debt, $m
  0
  306
  331
  346
  361
  377
  392
  408
  424
  440
  458
  476
  494
  514
  535
  556
  579
  603
  629
  655
  684
  713
  745
  778
  813
  850
  889
  930
  973
  1,018
  1,066
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  1
  306
  331
  346
  361
  377
  392
  408
  424
  440
  458
  476
  494
  514
  535
  556
  579
  603
  629
  655
  684
  713
  745
  778
  813
  850
  889
  930
  973
  1,018
  1,066
Total cash flow (excl. dividends), $m
  -109
  782
  845
  900
  956
  1,015
  1,075
  1,137
  1,202
  1,269
  1,339
  1,411
  1,486
  1,565
  1,647
  1,732
  1,821
  1,915
  2,012
  2,114
  2,221
  2,332
  2,449
  2,571
  2,700
  2,834
  2,975
  3,123
  3,278
  3,440
  3,610
Retained Cash Flow (-), $m
  -229
  -379
  -408
  -427
  -445
  -464
  -483
  -502
  -522
  -543
  -564
  -586
  -609
  -633
  -659
  -685
  -714
  -743
  -774
  -807
  -842
  -879
  -918
  -959
  -1,002
  -1,047
  -1,095
  -1,145
  -1,199
  -1,255
  -1,314
Prev. year cash balance distribution, $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 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
 
  402
  437
  473
  511
  551
  592
  635
  680
  726
  775
  825
  877
  932
  988
  1,047
  1,108
  1,171
  1,238
  1,306
  1,378
  1,453
  1,531
  1,613
  1,698
  1,787
  1,880
  1,977
  2,079
  2,185
  2,296
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
 
  386
  400
  412
  421
  427
  430
  429
  425
  417
  406
  392
  374
  354
  332
  307
  282
  255
  228
  201
  175
  150
  127
  106
  86
  70
  55
  42
  32
  24
  17
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

Genworth MI Canada Inc., through its subsidiaries, operates as a private residential mortgage insurer in Canada. It underwrites mortgage default insurance to residential mortgage lenders, brokers, homebuyers, and realtors. The company was founded in 1995 and is headquartered in Oakville, Canada. Genworth MI Canada Inc. is a subsidiary of Genworth Financial Inc.

FINANCIAL RATIOS  of  Genworth MI Canada Inc. (MIC)

Valuation Ratios
P/E Ratio 7.9
Price to Sales 4.9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow 6.1
Growth Rates
Sales Growth Rate 9.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 25%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 11.9%
Total Debt to Equity 11.9%
Interest Coverage 27
Management Effectiveness
Return On Assets 6.7%
Ret/ On Assets - 3 Yr. Avg. 6.8%
Return On Total Capital 10.5%
Ret/ On T. Cap. - 3 Yr. Avg. 10.5%
Return On Equity 11.8%
Return On Equity - 3 Yr. Avg. 11.9%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 96.3%
EBITDA Margin - 3 Yr. Avg. 98.8%
Operating Margin 84.8%
Oper. Margin - 3 Yr. Avg. 88.4%
Pre-Tax Margin 83.4%
Pre-Tax Margin - 3 Yr. Avg. 85.6%
Net Profit Margin 61.4%
Net Profit Margin - 3 Yr. Avg. 63.3%
Effective Tax Rate 26.3%
Eff/ Tax Rate - 3 Yr. Avg. 26%
Payout Ratio 37.4%

MIC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MIC stock intrinsic value calculation we used $679 million for the last fiscal year's total revenue generated by Genworth MI Canada Inc.. The default revenue input number comes from 2016 income statement of Genworth MI Canada Inc.. 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 MIC stock valuation model: a) initial revenue growth rate of 10.7% 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 MIC is calculated based on our internal credit rating of Genworth MI Canada Inc., 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 Genworth MI Canada Inc..
    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 MIC stock the variable cost ratio is equal to 10.5%.

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 MIC 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 5.1% for Genworth MI Canada Inc..

Corporate tax rate of 27% is the nominal tax rate for Genworth MI Canada Inc.. 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 MIC 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 MIC are equal to 1.4%.

Life of production assets of 0.3 years is the average useful life of capital assets used in Genworth MI Canada Inc. 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 MIC is equal to 0%. 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 - $3649 million for Genworth MI Canada Inc. - 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 91.079 million for Genworth MI Canada Inc. 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 Genworth MI Canada Inc. at the current share price and the inputted number of shares is $3.3 billion.

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Stock chart of MIC Financial statements of MIC
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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