Intrinsic value of Martinrea International Inc. - MRE

Previous Close

$11.54

  Intrinsic Value

$11.83

stock screener

  Rating & Target

hold

+2%

  Value-price divergence*

0%

Previous close

$11.54

 
Intrinsic value

$11.83

 
Up/down potential

+2%

 
Rating

hold

 
Value-price divergence*

0%

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

We calculate the intrinsic value of MRE 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 1.0

 

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, %
  2.61
  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
  3,968
  4,047
  4,140
  4,247
  4,366
  4,499
  4,644
  4,802
  4,973
  5,158
  5,356
  5,567
  5,793
  6,034
  6,290
  6,561
  6,849
  7,153
  7,475
  7,815
  8,174
  8,553
  8,952
  9,373
  9,817
  10,285
  10,777
  11,295
  11,840
  12,413
  13,016
Variable operating expenses, $m
 
  3,877
  3,967
  4,068
  4,183
  4,310
  4,449
  4,600
  4,764
  4,941
  5,131
  5,334
  5,550
  5,781
  6,025
  6,285
  6,561
  6,852
  7,161
  7,487
  7,831
  8,194
  8,576
  8,980
  9,405
  9,853
  10,324
  10,820
  11,342
  11,892
  12,469
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
  3,809
  3,877
  3,967
  4,068
  4,183
  4,310
  4,449
  4,600
  4,764
  4,941
  5,131
  5,334
  5,550
  5,781
  6,025
  6,285
  6,561
  6,852
  7,161
  7,487
  7,831
  8,194
  8,576
  8,980
  9,405
  9,853
  10,324
  10,820
  11,342
  11,892
  12,469
Operating income, $m
  159
  170
  174
  178
  183
  189
  195
  202
  209
  217
  225
  234
  243
  253
  264
  276
  288
  300
  314
  328
  343
  359
  376
  394
  412
  432
  453
  474
  497
  521
  547
EBITDA, $m
  311
  325
  333
  341
  351
  362
  373
  386
  400
  415
  430
  447
  466
  485
  506
  527
  550
  575
  601
  628
  657
  687
  720
  753
  789
  827
  866
  908
  952
  998
  1,046
Interest expense (income), $m
  22
  24
  25
  27
  28
  30
  32
  34
  36
  39
  41
  44
  47
  50
  54
  57
  61
  65
  69
  74
  79
  84
  89
  95
  101
  107
  114
  121
  128
  136
  144
Earnings before tax, $m
  133
  146
  149
  152
  155
  159
  163
  168
  173
  178
  184
  190
  196
  203
  211
  218
  227
  235
  244
  254
  264
  275
  287
  299
  311
  325
  339
  353
  369
  385
  403
Tax expense, $m
  41
  39
  40
  41
  42
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  66
  69
  71
  74
  77
  81
  84
  88
  91
  95
  100
  104
  109
Net income, $m
  92
  106
  108
  111
  113
  116
  119
  123
  126
  130
  134
  139
  143
  148
  154
  159
  165
  172
  178
  186
  193
  201
  209
  218
  227
  237
  247
  258
  269
  281
  294

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  59
  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
  2,468
  2,457
  2,514
  2,579
  2,651
  2,731
  2,820
  2,916
  3,020
  3,132
  3,252
  3,380
  3,518
  3,664
  3,819
  3,984
  4,158
  4,343
  4,538
  4,745
  4,963
  5,193
  5,436
  5,691
  5,961
  6,244
  6,543
  6,858
  7,189
  7,537
  7,903
Adjusted assets (=assets-cash), $m
  2,409
  2,457
  2,514
  2,579
  2,651
  2,731
  2,820
  2,916
  3,020
  3,132
  3,252
  3,380
  3,518
  3,664
  3,819
  3,984
  4,158
  4,343
  4,538
  4,745
  4,963
  5,193
  5,436
  5,691
  5,961
  6,244
  6,543
  6,858
  7,189
  7,537
  7,903
Revenue / Adjusted assets
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
  1.647
Average production assets, $m
  1,309
  1,336
  1,366
  1,401
  1,441
  1,485
  1,532
  1,585
  1,641
  1,702
  1,767
  1,837
  1,912
  1,991
  2,076
  2,165
  2,260
  2,360
  2,467
  2,579
  2,697
  2,822
  2,954
  3,093
  3,240
  3,394
  3,556
  3,727
  3,907
  4,096
  4,295
Working capital, $m
  198
  170
  174
  178
  183
  189
  195
  202
  209
  217
  225
  234
  243
  253
  264
  276
  288
  300
  314
  328
  343
  359
  376
  394
  412
  432
  453
  474
  497
  521
  547
Total debt, $m
  721
  725
  762
  805
  854
  908
  967
  1,031
  1,100
  1,175
  1,255
  1,341
  1,433
  1,530
  1,634
  1,744
  1,861
  1,984
  2,115
  2,253
  2,398
  2,552
  2,714
  2,885
  3,065
  3,254
  3,454
  3,664
  3,885
  4,118
  4,362
Total liabilities, $m
  1,638
  1,642
  1,679
  1,722
  1,771
  1,825
  1,884
  1,948
  2,017
  2,092
  2,172
  2,258
  2,350
  2,447
  2,551
  2,661
  2,778
  2,901
  3,032
  3,170
  3,315
  3,469
  3,631
  3,802
  3,982
  4,171
  4,371
  4,581
  4,802
  5,035
  5,279
Total equity, $m
  830
  816
  835
  856
  880
  907
  936
  968
  1,003
  1,040
  1,080
  1,122
  1,168
  1,216
  1,268
  1,323
  1,381
  1,442
  1,507
  1,575
  1,648
  1,724
  1,805
  1,889
  1,979
  2,073
  2,172
  2,277
  2,387
  2,502
  2,624
Total liabilities and equity, $m
  2,468
  2,458
  2,514
  2,578
  2,651
  2,732
  2,820
  2,916
  3,020
  3,132
  3,252
  3,380
  3,518
  3,663
  3,819
  3,984
  4,159
  4,343
  4,539
  4,745
  4,963
  5,193
  5,436
  5,691
  5,961
  6,244
  6,543
  6,858
  7,189
  7,537
  7,903
Debt-to-equity ratio
  0.869
  0.890
  0.910
  0.940
  0.970
  1.000
  1.030
  1.060
  1.100
  1.130
  1.160
  1.190
  1.230
  1.260
  1.290
  1.320
  1.350
  1.380
  1.400
  1.430
  1.460
  1.480
  1.500
  1.530
  1.550
  1.570
  1.590
  1.610
  1.630
  1.650
  1.660
Adjusted equity ratio
  0.320
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332
  0.332

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  92
  106
  108
  111
  113
  116
  119
  123
  126
  130
  134
  139
  143
  148
  154
  159
  165
  172
  178
  186
  193
  201
  209
  218
  227
  237
  247
  258
  269
  281
  294
Depreciation, amort., depletion, $m
  152
  155
  159
  163
  168
  173
  178
  184
  191
  198
  206
  214
  222
  232
  241
  252
  263
  274
  287
  300
  314
  328
  344
  360
  377
  395
  414
  433
  454
  476
  499
Funds from operations, $m
  172
  262
  267
  274
  281
  289
  297
  307
  317
  328
  340
  352
  366
  380
  395
  411
  428
  446
  465
  485
  507
  529
  553
  578
  604
  632
  661
  691
  724
  758
  793
Change in working capital, $m
  -88
  3
  4
  4
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Cash from operations, $m
  260
  258
  263
  269
  276
  283
  291
  300
  310
  320
  331
  343
  356
  370
  384
  400
  416
  433
  452
  471
  492
  513
  536
  560
  585
  612
  640
  670
  701
  734
  768
Maintenance CAPEX, $m
  0
  -152
  -155
  -159
  -163
  -168
  -173
  -178
  -184
  -191
  -198
  -206
  -214
  -222
  -232
  -241
  -252
  -263
  -274
  -287
  -300
  -314
  -328
  -344
  -360
  -377
  -395
  -414
  -433
  -454
  -476
New CAPEX, $m
  -227
  -27
  -31
  -35
  -39
  -44
  -48
  -52
  -56
  -61
  -65
  -70
  -75
  -79
  -84
  -90
  -95
  -100
  -106
  -112
  -118
  -125
  -132
  -139
  -146
  -154
  -162
  -171
  -180
  -189
  -199
Cash from investing activities, $m
  -239
  -179
  -186
  -194
  -202
  -212
  -221
  -230
  -240
  -252
  -263
  -276
  -289
  -301
  -316
  -331
  -347
  -363
  -380
  -399
  -418
  -439
  -460
  -483
  -506
  -531
  -557
  -585
  -613
  -643
  -675
Free cash flow, $m
  21
  79
  77
  75
  73
  72
  71
  70
  69
  68
  68
  68
  68
  68
  68
  69
  69
  70
  71
  72
  73
  75
  76
  78
  79
  81
  83
  85
  88
  90
  93
Issuance/(repayment) of debt, $m
  21
  32
  38
  43
  48
  54
  59
  64
  69
  75
  80
  86
  92
  98
  104
  110
  117
  123
  131
  138
  146
  154
  162
  171
  180
  190
  200
  210
  221
  233
  245
Issuance/(repurchase) of shares, $m
  1
  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  
  22
  32
  38
  43
  48
  54
  59
  64
  69
  75
  80
  86
  92
  98
  104
  110
  117
  123
  131
  138
  146
  154
  162
  171
  180
  190
  200
  210
  221
  233
  245
Total cash flow (excl. dividends), $m
  40
  111
  115
  118
  122
  126
  130
  134
  138
  143
  148
  154
  160
  166
  172
  179
  186
  194
  202
  210
  219
  228
  238
  248
  259
  271
  283
  295
  309
  323
  337
Retained Cash Flow (-), $m
  -54
  -17
  -19
  -21
  -24
  -27
  -29
  -32
  -35
  -37
  -40
  -43
  -46
  -48
  -52
  -55
  -58
  -61
  -65
  -69
  -72
  -76
  -81
  -85
  -89
  -94
  -99
  -104
  -110
  -116
  -122
Prev. year cash balance distribution, $m
 
  31
  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
 
  125
  96
  97
  98
  99
  100
  102
  104
  106
  109
  111
  114
  117
  121
  124
  128
  132
  137
  141
  147
  152
  157
  163
  170
  176
  183
  191
  199
  207
  216
Discount rate, %
 
  5.40
  5.67
  5.95
  6.25
  6.56
  6.89
  7.24
  7.60
  7.98
  8.38
  8.80
  9.24
  9.70
  10.18
  10.69
  11.23
  11.79
  12.38
  13.00
  13.65
  14.33
  15.04
  15.80
  16.59
  17.42
  18.29
  19.20
  20.16
  21.17
  22.23
PV of cash for distribution, $m
 
  118
  86
  81
  77
  72
  67
  63
  58
  53
  49
  44
  40
  35
  31
  27
  23
  20
  17
  14
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  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

Martinrea International Inc. is a Canada-based company engaged in the development and production of metal parts, assemblies and modules, fluid management systems and complex aluminum products focused primarily on the automotive sector. The Company's segments are North America, Europe and Rest of the World. It serves various vehicle manufacturers, as well as automotive suppliers and also serves other industrial sectors across the world. The Company's products are suspension and chassis metal components; body and structure metal components; aluminum components; chassis modules; fluid and air handling systems, and fabricated assemblies. It also provides custom parts and assemblies' production for lower volume assembly lines, such as bus, recreational vehicles, air conditioning systems, military applications and farm appliance manufacturing. It operates over 40 operating divisions in Canada, the United States, Mexico, Brazil, Germany, Slovakia, Spain and China.

FINANCIAL RATIOS  of  Martinrea International Inc. (MRE)

Valuation Ratios
P/E Ratio 10.8
Price to Sales 0.3
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 3.8
Price to Free Cash Flow 30.2
Growth Rates
Sales Growth Rate 2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 26.1%
Cap. Spend. - 3 Yr. Gr. Rate 4.7%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 83.5%
Total Debt to Equity 86.9%
Interest Coverage 7
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 4.7%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 6.7%
Return On Equity 11.5%
Return On Equity - 3 Yr. Avg. 13.6%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 10.9%
Gross Margin - 3 Yr. Avg. 10.3%
EBITDA Margin 7.7%
EBITDA Margin - 3 Yr. Avg. 7.6%
Operating Margin 4%
Oper. Margin - 3 Yr. Avg. 4%
Pre-Tax Margin 3.4%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 2.3%
Net Profit Margin - 3 Yr. Avg. 2.4%
Effective Tax Rate 30.8%
Eff/ Tax Rate - 3 Yr. Avg. 24.9%
Payout Ratio 10.9%

MRE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRE stock intrinsic value calculation we used $3968 million for the last fiscal year's total revenue generated by Martinrea International Inc.. The default revenue input number comes from 2016 income statement of Martinrea International 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 MRE 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 5.4%, whose default value for MRE is calculated based on our internal credit rating of Martinrea International 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 Martinrea International 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 MRE stock the variable cost ratio is equal to 95.8%.

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 MRE 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 Martinrea International Inc..

Corporate tax rate of 27% is the nominal tax rate for Martinrea International 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 MRE 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 MRE are equal to 33%.

Life of production assets of 8.6 years is the average useful life of capital assets used in Martinrea International 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 MRE is equal to 4.2%. 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 - $830 million for Martinrea International 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 86.512 million for Martinrea International 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 Martinrea International Inc. at the current share price and the inputted number of shares is $1.0 billion.

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Financial statements of MRE
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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