Intrinsic value of Atlantic American - AAME

Previous Close

$2.60

  Intrinsic Value

$0.00

stock screener

  Rating & Target

str. sell

-100%

Previous close

$2.60

 
Intrinsic value

$0.00

 
Up/down potential

-100%

 
Rating

str. sell

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

We calculate the intrinsic value of AAME 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  0.00
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.84
  5.76
  5.68
  5.62
  5.55
  5.50
  5.45
  5.40
  5.36
  5.33
  5.29
  5.26
  5.24
  5.21
  5.19
Revenue, $m
  0
  197
  215
  232
  251
  270
  290
  311
  333
  355
  379
  403
  429
  455
  482
  511
  541
  572
  605
  639
  674
  711
  750
  790
  833
  877
  924
  972
  1,023
  1,077
  1,133
Variable operating expenses, $m
 
  171
  186
  201
  217
  233
  250
  268
  287
  306
  326
  345
  366
  389
  412
  437
  462
  489
  517
  546
  576
  608
  641
  676
  712
  750
  790
  831
  875
  920
  968
Fixed operating expenses, $m
 
  17
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  26
  27
  27
  28
  29
  29
  30
  31
  31
  32
  33
Total operating expenses, $m
  161
  188
  204
  219
  236
  252
  269
  288
  307
  327
  347
  367
  388
  412
  435
  461
  486
  514
  542
  572
  602
  635
  668
  704
  741
  779
  820
  862
  906
  952
  1,001
Operating income, $m
  5
  9
  11
  13
  16
  18
  21
  23
  26
  29
  32
  37
  40
  43
  47
  51
  54
  58
  63
  67
  72
  76
  81
  87
  92
  98
  104
  111
  117
  124
  132
EBITDA, $m
  18
  50
  55
  61
  66
  73
  79
  86
  93
  100
  107
  115
  123
  132
  140
  150
  159
  169
  180
  191
  202
  214
  227
  240
  253
  268
  283
  299
  315
  333
  351
Interest expense (income), $m
  2
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
  13
Earnings before tax, $m
  4
  -4
  -2
  0
  2
  5
  7
  10
  13
  15
  18
  24
  27
  30
  34
  37
  41
  45
  49
  54
  58
  63
  68
  73
  79
  85
  91
  97
  104
  111
  118
Tax expense, $m
  1
  0
  0
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
Net income, $m
  3
  -4
  -2
  0
  2
  3
  5
  7
  9
  11
  13
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  46
  50
  54
  58
  62
  66
  71
  76
  81
  86

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
  319
  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
Adjusted assets (=assets-cash), $m
  319
  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
Revenue / Adjusted assets
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Average production assets, $m
  3
  382
  415
  450
  486
  523
  562
  602
  644
  688
  733
  780
  829
  880
  934
  989
  1,047
  1,107
  1,170
  1,236
  1,304
  1,376
  1,451
  1,530
  1,612
  1,697
  1,787
  1,881
  1,980
  2,083
  2,191
Working capital, $m
  0
  -248
  -270
  -292
  -316
  -340
  -365
  -391
  -419
  -447
  -476
  -507
  -539
  -572
  -606
  -643
  -680
  -719
  -760
  -803
  -847
  -894
  -943
  -994
  -1,047
  -1,103
  -1,161
  -1,222
  -1,286
  -1,353
  -1,424
Total debt, $m
  34
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
  248
Total liabilities, $m
  213
  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 equity, $m
  106
  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 liabilities and equity, $m
  319
  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
Debt-to-equity ratio
  0.321
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
Adjusted equity ratio
  0.332
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000
  0.000

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  -4
  -2
  0
  2
  3
  5
  7
  9
  11
  13
  17
  20
  22
  25
  27
  30
  33
  36
  39
  42
  46
  50
  54
  58
  62
  66
  71
  76
  81
  86
Depreciation, amort., depletion, $m
  13
  40
  44
  47
  51
  55
  58
  62
  67
  71
  76
  78
  83
  88
  93
  99
  105
  111
  117
  124
  130
  138
  145
  153
  161
  170
  179
  188
  198
  208
  219
Funds from operations, $m
  -14
  36
  42
  47
  52
  58
  64
  70
  76
  82
  89
  95
  102
  110
  118
  126
  135
  144
  153
  163
  173
  184
  195
  206
  219
  232
  245
  259
  274
  289
  306
Change in working capital, $m
  -15
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
Cash from operations, $m
  1
  57
  63
  70
  76
  82
  89
  96
  103
  111
  118
  126
  134
  143
  152
  162
  172
  183
  194
  205
  218
  230
  244
  257
  272
  287
  303
  320
  338
  356
  376
Maintenance CAPEX, $m
  0
  -35
  -38
  -42
  -45
  -49
  -52
  -56
  -60
  -64
  -69
  -73
  -78
  -83
  -88
  -93
  -99
  -105
  -111
  -117
  -124
  -130
  -138
  -145
  -153
  -161
  -170
  -179
  -188
  -198
  -208
New CAPEX, $m
  0
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -90
  -94
  -99
  -103
  -108
Cash from investing activities, $m
  -2
  -67
  -71
  -77
  -81
  -86
  -91
  -96
  -102
  -108
  -114
  -120
  -127
  -134
  -141
  -148
  -157
  -165
  -174
  -183
  -193
  -202
  -213
  -223
  -235
  -247
  -260
  -273
  -287
  -301
  -316
Free cash flow, $m
  -1
  -10
  -8
  -6
  -5
  -4
  -2
  -1
  1
  2
  4
  5
  7
  9
  11
  13
  16
  18
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  59
Issuance/(repayment) of debt, $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
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  
  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 cash flow (excl. dividends), $m
  -1
  -10
  -8
  -6
  -5
  -4
  -2
  -1
  1
  2
  4
  5
  7
  9
  11
  13
  16
  18
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  59
Retained Cash Flow (-), $m
  -4
  -4
  -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
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
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
Cash available for distribution, $m
 
  -4
  -2
  0
  0
  0
  0
  0
  1
  2
  4
  5
  7
  9
  11
  13
  16
  18
  20
  23
  25
  28
  31
  34
  37
  40
  44
  47
  51
  55
  59
Discount rate, %
 
  14.60
  15.33
  16.10
  16.90
  17.75
  18.63
  19.57
  20.54
  21.57
  22.65
  23.78
  24.97
  26.22
  27.53
  28.91
  30.35
  31.87
  33.46
  35.14
  36.89
  38.74
  40.68
  42.71
  44.84
  47.09
  49.44
  51.91
  54.51
  57.23
  60.10
PV of cash for distribution, $m
 
  -4
  -2
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
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
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Atlantic American Corporation is a holding company that operates through its subsidiaries in specialty markets within the life and health, and property and casualty insurance industries. The Company's principal operating subsidiaries are American Southern Insurance Company and American Safety Insurance Company (together known as American Southern) within the property and casualty insurance industry, and Bankers Fidelity Life Insurance Company and Bankers Fidelity Assurance Company (together known as Bankers Fidelity) within the life and health insurance industry. Each of American Southern and Bankers Fidelity is managed separately based upon the type of products it offers. American Southern's product lines include business automobile insurance policies, General Liability Insurance policies, Property Insurance policies and Surety Bonds. Products offered by Bankers Fidelity include ordinary and term life insurance, Medicare supplement and other accident and health insurance products.

FINANCIAL RATIOS  of  Atlantic American (AAME)

Valuation Ratios
P/E Ratio 17.7
Price to Sales 0.3
Price to Book 0.5
Price to Tangible Book
Price to Cash Flow 53.2
Price to Free Cash Flow 53.2
Growth Rates
Sales Growth Rate 0%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 32.1%
Total Debt to Equity 32.1%
Interest Coverage 3
Management Effectiveness
Return On Assets 1.4%
Ret/ On Assets - 3 Yr. Avg. 1.6%
Return On Total Capital 2.2%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity 2.9%
Return On Equity - 3 Yr. Avg. 3.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 11.4%
EBITDA Margin - 3 Yr. Avg. 11.2%
Operating Margin 3%
Oper. Margin - 3 Yr. Avg. 3.6%
Pre-Tax Margin 2.4%
Pre-Tax Margin - 3 Yr. Avg. 3%
Net Profit Margin 1.8%
Net Profit Margin - 3 Yr. Avg. 2.2%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 26.1%
Payout Ratio 33.3%

AAME stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AAME stock intrinsic value calculation we used $181 million for the last fiscal year's total revenue generated by Atlantic American. The default revenue input number comes from 2016 income statement of Atlantic American. 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 AAME stock valuation model: a) initial revenue growth rate of 9.1% 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 14.6%, whose default value for AAME is calculated based on our internal credit rating of Atlantic American, 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 Atlantic American.
    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 AAME stock the variable cost ratio is equal to 86.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $17 million in the base year in the intrinsic value calculation for AAME 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 Atlantic American.

Corporate tax rate of 27% is the nominal tax rate for Atlantic American. 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 AAME stock is equal to 0.3%.

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 AAME are equal to 193.5%.

Life of production assets of 10 years is the average useful life of capital assets used in Atlantic American 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 AAME is equal to -125.7%. 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 - $0 million for Atlantic American - 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 20 million for Atlantic American 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 Atlantic American at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating

COMPANY NEWS

▶ Atlantic American: 1Q Earnings Snapshot   [May-11-18 10:26AM  Associated Press]
▶ Atlantic American posts 4Q profit   [Mar-26-18 05:31PM  Associated Press]
▶ Atlantic American posts 3Q profit   [Nov-15-17 05:15AM  Associated Press]
▶ Atlantic American Reports Third Quarter Earnings   [Nov-14-17 02:00PM  GlobeNewswire]
▶ Atlantic American posts 2Q profit   [Aug-14-17 11:23PM  Associated Press]
▶ Atlantic American reports 1Q loss   [May-12-17 03:06PM  Associated Press]
▶ Atlantic American posts 4Q profit   [Mar-15-17 01:30PM  Associated Press]
▶ 6 Stocks With Strong Yields but Falling Prices   [Feb-17-17 04:06PM  GuruFocus.com]
▶ 8 High-Yield Stocks With a Negative 1-Year Performance   [Feb-09-17 02:14PM  GuruFocus.com]
▶ 10-Q for Atlantic American Corp.   [Aug-14  08:10PM  at Company Spotlight]
▶ 10-Q for Atlantic American Corp.   [May-15  08:09PM  at Company Spotlight]
▶ 10-K for Atlantic American Corp.   [Apr-29  08:15PM  at Company Spotlight]
Financial statements of AAME
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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