Intrinsic value of Arlington Asset Investment Cl A - AI

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$14.45

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$14.45

 
Intrinsic value

$4.01

 
Up/down potential

-72%

 
Rating

str. sell

 
Value-price divergence* premium content

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

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

We calculate the intrinsic value of AI 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 0.3

 

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, %
  660.00
  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
  38
  39
  40
  41
  42
  43
  44
  46
  48
  49
  51
  53
  55
  58
  60
  63
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  119
  125
Variable operating expenses, $m
 
  56
  57
  59
  61
  62
  64
  67
  69
  71
  74
  77
  80
  84
  87
  91
  95
  99
  104
  108
  113
  119
  124
  130
  136
  143
  149
  157
  164
  172
  180
Fixed operating expenses, $m
 
  31
  32
  32
  33
  34
  35
  36
  37
  37
  38
  39
  40
  41
  42
  43
  45
  46
  47
  48
  49
  50
  52
  53
  54
  56
  57
  58
  60
  61
  63
Total operating expenses, $m
  52
  87
  89
  91
  94
  96
  99
  103
  106
  108
  112
  116
  120
  125
  129
  134
  140
  145
  151
  156
  162
  169
  176
  183
  190
  199
  206
  215
  224
  233
  243
Operating income, $m
  -14
  -48
  -49
  -50
  -52
  -53
  -55
  -56
  -58
  -60
  -61
  -63
  -65
  -67
  -69
  -72
  -74
  -76
  -79
  -81
  -84
  -87
  -90
  -93
  -96
  -100
  -103
  -107
  -111
  -115
  -119
EBITDA, $m
  -14
  -48
  -49
  -50
  -52
  -53
  -55
  -56
  -58
  -60
  -61
  -63
  -65
  -67
  -69
  -72
  -74
  -76
  -79
  -81
  -84
  -87
  -90
  -93
  -96
  -100
  -103
  -107
  -111
  -115
  -119
Interest expense (income), $m
  28
  128
  134
  138
  141
  145
  150
  154
  160
  165
  172
  178
  185
  193
  201
  210
  219
  228
  238
  249
  261
  273
  285
  299
  313
  328
  343
  360
  377
  396
  415
Earnings before tax, $m
  -14
  -176
  -184
  -188
  -193
  -198
  -204
  -211
  -218
  -225
  -233
  -241
  -250
  -260
  -270
  -281
  -293
  -305
  -317
  -331
  -345
  -360
  -375
  -392
  -409
  -427
  -447
  -467
  -488
  -510
  -533
Tax expense, $m
  27
  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
Net income, $m
  -41
  -176
  -184
  -188
  -193
  -198
  -204
  -211
  -218
  -225
  -233
  -241
  -250
  -260
  -270
  -281
  -293
  -305
  -317
  -331
  -345
  -360
  -375
  -392
  -409
  -427
  -447
  -467
  -488
  -510
  -533

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  55
  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
  4,142
  4,307
  4,406
  4,519
  4,646
  4,787
  4,941
  5,110
  5,292
  5,488
  5,699
  5,924
  6,165
  6,421
  6,693
  6,981
  7,287
  7,611
  7,954
  8,315
  8,698
  9,101
  9,526
  9,974
  10,446
  10,944
  11,467
  12,018
  12,598
  13,208
  13,850
Adjusted assets (=assets-cash), $m
  4,087
  4,307
  4,406
  4,519
  4,646
  4,787
  4,941
  5,110
  5,292
  5,488
  5,699
  5,924
  6,165
  6,421
  6,693
  6,981
  7,287
  7,611
  7,954
  8,315
  8,698
  9,101
  9,526
  9,974
  10,446
  10,944
  11,467
  12,018
  12,598
  13,208
  13,850
Revenue / Adjusted assets
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
  0.009
Average production assets, $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
Working capital, $m
  0
  19
  20
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
Total debt, $m
  3,723
  3,840
  3,929
  4,031
  4,145
  4,272
  4,411
  4,563
  4,727
  4,903
  5,093
  5,296
  5,512
  5,743
  5,987
  6,247
  6,523
  6,814
  7,122
  7,448
  7,792
  8,155
  8,537
  8,941
  9,366
  9,813
  10,284
  10,780
  11,302
  11,851
  12,429
Total liabilities, $m
  3,758
  3,876
  3,965
  4,067
  4,181
  4,308
  4,447
  4,599
  4,763
  4,939
  5,129
  5,332
  5,548
  5,779
  6,023
  6,283
  6,559
  6,850
  7,158
  7,484
  7,828
  8,191
  8,573
  8,977
  9,402
  9,849
  10,320
  10,816
  11,338
  11,887
  12,465
Total equity, $m
  383
  431
  441
  452
  465
  479
  494
  511
  529
  549
  570
  592
  616
  642
  669
  698
  729
  761
  795
  832
  870
  910
  953
  997
  1,045
  1,094
  1,147
  1,202
  1,260
  1,321
  1,385
Total liabilities and equity, $m
  4,141
  4,307
  4,406
  4,519
  4,646
  4,787
  4,941
  5,110
  5,292
  5,488
  5,699
  5,924
  6,164
  6,421
  6,692
  6,981
  7,288
  7,611
  7,953
  8,316
  8,698
  9,101
  9,526
  9,974
  10,447
  10,943
  11,467
  12,018
  12,598
  13,208
  13,850
Debt-to-equity ratio
  9.721
  8.920
  8.920
  8.920
  8.920
  8.920
  8.930
  8.930
  8.930
  8.930
  8.940
  8.940
  8.940
  8.940
  8.950
  8.950
  8.950
  8.950
  8.950
  8.960
  8.960
  8.960
  8.960
  8.960
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
  8.970
Adjusted equity ratio
  0.094
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -41
  -176
  -184
  -188
  -193
  -198
  -204
  -211
  -218
  -225
  -233
  -241
  -250
  -260
  -270
  -281
  -293
  -305
  -317
  -331
  -345
  -360
  -375
  -392
  -409
  -427
  -447
  -467
  -488
  -510
  -533
Depreciation, amort., depletion, $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
Funds from operations, $m
  91
  -176
  -184
  -188
  -193
  -198
  -204
  -211
  -218
  -225
  -233
  -241
  -250
  -260
  -270
  -281
  -293
  -305
  -317
  -331
  -345
  -360
  -375
  -392
  -409
  -427
  -447
  -467
  -488
  -510
  -533
Change in working capital, $m
  2
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
Cash from operations, $m
  89
  -177
  -184
  -189
  -193
  -199
  -205
  -211
  -218
  -226
  -234
  -242
  -252
  -261
  -272
  -282
  -294
  -306
  -319
  -332
  -347
  -362
  -377
  -394
  -411
  -430
  -449
  -469
  -491
  -513
  -536
Maintenance CAPEX, $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
New CAPEX, $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
Cash from investing activities, $m
  -50
  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
Free cash flow, $m
  39
  -177
  -184
  -189
  -193
  -199
  -205
  -211
  -218
  -226
  -234
  -242
  -252
  -261
  -272
  -282
  -294
  -306
  -319
  -332
  -347
  -362
  -377
  -394
  -411
  -430
  -449
  -469
  -491
  -513
  -536
Issuance/(repayment) of debt, $m
  814
  172
  89
  102
  114
  127
  139
  151
  164
  177
  190
  203
  216
  230
  245
  260
  275
  291
  308
  326
  344
  363
  383
  403
  425
  448
  471
  496
  522
  549
  578
Issuance/(repurchase) of shares, $m
  10
  53
  105
  98
  92
  86
  81
  77
  73
  69
  65
  62
  59
  56
  54
  51
  49
  47
  45
  43
  41
  39
  37
  35
  34
  32
  30
  28
  27
  25
  23
Cash from financing (excl. dividends), $m  
  37
  225
  194
  200
  206
  213
  220
  228
  237
  246
  255
  265
  275
  286
  299
  311
  324
  338
  353
  369
  385
  402
  420
  438
  459
  480
  501
  524
  549
  574
  601
Total cash flow (excl. dividends), $m
  76
  -5
  -95
  -87
  -79
  -72
  -66
  -60
  -54
  -49
  -44
  -40
  -35
  -31
  -27
  -23
  -19
  -15
  -11
  -7
  -3
  1
  5
  9
  14
  18
  22
  27
  31
  36
  41
Retained Cash Flow (-), $m
  101
  -48
  -10
  -11
  -13
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -27
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
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
 
  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
Discount rate, %
 
  14.20
  14.91
  15.66
  16.44
  17.26
  18.12
  19.03
  19.98
  20.98
  22.03
  23.13
  24.29
  25.50
  26.78
  28.12
  29.52
  31.00
  32.55
  34.17
  35.88
  37.68
  39.56
  41.54
  43.62
  45.80
  48.09
  50.49
  53.02
  55.67
  58.45
PV of cash for 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
Current shareholders' claim on cash, %
  100
  86.8
  68.3
  54.8
  44.7
  37.1
  31.2
  26.6
  23.0
  20.1
  17.7
  15.8
  14.2
  12.9
  11.8
  10.9
  10.1
  9.4
  8.8
  8.3
  7.9
  7.5
  7.2
  6.9
  6.7
  6.5
  6.3
  6.1
  6.0
  5.8
  5.7

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets. The company acquires on a leveraged basis residential mortgage-backed securities (MBS) that are issued by the United States (U.S.) government agency, or guaranteed as to principal and interest by U.S. government agencies, or U.S. government-sponsored entities. It also acquires MBS issued by private organizations. The company was formerly known as Friedman, Billings, Ramsey Group, Inc. Arlington Asset Investment Corp. was founded in 1989 and is based in Arlington, Virginia.

FINANCIAL RATIOS  of  Arlington Asset Investment Cl A (AI)

Valuation Ratios
P/E Ratio -8.3
Price to Sales 9
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 3.8
Price to Free Cash Flow 3.8
Growth Rates
Sales Growth Rate 660%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 19.3%
Total Debt to Equity 972.1%
Interest Coverage 1
Management Effectiveness
Return On Assets 1%
Ret/ On Assets - 3 Yr. Avg. 0.2%
Return On Total Capital -1%
Ret/ On T. Cap. - 3 Yr. Avg. -0.8%
Return On Equity -9.5%
Return On Equity - 3 Yr. Avg. -6.8%
Asset Turnover 0
Profitability Ratios
Gross Margin 23.7%
Gross Margin - 3 Yr. Avg. -56.8%
EBITDA Margin 36.8%
EBITDA Margin - 3 Yr. Avg. -55.5%
Operating Margin -36.8%
Oper. Margin - 3 Yr. Avg. -197.2%
Pre-Tax Margin -36.8%
Pre-Tax Margin - 3 Yr. Avg. -197.6%
Net Profit Margin -107.9%
Net Profit Margin - 3 Yr. Avg. -492.9%
Effective Tax Rate -192.9%
Eff/ Tax Rate - 3 Yr. Avg. -76.7%
Payout Ratio -141.5%

AI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AI stock intrinsic value calculation we used $38 million for the last fiscal year's total revenue generated by Arlington Asset Investment Cl A. The default revenue input number comes from 2016 income statement of Arlington Asset Investment Cl A. 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 AI 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 14.2%, whose default value for AI is calculated based on our internal credit rating of Arlington Asset Investment Cl A, 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 Arlington Asset Investment Cl A.
    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 AI stock the variable cost ratio is equal to 144.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $30 million in the base year in the intrinsic value calculation for AI 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 Arlington Asset Investment Cl A.

Corporate tax rate of 27% is the nominal tax rate for Arlington Asset Investment Cl A. 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 AI 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 AI are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Arlington Asset Investment Cl A 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 AI is equal to 50%. 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 - $383 million for Arlington Asset Investment Cl A - 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 23.865 million for Arlington Asset Investment Cl A 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 Arlington Asset Investment Cl A at the current share price and the inputted number of shares is $0.3 billion.


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COMPANY NEWS

▶ Arlington Asset Investment posts 4Q loss   [Feb-07-17 06:49PM  Associated Press]
Stock chart of AI Financial statements of AI
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