Intrinsic value of Blue Capital Reinsurance Holdings - BCRH

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$19.70

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$19.70

 
Intrinsic value

$9.44

 
Up/down potential

-52%

 
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 BCRH.

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

We calculate the intrinsic value of BCRH 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 0.2

 

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, %
  13.16
  22.20
  20.48
  18.93
  17.54
  16.28
  15.16
  14.14
  13.23
  12.40
  11.66
  11.00
  10.40
  9.86
  9.37
  8.93
  8.54
  8.19
  7.87
  7.58
  7.32
  7.09
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
Revenue, $m
  0
  53
  63
  75
  88
  103
  119
  135
  153
  172
  192
  213
  236
  259
  283
  308
  335
  362
  391
  420
  451
  483
  516
  551
  587
  624
  663
  703
  746
  790
  835
Variable operating expenses, $m
 
  23
  28
  33
  39
  45
  52
  60
  68
  76
  85
  94
  104
  114
  125
  136
  148
  160
  173
  186
  199
  213
  228
  243
  259
  276
  293
  311
  330
  349
  369
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
  28
  23
  28
  33
  39
  45
  52
  60
  68
  76
  85
  94
  104
  114
  125
  136
  148
  160
  173
  186
  199
  213
  228
  243
  259
  276
  293
  311
  330
  349
  369
Operating income, $m
  14
  29
  35
  42
  49
  57
  66
  75
  85
  96
  107
  119
  131
  144
  158
  172
  187
  202
  218
  234
  252
  269
  288
  307
  327
  348
  370
  392
  416
  441
  466
EBITDA, $m
  14
  29
  35
  42
  49
  57
  66
  75
  85
  96
  107
  119
  131
  144
  158
  172
  187
  202
  218
  234
  252
  269
  288
  307
  327
  348
  370
  392
  416
  441
  466
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
Earnings before tax, $m
  14
  29
  35
  42
  49
  57
  65
  74
  84
  94
  105
  116
  128
  141
  154
  168
  182
  197
  212
  228
  245
  262
  280
  299
  318
  338
  360
  381
  404
  428
  453
Tax expense, $m
  0
  8
  9
  11
  13
  15
  18
  20
  23
  25
  28
  31
  35
  38
  42
  45
  49
  53
  57
  62
  66
  71
  76
  81
  86
  91
  97
  103
  109
  116
  122
Net income, $m
  14
  21
  26
  30
  36
  41
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  133
  144
  155
  167
  179
  191
  205
  218
  232
  247
  262
  278
  295
  312
  331

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
  205
  250
  301
  359
  421
  490
  564
  644
  729
  820
  915
  1,016
  1,122
  1,232
  1,348
  1,468
  1,594
  1,724
  1,860
  2,001
  2,147
  2,300
  2,458
  2,622
  2,793
  2,971
  3,157
  3,350
  3,551
  3,760
  3,978
Adjusted assets (=assets-cash), $m
  205
  250
  301
  359
  421
  490
  564
  644
  729
  820
  915
  1,016
  1,122
  1,232
  1,348
  1,468
  1,594
  1,724
  1,860
  2,001
  2,147
  2,300
  2,458
  2,622
  2,793
  2,971
  3,157
  3,350
  3,551
  3,760
  3,978
Revenue / Adjusted assets
  0.000
  0.212
  0.209
  0.209
  0.209
  0.210
  0.211
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
  0.210
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
  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
  0
  5
  10
  16
  23
  30
  38
  47
  56
  66
  76
  87
  98
  110
  122
  135
  149
  162
  177
  192
  208
  224
  241
  259
  277
  296
  316
  336
  358
  380
  404
Total liabilities, $m
  21
  27
  32
  38
  45
  52
  60
  69
  78
  88
  98
  109
  120
  132
  144
  157
  171
  184
  199
  214
  230
  246
  263
  281
  299
  318
  338
  358
  380
  402
  426
Total equity, $m
  183
  223
  269
  320
  376
  438
  504
  575
  651
  732
  817
  907
  1,002
  1,100
  1,204
  1,311
  1,423
  1,540
  1,661
  1,787
  1,918
  2,053
  2,195
  2,342
  2,494
  2,653
  2,819
  2,991
  3,171
  3,358
  3,553
Total liabilities and equity, $m
  204
  250
  301
  358
  421
  490
  564
  644
  729
  820
  915
  1,016
  1,122
  1,232
  1,348
  1,468
  1,594
  1,724
  1,860
  2,001
  2,148
  2,299
  2,458
  2,623
  2,793
  2,971
  3,157
  3,349
  3,551
  3,760
  3,979
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.090
  0.090
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
  0.110
Adjusted equity ratio
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893
  0.893

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  21
  26
  30
  36
  41
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  133
  144
  155
  167
  179
  191
  205
  218
  232
  247
  262
  278
  295
  312
  331
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
  46
  21
  26
  30
  36
  41
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  133
  144
  155
  167
  179
  191
  205
  218
  232
  247
  262
  278
  295
  312
  331
Change in working capital, $m
  16
  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
  30
  21
  26
  30
  36
  41
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  133
  144
  155
  167
  179
  191
  205
  218
  232
  247
  262
  278
  295
  312
  331
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
  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
Free cash flow, $m
  30
  21
  26
  30
  36
  41
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  133
  144
  155
  167
  179
  191
  205
  218
  232
  247
  262
  278
  295
  312
  331
Issuance/(repayment) of debt, $m
  -13
  5
  5
  6
  7
  7
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
Issuance/(repurchase) of shares, $m
  0
  14
  15
  14
  14
  13
  11
  9
  6
  2
  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  
  -13
  19
  20
  20
  21
  20
  19
  18
  15
  12
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
Total cash flow (excl. dividends), $m
  18
  26
  31
  37
  42
  49
  55
  63
  70
  78
  87
  96
  105
  115
  125
  135
  146
  158
  169
  182
  194
  208
  221
  236
  251
  266
  282
  299
  317
  335
  354
Retained Cash Flow (-), $m
  5
  -40
  -46
  -51
  -56
  -61
  -66
  -71
  -76
  -81
  -85
  -90
  -94
  -99
  -103
  -108
  -112
  -117
  -121
  -126
  -131
  -136
  -141
  -147
  -153
  -159
  -165
  -172
  -179
  -187
  -195
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
  1
  6
  11
  16
  22
  28
  34
  41
  48
  56
  64
  72
  80
  89
  98
  107
  117
  127
  137
  148
  159
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
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  3
  5
  6
  7
  8
  9
  9
  9
  9
  8
  7
  7
  6
  5
  4
  3
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  92.3
  86.3
  81.6
  78.0
  75.3
  73.4
  72.0
  71.3
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0
  71.0

Blue Capital Reinsurance Holdings Ltd., through its subsidiaries, provides collateralized reinsurance in the property catastrophe market. The company was founded in 2013 and is headquartered in Pembroke, Bermuda.

FINANCIAL RATIOS  of  Blue Capital Reinsurance Holdings (BCRH)

Valuation Ratios
P/E Ratio 12.3
Price to Sales 4
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 5.8
Price to Free Cash Flow 5.8
Growth Rates
Sales Growth Rate 13.2%
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 NaN
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.6%
Ret/ On Assets - 3 Yr. Avg. 8.2%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 8.8%
Return On Equity 7.5%
Return On Equity - 3 Yr. Avg. 9.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 32.6%
EBITDA Margin - 3 Yr. Avg. 40.4%
Operating Margin 34.9%
Oper. Margin - 3 Yr. Avg. 41.9%
Pre-Tax Margin 32.6%
Pre-Tax Margin - 3 Yr. Avg. 40.4%
Net Profit Margin 32.6%
Net Profit Margin - 3 Yr. Avg. 40.4%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 135.7%

BCRH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BCRH stock intrinsic value calculation we used $43 million for the last fiscal year's total revenue generated by Blue Capital Reinsurance Holdings. The default revenue input number comes from 2016 income statement of Blue Capital Reinsurance Holdings. 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 BCRH stock valuation model: a) initial revenue growth rate of 22.2% 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 4.3%, whose default value for BCRH is calculated based on our internal credit rating of Blue Capital Reinsurance Holdings, 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 Blue Capital Reinsurance Holdings.
    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 BCRH stock the variable cost ratio is equal to 44.2%.

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 BCRH 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 Blue Capital Reinsurance Holdings.

Corporate tax rate of 27% is the nominal tax rate for Blue Capital Reinsurance Holdings. 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 BCRH 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 BCRH are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Blue Capital Reinsurance Holdings 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 BCRH 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 - $183 million for Blue Capital Reinsurance Holdings - 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 8.689 million for Blue Capital Reinsurance Holdings 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 Blue Capital Reinsurance Holdings at the current share price and the inputted number of shares is $0.2 billion.


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