Intrinsic value of Cherry Hill Mortgage Investment - CHMI

Previous Close

$18.61

  Intrinsic Value

$13.54

stock screener

  Rating & Target

sell

-27%

  Value-price divergence*

0%

Previous close

$18.61

 
Intrinsic value

$13.54

 
Up/down potential

-27%

 
Rating

sell

 
Value-price divergence*

0%

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

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

We calculate the intrinsic value of CHMI 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 0.1

 

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, %
  68.00
  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
  42
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  138
Variable operating expenses, $m
 
  10
  10
  11
  11
  11
  12
  12
  13
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
Fixed operating expenses, $m
 
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
Total operating expenses, $m
  17
  17
  17
  19
  19
  19
  20
  20
  22
  22
  22
  23
  24
  25
  26
  27
  27
  29
  30
  31
  32
  34
  35
  36
  38
  39
  40
  42
  44
  45
  48
Operating income, $m
  26
  25
  26
  27
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  67
  70
  74
  77
  82
  86
  90
EBITDA, $m
  26
  25
  26
  27
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  67
  70
  74
  77
  82
  86
  90
Interest expense (income), $m
  7
  21
  22
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  68
Earnings before tax, $m
  26
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
Tax expense, $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Net income, $m
  25
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  793
  793
  812
  832
  856
  882
  910
  941
  975
  1,011
  1,050
  1,091
  1,136
  1,183
  1,233
  1,286
  1,342
  1,402
  1,465
  1,532
  1,602
  1,676
  1,755
  1,837
  1,924
  2,016
  2,112
  2,214
  2,321
  2,433
  2,551
Adjusted assets (=assets-cash), $m
  777
  793
  812
  832
  856
  882
  910
  941
  975
  1,011
  1,050
  1,091
  1,136
  1,183
  1,233
  1,286
  1,342
  1,402
  1,465
  1,532
  1,602
  1,676
  1,755
  1,837
  1,924
  2,016
  2,112
  2,214
  2,321
  2,433
  2,551
Revenue / Adjusted assets
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
  0.054
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
  21
  22
  22
  23
  24
  25
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  41
  43
  45
  47
  50
  52
  54
  57
  60
  63
  66
  69
Total debt, $m
  618
  615
  630
  647
  665
  686
  709
  734
  761
  790
  821
  854
  890
  928
  968
  1,010
  1,056
  1,103
  1,154
  1,208
  1,264
  1,324
  1,386
  1,453
  1,522
  1,596
  1,673
  1,755
  1,840
  1,930
  2,025
Total liabilities, $m
  639
  636
  651
  668
  686
  707
  730
  755
  782
  811
  842
  875
  911
  949
  989
  1,031
  1,077
  1,124
  1,175
  1,229
  1,285
  1,345
  1,407
  1,474
  1,543
  1,617
  1,694
  1,776
  1,861
  1,951
  2,046
Total equity, $m
  154
  157
  161
  165
  169
  175
  180
  186
  193
  200
  208
  216
  225
  234
  244
  255
  266
  278
  290
  303
  317
  332
  347
  364
  381
  399
  418
  438
  460
  482
  505
Total liabilities and equity, $m
  793
  793
  812
  833
  855
  882
  910
  941
  975
  1,011
  1,050
  1,091
  1,136
  1,183
  1,233
  1,286
  1,343
  1,402
  1,465
  1,532
  1,602
  1,677
  1,754
  1,838
  1,924
  2,016
  2,112
  2,214
  2,321
  2,433
  2,551
Debt-to-equity ratio
  4.013
  3.920
  3.920
  3.920
  3.930
  3.930
  3.930
  3.940
  3.940
  3.950
  3.950
  3.950
  3.960
  3.960
  3.960
  3.970
  3.970
  3.970
  3.980
  3.980
  3.980
  3.990
  3.990
  3.990
  4.000
  4.000
  4.000
  4.000
  4.000
  4.010
  4.010
Adjusted equity ratio
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198
  0.198

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
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
  42
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
Change in working capital, $m
  8
  0
  0
  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
  3
  3
Cash from operations, $m
  34
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
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
  -146
  0
  0
  0
  0
  0
  0
  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
  -112
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
Issuance/(repayment) of debt, $m
  145
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  36
  38
  40
  43
  45
  48
  51
  53
  56
  60
  63
  66
  70
  73
  77
  81
  86
  90
  95
Issuance/(repurchase) of shares, $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  7
  7
Cash from financing (excl. dividends), $m  
  133
  13
  15
  18
  20
  22
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
  49
  52
  56
  58
  61
  65
  68
  72
  76
  79
  83
  87
  92
  97
  102
Total cash flow (excl. dividends), $m
  21
  16
  18
  20
  23
  25
  28
  30
  33
  35
  38
  40
  43
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  85
  89
  94
  99
  104
  109
  115
Retained Cash Flow (-), $m
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
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
 
  13
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  41
  44
  46
  49
  52
  55
  58
  61
  64
  67
  71
  75
  79
  83
  87
  92
Discount rate, %
 
  12.50
  13.13
  13.78
  14.47
  15.19
  15.95
  16.75
  17.59
  18.47
  19.39
  20.36
  21.38
  22.45
  23.57
  24.75
  25.99
  27.29
  28.65
  30.08
  31.59
  33.17
  34.82
  36.57
  38.39
  40.31
  42.33
  44.45
  46.67
  49.00
  51.45
PV of cash for distribution, $m
 
  12
  11
  11
  11
  10
  9
  8
  7
  6
  5
  4
  3
  3
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  99.8
  99.3
  98.6
  97.7
  96.6
  95.4
  94.1
  92.7
  91.3
  89.8
  88.3
  86.7
  85.2
  83.7
  82.2
  80.7
  79.2
  77.8
  76.4
  75.0
  73.7
  72.4
  71.2
  70.0
  68.8
  67.7
  66.6
  65.6
  64.5

Cherry Hill Mortgage Investment Corporation, a residential real estate finance company, acquires, invests in, and manages residential mortgage assets in the United States. The company operates through Investments in Residential Mortgage-Backed Securities (RMBS); and Investments in Servicing Related Assets segments. It manages a portfolio of servicing related assets, RMBS, and prime mortgage loans, as well as other residential mortgage assets, such as mortgage servicing rights. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. Cherry Hill Mortgage Investment Corporation was founded in 2012 and is based in Moorestown, New Jersey.

FINANCIAL RATIOS  of  Cherry Hill Mortgage Investment (CHMI)

Valuation Ratios
P/E Ratio 5.6
Price to Sales 3.3
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 4.1
Price to Free Cash Flow 4.1
Growth Rates
Sales Growth Rate 68%
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 14.9%
Total Debt to Equity 401.3%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.4%
Ret/ On Assets - 3 Yr. Avg. 3%
Return On Total Capital 3.6%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity 16.4%
Return On Equity - 3 Yr. Avg. 8.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 69%
Gross Margin - 3 Yr. Avg. 58.2%
EBITDA Margin 78.6%
EBITDA Margin - 3 Yr. Avg. 68.2%
Operating Margin 59.5%
Oper. Margin - 3 Yr. Avg. 41.4%
Pre-Tax Margin 61.9%
Pre-Tax Margin - 3 Yr. Avg. 43.5%
Net Profit Margin 59.5%
Net Profit Margin - 3 Yr. Avg. 42.7%
Effective Tax Rate 3.8%
Eff/ Tax Rate - 3 Yr. Avg. 1.3%
Payout Ratio 64%

CHMI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CHMI stock intrinsic value calculation we used $42 million for the last fiscal year's total revenue generated by Cherry Hill Mortgage Investment. The default revenue input number comes from 2016 income statement of Cherry Hill Mortgage Investment. 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 CHMI 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 12.5%, whose default value for CHMI is calculated based on our internal credit rating of Cherry Hill Mortgage Investment, 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 Cherry Hill Mortgage Investment.
    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 CHMI stock the variable cost ratio is equal to 23.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7 million in the base year in the intrinsic value calculation for CHMI 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 Cherry Hill Mortgage Investment.

Corporate tax rate of 27% is the nominal tax rate for Cherry Hill Mortgage Investment. 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 CHMI 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 CHMI are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Cherry Hill Mortgage Investment 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 CHMI 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 - $154 million for Cherry Hill Mortgage Investment - 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 7.505 million for Cherry Hill Mortgage Investment 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 Cherry Hill Mortgage Investment at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
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NRZ New Residentia 16.55 126.15  str.buy
ARR Armour Residen 26.31 7.41  str.sell
IVR Invesco Mortga 17.04 4.95  str.sell
DX Dynex Capital 7.12 2.38  str.sell
STWD Starwood Prope 22.08 22.34  hold

COMPANY NEWS

▶ Cherry Hill reports 2Q loss   [Aug-08-17 11:55PM  Associated Press]
▶ Cherry Hill posts 1Q profit   [May-09-17 07:32PM  Associated Press]
▶ Cherry Hill posts 4Q profit   [04:40PM  Associated Press]
▶ How Endocyte, Inc. (ECYT) Stacks Up Against Its Peers   [Dec-15-16 09:08PM  at Insider Monkey]
▶ Major Shareholder Dumps Novatel Wireless Inc (MIFI) In Q3   [Nov-23  02:32PM  at Insider Monkey]
Stock chart of CHMI Financial statements of CHMI
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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