Intrinsic value of CM Finance - CMFN

Previous Close

$8.35

  Intrinsic Value

$6.61

stock screener

  Rating & Target

sell

-21%

Previous close

$8.35

 
Intrinsic value

$6.61

 
Up/down potential

-21%

 
Rating

sell

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

We calculate the intrinsic value of CMFN 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 2017), $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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -13.89
  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
  31
  32
  32
  33
  34
  35
  36
  38
  39
  40
  42
  43
  45
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  102
Variable operating expenses, $m
 
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
Fixed operating expenses, $m
 
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  18
  18
  18
  19
Total operating expenses, $m
  15
  15
  15
  16
  17
  17
  17
  18
  19
  19
  20
  20
  21
  21
  23
  23
  23
  25
  25
  26
  27
  28
  29
  30
  31
  33
  33
  35
  36
  37
  39
Operating income, $m
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
EBITDA, $m
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
Interest expense (income), $m
  5
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
Earnings before tax, $m
  24
  12
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
Tax expense, $m
  0
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
Net income, $m
  24
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  11
  0
  0
  0
  0
  0
  0
  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
  296
  290
  297
  304
  313
  322
  333
  344
  356
  370
  384
  399
  415
  432
  451
  470
  491
  513
  536
  560
  586
  613
  642
  672
  704
  737
  772
  810
  849
  890
  933
Adjusted assets (=assets-cash), $m
  285
  290
  297
  304
  313
  322
  333
  344
  356
  370
  384
  399
  415
  432
  451
  470
  491
  513
  536
  560
  586
  613
  642
  672
  704
  737
  772
  810
  849
  890
  933
Revenue / Adjusted assets
  0.109
  0.110
  0.108
  0.109
  0.109
  0.109
  0.108
  0.110
  0.110
  0.108
  0.109
  0.108
  0.108
  0.109
  0.109
  0.109
  0.110
  0.109
  0.108
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.109
  0.108
  0.109
  0.109
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
  -12
  -13
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -39
Total debt, $m
  101
  104
  107
  111
  115
  119
  123
  129
  134
  140
  146
  153
  160
  168
  176
  185
  194
  204
  214
  225
  236
  248
  261
  275
  289
  304
  319
  336
  353
  372
  391
Total liabilities, $m
  126
  129
  132
  136
  140
  144
  148
  154
  159
  165
  171
  178
  185
  193
  201
  210
  219
  229
  239
  250
  261
  273
  286
  300
  314
  329
  344
  361
  378
  397
  416
Total equity, $m
  170
  161
  164
  169
  173
  179
  184
  191
  197
  205
  213
  221
  230
  240
  250
  261
  272
  284
  297
  310
  325
  340
  355
  372
  390
  408
  428
  448
  470
  493
  517
Total liabilities and equity, $m
  296
  290
  296
  305
  313
  323
  332
  345
  356
  370
  384
  399
  415
  433
  451
  471
  491
  513
  536
  560
  586
  613
  641
  672
  704
  737
  772
  809
  848
  890
  933
Debt-to-equity ratio
  0.594
  0.650
  0.650
  0.660
  0.660
  0.670
  0.670
  0.670
  0.680
  0.680
  0.690
  0.690
  0.700
  0.700
  0.700
  0.710
  0.710
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.740
  0.740
  0.740
  0.750
  0.750
  0.750
  0.750
  0.760
Adjusted equity ratio
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
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
  68
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
Change in working capital, $m
  27
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
Cash from operations, $m
  41
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
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
  41
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
Issuance/(repayment) of debt, $m
  -30
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
Issuance/(repurchase) of shares, $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 financing (excl. dividends), $m  
  -31
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
Total cash flow (excl. dividends), $m
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  55
Retained Cash Flow (-), $m
  -7
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  12
  0
  0
  0
  0
  0
  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
 
  21
  8
  9
  9
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  19
  7
  7
  6
  6
  6
  5
  5
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  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
  100.0
  100.0
  100.0
  100.0
  100.0

CM Finance Inc is an externally managed, non-diversified closed-end management investment company. The Company is a specialty finance company that invests primarily in the debt of the United States middle-market companies. The Company's primary investment objective is to maximize total return to stockholders in the form of current income and capital appreciation by investing in debt and related equity of privately held lower middle-market companies. As of June 30, 2016, the Company's portfolio consisted of debt and equity investments in 22 portfolio companies. It invests in unitranche loans and standalone second and first lien loans, with an emphasis on floating rate debt. It also selectively invests in mezzanine loans/structured equity and in the equity of portfolio companies through warrants and other instruments.CM Investment Partners LLC is an external investment advisor of the Company.

FINANCIAL RATIOS  of  CM Finance (CMFN)

Valuation Ratios
P/E Ratio 4.8
Price to Sales 3.7
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 2.8
Price to Free Cash Flow 2.8
Growth Rates
Sales Growth Rate -13.9%
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 -11
Current Ratio NaN
LT Debt to Equity 60%
Total Debt to Equity 59.4%
Interest Coverage 6
Management Effectiveness
Return On Assets 9.4%
Ret/ On Assets - 3 Yr. Avg. 4.4%
Return On Total Capital 8.5%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 14.4%
Return On Equity - 3 Yr. Avg. 5.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 61.3%
Gross Margin - 3 Yr. Avg. 62.4%
EBITDA Margin 93.5%
EBITDA Margin - 3 Yr. Avg. 42.8%
Operating Margin 51.6%
Oper. Margin - 3 Yr. Avg. 53.7%
Pre-Tax Margin 77.4%
Pre-Tax Margin - 3 Yr. Avg. 31%
Net Profit Margin 77.4%
Net Profit Margin - 3 Yr. Avg. 31%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 75%

CMFN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CMFN stock intrinsic value calculation we used $31 million for the last fiscal year's total revenue generated by CM Finance. The default revenue input number comes from 2017 income statement of CM Finance. 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 CMFN 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 7%, whose default value for CMFN is calculated based on our internal credit rating of CM Finance, 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 CM Finance.
    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 CMFN stock the variable cost ratio is equal to 19.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $9 million in the base year in the intrinsic value calculation for CMFN 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 4.3% for CM Finance.

Corporate tax rate of 27% is the nominal tax rate for CM Finance. 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 CMFN 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 CMFN are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in CM Finance 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 CMFN is equal to -38.7%. 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 - $170 million for CM Finance - 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 13.69 million for CM Finance 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 CM Finance 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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COMPANY NEWS

▶ CM posts 1Q profit   [Nov-07-17 06:15PM  Associated Press]
▶ CM posts 4Q profit   [Sep-06-17 11:56PM  Associated Press]
▶ CM Finance Inc Announces Quarterly Distribution   [Aug-28-17 09:50AM  GlobeNewswire]
▶ CM posts 3Q profit   [May-10-17 05:48PM  Associated Press]
▶ CM posts 2Q profit   [Feb-08-17 06:04PM  Associated Press]
▶ Top Ranked Income Stocks to Buy for January 5th   [Jan-05-17 10:00AM  Zacks]
▶ New Strong Sell Stocks for September 13th   [Sep-13-16 09:06AM  Zacks]
Financial statements of CMFN
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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