Intrinsic value of Fidelity&Guaranty Life - FGL

Previous Close

$31.25

  Intrinsic Value

$309.46

stock screener

  Rating & Target

str. buy

+890%

Previous close

$31.25

 
Intrinsic value

$309.46

 
Up/down potential

+890%

 
Rating

str. buy

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

We calculate the intrinsic value of FGL 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 1.8

 

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, %
  13.42
  36.70
  33.53
  30.68
  28.11
  25.80
  23.72
  21.85
  20.16
  18.65
  17.28
  16.05
  14.95
  13.95
  13.06
  12.25
  11.53
  10.87
  10.29
  9.76
  9.28
  8.85
  8.47
  8.12
  7.81
  7.53
  7.28
  7.05
  6.84
  6.66
  6.49
Revenue, $m
  0
  1,617
  2,159
  2,822
  3,615
  4,548
  5,626
  6,855
  8,238
  9,774
  11,463
  13,303
  15,291
  17,425
  19,700
  22,114
  24,663
  27,344
  30,157
  33,100
  36,172
  39,375
  42,710
  46,178
  49,785
  53,533
  57,428
  61,475
  65,682
  70,056
  74,605
Variable operating expenses, $m
 
  1,297
  1,732
  2,263
  2,899
  3,647
  4,512
  5,498
  6,607
  7,838
  9,193
  10,669
  12,264
  13,975
  15,799
  17,735
  19,779
  21,930
  24,186
  26,546
  29,010
  31,579
  34,253
  37,035
  39,927
  42,933
  46,057
  49,303
  52,677
  56,185
  59,833
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
  1,008
  1,297
  1,732
  2,263
  2,899
  3,647
  4,512
  5,498
  6,607
  7,838
  9,193
  10,669
  12,264
  13,975
  15,799
  17,735
  19,779
  21,930
  24,186
  26,546
  29,010
  31,579
  34,253
  37,035
  39,927
  42,933
  46,057
  49,303
  52,677
  56,185
  59,833
Operating income, $m
  175
  320
  428
  559
  716
  900
  1,114
  1,357
  1,631
  1,935
  2,270
  2,634
  3,028
  3,450
  3,901
  4,379
  4,883
  5,414
  5,971
  6,554
  7,162
  7,796
  8,457
  9,143
  9,857
  10,600
  11,371
  12,172
  13,005
  13,871
  14,772
EBITDA, $m
  175
  458
  611
  799
  1,023
  1,287
  1,593
  1,941
  2,332
  2,767
  3,245
  3,766
  4,329
  4,933
  5,577
  6,260
  6,982
  7,741
  8,538
  9,371
  10,240
  11,147
  12,091
  13,073
  14,094
  15,155
  16,258
  17,404
  18,595
  19,833
  21,121
Interest expense (income), $m
  19
  22
  452
  1,051
  1,783
  2,659
  3,689
  4,881
  6,238
  7,765
  9,462
  11,327
  13,360
  15,556
  17,913
  20,426
  23,092
  25,907
  28,869
  31,976
  35,227
  38,620
  42,158
  45,841
  49,672
  53,656
  57,796
  62,098
  66,569
  71,215
  76,046
Earnings before tax, $m
  153
  299
  -25
  -493
  -1,067
  -1,759
  -2,575
  -3,523
  -4,607
  -5,830
  -7,192
  -8,693
  -10,332
  -12,106
  -14,012
  -16,047
  -18,208
  -20,493
  -22,898
  -25,422
  -28,065
  -30,824
  -33,701
  -36,698
  -39,815
  -43,056
  -46,425
  -49,926
  -53,563
  -57,344
  -61,275
Tax expense, $m
  56
  81
  0
  0
  0
  0
  0
  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
  97
  218
  -25
  -493
  -1,067
  -1,759
  -2,575
  -3,523
  -4,607
  -5,830
  -7,192
  -8,693
  -10,332
  -12,106
  -14,012
  -16,047
  -18,208
  -20,493
  -22,898
  -25,422
  -28,065
  -30,824
  -33,701
  -36,698
  -39,815
  -43,056
  -46,425
  -49,926
  -53,563
  -57,344
  -61,275

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
  27,035
  36,754
  49,077
  64,133
  82,160
  103,356
  127,870
  155,805
  187,219
  222,127
  260,514
  302,334
  347,527
  396,017
  447,728
  502,583
  560,515
  621,466
  685,394
  752,275
  822,102
  894,891
  970,676
  1,049,511
  1,131,473
  1,216,657
  1,305,178
  1,397,169
  1,492,782
  1,592,187
  1,695,569
Adjusted assets (=assets-cash), $m
  27,035
  36,754
  49,077
  64,133
  82,160
  103,356
  127,870
  155,805
  187,219
  222,127
  260,514
  302,334
  347,527
  396,017
  447,728
  502,583
  560,515
  621,466
  685,394
  752,275
  822,102
  894,891
  970,676
  1,049,511
  1,131,473
  1,216,657
  1,305,178
  1,397,169
  1,492,782
  1,592,187
  1,695,569
Revenue / Adjusted assets
  0.000
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
  0.044
Average production assets, $m
  1,007
  1,376
  1,838
  2,401
  3,076
  3,870
  4,788
  5,834
  7,010
  8,317
  9,755
  11,321
  13,013
  14,828
  16,765
  18,819
  20,988
  23,270
  25,664
  28,168
  30,783
  33,508
  36,346
  39,298
  42,367
  45,557
  48,871
  52,316
  55,896
  59,618
  63,489
Working capital, $m
  0
  137
  184
  240
  307
  387
  478
  583
  700
  831
  974
  1,131
  1,300
  1,481
  1,675
  1,880
  2,096
  2,324
  2,563
  2,814
  3,075
  3,347
  3,630
  3,925
  4,232
  4,550
  4,881
  5,225
  5,583
  5,955
  6,341
Total debt, $m
  400
  8,377
  19,468
  33,018
  49,243
  68,319
  90,382
  115,524
  143,796
  175,214
  209,761
  247,400
  288,073
  331,714
  378,254
  427,624
  479,762
  534,618
  592,153
  652,346
  715,191
  780,701
  848,907
  919,859
  993,625
  1,070,291
  1,149,959
  1,232,751
  1,318,803
  1,408,267
  1,501,311
Total liabilities, $m
  25,101
  33,078
  44,169
  57,719
  73,944
  93,020
  115,083
  140,225
  168,497
  199,915
  234,462
  272,101
  312,774
  356,415
  402,955
  452,325
  504,463
  559,319
  616,854
  677,047
  739,892
  805,402
  873,608
  944,560
  1,018,326
  1,094,992
  1,174,660
  1,257,452
  1,343,504
  1,432,968
  1,526,012
Total equity, $m
  1,934
  3,675
  4,908
  6,413
  8,216
  10,336
  12,787
  15,581
  18,722
  22,213
  26,051
  30,233
  34,753
  39,602
  44,773
  50,258
  56,051
  62,147
  68,539
  75,227
  82,210
  89,489
  97,068
  104,951
  113,147
  121,666
  130,518
  139,717
  149,278
  159,219
  169,557
Total liabilities and equity, $m
  27,035
  36,753
  49,077
  64,132
  82,160
  103,356
  127,870
  155,806
  187,219
  222,128
  260,513
  302,334
  347,527
  396,017
  447,728
  502,583
  560,514
  621,466
  685,393
  752,274
  822,102
  894,891
  970,676
  1,049,511
  1,131,473
  1,216,658
  1,305,178
  1,397,169
  1,492,782
  1,592,187
  1,695,569
Debt-to-equity ratio
  0.207
  2.280
  3.970
  5.150
  5.990
  6.610
  7.070
  7.410
  7.680
  7.890
  8.050
  8.180
  8.290
  8.380
  8.450
  8.510
  8.560
  8.600
  8.640
  8.670
  8.700
  8.720
  8.750
  8.760
  8.780
  8.800
  8.810
  8.820
  8.830
  8.840
  8.850
Adjusted equity ratio
  0.072
  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
  97
  218
  -25
  -493
  -1,067
  -1,759
  -2,575
  -3,523
  -4,607
  -5,830
  -7,192
  -8,693
  -10,332
  -12,106
  -14,012
  -16,047
  -18,208
  -20,493
  -22,898
  -25,422
  -28,065
  -30,824
  -33,701
  -36,698
  -39,815
  -43,056
  -46,425
  -49,926
  -53,563
  -57,344
  -61,275
Depreciation, amort., depletion, $m
  0
  138
  184
  240
  308
  387
  479
  583
  701
  832
  975
  1,132
  1,301
  1,483
  1,676
  1,882
  2,099
  2,327
  2,566
  2,817
  3,078
  3,351
  3,635
  3,930
  4,237
  4,556
  4,887
  5,232
  5,590
  5,962
  6,349
Funds from operations, $m
  85
  356
  159
  -252
  -760
  -1,372
  -2,096
  -2,940
  -3,906
  -4,998
  -6,216
  -7,561
  -9,031
  -10,623
  -12,336
  -14,165
  -16,110
  -18,166
  -20,332
  -22,606
  -24,986
  -27,473
  -30,067
  -32,768
  -35,578
  -38,501
  -41,538
  -44,694
  -47,974
  -51,382
  -54,926
Change in working capital, $m
  -280
  37
  46
  56
  67
  79
  92
  104
  117
  131
  144
  156
  169
  181
  193
  205
  217
  228
  239
  250
  261
  272
  283
  295
  307
  319
  331
  344
  358
  372
  387
Cash from operations, $m
  365
  319
  113
  -309
  -827
  -1,451
  -2,188
  -3,044
  -4,024
  -5,129
  -6,360
  -7,718
  -9,200
  -10,804
  -12,529
  -14,371
  -16,326
  -18,394
  -20,571
  -22,856
  -25,247
  -27,745
  -30,350
  -33,063
  -35,885
  -38,819
  -41,869
  -45,038
  -48,331
  -51,754
  -55,312
Maintenance CAPEX, $m
  0
  -101
  -138
  -184
  -240
  -308
  -387
  -479
  -583
  -701
  -832
  -975
  -1,132
  -1,301
  -1,483
  -1,676
  -1,882
  -2,099
  -2,327
  -2,566
  -2,817
  -3,078
  -3,351
  -3,635
  -3,930
  -4,237
  -4,556
  -4,887
  -5,232
  -5,590
  -5,962
New CAPEX, $m
  -8
  -369
  -461
  -564
  -675
  -794
  -918
  -1,046
  -1,176
  -1,307
  -1,437
  -1,566
  -1,692
  -1,816
  -1,936
  -2,054
  -2,169
  -2,282
  -2,394
  -2,504
  -2,615
  -2,726
  -2,838
  -2,952
  -3,069
  -3,190
  -3,315
  -3,445
  -3,580
  -3,722
  -3,871
Cash from investing activities, $m
  -1,186
  -470
  -599
  -748
  -915
  -1,102
  -1,305
  -1,525
  -1,759
  -2,008
  -2,269
  -2,541
  -2,824
  -3,117
  -3,419
  -3,730
  -4,051
  -4,381
  -4,721
  -5,070
  -5,432
  -5,804
  -6,189
  -6,587
  -6,999
  -7,427
  -7,871
  -8,332
  -8,812
  -9,312
  -9,833
Free cash flow, $m
  -821
  -151
  -486
  -1,056
  -1,742
  -2,552
  -3,493
  -4,569
  -5,783
  -7,137
  -8,629
  -10,259
  -12,024
  -13,921
  -15,948
  -18,101
  -20,377
  -22,775
  -25,292
  -27,926
  -30,679
  -33,549
  -36,539
  -39,649
  -42,884
  -46,245
  -49,739
  -53,370
  -57,143
  -61,066
  -65,145
Issuance/(repayment) of debt, $m
  1,197
  7,977
  11,091
  13,550
  16,224
  19,076
  22,063
  25,142
  28,272
  31,418
  34,548
  37,639
  40,673
  43,641
  46,540
  49,370
  52,138
  54,856
  57,535
  60,193
  62,845
  65,510
  68,206
  70,952
  73,766
  76,666
  79,669
  82,792
  86,052
  89,464
  93,044
Issuance/(repurchase) of shares, $m
  1
  1,523
  1,257
  1,998
  2,870
  3,878
  5,027
  6,317
  7,749
  9,321
  11,031
  12,875
  14,851
  16,955
  19,183
  21,533
  24,002
  26,588
  29,291
  32,111
  35,047
  38,103
  41,280
  44,581
  48,011
  51,575
  55,277
  59,125
  63,125
  67,285
  71,613
Cash from financing (excl. dividends), $m  
  1,198
  9,500
  12,348
  15,548
  19,094
  22,954
  27,090
  31,459
  36,021
  40,739
  45,579
  50,514
  55,524
  60,596
  65,723
  70,903
  76,140
  81,444
  86,826
  92,304
  97,892
  103,613
  109,486
  115,533
  121,777
  128,241
  134,946
  141,917
  149,177
  156,749
  164,657
Total cash flow (excl. dividends), $m
  377
  9,349
  11,862
  14,492
  17,352
  20,402
  23,597
  26,889
  30,237
  33,602
  36,949
  40,255
  43,500
  46,675
  49,775
  52,802
  55,763
  58,669
  61,535
  64,377
  67,213
  70,064
  72,947
  75,884
  78,893
  81,995
  85,207
  88,547
  92,033
  95,683
  99,512
Retained Cash Flow (-), $m
  -432
  -1,741
  -1,257
  -1,998
  -2,870
  -3,878
  -5,027
  -6,317
  -7,749
  -9,321
  -11,031
  -12,875
  -14,851
  -16,955
  -19,183
  -21,533
  -24,002
  -26,588
  -29,291
  -32,111
  -35,047
  -38,103
  -41,280
  -44,581
  -48,011
  -51,575
  -55,277
  -59,125
  -63,125
  -67,285
  -71,613
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
 
  7,608
  10,605
  12,494
  14,482
  16,524
  18,570
  20,573
  22,489
  24,281
  25,919
  27,380
  28,649
  29,720
  30,592
  31,269
  31,761
  32,081
  32,244
  32,266
  32,166
  31,961
  31,667
  31,303
  30,882
  30,420
  29,930
  29,422
  28,909
  28,398
  27,899
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
 
  7,294
  9,708
  10,873
  11,925
  12,808
  13,477
  13,899
  14,056
  13,948
  13,588
  13,002
  12,226
  11,300
  10,270
  9,180
  8,071
  6,980
  5,938
  4,968
  4,087
  3,306
  2,628
  2,052
  1,573
  1,183
  873
  631
  447
  310
  210
Current shareholders' claim on cash, %
  100
  54.7
  40.3
  28.2
  19.2
  12.8
  8.5
  5.6
  3.7
  2.4
  1.6
  1.0
  0.7
  0.5
  0.3
  0.2
  0.1
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Fidelity & Guaranty Life (FGL) is a holding company focused on obtaining controlling equity stakes in companies that operate across various industries. FGL's primary business is the sale of individual life insurance products and annuities through independent agents, managing general agents, and specialty brokerage firms and in selected institutional markets. FGL's principal products are deferred annuities (including fixed indexed annuity (FIA) contracts), immediate annuities and life insurance products. FGL markets products through its insurance subsidiaries, Fidelity & Guaranty Life Insurance Company (FGL Insurance) and Fidelity & Guaranty Life Insurance Company of New York (FGL NY Insurance). It distributes and services primarily fixed rate annuities, including FIAs. The Company provides FIA's for pre-retirement wealth accumulation and post-retirement income management. Its life insurance provides wealth protection and transfer opportunities through indexed universal life products.

FINANCIAL RATIOS  of  Fidelity&Guaranty Life (FGL)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 1.5
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 5.1
Growth Rates
Sales Growth Rate 13.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.3%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 15.5%
Total Debt to Equity 20.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 0.4%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 4.7%
Ret/ On T. Cap. - 3 Yr. Avg. 6.9%
Return On Equity 5.6%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 14.5%
EBITDA Margin - 3 Yr. Avg. 19.5%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 17.4%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 15.4%
Net Profit Margin 8.2%
Net Profit Margin - 3 Yr. Avg. 11.1%
Effective Tax Rate 36.6%
Eff/ Tax Rate - 3 Yr. Avg. 28.5%
Payout Ratio 15.5%

FGL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FGL stock intrinsic value calculation we used $1183 million for the last fiscal year's total revenue generated by Fidelity&Guaranty Life. The default revenue input number comes from 2016 income statement of Fidelity&Guaranty Life. 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 FGL stock valuation model: a) initial revenue growth rate of 36.7% 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 FGL is calculated based on our internal credit rating of Fidelity&Guaranty Life, 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 Fidelity&Guaranty Life.
    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 FGL stock the variable cost ratio is equal to 80.2%.

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 FGL 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 Fidelity&Guaranty Life.

Corporate tax rate of 27% is the nominal tax rate for Fidelity&Guaranty Life. 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 FGL 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 FGL are equal to 85.1%.

Life of production assets of 10 years is the average useful life of capital assets used in Fidelity&Guaranty Life 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 FGL is equal to 8.5%. 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 - $1934 million for Fidelity&Guaranty Life - 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 58.974 million for Fidelity&Guaranty Life 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 Fidelity&Guaranty Life at the current share price and the inputted number of shares is $1.8 billion.

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COMPANY NEWS

▶ Fidelity & Guaranty posts 4Q profit   [Nov-15-17 04:44PM  Associated Press]
▶ Fidelity & Guaranty Life Declares Quarterly Dividend   [Nov-09-17 04:51PM  PR Newswire]
▶ Fidelity & Guaranty posts 3Q profit   [Aug-02-17 11:04PM  Associated Press]
▶ China insurance mogul said unable to work, reported detained   [Jun-14-17 06:32AM  Associated Press]
▶ [$$] CF Corp to Buy Fidelity & Guaranty Life   [08:44AM  The Wall Street Journal]
▶ Fidelity & Guaranty posts 2Q profit   [May-03-17 07:43PM  Associated Press]
▶ FGL Scraps $1.6B Anbang Deal   [09:36PM  Bloomberg]
▶ Top Ranked Value Stocks to Buy for March 31st   [Mar-31-17 10:46AM  Zacks]
▶ [$$] Deadline Extended for Fidelity & Guaranty, Anbang Deal   [Feb-09-17 06:06PM  at The Wall Street Journal]
▶ HRG Group, Inc. Reports First Quarter Results   [Feb-07-17 04:30PM  PR Newswire]
Financial statements of FGL
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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