Intrinsic value of HFF Cl A - HF

Previous Close

$38.10

  Intrinsic Value

$44.42

stock screener

  Rating & Target

hold

+17%

  Value-price divergence*

-42%

Previous close

$38.10

 
Intrinsic value

$44.42

 
Up/down potential

+17%

 
Rating

hold

 
Value-price divergence*

-42%

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

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

We calculate the intrinsic value of HF 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 1.5

 

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, %
  2.99
  16.10
  14.99
  13.99
  13.09
  12.28
  11.55
  10.90
  10.31
  9.78
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
Revenue, $m
  517
  600
  690
  787
  890
  999
  1,115
  1,236
  1,363
  1,497
  1,636
  1,781
  1,932
  2,089
  2,253
  2,423
  2,599
  2,782
  2,973
  3,171
  3,377
  3,592
  3,815
  4,048
  4,290
  4,542
  4,805
  5,080
  5,367
  5,667
  5,979
Variable operating expenses, $m
 
  471
  542
  617
  698
  784
  874
  970
  1,070
  1,174
  1,283
  1,397
  1,515
  1,638
  1,767
  1,900
  2,038
  2,182
  2,332
  2,487
  2,649
  2,817
  2,992
  3,174
  3,364
  3,562
  3,769
  3,984
  4,209
  4,444
  4,689
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
  422
  471
  542
  617
  698
  784
  874
  970
  1,070
  1,174
  1,283
  1,397
  1,515
  1,638
  1,767
  1,900
  2,038
  2,182
  2,332
  2,487
  2,649
  2,817
  2,992
  3,174
  3,364
  3,562
  3,769
  3,984
  4,209
  4,444
  4,689
Operating income, $m
  96
  129
  149
  169
  192
  215
  240
  266
  294
  323
  353
  384
  417
  451
  486
  523
  561
  600
  642
  684
  729
  775
  823
  873
  926
  980
  1,037
  1,096
  1,158
  1,223
  1,290
EBITDA, $m
  108
  140
  161
  184
  208
  234
  261
  289
  319
  350
  383
  417
  452
  489
  527
  567
  608
  651
  696
  742
  790
  840
  893
  947
  1,004
  1,063
  1,124
  1,189
  1,256
  1,326
  1,399
Interest expense (income), $m
  9
  2
  3
  5
  6
  8
  10
  12
  14
  16
  18
  20
  23
  25
  28
  31
  33
  36
  39
  42
  46
  49
  53
  56
  60
  64
  68
  73
  77
  82
  87
Earnings before tax, $m
  128
  127
  145
  165
  185
  207
  230
  254
  280
  307
  334
  364
  394
  426
  458
  492
  527
  564
  602
  642
  683
  726
  770
  817
  865
  916
  968
  1,023
  1,081
  1,141
  1,203
Tax expense, $m
  51
  34
  39
  44
  50
  56
  62
  69
  76
  83
  90
  98
  106
  115
  124
  133
  142
  152
  163
  173
  184
  196
  208
  221
  234
  247
  261
  276
  292
  308
  325
Net income, $m
  77
  93
  106
  120
  135
  151
  168
  186
  204
  224
  244
  266
  288
  311
  334
  359
  385
  412
  440
  468
  499
  530
  562
  596
  632
  669
  707
  747
  789
  833
  878

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  236
  0
  0
  0
  0
  0
  0
  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
  717
  558
  642
  732
  828
  929
  1,037
  1,150
  1,268
  1,392
  1,522
  1,657
  1,797
  1,944
  2,096
  2,254
  2,418
  2,588
  2,766
  2,950
  3,142
  3,341
  3,549
  3,765
  3,990
  4,225
  4,470
  4,726
  4,993
  5,271
  5,562
Adjusted assets (=assets-cash), $m
  481
  558
  642
  732
  828
  929
  1,037
  1,150
  1,268
  1,392
  1,522
  1,657
  1,797
  1,944
  2,096
  2,254
  2,418
  2,588
  2,766
  2,950
  3,142
  3,341
  3,549
  3,765
  3,990
  4,225
  4,470
  4,726
  4,993
  5,271
  5,562
Revenue / Adjusted assets
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
  1.075
Average production assets, $m
  47
  55
  63
  72
  81
  91
  101
  112
  124
  136
  149
  162
  176
  190
  205
  220
  237
  253
  271
  289
  307
  327
  347
  368
  390
  413
  437
  462
  488
  516
  544
Working capital, $m
  175
  267
  307
  350
  396
  445
  496
  550
  607
  666
  728
  793
  860
  930
  1,002
  1,078
  1,157
  1,238
  1,323
  1,411
  1,503
  1,598
  1,698
  1,801
  1,909
  2,021
  2,138
  2,261
  2,388
  2,522
  2,661
Total debt, $m
  292
  95
  138
  183
  232
  283
  338
  395
  455
  518
  584
  652
  723
  797
  874
  955
  1,038
  1,124
  1,214
  1,308
  1,405
  1,506
  1,611
  1,721
  1,835
  1,954
  2,078
  2,208
  2,343
  2,484
  2,632
Total liabilities, $m
  480
  283
  326
  371
  420
  471
  526
  583
  643
  706
  772
  840
  911
  985
  1,062
  1,143
  1,226
  1,312
  1,402
  1,496
  1,593
  1,694
  1,799
  1,909
  2,023
  2,142
  2,266
  2,396
  2,531
  2,672
  2,820
Total equity, $m
  237
  275
  317
  361
  408
  458
  511
  567
  625
  686
  750
  817
  886
  958
  1,033
  1,111
  1,192
  1,276
  1,363
  1,454
  1,549
  1,647
  1,750
  1,856
  1,967
  2,083
  2,204
  2,330
  2,461
  2,599
  2,742
Total liabilities and equity, $m
  717
  558
  643
  732
  828
  929
  1,037
  1,150
  1,268
  1,392
  1,522
  1,657
  1,797
  1,943
  2,095
  2,254
  2,418
  2,588
  2,765
  2,950
  3,142
  3,341
  3,549
  3,765
  3,990
  4,225
  4,470
  4,726
  4,992
  5,271
  5,562
Debt-to-equity ratio
  1.232
  0.350
  0.430
  0.510
  0.570
  0.620
  0.660
  0.700
  0.730
  0.750
  0.780
  0.800
  0.820
  0.830
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.910
  0.920
  0.930
  0.930
  0.940
  0.940
  0.950
  0.950
  0.960
  0.960
Adjusted equity ratio
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493
  0.493

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  77
  93
  106
  120
  135
  151
  168
  186
  204
  224
  244
  266
  288
  311
  334
  359
  385
  412
  440
  468
  499
  530
  562
  596
  632
  669
  707
  747
  789
  833
  878
Depreciation, amort., depletion, $m
  12
  11
  13
  15
  17
  19
  21
  23
  25
  28
  30
  32
  35
  38
  41
  44
  47
  51
  54
  58
  61
  65
  69
  74
  78
  83
  87
  92
  98
  103
  109
Funds from operations, $m
  57
  104
  119
  135
  152
  170
  189
  209
  230
  251
  274
  298
  323
  349
  375
  403
  432
  462
  494
  526
  560
  595
  632
  670
  710
  751
  794
  840
  887
  936
  987
Change in working capital, $m
  -22
  37
  40
  43
  46
  49
  51
  54
  57
  59
  62
  65
  67
  70
  73
  76
  79
  82
  85
  88
  92
  95
  99
  103
  108
  112
  117
  122
  128
  133
  139
Cash from operations, $m
  79
  67
  79
  92
  106
  121
  137
  155
  173
  192
  212
  233
  256
  279
  303
  328
  354
  381
  409
  438
  468
  500
  533
  567
  602
  639
  677
  717
  759
  803
  848
Maintenance CAPEX, $m
  0
  -9
  -11
  -13
  -14
  -16
  -18
  -20
  -22
  -25
  -27
  -30
  -32
  -35
  -38
  -41
  -44
  -47
  -51
  -54
  -58
  -61
  -65
  -69
  -74
  -78
  -83
  -87
  -92
  -98
  -103
New CAPEX, $m
  -5
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
Cash from investing activities, $m
  -5
  -17
  -19
  -22
  -23
  -26
  -29
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -53
  -56
  -60
  -64
  -68
  -72
  -77
  -81
  -85
  -90
  -96
  -101
  -107
  -112
  -118
  -125
  -131
Free cash flow, $m
  74
  50
  60
  71
  82
  95
  109
  123
  139
  155
  172
  190
  209
  229
  250
  271
  294
  317
  341
  366
  392
  419
  447
  476
  506
  538
  571
  605
  640
  678
  716
Issuance/(repayment) of debt, $m
  -1
  39
  42
  46
  49
  52
  54
  57
  60
  63
  66
  68
  71
  74
  77
  80
  83
  87
  90
  93
  97
  101
  105
  110
  114
  119
  124
  130
  135
  141
  148
Issuance/(repurchase) of shares, $m
  -3
  0
  0
  0
  0
  0
  0
  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  
  -4
  39
  42
  46
  49
  52
  54
  57
  60
  63
  66
  68
  71
  74
  77
  80
  83
  87
  90
  93
  97
  101
  105
  110
  114
  119
  124
  130
  135
  141
  148
Total cash flow (excl. dividends), $m
  70
  89
  102
  116
  131
  147
  163
  181
  199
  218
  238
  259
  281
  303
  327
  351
  377
  403
  431
  459
  489
  520
  552
  586
  621
  657
  695
  734
  776
  819
  864
Retained Cash Flow (-), $m
  -22
  -38
  -41
  -44
  -47
  -50
  -53
  -56
  -58
  -61
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -95
  -98
  -102
  -107
  -111
  -116
  -121
  -126
  -132
  -137
  -144
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
 
  51
  61
  72
  84
  96
  110
  125
  140
  157
  174
  192
  211
  231
  252
  274
  296
  319
  343
  368
  395
  422
  450
  479
  509
  541
  574
  608
  644
  681
  720
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
 
  49
  56
  62
  69
  75
  80
  84
  88
  90
  91
  91
  90
  88
  85
  80
  75
  69
  63
  57
  50
  44
  37
  31
  26
  21
  17
  13
  10
  7
  5
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

HFF, Inc. is a holding company. The Company holds the partnership interests in Holliday Fenoglio Fowler, L.P. and HFF Securities L.P. (together, the Operating Partnerships), held through the subsidiary HFF Partnership Holdings, LLC, and all of the outstanding shares of Holliday GP Corp. (Holliday GP). The Company operates through the commercial real estate financial intermediary segment. It offers debt placement, investment sales, distressed debt and real estate owned advisory services, equity placement, investment banking and advisory services, loan sales and commercial loan servicing. Its fully-integrated national capital markets platform, coupled with its knowledge of the commercial real estate markets provides an range of capital markets services, including Debt placement; Investment sales; Distressed debt and real estate owned advisory services; Equity placement; Investment banking and advisory services; Loan sales; and Commercial loan servicing.

FINANCIAL RATIOS  of  HFF Cl A (HF)

Valuation Ratios
P/E Ratio 18.8
Price to Sales 2.8
Price to Book 6.1
Price to Tangible Book
Price to Cash Flow 18.4
Price to Free Cash Flow 19.6
Growth Rates
Sales Growth Rate 3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.7%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 0.4%
Total Debt to Equity 123.2%
Interest Coverage 15
Management Effectiveness
Return On Assets 11.3%
Ret/ On Assets - 3 Yr. Avg. 11.9%
Return On Total Capital 14.5%
Ret/ On T. Cap. - 3 Yr. Avg. 17.3%
Return On Equity 34.1%
Return On Equity - 3 Yr. Avg. 36.6%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 43.7%
Gross Margin - 3 Yr. Avg. 43.6%
EBITDA Margin 28.8%
EBITDA Margin - 3 Yr. Avg. 29%
Operating Margin 18.4%
Oper. Margin - 3 Yr. Avg. 19.9%
Pre-Tax Margin 24.8%
Pre-Tax Margin - 3 Yr. Avg. 25.8%
Net Profit Margin 14.9%
Net Profit Margin - 3 Yr. Avg. 15.3%
Effective Tax Rate 39.8%
Eff/ Tax Rate - 3 Yr. Avg. 40.7%
Payout Ratio 88.3%

HF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HF stock intrinsic value calculation we used $517 million for the last fiscal year's total revenue generated by HFF Cl A. The default revenue input number comes from 2016 income statement of HFF 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 HF stock valuation model: a) initial revenue growth rate of 16.1% 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 HF is calculated based on our internal credit rating of HFF 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 HFF 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 HF stock the variable cost ratio is equal to 78.5%.

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 HF 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 HFF Cl A.

Corporate tax rate of 27% is the nominal tax rate for HFF 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 HF 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 HF are equal to 9.1%.

Life of production assets of 4.3 years is the average useful life of capital assets used in HFF 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 HF is equal to 44.5%. 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 - $237 million for HFF 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 38.649 million for HFF 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 HFF Cl A at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ Pittsburgh Draws a Big Bet on Downtown Revival   [Sep-19-17 06:14PM  The Wall Street Journal]
▶ ETFs with exposure to HFF, Inc. : September 18, 2017   [Sep-18-17 05:57PM  Capital Cube]
▶ HFF Arranges $150 Million Financing for MILA in Chicago   [Aug-14-17 04:21PM  Business Wire]
▶ HFF posts 2Q profit   [Jul-27-17 11:51PM  Associated Press]
▶ HFF Closes Sale of Alexan Melrose in San Diego Area   [Jun-20-17 04:19PM  Business Wire]
▶ ETFs with exposure to HFF, Inc. : June 13, 2017   [Jun-13-17 12:35PM  Capital Cube]
▶ Why HFF, Inc. Stock Just Jumped 12%   [01:44PM  Motley Fool]
▶ HFF posts 1Q profit   [Apr-26-17 06:12PM  Associated Press]
▶ HFF Acquires Hentschel & Company in New York City   [Mar-29-17 10:47AM  Business Wire]
▶ 3 Reasons to Go Long on HFF   [Mar-16-17 02:18PM  TheStreet.com]
Financial statements of HF
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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