Intrinsic value of Medley Management Cl A - MDLY

Previous Close

$5.90

  Intrinsic Value

$3.80

stock screener

  Rating & Target

sell

-36%

  Value-price divergence*

-78%

Previous close

$5.90

 
Intrinsic value

$3.80

 
Up/down potential

-36%

 
Rating

sell

 
Value-price divergence*

-78%

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

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

We calculate the intrinsic value of MDLY 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, %
  13.43
  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
  76
  78
  79
  81
  84
  86
  89
  92
  95
  99
  103
  107
  111
  116
  120
  126
  131
  137
  143
  150
  157
  164
  171
  180
  188
  197
  206
  216
  227
  238
  249
Variable operating expenses, $m
 
  42
  43
  44
  45
  46
  48
  50
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
  134
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
  56
  42
  43
  44
  45
  46
  48
  50
  51
  53
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
  134
Operating income, $m
  20
  36
  37
  37
  39
  40
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
EBITDA, $m
  21
  36
  37
  38
  39
  40
  42
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  97
  101
  106
  111
  117
Interest expense (income), $m
  8
  8
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
Earnings before tax, $m
  11
  28
  33
  34
  35
  36
  37
  38
  39
  41
  42
  44
  46
  48
  49
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
Tax expense, $m
  1
  7
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
Net income, $m
  1
  20
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  50
  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
  122
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  187
  195
  205
  215
  225
  236
Adjusted assets (=assets-cash), $m
  72
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  148
  155
  162
  170
  178
  187
  195
  205
  215
  225
  236
Revenue / Adjusted assets
  1.056
  1.068
  1.053
  1.052
  1.063
  1.049
  1.060
  1.057
  1.056
  1.053
  1.062
  1.059
  1.057
  1.064
  1.053
  1.059
  1.056
  1.054
  1.051
  1.056
  1.061
  1.058
  1.056
  1.059
  1.056
  1.053
  1.056
  1.054
  1.056
  1.058
  1.055
Average production assets, $m
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Working capital, $m
  0
  -51
  -52
  -54
  -55
  -57
  -59
  -61
  -63
  -65
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -103
  -108
  -113
  -118
  -124
  -130
  -136
  -142
  -149
  -156
  -164
Total debt, $m
  102
  44
  46
  47
  49
  51
  54
  56
  59
  62
  65
  69
  73
  76
  81
  85
  90
  95
  100
  106
  111
  118
  124
  131
  138
  146
  154
  162
  171
  181
  190
Total liabilities, $m
  124
  66
  68
  69
  71
  73
  76
  78
  81
  84
  87
  91
  95
  98
  103
  107
  112
  117
  122
  128
  133
  140
  146
  153
  160
  168
  176
  184
  193
  203
  212
Total equity, $m
  -2
  7
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  20
  21
  23
  24
Total liabilities and equity, $m
  122
  73
  76
  77
  79
  81
  84
  87
  90
  93
  97
  101
  106
  109
  114
  119
  124
  130
  136
  142
  148
  156
  162
  170
  178
  187
  196
  204
  214
  226
  236
Debt-to-equity ratio
  -51.000
  6.000
  6.070
  6.140
  6.220
  6.300
  6.390
  6.470
  6.560
  6.650
  6.740
  6.820
  6.910
  6.990
  7.070
  7.150
  7.230
  7.300
  7.380
  7.450
  7.520
  7.580
  7.650
  7.710
  7.760
  7.820
  7.870
  7.930
  7.980
  8.020
  8.070
Adjusted equity ratio
  -0.722
  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
  1
  20
  24
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  12
  21
  25
  25
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  75
Change in working capital, $m
  -2
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
Cash from operations, $m
  14
  22
  26
  27
  28
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  -2
  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
  -17
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
Free cash flow, $m
  -3
  21
  25
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  53
  56
  58
  61
  64
  67
  70
  73
  77
  81
Issuance/(repayment) of debt, $m
  2
  -58
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Issuance/(repurchase) of shares, $m
  -1
  39
  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  
  -8
  -19
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
Total cash flow (excl. dividends), $m
  -11
  2
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
  68
  72
  75
  79
  82
  86
  91
Retained Cash Flow (-), $m
  2
  -59
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Prev. year cash balance distribution, $m
 
  50
  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
  27
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  64
  67
  71
  74
  78
  81
  85
  89
Discount rate, %
 
  7.30
  7.67
  8.05
  8.45
  8.87
  9.32
  9.78
  10.27
  10.79
  11.32
  11.89
  12.49
  13.11
  13.77
  14.45
  15.18
  15.93
  16.73
  17.57
  18.45
  19.37
  20.34
  21.35
  22.42
  23.54
  24.72
  25.96
  27.25
  28.62
  30.05
PV of cash for distribution, $m
 
  -6
  23
  22
  21
  19
  18
  17
  15
  14
  12
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
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Medley Management Inc. is an asset management firm offering yield solutions to retail and institutional investors. The Company operates in the investment management segment. It is focused on credit-related investment strategies, primarily originating senior secured loans to private middle market companies in the United States. The Company generally holds these loans to maturity. Its national direct origination franchise provides capital to the middle market in the United States. The Company has over $4.8 billion of assets under management (AUM) in approximately two business development companies (BDCs), Medley Capital Corporation (MCC) and Sierra Income Corporation (SIC), as well as private investment vehicles. It has over $5 billion of AUM. The Company provides capital to over 300 companies across approximately 35 industries in North America. The Company's long-dated private funds include MOF I, MOF II and MOF III. Its private funds are managed through partnership structures

FINANCIAL RATIOS  of  Medley Management Cl A (MDLY)

Valuation Ratios
P/E Ratio 34.3
Price to Sales 0.5
Price to Book -17.1
Price to Tangible Book
Price to Cash Flow 2.4
Price to Free Cash Flow 2.9
Growth Rates
Sales Growth Rate 13.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity -5100%
Total Debt to Equity -5100%
Interest Coverage 2
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital 1%
Ret/ On T. Cap. - 3 Yr. Avg. 1.3%
Return On Equity -100%
Return On Equity - 3 Yr. Avg. -200%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 100%
Gross Margin - 3 Yr. Avg. 104%
EBITDA Margin 26.3%
EBITDA Margin - 3 Yr. Avg. 58.9%
Operating Margin 26.3%
Oper. Margin - 3 Yr. Avg. 40.4%
Pre-Tax Margin 14.5%
Pre-Tax Margin - 3 Yr. Avg. 49.6%
Net Profit Margin 1.3%
Net Profit Margin - 3 Yr. Avg. 2.9%
Effective Tax Rate 9.1%
Eff/ Tax Rate - 3 Yr. Avg. 7.3%
Payout Ratio 600%

MDLY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MDLY stock intrinsic value calculation we used $76 million for the last fiscal year's total revenue generated by Medley Management Cl A. The default revenue input number comes from 2016 income statement of Medley Management 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 MDLY 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 7.3%, whose default value for MDLY is calculated based on our internal credit rating of Medley Management 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 Medley Management 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 MDLY stock the variable cost ratio is equal to 53.9%.

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 MDLY 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 7.9% for Medley Management Cl A.

Corporate tax rate of 27% is the nominal tax rate for Medley Management 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 MDLY 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 MDLY are equal to 3.9%.

Life of production assets of 3 years is the average useful life of capital assets used in Medley Management 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 MDLY is equal to -65.8%. 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 - $-2 million for Medley Management 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 28.653 million for Medley Management 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 Medley Management Cl A at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ [$$] Sierra Income Supports CI Capital's Acquisition of Summit Cos.   [Sep-27-17 02:49PM  The Wall Street Journal]
▶ Allyson Kaufman Joins Medley as a Managing Director   [Aug-15-17 10:36AM  GlobeNewswire]
▶ Medley Capital: Don't Fall for Insider Buying   [Aug-02-17 08:15AM  Motley Fool]
▶ Sierra Income Corporation Announces Q3 2017 Distributions   [Jul-12-17 04:05PM  Business Wire]
▶ Sierra Income Corporation Announces Q2 2017 Distributions   [Apr-13-17 05:28PM  Business Wire]
▶ Medley Promotes David Indelicato to Head of Credit   [Feb-02-17 10:10AM  GlobeNewswire]
▶ Medley Promotes Howard Liao to Senior Managing Director   [Feb-01-17 10:27AM  GlobeNewswire]
▶ Medley Launches Sierra Total Return Fund   [Jan-31-17 09:00AM  Business Wire]
▶ Sierra Income Corporation Announces Q1 2017 Distributions   [Jan-13-17 12:14PM  Business Wire]
▶ Medley Wins Debt Financing of the Year   [Dec-14-16 10:55AM  GlobeNewswire]
▶ Medley Named Lender of the Year   [09:40AM  GlobeNewswire]
▶ Medley Wins Favorable Settlement in MusclePharm Litigation   [Nov-07-16 11:10PM  GlobeNewswire]
▶ Sierra Income Corporation Announces Q4 2016 Distributions   [Oct-05-16 12:41PM  Business Wire]
Financial statements of MDLY
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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