Intrinsic value of Marlin Business Services - MRLN

Previous Close

$28.95

  Intrinsic Value

$40.54

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  Rating & Target

buy

+40%

Previous close

$28.95

 
Intrinsic value

$40.54

 
Up/down potential

+40%

 
Rating

buy

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

We calculate the intrinsic value of MRLN 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 0.4

 

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, %
  9.76
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
Revenue, $m
  90
  102
  115
  129
  144
  159
  175
  192
  209
  227
  246
  266
  286
  308
  330
  353
  377
  401
  427
  454
  482
  511
  542
  573
  606
  641
  677
  715
  754
  795
  838
Variable operating expenses, $m
 
  64
  72
  80
  89
  99
  109
  119
  130
  141
  153
  165
  178
  191
  205
  219
  234
  250
  266
  283
  300
  318
  337
  357
  377
  399
  421
  444
  469
  494
  521
Fixed operating expenses, $m
 
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
Total operating expenses, $m
  62
  70
  78
  86
  96
  106
  116
  126
  137
  148
  161
  173
  186
  199
  213
  228
  243
  259
  275
  293
  310
  328
  347
  368
  388
  410
  432
  456
  481
  506
  534
Operating income, $m
  28
  32
  37
  42
  48
  53
  59
  65
  72
  78
  85
  93
  100
  108
  116
  125
  133
  143
  152
  162
  172
  183
  194
  206
  218
  231
  244
  258
  273
  288
  304
EBITDA, $m
  30
  33
  38
  43
  49
  55
  61
  67
  74
  80
  88
  95
  103
  111
  119
  128
  137
  146
  156
  166
  177
  188
  199
  211
  224
  237
  250
  265
  280
  295
  312
Interest expense (income), $m
  7
  22
  26
  29
  33
  36
  40
  44
  49
  53
  58
  63
  68
  74
  79
  85
  91
  97
  104
  110
  117
  125
  132
  140
  148
  157
  166
  175
  185
  196
  206
Earnings before tax, $m
  28
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  30
  32
  34
  37
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  88
  93
  98
Tax expense, $m
  11
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
Net income, $m
  17
  7
  9
  10
  11
  12
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  61
  64
  68
  71

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  62
  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
  892
  947
  1,067
  1,195
  1,330
  1,471
  1,619
  1,774
  1,936
  2,105
  2,280
  2,462
  2,652
  2,849
  3,054
  3,266
  3,488
  3,717
  3,957
  4,206
  4,465
  4,735
  5,016
  5,309
  5,615
  5,934
  6,268
  6,616
  6,980
  7,360
  7,758
Adjusted assets (=assets-cash), $m
  830
  947
  1,067
  1,195
  1,330
  1,471
  1,619
  1,774
  1,936
  2,105
  2,280
  2,462
  2,652
  2,849
  3,054
  3,266
  3,488
  3,717
  3,957
  4,206
  4,465
  4,735
  5,016
  5,309
  5,615
  5,934
  6,268
  6,616
  6,980
  7,360
  7,758
Revenue / Adjusted assets
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
  0.108
Average production assets, $m
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
Working capital, $m
  0
  51
  58
  65
  72
  79
  87
  96
  105
  114
  123
  133
  143
  154
  165
  176
  188
  201
  214
  227
  241
  256
  271
  287
  303
  320
  338
  357
  377
  397
  419
Total debt, $m
  697
  729
  826
  929
  1,037
  1,151
  1,271
  1,395
  1,526
  1,661
  1,802
  1,949
  2,102
  2,260
  2,425
  2,596
  2,774
  2,960
  3,152
  3,352
  3,561
  3,778
  4,005
  4,241
  4,487
  4,744
  5,013
  5,293
  5,586
  5,892
  6,212
Total liabilities, $m
  730
  762
  859
  962
  1,070
  1,184
  1,304
  1,428
  1,559
  1,694
  1,835
  1,982
  2,135
  2,293
  2,458
  2,629
  2,807
  2,993
  3,185
  3,385
  3,594
  3,811
  4,038
  4,274
  4,520
  4,777
  5,046
  5,326
  5,619
  5,925
  6,245
Total equity, $m
  162
  185
  208
  233
  259
  287
  316
  346
  378
  410
  445
  480
  517
  556
  595
  637
  680
  725
  772
  820
  871
  923
  978
  1,035
  1,095
  1,157
  1,222
  1,290
  1,361
  1,435
  1,513
Total liabilities and equity, $m
  892
  947
  1,067
  1,195
  1,329
  1,471
  1,620
  1,774
  1,937
  2,104
  2,280
  2,462
  2,652
  2,849
  3,053
  3,266
  3,487
  3,718
  3,957
  4,205
  4,465
  4,734
  5,016
  5,309
  5,615
  5,934
  6,268
  6,616
  6,980
  7,360
  7,758
Debt-to-equity ratio
  4.302
  3.950
  3.970
  3.990
  4.000
  4.010
  4.020
  4.030
  4.040
  4.050
  4.050
  4.060
  4.060
  4.070
  4.070
  4.080
  4.080
  4.080
  4.090
  4.090
  4.090
  4.090
  4.090
  4.100
  4.100
  4.100
  4.100
  4.100
  4.100
  4.110
  4.110
Adjusted equity ratio
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195
  0.195

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  17
  7
  9
  10
  11
  12
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
  61
  64
  68
  71
Depreciation, amort., depletion, $m
  2
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
Funds from operations, $m
  40
  8
  10
  11
  12
  14
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
Change in working capital, $m
  -3
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  21
Cash from operations, $m
  43
  2
  3
  4
  5
  6
  7
  9
  10
  11
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  51
  54
  57
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
New CAPEX, $m
  -504
  0
  -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
Cash from investing activities, $m
  -144
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -8
  -9
  -9
Free cash flow, $m
  -101
  1
  2
  2
  3
  4
  5
  6
  7
  9
  10
  11
  12
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  36
  38
  40
  43
  46
  48
Issuance/(repayment) of debt, $m
  0
  94
  97
  103
  108
  114
  119
  125
  130
  136
  141
  147
  153
  159
  165
  171
  178
  185
  193
  200
  209
  217
  226
  236
  246
  257
  268
  280
  293
  306
  320
Issuance/(repurchase) of shares, $m
  0
  15
  15
  15
  15
  15
  15
  15
  15
  15
  14
  14
  14
  13
  13
  12
  12
  12
  11
  11
  10
  10
  9
  9
  9
  8
  8
  7
  7
  7
  6
Cash from financing (excl. dividends), $m  
  109
  109
  112
  118
  123
  129
  134
  140
  145
  151
  155
  161
  167
  172
  178
  183
  190
  197
  204
  211
  219
  227
  235
  245
  255
  265
  276
  287
  300
  313
  326
Total cash flow (excl. dividends), $m
  9
  110
  114
  120
  127
  133
  140
  146
  152
  159
  165
  172
  179
  186
  193
  200
  208
  217
  225
  235
  244
  254
  265
  276
  288
  301
  314
  328
  343
  358
  375
Retained Cash Flow (-), $m
  -12
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
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
 
  88
  90
  95
  101
  106
  111
  116
  121
  126
  131
  136
  142
  147
  153
  159
  165
  172
  179
  186
  194
  202
  210
  219
  229
  239
  249
  260
  272
  284
  297
Discount rate, %
 
  11.60
  12.18
  12.79
  13.43
  14.10
  14.80
  15.55
  16.32
  17.14
  18.00
  18.90
  19.84
  20.83
  21.87
  22.97
  24.12
  25.32
  26.59
  27.92
  29.31
  30.78
  32.32
  33.93
  35.63
  37.41
  39.28
  41.25
  43.31
  45.47
  47.75
PV of cash for distribution, $m
 
  78
  72
  67
  61
  55
  48
  42
  36
  30
  25
  20
  16
  13
  10
  7
  5
  4
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  96.0
  92.7
  89.7
  87.2
  85.0
  83.0
  81.3
  79.8
  78.4
  77.2
  76.1
  75.2
  74.3
  73.6
  72.9
  72.3
  71.7
  71.2
  70.8
  70.4
  70.1
  69.7
  69.4
  69.2
  69.0
  68.8
  68.6
  68.4
  68.3
  68.1

Marlin Business Services Corp. is a bank holding company and a financial holding company. The Company is a provider of credit products and services to small businesses. The Company provides products and services to its customers, which include loans and leases for the acquisition of commercial equipment, working capital loans, and insurance products. The Company accesses its end user customers primarily through origination sources consisting of independent commercial equipment dealers, various national account programs, through direct solicitation of its end user customers, and through relationships with select lease and loan brokers. The Company uses both a telephonic direct sales model and, for strategic larger accounts, outside sales executives to market to its origination sources and end user customers. Through these origination sources, the Company accesses end user customers while also helping its origination sources obtain financing for their customers.

FINANCIAL RATIOS  of  Marlin Business Services (MRLN)

Valuation Ratios
P/E Ratio 21.4
Price to Sales 4
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 8.5
Price to Free Cash Flow -0.8
Growth Rates
Sales Growth Rate 9.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 31.3%
Cap. Spend. - 3 Yr. Gr. Rate 7.5%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 430.2%
Interest Coverage 5
Management Effectiveness
Return On Assets 2.6%
Ret/ On Assets - 3 Yr. Avg. 2.7%
Return On Total Capital 2.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.4%
Return On Equity 10.9%
Return On Equity - 3 Yr. Avg. 10.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 91.1%
Gross Margin - 3 Yr. Avg. 92.2%
EBITDA Margin 41.1%
EBITDA Margin - 3 Yr. Avg. 41.8%
Operating Margin 31.1%
Oper. Margin - 3 Yr. Avg. 33.5%
Pre-Tax Margin 31.1%
Pre-Tax Margin - 3 Yr. Avg. 33.1%
Net Profit Margin 18.9%
Net Profit Margin - 3 Yr. Avg. 20.5%
Effective Tax Rate 39.3%
Eff/ Tax Rate - 3 Yr. Avg. 38%
Payout Ratio 41.2%

MRLN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MRLN stock intrinsic value calculation we used $90 million for the last fiscal year's total revenue generated by Marlin Business Services. The default revenue input number comes from 2016 income statement of Marlin Business Services. 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 MRLN stock valuation model: a) initial revenue growth rate of 13.6% 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 11.6%, whose default value for MRLN is calculated based on our internal credit rating of Marlin Business Services, 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 Marlin Business Services.
    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 MRLN stock the variable cost ratio is equal to 62.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6 million in the base year in the intrinsic value calculation for MRLN 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 Marlin Business Services.

Corporate tax rate of 27% is the nominal tax rate for Marlin Business Services. 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 MRLN 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 MRLN are equal to 4.4%.

Life of production assets of 2 years is the average useful life of capital assets used in Marlin Business Services 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 MRLN 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 - $162 million for Marlin Business Services - 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 12.525 million for Marlin Business Services 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 Marlin Business Services at the current share price and the inputted number of shares is $0.4 billion.

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COMPANY NEWS

▶ New Strong Buy Stocks for September 28th   [Sep-28-17 09:12AM  Zacks]
▶ Marlin posts 2Q profit   [Jul-27-17 11:56PM  Associated Press]
▶ New Strong Sell Stocks for May 18th   [May-18-17 08:06AM  Zacks]
▶ Marlin Names Daniel Castellini Senior Vice President   [May-08-17 04:00PM  GlobeNewswire]
▶ Marlin posts 1Q profit   [Apr-27-17 05:18PM  Associated Press]
▶ Marlin Launches New Financing Program With NewTek, Inc.   [Apr-19-17 04:00PM  GlobeNewswire]
▶ Marlin Names Kathleen McGurk VP of Indirect Funding   [Feb-23-17 06:00AM  GlobeNewswire]
▶ Marlin posts 4Q profit   [Jan-26-17 05:43PM  Associated Press]
▶ Marlin Names Louis E. Maslowe as Chief Credit Officer   [Jan-10-17 06:00AM  GlobeNewswire]
▶ Should You Buy Marlin Business Services Corp. (MRLN)?   [Dec-14-16 09:41AM  Insider Monkey]
▶ Marlin Names Richard Irwin as Corporate Treasurer   [Nov-01-16 06:00AM  GlobeNewswire]
Financial statements of MRLN
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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