Intrinsic value of MTGE Investment - MTGE

Previous Close

$19.75

  Intrinsic Value

$5.09

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

-86%

Previous close

$19.75

 
Intrinsic value

$5.09

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

-86%

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

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

We calculate the intrinsic value of MTGE 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 0.9

 

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, %
  -14.94
  2.90
  3.11
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
Revenue, $m
  148
  152
  157
  162
  168
  174
  180
  187
  195
  203
  211
  220
  230
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  378
  397
  416
  436
  457
  480
  503
  528
Variable operating expenses, $m
 
  185
  191
  197
  204
  211
  219
  228
  237
  247
  257
  268
  280
  292
  305
  319
  333
  349
  365
  382
  400
  419
  439
  460
  482
  506
  530
  556
  583
  612
  642
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
  104
  185
  191
  197
  204
  211
  219
  228
  237
  247
  257
  268
  280
  292
  305
  319
  333
  349
  365
  382
  400
  419
  439
  460
  482
  506
  530
  556
  583
  612
  642
Operating income, $m
  44
  -33
  -34
  -35
  -36
  -38
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -78
  -82
  -86
  -90
  -94
  -99
  -104
  -109
  -114
EBITDA, $m
  45
  -31
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -64
  -67
  -71
  -74
  -78
  -81
  -85
  -89
  -94
  -98
  -103
  -108
Interest expense (income), $m
  41
  128
  131
  135
  139
  144
  149
  155
  161
  168
  175
  182
  190
  199
  207
  217
  227
  237
  248
  260
  272
  285
  299
  313
  328
  344
  361
  379
  397
  417
  437
Earnings before tax, $m
  44
  -161
  -164
  -170
  -175
  -182
  -188
  -196
  -203
  -212
  -221
  -230
  -240
  -250
  -262
  -273
  -286
  -299
  -313
  -328
  -343
  -360
  -377
  -395
  -414
  -434
  -455
  -478
  -501
  -525
  -551
Tax expense, $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
Net income, $m
  44
  -161
  -164
  -170
  -175
  -182
  -188
  -196
  -203
  -212
  -221
  -230
  -240
  -250
  -262
  -273
  -286
  -299
  -313
  -328
  -343
  -360
  -377
  -395
  -414
  -434
  -455
  -478
  -501
  -525
  -551

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  124
  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
  4,797
  4,759
  4,907
  5,069
  5,245
  5,435
  5,639
  5,858
  6,092
  6,342
  6,607
  6,889
  7,188
  7,505
  7,840
  8,195
  8,569
  8,964
  9,381
  9,820
  10,284
  10,771
  11,285
  11,826
  12,396
  12,995
  13,625
  14,287
  14,984
  15,717
  16,487
Adjusted assets (=assets-cash), $m
  4,673
  4,759
  4,907
  5,069
  5,245
  5,435
  5,639
  5,858
  6,092
  6,342
  6,607
  6,889
  7,188
  7,505
  7,840
  8,195
  8,569
  8,964
  9,381
  9,820
  10,284
  10,771
  11,285
  11,826
  12,396
  12,995
  13,625
  14,287
  14,984
  15,717
  16,487
Revenue / Adjusted assets
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
  0.032
Average production assets, $m
  49
  50
  52
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  138
  144
  151
  159
  166
  175
Working capital, $m
  0
  76
  79
  81
  84
  87
  90
  94
  97
  101
  106
  110
  115
  120
  125
  131
  137
  143
  150
  157
  165
  172
  181
  189
  198
  208
  218
  229
  240
  251
  264
Total debt, $m
  3,786
  3,729
  3,848
  3,977
  4,118
  4,270
  4,433
  4,609
  4,796
  4,995
  5,208
  5,433
  5,673
  5,926
  6,194
  6,478
  6,777
  7,093
  7,427
  7,778
  8,149
  8,539
  8,950
  9,383
  9,838
  10,318
  10,822
  11,352
  11,910
  12,496
  13,112
Total liabilities, $m
  3,864
  3,807
  3,926
  4,055
  4,196
  4,348
  4,511
  4,687
  4,874
  5,073
  5,286
  5,511
  5,751
  6,004
  6,272
  6,556
  6,855
  7,171
  7,505
  7,856
  8,227
  8,617
  9,028
  9,461
  9,916
  10,396
  10,900
  11,430
  11,988
  12,574
  13,190
Total equity, $m
  933
  952
  981
  1,014
  1,049
  1,087
  1,128
  1,172
  1,218
  1,268
  1,321
  1,378
  1,438
  1,501
  1,568
  1,639
  1,714
  1,793
  1,876
  1,964
  2,057
  2,154
  2,257
  2,365
  2,479
  2,599
  2,725
  2,857
  2,997
  3,143
  3,297
Total liabilities and equity, $m
  4,797
  4,759
  4,907
  5,069
  5,245
  5,435
  5,639
  5,859
  6,092
  6,341
  6,607
  6,889
  7,189
  7,505
  7,840
  8,195
  8,569
  8,964
  9,381
  9,820
  10,284
  10,771
  11,285
  11,826
  12,395
  12,995
  13,625
  14,287
  14,985
  15,717
  16,487
Debt-to-equity ratio
  4.058
  3.920
  3.920
  3.920
  3.930
  3.930
  3.930
  3.930
  3.940
  3.940
  3.940
  3.940
  3.950
  3.950
  3.950
  3.950
  3.950
  3.960
  3.960
  3.960
  3.960
  3.960
  3.970
  3.970
  3.970
  3.970
  3.970
  3.970
  3.970
  3.980
  3.980
Adjusted equity ratio
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200
  0.200

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  44
  -161
  -164
  -170
  -175
  -182
  -188
  -196
  -203
  -212
  -221
  -230
  -240
  -250
  -262
  -273
  -286
  -299
  -313
  -328
  -343
  -360
  -377
  -395
  -414
  -434
  -455
  -478
  -501
  -525
  -551
Depreciation, amort., depletion, $m
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Funds from operations, $m
  95
  -159
  -163
  -168
  -174
  -180
  -186
  -194
  -201
  -209
  -218
  -227
  -237
  -248
  -259
  -271
  -283
  -296
  -310
  -324
  -340
  -356
  -373
  -391
  -410
  -430
  -450
  -472
  -496
  -520
  -545
Change in working capital, $m
  8
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Cash from operations, $m
  87
  -162
  -165
  -171
  -176
  -183
  -190
  -197
  -205
  -213
  -222
  -232
  -242
  -253
  -264
  -276
  -289
  -302
  -316
  -331
  -347
  -364
  -381
  -399
  -419
  -439
  -461
  -483
  -507
  -532
  -558
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
New CAPEX, $m
  0
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
Cash from investing activities, $m
  752
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -14
Free cash flow, $m
  839
  -165
  -168
  -174
  -180
  -187
  -194
  -201
  -210
  -218
  -227
  -237
  -248
  -259
  -270
  -283
  -296
  -310
  -324
  -339
  -355
  -372
  -390
  -409
  -429
  -450
  -472
  -495
  -519
  -545
  -572
Issuance/(repayment) of debt, $m
  67
  67
  118
  130
  141
  152
  163
  175
  187
  200
  212
  226
  239
  253
  268
  283
  299
  316
  333
  352
  371
  390
  411
  433
  455
  479
  504
  530
  558
  586
  616
Issuance/(repurchase) of shares, $m
  -26
  180
  194
  202
  211
  220
  229
  239
  250
  262
  274
  286
  300
  314
  329
  344
  361
  378
  396
  416
  436
  457
  480
  503
  528
  554
  581
  610
  640
  672
  705
Cash from financing (excl. dividends), $m  
  -807
  247
  312
  332
  352
  372
  392
  414
  437
  462
  486
  512
  539
  567
  597
  627
  660
  694
  729
  768
  807
  847
  891
  936
  983
  1,033
  1,085
  1,140
  1,198
  1,258
  1,321
Total cash flow (excl. dividends), $m
  32
  83
  144
  158
  171
  185
  199
  213
  228
  243
  259
  275
  291
  308
  326
  345
  364
  385
  406
  428
  451
  475
  500
  527
  554
  583
  614
  645
  679
  714
  750
Retained Cash Flow (-), $m
  58
  -180
  -194
  -202
  -211
  -220
  -229
  -239
  -250
  -262
  -274
  -286
  -300
  -314
  -329
  -344
  -361
  -378
  -396
  -416
  -436
  -457
  -480
  -503
  -528
  -554
  -581
  -610
  -640
  -672
  -705
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
 
  -97
  -50
  -44
  -39
  -35
  -30
  -26
  -22
  -19
  -15
  -12
  -8
  -5
  -2
  1
  4
  7
  9
  12
  15
  18
  21
  24
  26
  29
  32
  35
  38
  42
  45
Discount rate, %
 
  12.70
  13.34
  14.00
  14.70
  15.44
  16.21
  17.02
  17.87
  18.76
  19.70
  20.69
  21.72
  22.81
  23.95
  25.15
  26.40
  27.72
  29.11
  30.56
  32.09
  33.70
  35.38
  37.15
  39.01
  40.96
  43.01
  45.16
  47.41
  49.79
  52.27
PV of cash for distribution, $m
 
  -86
  -39
  -30
  -23
  -17
  -12
  -9
  -6
  -4
  -2
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  83.4
  68.9
  56.8
  46.8
  38.5
  31.6
  25.9
  21.3
  17.4
  14.2
  11.6
  9.5
  7.8
  6.3
  5.2
  4.2
  3.4
  2.8
  2.3
  1.8
  1.5
  1.2
  1.0
  0.8
  0.7
  0.5
  0.4
  0.4
  0.3
  0.2

MTGE Investment Corp., formerly American Capital Mortgage Investment Corp., is a real estate investment trust. The Company invests in, finances and manages a leveraged portfolio of real estate-related investments, which include agency residential mortgage-backed securities (RMBS), non-agency securities, other mortgage-related investments and other real estate investments. Agency RMBS includes residential mortgage pass-through certificates and collateralized mortgage obligations (CMOs) structured from residential mortgage pass-through certificates for which the principal and interest payments are guaranteed by a government-sponsored enterprise (GSE), or by a United States Government agency, such as Government National Mortgage Association (Ginnie Mae). Non-agency securities include securities backed by residential mortgages that are not guaranteed by a GSE or the United States Government agency, and credit risk transfer securities (CRT). The Company's manager is MTGE Management, LLC.

FINANCIAL RATIOS  of  MTGE Investment (MTGE)

Valuation Ratios
P/E Ratio 20.6
Price to Sales 6.1
Price to Book 1
Price to Tangible Book
Price to Cash Flow 10.4
Price to Free Cash Flow 10.4
Growth Rates
Sales Growth Rate -14.9%
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 0
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 405.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 1.7%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital 0.9%
Ret/ On T. Cap. - 3 Yr. Avg. 0.8%
Return On Equity 4.6%
Return On Equity - 3 Yr. Avg. 5%
Asset Turnover 0
Profitability Ratios
Gross Margin 63.5%
Gross Margin - 3 Yr. Avg. 70.3%
EBITDA Margin 58.1%
EBITDA Margin - 3 Yr. Avg. 52.1%
Operating Margin 29.7%
Oper. Margin - 3 Yr. Avg. 31.6%
Pre-Tax Margin 29.7%
Pre-Tax Margin - 3 Yr. Avg. 31.6%
Net Profit Margin 29.7%
Net Profit Margin - 3 Yr. Avg. 31.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 177.3%

MTGE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MTGE stock intrinsic value calculation we used $148 million for the last fiscal year's total revenue generated by MTGE Investment. The default revenue input number comes from 2016 income statement of MTGE Investment. 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 MTGE stock valuation model: a) initial revenue growth rate of 2.9% 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 12.7%, whose default value for MTGE is calculated based on our internal credit rating of MTGE Investment, 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 MTGE Investment.
    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 MTGE stock the variable cost ratio is equal to 121.6%.

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 MTGE 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 MTGE Investment.

Corporate tax rate of 27% is the nominal tax rate for MTGE Investment. 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 MTGE 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 MTGE are equal to 33.1%.

Life of production assets of 49 years is the average useful life of capital assets used in MTGE Investment 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 MTGE 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 - $933 million for MTGE Investment - 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 45.798 million for MTGE Investment 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 MTGE Investment at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

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Financial statements of MTGE
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