Intrinsic value of MTGE Investment - MTGE

Previous Close

$19.30

  Intrinsic Value

$5.03

stock screener

  Rating & Target

str. sell

-74%

  Value-price divergence*

0%

Previous close

$19.30

 
Intrinsic value

$5.03

 
Up/down potential

-74%

 
Rating

str. sell

 
Value-price divergence*

0%

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
  2.00
  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
  148
  151
  154
  158
  163
  168
  173
  179
  185
  192
  200
  208
  216
  225
  235
  245
  255
  267
  279
  291
  305
  319
  334
  350
  366
  384
  402
  421
  442
  463
  485
Variable operating expenses, $m
 
  184
  188
  193
  198
  204
  211
  218
  226
  234
  243
  253
  263
  274
  285
  298
  311
  324
  339
  354
  371
  388
  406
  425
  445
  466
  489
  512
  537
  563
  590
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
  184
  188
  193
  198
  204
  211
  218
  226
  234
  243
  253
  263
  274
  285
  298
  311
  324
  339
  354
  371
  388
  406
  425
  445
  466
  489
  512
  537
  563
  590
Operating income, $m
  44
  -33
  -33
  -34
  -35
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -105
EBITDA, $m
  45
  -31
  -32
  -32
  -33
  -34
  -36
  -37
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -72
  -75
  -79
  -82
  -86
  -91
  -95
  -100
Interest expense (income), $m
  41
  128
  129
  132
  136
  140
  144
  149
  154
  160
  166
  172
  179
  186
  194
  203
  211
  221
  231
  241
  252
  264
  276
  289
  303
  318
  333
  349
  366
  384
  402
Earnings before tax, $m
  44
  -161
  -163
  -167
  -171
  -176
  -182
  -188
  -194
  -201
  -209
  -217
  -226
  -235
  -245
  -255
  -267
  -278
  -291
  -304
  -318
  -333
  -349
  -365
  -382
  -401
  -420
  -440
  -461
  -484
  -507
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
  -163
  -167
  -171
  -176
  -182
  -188
  -194
  -201
  -209
  -217
  -226
  -235
  -245
  -255
  -267
  -278
  -291
  -304
  -318
  -333
  -349
  -365
  -382
  -401
  -420
  -440
  -461
  -484
  -507

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
  4,718
  4,826
  4,950
  5,089
  5,244
  5,413
  5,597
  5,797
  6,012
  6,242
  6,489
  6,753
  7,033
  7,331
  7,647
  7,982
  8,337
  8,712
  9,109
  9,527
  9,969
  10,435
  10,925
  11,443
  11,987
  12,561
  13,165
  13,800
  14,468
  15,171
Adjusted assets (=assets-cash), $m
  4,673
  4,718
  4,826
  4,950
  5,089
  5,244
  5,413
  5,597
  5,797
  6,012
  6,242
  6,489
  6,753
  7,033
  7,331
  7,647
  7,982
  8,337
  8,712
  9,109
  9,527
  9,969
  10,435
  10,925
  11,443
  11,987
  12,561
  13,165
  13,800
  14,468
  15,171
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
  51
  52
  54
  56
  57
  59
  61
  64
  66
  69
  72
  74
  78
  81
  85
  88
  92
  96
  101
  106
  111
  116
  121
  127
  133
  139
  146
  153
  161
Working capital, $m
  0
  75
  77
  79
  81
  84
  87
  90
  93
  96
  100
  104
  108
  113
  117
  122
  128
  133
  139
  146
  152
  160
  167
  175
  183
  192
  201
  211
  221
  231
  243
Total debt, $m
  3,786
  3,696
  3,783
  3,882
  3,993
  4,117
  4,252
  4,400
  4,559
  4,731
  4,916
  5,113
  5,324
  5,548
  5,787
  6,040
  6,308
  6,592
  6,892
  7,209
  7,544
  7,897
  8,270
  8,662
  9,076
  9,512
  9,971
  10,454
  10,962
  11,497
  12,059
Total liabilities, $m
  3,864
  3,774
  3,861
  3,960
  4,071
  4,195
  4,330
  4,478
  4,637
  4,809
  4,994
  5,191
  5,402
  5,626
  5,865
  6,118
  6,386
  6,670
  6,970
  7,287
  7,622
  7,975
  8,348
  8,740
  9,154
  9,590
  10,049
  10,532
  11,040
  11,575
  12,137
Total equity, $m
  933
  944
  965
  990
  1,018
  1,049
  1,083
  1,119
  1,159
  1,202
  1,248
  1,298
  1,351
  1,407
  1,466
  1,529
  1,596
  1,667
  1,742
  1,822
  1,905
  1,994
  2,087
  2,185
  2,289
  2,397
  2,512
  2,633
  2,760
  2,894
  3,034
Total liabilities and equity, $m
  4,797
  4,718
  4,826
  4,950
  5,089
  5,244
  5,413
  5,597
  5,796
  6,011
  6,242
  6,489
  6,753
  7,033
  7,331
  7,647
  7,982
  8,337
  8,712
  9,109
  9,527
  9,969
  10,435
  10,925
  11,443
  11,987
  12,561
  13,165
  13,800
  14,469
  15,171
Debt-to-equity ratio
  4.058
  3.920
  3.920
  3.920
  3.920
  3.930
  3.930
  3.930
  3.930
  3.940
  3.940
  3.940
  3.940
  3.940
  3.950
  3.950
  3.950
  3.950
  3.960
  3.960
  3.960
  3.960
  3.960
  3.960
  3.970
  3.970
  3.970
  3.970
  3.970
  3.970
  3.970
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
  -163
  -167
  -171
  -176
  -182
  -188
  -194
  -201
  -209
  -217
  -226
  -235
  -245
  -255
  -267
  -278
  -291
  -304
  -318
  -333
  -349
  -365
  -382
  -401
  -420
  -440
  -461
  -484
  -507
Depreciation, amort., depletion, $m
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
Funds from operations, $m
  95
  -159
  -161
  -165
  -169
  -174
  -180
  -186
  -192
  -199
  -207
  -215
  -223
  -232
  -242
  -253
  -264
  -275
  -288
  -301
  -315
  -329
  -345
  -361
  -378
  -396
  -415
  -435
  -456
  -479
  -502
Change in working capital, $m
  8
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
Cash from operations, $m
  87
  -161
  -163
  -167
  -171
  -177
  -182
  -188
  -195
  -202
  -210
  -219
  -227
  -237
  -247
  -258
  -269
  -281
  -294
  -307
  -321
  -336
  -352
  -369
  -387
  -405
  -424
  -445
  -467
  -489
  -513
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -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
Cash from investing activities, $m
  752
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -7
  -7
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -12
Free cash flow, $m
  839
  -163
  -166
  -170
  -175
  -180
  -186
  -192
  -199
  -207
  -215
  -223
  -233
  -242
  -253
  -264
  -275
  -288
  -301
  -315
  -329
  -345
  -361
  -378
  -396
  -415
  -435
  -456
  -478
  -501
  -526
Issuance/(repayment) of debt, $m
  67
  34
  87
  99
  111
  123
  135
  147
  160
  172
  185
  197
  211
  224
  238
  253
  268
  284
  300
  317
  335
  353
  373
  393
  414
  436
  459
  483
  508
  535
  562
Issuance/(repurchase) of shares, $m
  -26
  171
  184
  191
  199
  207
  215
  224
  234
  244
  255
  266
  278
  291
  304
  319
  334
  349
  366
  383
  402
  421
  442
  463
  486
  509
  534
  561
  588
  617
  648
Cash from financing (excl. dividends), $m  
  -807
  205
  271
  290
  310
  330
  350
  371
  394
  416
  440
  463
  489
  515
  542
  572
  602
  633
  666
  700
  737
  774
  815
  856
  900
  945
  993
  1,044
  1,096
  1,152
  1,210
Total cash flow (excl. dividends), $m
  32
  42
  106
  121
  136
  150
  165
  180
  194
  209
  225
  240
  256
  273
  290
  308
  326
  345
  365
  386
  408
  430
  453
  478
  504
  530
  559
  588
  619
  651
  685
Retained Cash Flow (-), $m
  58
  -171
  -184
  -191
  -199
  -207
  -215
  -224
  -234
  -244
  -255
  -266
  -278
  -291
  -304
  -319
  -334
  -349
  -366
  -383
  -402
  -421
  -442
  -463
  -486
  -509
  -534
  -561
  -588
  -617
  -648
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
 
  -129
  -79
  -71
  -63
  -57
  -51
  -45
  -40
  -35
  -30
  -26
  -22
  -18
  -14
  -11
  -7
  -4
  -1
  3
  6
  9
  12
  15
  18
  21
  24
  27
  30
  33
  37
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
 
  -115
  -61
  -48
  -37
  -28
  -21
  -15
  -11
  -7
  -5
  -3
  -2
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  83.9
  69.7
  57.8
  47.8
  39.4
  32.5
  26.7
  21.9
  18.0
  14.7
  12.0
  9.8
  8.0
  6.6
  5.3
  4.4
  3.5
  2.9
  2.3
  1.9
  1.5
  1.3
  1.0
  0.8
  0.7
  0.5
  0.4
  0.4
  0.3
  0.2

MTGE Investment Corp. operates as a real estate investment trust (REIT) in the United States. The company invests in, finances, and manages a portfolio of real estate-related investments, such as agency residential mortgage-backed securities, non-agency mortgage investments, other mortgage-related investments, and other real estate investments. Its residential mortgage-backed securities (RMBS) include residential mortgage pass-through certificates and collateralized mortgage obligations; non-agency mortgage investments comprise RMBS backed by residential mortgages, as well as prime and non-prime residential mortgage loans; other mortgage-related investments include mortgage servicing rights, government-sponsored enterprise credit risk transfer securities, commercial mortgage-backed securities, commercial mortgage loans, and mortgage-related derivatives; and other real estate investments comprise equity investments in properties and debt investments in nursing facility and housing properties secured by mortgages. The company has elected to be taxed as a REIT and would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was formerly known as American Capital Mortgage Investment Corp. and changed its name to MTGE Investment Corp. in September 2016. MTGE Investment Corp. was incorporated in 2011 and is based in Bethesda, Maryland.

FINANCIAL RATIOS  of  MTGE Investment (MTGE)

Valuation Ratios
P/E Ratio 20.1
Price to Sales 6
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 10.2
Price to Free Cash Flow 10.2
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% 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 46.358 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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Stock chart of MTGE Financial statements of MTGE
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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