Intrinsic value of Newtek Business Services - NEWT

Previous Close

$19.00

  Intrinsic Value

$3.00

stock screener

  Rating & Target

str. sell

-84%

Previous close

$19.00

 
Intrinsic value

$3.00

 
Up/down potential

-84%

 
Rating

str. sell

We calculate the intrinsic value of NEWT 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 0.3

 

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, %
  25.00
  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
  40
  41
  42
  43
  44
  45
  47
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  104
  109
  114
  119
  125
  131
Variable operating expenses, $m
 
  31
  31
  32
  33
  34
  35
  36
  38
  39
  40
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81
  85
  90
  94
  98
Fixed operating expenses, $m
 
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  4
Total operating expenses, $m
  32
  33
  33
  34
  35
  36
  37
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  57
  60
  62
  65
  68
  71
  75
  78
  82
  85
  89
  94
  98
  102
Operating income, $m
  8
  8
  8
  9
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
EBITDA, $m
  8
  10
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
Interest expense (income), $m
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  24
  25
  26
  27
Earnings before tax, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
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
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  401
  408
  417
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  608
  634
  661
  690
  721
  753
  788
  824
  862
  902
  945
  990
  1,037
  1,086
  1,139
  1,194
  1,251
  1,312
Adjusted assets (=assets-cash), $m
  399
  408
  417
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  608
  634
  661
  690
  721
  753
  788
  824
  862
  902
  945
  990
  1,037
  1,086
  1,139
  1,194
  1,251
  1,312
Revenue / Adjusted assets
  0.100
  0.100
  0.101
  0.100
  0.100
  0.099
  0.100
  0.099
  0.100
  0.100
  0.100
  0.100
  0.099
  0.100
  0.099
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.099
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
Average production assets, $m
  15
  15
  15
  16
  16
  16
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  48
Working capital, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Total debt, $m
  171
  175
  180
  185
  191
  197
  204
  212
  220
  229
  239
  249
  260
  272
  284
  297
  311
  326
  341
  358
  375
  394
  413
  434
  455
  478
  502
  527
  553
  581
  610
Total liabilities, $m
  192
  196
  201
  206
  212
  218
  225
  233
  241
  250
  260
  270
  281
  293
  305
  318
  332
  347
  362
  379
  396
  415
  434
  455
  476
  499
  523
  548
  574
  602
  631
Total equity, $m
  209
  212
  217
  222
  228
  235
  243
  251
  260
  270
  280
  291
  303
  316
  329
  343
  358
  374
  391
  409
  428
  447
  468
  490
  514
  538
  564
  591
  619
  649
  681
Total liabilities and equity, $m
  401
  408
  418
  428
  440
  453
  468
  484
  501
  520
  540
  561
  584
  609
  634
  661
  690
  721
  753
  788
  824
  862
  902
  945
  990
  1,037
  1,087
  1,139
  1,193
  1,251
  1,312
Debt-to-equity ratio
  0.818
  0.830
  0.830
  0.830
  0.830
  0.840
  0.840
  0.840
  0.850
  0.850
  0.850
  0.850
  0.860
  0.860
  0.860
  0.870
  0.870
  0.870
  0.870
  0.880
  0.880
  0.880
  0.880
  0.880
  0.890
  0.890
  0.890
  0.890
  0.890
  0.890
  0.900
Adjusted equity ratio
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519
  0.519

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $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
  1
  1
  1
  1
  1
  1
  1
Depreciation, amort., depletion, $m
  0
  1
  2
  2
  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
Funds from operations, $m
  20
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
Change in working capital, $m
  31
  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 operations, $m
  -11
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
Maintenance CAPEX, $m
  0
  -1
  -1
  -2
  -2
  -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
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from investing activities, $m
  0
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
Free cash flow, $m
  -11
  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
  -1
  -1
  -1
Issuance/(repayment) of debt, $m
  41
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
Issuance/(repurchase) of shares, $m
  -1
  5
  5
  5
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  31
Cash from financing (excl. dividends), $m  
  36
  9
  10
  10
  12
  13
  15
  16
  17
  19
  20
  21
  23
  24
  25
  27
  29
  31
  33
  33
  35
  37
  39
  42
  45
  47
  49
  51
  54
  57
  60
Total cash flow (excl. dividends), $m
  25
  9
  9
  10
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
Retained Cash Flow (-), $m
  -5
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
Prev. year cash balance distribution, $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
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
 
  6
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
Discount rate, %
 
  9.30
  9.77
  10.25
  10.77
  11.30
  11.87
  12.46
  13.09
  13.74
  14.43
  15.15
  15.91
  16.70
  17.54
  18.41
  19.33
  20.30
  21.32
  22.38
  23.50
  24.68
  25.91
  27.20
  28.57
  29.99
  31.49
  33.07
  34.72
  36.46
  38.28
PV of cash for distribution, $m
 
  5
  4
  4
  4
  4
  3
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  98.6
  97.2
  95.7
  94.0
  92.3
  90.5
  88.6
  86.7
  84.7
  82.7
  80.7
  78.7
  76.7
  74.8
  72.8
  70.9
  69.0
  67.1
  65.3
  63.5
  61.7
  60.0
  58.3
  56.6
  55.0
  53.5
  51.9
  50.4
  49.0
  47.6

Newtek Business Services Corp. is an internally managed non-diversified closed-end management investment company. The Company's investment objective is to generate both current income and capital appreciation primarily through loans originated by its small business finance platform and its equity investments in certain portfolio companies that it controls. The Company is a national non-bank lender that provides, together with its controlled portfolio companies, a range of business services and financial products under the Newtek brand to the small and medium-sized business (SMB) market. The Company issues debt and makes equity investments in portfolio companies in various industries. Its products and services include Business Lending including the United States Small Business Administration (SBA) 7(a) and 504 lending, Electronic Payment Processing, Managed Technology Solutions (Cloud Computing), Data Backup, and Payroll and Benefits Solutions to SMB accounts across all industries.

FINANCIAL RATIOS  of  Newtek Business Services (NEWT)

Valuation Ratios
P/E Ratio 0
Price to Sales 6.9
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow -25.3
Price to Free Cash Flow -25.3
Growth Rates
Sales Growth Rate 25%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 81.8%
Total Debt to Equity 81.8%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 2%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 0.6%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 1.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 50%
EBITDA Margin 17.5%
EBITDA Margin - 3 Yr. Avg. 14.3%
Operating Margin 20%
Oper. Margin - 3 Yr. Avg. 17.9%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 2%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 0%

NEWT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NEWT stock intrinsic value calculation we used $40 million for the last fiscal year's total revenue generated by Newtek Business Services. The default revenue input number comes from 2016 income statement of Newtek 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 NEWT 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 9.3%, whose default value for NEWT is calculated based on our internal credit rating of Newtek 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 Newtek 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 NEWT stock the variable cost ratio is equal to 75%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2 million in the base year in the intrinsic value calculation for NEWT 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 4.7% for Newtek Business Services.

Corporate tax rate of 27% is the nominal tax rate for Newtek 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 NEWT 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 NEWT are equal to 36.3%.

Life of production assets of 10 years is the average useful life of capital assets used in Newtek 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 NEWT is equal to -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 - $209 million for Newtek 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 17.432 million for Newtek 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 Newtek Business Services at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Newtek misses 3Q profit forecasts   [Nov-01-17 06:53PM  Associated Press]
▶ Newtek Business Credit Acquires the Talent of Tony Zara   [Oct-30-17 12:58PM  GlobeNewswire]
▶ 3 BDCs Paying 10%-Plus: 1 Sell, 1 Maybe, 1 Buy   [Sep-09-17 08:47AM  Forbes]
▶ Newtek posts 2Q profit   [Aug-02-17 09:43PM  Associated Press]
▶ New Strong Buy Stocks for July 6th   [Jul-06-17 10:31AM  Zacks]
▶ Newtek posts 1Q profit   [May-04-17 09:51AM  Associated Press]
▶ Newtek Declares First Quarter Dividend of $0.36 Per Share   [Mar-06-17 04:10PM  GlobeNewswire]
▶ LD Micro Index Reconstitution as of February 1, 2017   [Feb-01-17 09:45AM  Accesswire]
▶ Newtek Declares Fourth Quarter Dividend of $0.40 Per Share   [Nov-16-16 01:31PM  GlobeNewswire]
Financial statements of NEWT
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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