Intrinsic value of National General Holdings - NGHC

Previous Close

$18.22

  Intrinsic Value

$118.96

stock screener

  Rating & Target

str. buy

+553%

  Value-price divergence*

+120%

Previous close

$18.22

 
Intrinsic value

$118.96

 
Up/down potential

+553%

 
Rating

str. buy

 
Value-price divergence*

+120%

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

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

We calculate the intrinsic value of NGHC 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 1.9

 

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, %
  42.05
  39.20
  35.78
  32.70
  29.93
  27.44
  25.19
  23.18
  21.36
  19.72
  18.25
  16.92
  15.73
  14.66
  13.69
  12.82
  12.04
  11.34
  10.70
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
Revenue, $m
  0
  4,910
  6,666
  8,846
  11,494
  14,648
  18,338
  22,588
  27,413
  32,819
  38,808
  45,377
  52,515
  60,214
  68,459
  77,238
  86,539
  96,350
  106,663
  117,471
  128,772
  140,564
  152,853
  165,643
  178,946
  192,775
  207,147
  222,082
  237,603
  253,735
  270,510
Variable operating expenses, $m
 
  4,521
  6,132
  8,133
  10,563
  13,456
  16,843
  20,743
  25,170
  30,130
  35,626
  41,638
  48,188
  55,252
  62,818
  70,874
  79,408
  88,411
  97,874
  107,792
  118,162
  128,983
  140,259
  151,995
  164,202
  176,892
  190,079
  203,784
  218,025
  232,829
  248,221
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
  3,276
  4,521
  6,132
  8,133
  10,563
  13,456
  16,843
  20,743
  25,170
  30,130
  35,626
  41,638
  48,188
  55,252
  62,818
  70,874
  79,408
  88,411
  97,874
  107,792
  118,162
  128,983
  140,259
  151,995
  164,202
  176,892
  190,079
  203,784
  218,025
  232,829
  248,221
Operating income, $m
  250
  389
  534
  713
  932
  1,191
  1,495
  1,846
  2,243
  2,689
  3,182
  3,739
  4,327
  4,961
  5,641
  6,364
  7,130
  7,939
  8,788
  9,679
  10,610
  11,582
  12,594
  13,648
  14,744
  15,884
  17,068
  18,298
  19,577
  20,906
  22,289
EBITDA, $m
  345
  472
  641
  851
  1,106
  1,409
  1,764
  2,173
  2,637
  3,157
  3,733
  4,365
  5,052
  5,792
  6,585
  7,430
  8,325
  9,268
  10,260
  11,300
  12,387
  13,522
  14,704
  15,934
  17,214
  18,544
  19,926
  21,363
  22,856
  24,408
  26,022
Interest expense (income), $m
  33
  39
  135
  258
  410
  595
  815
  1,072
  1,369
  1,706
  2,083
  2,501
  2,960
  3,458
  3,995
  4,571
  5,184
  5,833
  6,518
  7,238
  7,992
  8,781
  9,604
  10,462
  11,355
  12,283
  13,249
  14,252
  15,294
  16,378
  17,504
Earnings before tax, $m
  210
  350
  399
  456
  522
  597
  681
  773
  874
  983
  1,099
  1,237
  1,367
  1,503
  1,645
  1,793
  1,946
  2,106
  2,271
  2,441
  2,618
  2,801
  2,990
  3,186
  3,389
  3,600
  3,819
  4,046
  4,283
  4,529
  4,785
Tax expense, $m
  43
  95
  108
  123
  141
  161
  184
  209
  236
  265
  297
  334
  369
  406
  444
  484
  526
  569
  613
  659
  707
  756
  807
  860
  915
  972
  1,031
  1,093
  1,156
  1,223
  1,292
Net income, $m
  172
  256
  291
  333
  381
  436
  497
  564
  638
  717
  802
  903
  998
  1,097
  1,201
  1,309
  1,421
  1,537
  1,657
  1,782
  1,911
  2,045
  2,183
  2,326
  2,474
  2,628
  2,788
  2,954
  3,126
  3,306
  3,493

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  7,245
  10,081
  13,688
  18,165
  23,602
  30,078
  37,656
  46,383
  56,289
  67,390
  79,689
  93,176
  107,835
  123,642
  140,573
  158,600
  177,697
  197,844
  219,020
  241,214
  264,418
  288,633
  313,866
  340,130
  367,446
  395,843
  425,354
  456,020
  487,890
  521,017
  555,461
Adjusted assets (=assets-cash), $m
  7,245
  10,081
  13,688
  18,165
  23,602
  30,078
  37,656
  46,383
  56,289
  67,390
  79,689
  93,176
  107,835
  123,642
  140,573
  158,600
  177,697
  197,844
  219,020
  241,214
  264,418
  288,633
  313,866
  340,130
  367,446
  395,843
  425,354
  456,020
  487,890
  521,017
  555,461
Revenue / Adjusted assets
  0.000
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
  0.487
Average production assets, $m
  487
  678
  920
  1,221
  1,586
  2,021
  2,531
  3,117
  3,783
  4,529
  5,356
  6,262
  7,247
  8,309
  9,447
  10,659
  11,942
  13,296
  14,719
  16,211
  17,770
  19,398
  21,094
  22,859
  24,695
  26,603
  28,586
  30,647
  32,789
  35,015
  37,330
Working capital, $m
  0
  118
  160
  212
  276
  352
  440
  542
  658
  788
  931
  1,089
  1,260
  1,445
  1,643
  1,854
  2,077
  2,312
  2,560
  2,819
  3,091
  3,374
  3,668
  3,975
  4,295
  4,627
  4,972
  5,330
  5,702
  6,090
  6,492
Total debt, $m
  838
  2,937
  5,603
  8,911
  12,929
  17,714
  23,315
  29,764
  37,084
  45,288
  54,377
  64,344
  75,177
  86,859
  99,370
  112,692
  126,805
  141,693
  157,343
  173,744
  190,892
  208,787
  227,434
  246,843
  267,030
  288,015
  309,823
  332,486
  356,038
  380,519
  405,973
Total liabilities, $m
  5,351
  7,450
  10,116
  13,424
  17,442
  22,227
  27,828
  34,277
  41,597
  49,801
  58,890
  68,857
  79,690
  91,372
  103,883
  117,205
  131,318
  146,206
  161,856
  178,257
  195,405
  213,300
  231,947
  251,356
  271,543
  292,528
  314,336
  336,999
  360,551
  385,032
  410,486
Total equity, $m
  1,894
  2,631
  3,573
  4,741
  6,160
  7,850
  9,828
  12,106
  14,691
  17,589
  20,799
  24,319
  28,145
  32,271
  36,689
  41,395
  46,379
  51,637
  57,164
  62,957
  69,013
  75,333
  81,919
  88,774
  95,904
  103,315
  111,017
  119,021
  127,339
  135,986
  144,975
Total liabilities and equity, $m
  7,245
  10,081
  13,689
  18,165
  23,602
  30,077
  37,656
  46,383
  56,288
  67,390
  79,689
  93,176
  107,835
  123,643
  140,572
  158,600
  177,697
  197,843
  219,020
  241,214
  264,418
  288,633
  313,866
  340,130
  367,447
  395,843
  425,353
  456,020
  487,890
  521,018
  555,461
Debt-to-equity ratio
  0.442
  1.120
  1.570
  1.880
  2.100
  2.260
  2.370
  2.460
  2.520
  2.570
  2.610
  2.650
  2.670
  2.690
  2.710
  2.720
  2.730
  2.740
  2.750
  2.760
  2.770
  2.770
  2.780
  2.780
  2.780
  2.790
  2.790
  2.790
  2.800
  2.800
  2.800
Adjusted equity ratio
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261
  0.261

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  172
  256
  291
  333
  381
  436
  497
  564
  638
  717
  802
  903
  998
  1,097
  1,201
  1,309
  1,421
  1,537
  1,657
  1,782
  1,911
  2,045
  2,183
  2,326
  2,474
  2,628
  2,788
  2,954
  3,126
  3,306
  3,493
Depreciation, amort., depletion, $m
  95
  83
  107
  138
  174
  218
  269
  327
  394
  468
  551
  626
  725
  831
  945
  1,066
  1,194
  1,330
  1,472
  1,621
  1,777
  1,940
  2,109
  2,286
  2,469
  2,660
  2,859
  3,065
  3,279
  3,502
  3,733
Funds from operations, $m
  423
  339
  399
  470
  555
  653
  765
  892
  1,032
  1,186
  1,353
  1,530
  1,723
  1,928
  2,146
  2,375
  2,615
  2,867
  3,129
  3,403
  3,688
  3,984
  4,292
  4,612
  4,944
  5,289
  5,647
  6,019
  6,405
  6,808
  7,226
Change in working capital, $m
  108
  33
  42
  52
  64
  76
  89
  102
  116
  130
  144
  158
  171
  185
  198
  211
  223
  235
  248
  259
  271
  283
  295
  307
  319
  332
  345
  358
  372
  387
  403
Cash from operations, $m
  315
  306
  356
  418
  491
  578
  677
  790
  916
  1,056
  1,209
  1,372
  1,551
  1,743
  1,948
  2,164
  2,392
  2,631
  2,882
  3,144
  3,417
  3,701
  3,997
  4,305
  4,624
  4,957
  5,302
  5,660
  6,033
  6,420
  6,823
Maintenance CAPEX, $m
  0
  -49
  -68
  -92
  -122
  -159
  -202
  -253
  -312
  -378
  -453
  -536
  -626
  -725
  -831
  -945
  -1,066
  -1,194
  -1,330
  -1,472
  -1,621
  -1,777
  -1,940
  -2,109
  -2,286
  -2,469
  -2,660
  -2,859
  -3,065
  -3,279
  -3,502
New CAPEX, $m
  -35
  -191
  -242
  -301
  -365
  -435
  -509
  -586
  -666
  -746
  -827
  -906
  -985
  -1,062
  -1,138
  -1,212
  -1,283
  -1,354
  -1,423
  -1,492
  -1,559
  -1,627
  -1,696
  -1,765
  -1,836
  -1,908
  -1,983
  -2,061
  -2,142
  -2,226
  -2,315
Cash from investing activities, $m
  -462
  -240
  -310
  -393
  -487
  -594
  -711
  -839
  -978
  -1,124
  -1,280
  -1,442
  -1,611
  -1,787
  -1,969
  -2,157
  -2,349
  -2,548
  -2,753
  -2,964
  -3,180
  -3,404
  -3,636
  -3,874
  -4,122
  -4,377
  -4,643
  -4,920
  -5,207
  -5,505
  -5,817
Free cash flow, $m
  -147
  67
  46
  25
  4
  -16
  -35
  -50
  -61
  -68
  -70
  -70
  -60
  -44
  -21
  8
  43
  83
  129
  180
  236
  297
  362
  430
  503
  579
  658
  741
  826
  915
  1,007
Issuance/(repayment) of debt, $m
  32
  2,099
  2,666
  3,308
  4,018
  4,786
  5,600
  6,449
  7,321
  8,204
  9,089
  9,967
  10,833
  11,682
  12,512
  13,322
  14,113
  14,888
  15,649
  16,401
  17,148
  17,895
  18,647
  19,409
  20,187
  20,985
  21,809
  22,663
  23,552
  24,481
  25,454
Issuance/(repurchase) of shares, $m
  204
  481
  650
  836
  1,038
  1,255
  1,481
  1,713
  1,948
  2,180
  2,408
  2,617
  2,828
  3,028
  3,218
  3,396
  3,564
  3,721
  3,870
  4,010
  4,145
  4,276
  4,403
  4,529
  4,655
  4,783
  4,914
  5,050
  5,192
  5,340
  5,497
Cash from financing (excl. dividends), $m  
  189
  2,580
  3,316
  4,144
  5,056
  6,041
  7,081
  8,162
  9,269
  10,384
  11,497
  12,584
  13,661
  14,710
  15,730
  16,718
  17,677
  18,609
  19,519
  20,411
  21,293
  22,171
  23,050
  23,938
  24,842
  25,768
  26,723
  27,713
  28,744
  29,821
  30,951
Total cash flow (excl. dividends), $m
  38
  2,647
  3,362
  4,169
  5,060
  6,024
  7,047
  8,112
  9,207
  10,316
  11,426
  12,514
  13,601
  14,667
  15,709
  16,726
  17,719
  18,692
  19,648
  20,592
  21,530
  22,468
  23,412
  24,368
  25,345
  26,347
  27,381
  28,453
  29,570
  30,736
  31,958
Retained Cash Flow (-), $m
  -380
  -737
  -941
  -1,168
  -1,419
  -1,690
  -1,978
  -2,278
  -2,586
  -2,897
  -3,210
  -3,520
  -3,826
  -4,126
  -4,419
  -4,705
  -4,985
  -5,258
  -5,527
  -5,793
  -6,056
  -6,320
  -6,586
  -6,855
  -7,130
  -7,411
  -7,702
  -8,004
  -8,318
  -8,646
  -8,990
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
 
  1,910
  2,421
  3,000
  3,641
  4,334
  5,069
  5,835
  6,621
  7,418
  8,217
  8,994
  9,775
  10,541
  11,290
  12,021
  12,735
  13,434
  14,121
  14,799
  15,473
  16,147
  16,826
  17,514
  18,215
  18,935
  19,679
  20,449
  21,252
  22,090
  22,968
Discount rate, %
 
  6.20
  6.51
  6.84
  7.18
  7.54
  7.91
  8.31
  8.72
  9.16
  9.62
  10.10
  10.60
  11.13
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.04
  20.00
  21.00
  22.05
  23.15
  24.30
  25.52
PV of cash for distribution, $m
 
  1,798
  2,134
  2,461
  2,759
  3,014
  3,210
  3,337
  3,391
  3,371
  3,280
  3,121
  2,916
  2,672
  2,401
  2,117
  1,830
  1,553
  1,292
  1,054
  842
  659
  505
  379
  278
  199
  139
  94
  62
  40
  25
Current shareholders' claim on cash, %
  100
  79.9
  64.2
  52.1
  42.8
  35.7
  30.0
  25.6
  22.1
  19.3
  17.0
  15.1
  13.5
  12.2
  11.1
  10.2
  9.4
  8.7
  8.1
  7.6
  7.1
  6.7
  6.3
  6.0
  5.7
  5.4
  5.2
  5.0
  4.8
  4.6
  4.4

National General Holdings Corp., a specialty personal lines insurance holding company, provides personal and commercial automobile, supplemental health, homeowners and umbrella, and other niche insurance products in the United States. The company operates in two segments, Property and Casualty, and Accident and Health. The Property and Casualty segment offers standard and preferred automobile insurance products; nonstandard automobile insurance products; and recreational vehicle (RV) insurance products that carry RV-specific endorsements comprising automatic personal effects coverage, optional replacement cost coverage, RV storage coverage, and full-time liability coverage. It also provides homeowners policies consisting of property and liability coverages for one- and two-family, owner-occupied residences; and additional coverage to the homeowner for personal umbrella. In addition, this segment offers commercial automobile insurance products, which covers liability and physical damage caused by light-to-medium duty commercial vehicles; and motorcycle insurance products for various types of motorcycles, as well as golf carts and all-terrain vehicles. The Accident and Health segment provides accident and non-major medical health insurance products, such as accident/AD&D coverage in the event of bodily injury or death due to accidental means; hospital indemnity; short term coverage post discharge from acute care/rehab center to the nursing home setting; and short-term medical plans. This segment also offers cancer/critical illness policies, stop loss programs for small and large employers, and basic dental and vision coverage products. In addition, it distributes life and health insurance to groups, as well as individuals. The company was formerly known as American Capital Acquisition Corporation. National General Holdings Corp. was founded in 1939 and is headquartered in New York, New York.

FINANCIAL RATIOS  of  National General Holdings (NGHC)

Valuation Ratios
P/E Ratio 11.3
Price to Sales 0.5
Price to Book 1
Price to Tangible Book
Price to Cash Flow 6.2
Price to Free Cash Flow 6.9
Growth Rates
Sales Growth Rate 42%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 52.2%
Cap. Spend. - 3 Yr. Gr. Rate 26%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 39.7%
Total Debt to Equity 44.2%
Interest Coverage 7
Management Effectiveness
Return On Assets 3.1%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital 7.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 10.1%
Return On Equity - 3 Yr. Avg. 11%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 9.6%
EBITDA Margin - 3 Yr. Avg. 9.7%
Operating Margin 7.1%
Oper. Margin - 3 Yr. Avg. 7.6%
Pre-Tax Margin 6%
Pre-Tax Margin - 3 Yr. Avg. 6.5%
Net Profit Margin 4.9%
Net Profit Margin - 3 Yr. Avg. 5.4%
Effective Tax Rate 20.5%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 19.8%

NGHC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NGHC stock intrinsic value calculation we used $3527 million for the last fiscal year's total revenue generated by National General Holdings. The default revenue input number comes from 2016 income statement of National General Holdings. 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 NGHC stock valuation model: a) initial revenue growth rate of 39.2% 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 6.2%, whose default value for NGHC is calculated based on our internal credit rating of National General Holdings, 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 National General Holdings.
    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 NGHC stock the variable cost ratio is equal to 92.2%.

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 NGHC 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 4.6% for National General Holdings.

Corporate tax rate of 27% is the nominal tax rate for National General Holdings. 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 NGHC 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 NGHC are equal to 13.8%.

Life of production assets of 10 years is the average useful life of capital assets used in National General Holdings 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 NGHC is equal to 2.4%. 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 - $1894 million for National General Holdings - 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 105.03 million for National General Holdings 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 National General Holdings at the current share price and the inputted number of shares is $1.9 billion.

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COMPANY NEWS

▶ National General reports 2Q loss   [Aug-07-17 11:40PM  Associated Press]
▶ National General reports 2Q loss   [06:37PM  Associated Press]
▶ [$$] Michael Dell Buys AMC, Sells Trivago, EW Scripps   [Jun-23-17 09:35AM  Barrons.com]
▶ New Strong Sell Stocks for May 10th   [May-10-17 09:06AM  Zacks]
▶ National General meets 1Q profit forecasts   [07:22AM  Associated Press]
▶ 5 Stocks Insiders Are Loading Up On   [Apr-05-17 02:08PM  TheStreet.com]
▶ Weekly CEO Buys Highlight   [Apr-03-17 04:09PM  GuruFocus.com]
▶ Largest Insider Buys and Sells of the Week   [Mar-31-17 04:06PM  GuruFocus.com]
▶ Insiders Invest in National General Holdings   [Mar-29-17 06:00PM  GuruFocus.com]
▶ /C O R R E C T I O N -- MailMyPrescriptions.com/   [Jan-27-17 06:16PM  PR Newswire]
Stock chart of NGHC Financial statements of NGHC
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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