Intrinsic value of Altisource Residential - RESI

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$13.25

  Intrinsic Value

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  Value-price divergence*

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

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

We calculate the intrinsic value of RESI 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 0.7

 

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, %
  -77.02
  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
  57
  253
  259
  265
  273
  281
  290
  300
  311
  322
  335
  348
  362
  377
  393
  410
  428
  447
  467
  488
  511
  535
  560
  586
  614
  643
  674
  706
  740
  776
  814
Variable operating expenses, $m
 
  142
  145
  149
  153
  157
  163
  168
  174
  181
  187
  195
  203
  211
  220
  230
  240
  250
  262
  274
  286
  299
  313
  328
  344
  360
  377
  395
  414
  434
  456
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
  284
  142
  145
  149
  153
  157
  163
  168
  174
  181
  187
  195
  203
  211
  220
  230
  240
  250
  262
  274
  286
  299
  313
  328
  344
  360
  377
  395
  414
  434
  456
Operating income, $m
  -227
  111
  114
  117
  120
  124
  128
  132
  137
  142
  147
  153
  159
  166
  173
  180
  188
  197
  206
  215
  225
  235
  246
  258
  270
  283
  296
  311
  326
  341
  358
EBITDA, $m
  -200
  111
  114
  117
  120
  124
  128
  132
  137
  142
  147
  153
  159
  166
  173
  180
  188
  197
  206
  215
  225
  235
  246
  258
  270
  283
  296
  311
  326
  341
  358
Interest expense (income), $m
  40
  41
  42
  43
  44
  46
  47
  49
  50
  52
  54
  56
  59
  61
  64
  66
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  115
  120
  126
  132
Earnings before tax, $m
  -228
  70
  72
  74
  76
  78
  81
  83
  86
  90
  93
  97
  101
  105
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  170
  179
  187
  196
  205
  215
  226
Tax expense, $m
  0
  19
  19
  20
  20
  21
  22
  23
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  51
  53
  55
  58
  61
Net income, $m
  -228
  51
  52
  54
  55
  57
  59
  61
  63
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  114
  119
  124
  130
  137
  143
  150
  157
  165

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  106
  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
  2,285
  2,386
  2,441
  2,504
  2,574
  2,653
  2,738
  2,831
  2,932
  3,041
  3,158
  3,283
  3,416
  3,558
  3,709
  3,869
  4,038
  4,217
  4,407
  4,608
  4,819
  5,043
  5,278
  5,527
  5,788
  6,064
  6,354
  6,660
  6,981
  7,319
  7,675
Adjusted assets (=assets-cash), $m
  2,179
  2,386
  2,441
  2,504
  2,574
  2,653
  2,738
  2,831
  2,932
  3,041
  3,158
  3,283
  3,416
  3,558
  3,709
  3,869
  4,038
  4,217
  4,407
  4,608
  4,819
  5,043
  5,278
  5,527
  5,788
  6,064
  6,354
  6,660
  6,981
  7,319
  7,675
Revenue / Adjusted assets
  0.026
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
  0.106
Average production assets, $m
  -18
  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
Working capital, $m
  0
  126
  129
  133
  136
  141
  145
  150
  155
  161
  167
  174
  181
  189
  197
  205
  214
  224
  234
  244
  255
  267
  280
  293
  307
  321
  337
  353
  370
  388
  407
Total debt, $m
  1,365
  1,175
  1,202
  1,234
  1,270
  1,309
  1,353
  1,400
  1,451
  1,506
  1,565
  1,628
  1,695
  1,767
  1,844
  1,924
  2,010
  2,101
  2,197
  2,299
  2,406
  2,519
  2,638
  2,764
  2,896
  3,035
  3,182
  3,337
  3,499
  3,670
  3,850
Total liabilities, $m
  1,422
  1,208
  1,235
  1,267
  1,303
  1,342
  1,386
  1,433
  1,484
  1,539
  1,598
  1,661
  1,728
  1,800
  1,877
  1,957
  2,043
  2,134
  2,230
  2,332
  2,439
  2,552
  2,671
  2,797
  2,929
  3,068
  3,215
  3,370
  3,532
  3,703
  3,883
Total equity, $m
  863
  1,179
  1,206
  1,237
  1,272
  1,310
  1,353
  1,399
  1,449
  1,502
  1,560
  1,622
  1,687
  1,758
  1,832
  1,911
  1,995
  2,083
  2,177
  2,276
  2,381
  2,491
  2,608
  2,730
  2,859
  2,996
  3,139
  3,290
  3,449
  3,616
  3,791
Total liabilities and equity, $m
  2,285
  2,387
  2,441
  2,504
  2,575
  2,652
  2,739
  2,832
  2,933
  3,041
  3,158
  3,283
  3,415
  3,558
  3,709
  3,868
  4,038
  4,217
  4,407
  4,608
  4,820
  5,043
  5,279
  5,527
  5,788
  6,064
  6,354
  6,660
  6,981
  7,319
  7,674
Debt-to-equity ratio
  1.582
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.010
  1.020
  1.020
Adjusted equity ratio
  0.396
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494
  0.494

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -228
  51
  52
  54
  55
  57
  59
  61
  63
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  114
  119
  124
  130
  137
  143
  150
  157
  165
Depreciation, amort., depletion, $m
  27
  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
Funds from operations, $m
  -31
  51
  52
  54
  55
  57
  59
  61
  63
  65
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  108
  114
  119
  124
  130
  137
  143
  150
  157
  165
Change in working capital, $m
  82
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
Cash from operations, $m
  -113
  49
  49
  50
  51
  53
  54
  56
  58
  60
  62
  64
  66
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  106
  111
  116
  121
  127
  133
  139
  146
Maintenance CAPEX, $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
New CAPEX, $m
  -300
  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 investing activities, $m
  565
  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
Free cash flow, $m
  452
  49
  49
  50
  51
  53
  54
  56
  58
  60
  62
  64
  66
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  106
  111
  116
  121
  127
  133
  139
  146
Issuance/(repayment) of debt, $m
  0
  26
  28
  32
  36
  39
  43
  47
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  96
  101
  107
  113
  119
  126
  132
  139
  147
  155
  163
  171
  180
Issuance/(repurchase) of shares, $m
  -21
  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 financing (excl. dividends), $m  
  -424
  26
  28
  32
  36
  39
  43
  47
  51
  55
  59
  63
  67
  72
  76
  81
  86
  91
  96
  101
  107
  113
  119
  126
  132
  139
  147
  155
  163
  171
  180
Total cash flow (excl. dividends), $m
  28
  74
  77
  82
  87
  92
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
  172
  181
  190
  200
  210
  220
  231
  243
  255
  268
  281
  296
  310
  326
Retained Cash Flow (-), $m
  289
  -27
  -27
  -31
  -35
  -39
  -42
  -46
  -50
  -54
  -58
  -62
  -66
  -70
  -74
  -79
  -84
  -89
  -94
  -99
  -105
  -110
  -116
  -123
  -129
  -136
  -143
  -151
  -159
  -167
  -176
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
 
  47
  50
  51
  52
  54
  55
  57
  59
  61
  63
  66
  68
  71
  74
  77
  80
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  143
  150
Discount rate, %
 
  9.60
  10.08
  10.58
  11.11
  11.67
  12.25
  12.86
  13.51
  14.18
  14.89
  15.64
  16.42
  17.24
  18.10
  19.01
  19.96
  20.96
  22.00
  23.10
  24.26
  25.47
  26.75
  28.08
  29.49
  30.96
  32.51
  34.13
  35.84
  37.63
  39.51
PV of cash for distribution, $m
 
  43
  41
  38
  34
  31
  28
  24
  21
  18
  16
  13
  11
  9
  7
  6
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Altisource Residential Corporation, through its subsidiary, Altisource Residential, L.P., focuses on acquiring, owning, and managing single-family rental properties in the United States. It acquires its single-family rental properties primarily through the acquisition of sub-performing and non-performing loan portfolios. The company is qualified as a real estate investment trust (REIT) under the Internal Revenue Code. As a REIT, its net income would be exempt from federal taxation to the extent that it is distributed as dividends to shareholders. Altisource Residential Corporation was founded in 2012 and is based in Christiansted, Virgin Islands.

FINANCIAL RATIOS  of  Altisource Residential (RESI)

Valuation Ratios
P/E Ratio -3.1
Price to Sales 12.5
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow -6.3
Price to Free Cash Flow -1.7
Growth Rates
Sales Growth Rate -77%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 150%
Cap. Spend. - 3 Yr. Gr. Rate 118.7%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 158.2%
Interest Coverage -5
Management Effectiveness
Return On Assets -7.9%
Ret/ On Assets - 3 Yr. Avg. 0.9%
Return On Total Capital -9.8%
Ret/ On T. Cap. - 3 Yr. Avg. -0.8%
Return On Equity -22.6%
Return On Equity - 3 Yr. Avg. -2.8%
Asset Turnover 0
Profitability Ratios
Gross Margin 5.3%
Gross Margin - 3 Yr. Avg. 58.3%
EBITDA Margin -282.5%
EBITDA Margin - 3 Yr. Avg. -75.7%
Operating Margin -398.2%
Oper. Margin - 3 Yr. Avg. -124.8%
Pre-Tax Margin -400%
Pre-Tax Margin - 3 Yr. Avg. -124.6%
Net Profit Margin -400%
Net Profit Margin - 3 Yr. Avg. -124.6%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio -16.7%

RESI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RESI stock intrinsic value calculation we used $248 million for the last fiscal year's total revenue generated by Altisource Residential. The default revenue input number comes from 2016 income statement of Altisource Residential. 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 RESI 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 9.6%, whose default value for RESI is calculated based on our internal credit rating of Altisource Residential, 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 Altisource Residential.
    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 RESI stock the variable cost ratio is equal to 56%.

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 RESI 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 3.6% for Altisource Residential.

Corporate tax rate of 27% is the nominal tax rate for Altisource Residential. 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 RESI 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 RESI are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in Altisource Residential 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 RESI 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 - $1152 million for Altisource Residential - 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 55.739 million for Altisource Residential 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 Altisource Residential at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ Altisource Residential reports 1Q loss   [May-09-17 09:45AM  Associated Press]
▶ Altisource Residential reports 4Q loss   [07:57AM  Associated Press]
▶ Avoid Sucker Yields, Buy REITs With Growing Dividends   [Apr-16-16 07:00AM  at Forbes]
▶ Altisource Investors Back Management in Activist Dispute   [Apr-11-16 10:43AM  at Bloomberg]
Stock chart of RESI Financial statements of RESI Annual reports of RESI
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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