Intrinsic value of Regional Management - RM

Previous Close

$22.66

  Intrinsic Value

$71.40

stock screener

  Rating & Target

str. buy

+215%

  Value-price divergence*

+40%

Previous close

$22.66

 
Intrinsic value

$71.40

 
Up/down potential

+215%

 
Rating

str. buy

 
Value-price divergence*

+40%

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

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

We calculate the intrinsic value of RM 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, %
  11.06
  15.80
  14.72
  13.75
  12.87
  12.09
  11.38
  10.74
  10.17
  9.65
  9.18
  8.77
  8.39
  8.05
  7.75
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
Revenue, $m
  241
  279
  320
  364
  411
  461
  513
  568
  626
  686
  749
  815
  884
  955
  1,029
  1,105
  1,185
  1,268
  1,355
  1,444
  1,538
  1,635
  1,736
  1,841
  1,951
  2,065
  2,184
  2,309
  2,439
  2,574
  2,716
Variable operating expenses, $m
 
  210
  240
  273
  309
  346
  385
  427
  470
  515
  563
  612
  663
  717
  772
  830
  890
  952
  1,017
  1,084
  1,154
  1,227
  1,303
  1,382
  1,464
  1,550
  1,639
  1,733
  1,830
  1,932
  2,039
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
  182
  210
  240
  273
  309
  346
  385
  427
  470
  515
  563
  612
  663
  717
  772
  830
  890
  952
  1,017
  1,084
  1,154
  1,227
  1,303
  1,382
  1,464
  1,550
  1,639
  1,733
  1,830
  1,932
  2,039
Operating income, $m
  59
  70
  80
  91
  102
  115
  128
  142
  156
  171
  187
  203
  220
  238
  257
  276
  296
  316
  338
  360
  383
  408
  433
  459
  487
  515
  545
  576
  608
  642
  677
EBITDA, $m
  65
  71
  81
  92
  104
  117
  130
  144
  159
  174
  190
  206
  224
  242
  261
  280
  300
  321
  343
  366
  389
  414
  440
  466
  494
  523
  553
  585
  618
  652
  688
Interest expense (income), $m
  18
  20
  23
  26
  30
  34
  38
  43
  47
  52
  57
  62
  68
  74
  80
  86
  92
  99
  106
  113
  121
  128
  137
  145
  154
  163
  173
  183
  193
  204
  215
Earnings before tax, $m
  39
  50
  57
  64
  72
  81
  90
  99
  109
  119
  130
  141
  153
  165
  177
  190
  203
  217
  232
  247
  263
  279
  296
  314
  333
  352
  372
  393
  415
  438
  462
Tax expense, $m
  15
  13
  15
  17
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
  125
Net income, $m
  24
  36
  42
  47
  53
  59
  66
  72
  79
  87
  95
  103
  111
  120
  129
  139
  149
  159
  169
  180
  192
  204
  216
  229
  243
  257
  272
  287
  303
  320
  337

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  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
  712
  821
  942
  1,071
  1,209
  1,355
  1,509
  1,671
  1,841
  2,019
  2,204
  2,398
  2,599
  2,808
  3,025
  3,251
  3,486
  3,730
  3,984
  4,248
  4,522
  4,808
  5,105
  5,414
  5,737
  6,073
  6,424
  6,790
  7,172
  7,571
  7,988
Adjusted assets (=assets-cash), $m
  708
  821
  942
  1,071
  1,209
  1,355
  1,509
  1,671
  1,841
  2,019
  2,204
  2,398
  2,599
  2,808
  3,025
  3,251
  3,486
  3,730
  3,984
  4,248
  4,522
  4,808
  5,105
  5,414
  5,737
  6,073
  6,424
  6,790
  7,172
  7,571
  7,988
Revenue / Adjusted assets
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
Average production assets, $m
  10
  11
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  34
  37
  40
  43
  46
  49
  53
  56
  60
  64
  68
  72
  76
  81
  85
  90
  95
  100
  106
Working capital, $m
  0
  -5
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -44
  -46
Total debt, $m
  492
  572
  658
  751
  849
  953
  1,063
  1,179
  1,300
  1,426
  1,559
  1,696
  1,840
  1,989
  2,144
  2,305
  2,473
  2,647
  2,828
  3,016
  3,211
  3,415
  3,627
  3,848
  4,077
  4,317
  4,567
  4,828
  5,101
  5,385
  5,683
Total liabilities, $m
  505
  585
  671
  764
  862
  966
  1,076
  1,192
  1,313
  1,439
  1,572
  1,709
  1,853
  2,002
  2,157
  2,318
  2,486
  2,660
  2,841
  3,029
  3,224
  3,428
  3,640
  3,861
  4,090
  4,330
  4,580
  4,841
  5,114
  5,398
  5,696
Total equity, $m
  207
  236
  270
  307
  347
  389
  433
  480
  528
  579
  633
  688
  746
  806
  868
  933
  1,001
  1,071
  1,143
  1,219
  1,298
  1,380
  1,465
  1,554
  1,647
  1,743
  1,844
  1,949
  2,058
  2,173
  2,293
Total liabilities and equity, $m
  712
  821
  941
  1,071
  1,209
  1,355
  1,509
  1,672
  1,841
  2,018
  2,205
  2,397
  2,599
  2,808
  3,025
  3,251
  3,487
  3,731
  3,984
  4,248
  4,522
  4,808
  5,105
  5,415
  5,737
  6,073
  6,424
  6,790
  7,172
  7,571
  7,989
Debt-to-equity ratio
  2.377
  2.430
  2.440
  2.440
  2.450
  2.450
  2.450
  2.460
  2.460
  2.460
  2.460
  2.470
  2.470
  2.470
  2.470
  2.470
  2.470
  2.470
  2.470
  2.470
  2.470
  2.470
  2.480
  2.480
  2.480
  2.480
  2.480
  2.480
  2.480
  2.480
  2.480
Adjusted equity ratio
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287
  0.287

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  36
  42
  47
  53
  59
  66
  72
  79
  87
  95
  103
  111
  120
  129
  139
  149
  159
  169
  180
  192
  204
  216
  229
  243
  257
  272
  287
  303
  320
  337
Depreciation, amort., depletion, $m
  6
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
Funds from operations, $m
  100
  38
  43
  49
  55
  61
  68
  75
  82
  90
  98
  106
  115
  124
  133
  143
  153
  164
  175
  186
  198
  210
  223
  236
  250
  265
  280
  296
  313
  330
  348
Change in working capital, $m
  0
  -1
  -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
  -2
  -2
  -2
  -2
Cash from operations, $m
  100
  38
  44
  49
  55
  62
  69
  76
  83
  91
  99
  107
  116
  125
  134
  144
  154
  165
  176
  188
  199
  212
  225
  238
  252
  267
  282
  298
  315
  332
  350
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
New CAPEX, $m
  -12
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -157
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
Free cash flow, $m
  -57
  36
  41
  46
  52
  58
  65
  71
  79
  86
  94
  102
  110
  119
  128
  137
  147
  157
  168
  179
  190
  202
  214
  227
  241
  255
  269
  285
  301
  317
  335
Issuance/(repayment) of debt, $m
  81
  80
  86
  92
  98
  104
  110
  116
  121
  127
  132
  138
  143
  149
  155
  161
  167
  174
  181
  188
  196
  204
  212
  221
  230
  240
  250
  261
  272
  285
  297
Issuance/(repurchase) of shares, $m
  -25
  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  
  54
  80
  86
  92
  98
  104
  110
  116
  121
  127
  132
  138
  143
  149
  155
  161
  167
  174
  181
  188
  196
  204
  212
  221
  230
  240
  250
  261
  272
  285
  297
Total cash flow (excl. dividends), $m
  -3
  116
  127
  139
  150
  162
  175
  187
  200
  213
  226
  239
  254
  268
  283
  298
  315
  331
  349
  367
  386
  406
  426
  448
  471
  495
  520
  546
  573
  602
  632
Retained Cash Flow (-), $m
  -2
  -33
  -35
  -37
  -40
  -42
  -44
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -82
  -85
  -89
  -93
  -97
  -101
  -105
  -110
  -115
  -120
Prev. year cash balance distribution, $m
 
  4
  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
 
  88
  92
  101
  111
  120
  130
  141
  151
  162
  173
  184
  196
  208
  221
  234
  247
  261
  276
  291
  307
  324
  341
  359
  378
  398
  419
  441
  463
  487
  512
Discount rate, %
 
  9.80
  10.29
  10.80
  11.34
  11.91
  12.51
  13.13
  13.79
  14.48
  15.20
  15.96
  16.76
  17.60
  18.48
  19.40
  20.37
  21.39
  22.46
  23.58
  24.76
  26.00
  27.30
  28.67
  30.10
  31.61
  33.19
  34.85
  36.59
  38.42
  40.34
PV of cash for distribution, $m
 
  80
  76
  75
  72
  69
  64
  59
  54
  48
  42
  36
  30
  25
  21
  16
  13
  10
  7
  5
  4
  3
  2
  1
  1
  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

Regional Management Corp., a diversified consumer finance company, provides various loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies, and other traditional lenders. The company offers small and large installment loans; automobile purchase loans; loans to finance the purchase of furniture, appliances, and other retail products; optional payment products, including credit life, credit accident and health, credit property insurance, and credit involuntary unemployment insurance; collateral protection insurance; and property insurance, as well as reinsurance products. Its loan products are secured and structured on a fixed rate, fixed term basis with fully amortizing equal monthly installment payments, and repayable at any time without penalty. The company’s loans are sourced through multiple channel platforms, including its branches and consumer Website, direct mail campaigns, automobile dealerships, and retailers. As of February 9, 2017, it operated a network of 339 branches located in South Carolina, Texas, North Carolina, Tennessee, Alabama, Oklahoma, New Mexico, Georgia, and Virginia. Regional Management Corp. was founded in 1987 and is headquartered in Greer, South Carolina.

FINANCIAL RATIOS  of  Regional Management (RM)

Valuation Ratios
P/E Ratio 10.8
Price to Sales 1.1
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 2.6
Price to Free Cash Flow 2.9
Growth Rates
Sales Growth Rate 11.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 140%
Cap. Spend. - 3 Yr. Gr. Rate 24.6%
Financial Strength
Quick Ratio NaN
Current Ratio NaN
LT Debt to Equity 237.7%
Total Debt to Equity 237.7%
Interest Coverage 3
Management Effectiveness
Return On Assets 5.2%
Ret/ On Assets - 3 Yr. Avg. 5.1%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 11.7%
Return On Equity - 3 Yr. Avg. 10.8%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 26.1%
EBITDA Margin - 3 Yr. Avg. 24.3%
Operating Margin 24.5%
Oper. Margin - 3 Yr. Avg. 22.8%
Pre-Tax Margin 16.2%
Pre-Tax Margin - 3 Yr. Avg. 15.1%
Net Profit Margin 10%
Net Profit Margin - 3 Yr. Avg. 9.3%
Effective Tax Rate 38.5%
Eff/ Tax Rate - 3 Yr. Avg. 38.5%
Payout Ratio 0%

RM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RM stock intrinsic value calculation we used $241 million for the last fiscal year's total revenue generated by Regional Management. The default revenue input number comes from 2016 income statement of Regional Management. 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 RM stock valuation model: a) initial revenue growth rate of 15.8% 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 9.8%, whose default value for RM is calculated based on our internal credit rating of Regional Management, 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 Regional Management.
    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 RM stock the variable cost ratio is equal to 75.1%.

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 RM 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% for Regional Management.

Corporate tax rate of 27% is the nominal tax rate for Regional Management. 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 RM 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 RM are equal to 3.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Regional Management 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 RM is equal to -1.7%. 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 - $207 million for Regional Management - 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 11.374 million for Regional Management 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 Regional Management at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Regional Management beats Street 2Q forecasts   [Aug-01-17 10:19PM  Associated Press]
▶ Regional Management posts 1Q profit   [May-02-17 05:48PM  Associated Press]
▶ Regional Management posts 4Q profit   [05:49PM  Associated Press]
Stock chart of RM Financial statements of RM
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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