Intrinsic value of Regional Management - RM

Previous Close

$24.26

  Intrinsic Value

$61.82

stock screener

  Rating & Target

str. buy

+155%

  Value-price divergence*

+41%

Previous close

$24.26

 
Intrinsic value

$61.82

 
Up/down potential

+155%

 
Rating

str. buy

 
Value-price divergence*

+41%

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
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
Revenue, $m
  241
  275
  311
  349
  389
  432
  476
  523
  571
  622
  675
  730
  787
  846
  908
  972
  1,039
  1,108
  1,180
  1,255
  1,333
  1,414
  1,499
  1,587
  1,679
  1,775
  1,875
  1,980
  2,089
  2,204
  2,323
Variable operating expenses, $m
 
  206
  233
  262
  292
  324
  358
  393
  429
  467
  507
  548
  591
  635
  682
  730
  780
  832
  886
  942
  1,001
  1,062
  1,125
  1,191
  1,260
  1,332
  1,408
  1,486
  1,568
  1,654
  1,744
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
  206
  233
  262
  292
  324
  358
  393
  429
  467
  507
  548
  591
  635
  682
  730
  780
  832
  886
  942
  1,001
  1,062
  1,125
  1,191
  1,260
  1,332
  1,408
  1,486
  1,568
  1,654
  1,744
Operating income, $m
  59
  68
  77
  87
  97
  108
  119
  130
  142
  155
  168
  182
  196
  211
  226
  242
  259
  276
  294
  313
  332
  353
  374
  396
  419
  443
  468
  494
  521
  550
  579
EBITDA, $m
  65
  71
  80
  90
  100
  111
  122
  134
  147
  160
  174
  188
  202
  218
  234
  250
  267
  285
  304
  323
  343
  364
  386
  408
  432
  457
  482
  509
  537
  567
  598
Interest expense (income), $m
  18
  20
  23
  26
  29
  32
  36
  39
  43
  47
  52
  56
  61
  65
  70
  76
  81
  87
  92
  98
  105
  111
  118
  125
  133
  140
  148
  157
  166
  175
  184
Earnings before tax, $m
  39
  49
  55
  61
  68
  75
  83
  91
  99
  108
  117
  126
  136
  146
  156
  167
  178
  190
  202
  215
  228
  241
  256
  271
  286
  302
  319
  337
  356
  375
  395
Tax expense, $m
  15
  13
  15
  17
  18
  20
  22
  25
  27
  29
  31
  34
  37
  39
  42
  45
  48
  51
  55
  58
  61
  65
  69
  73
  77
  82
  86
  91
  96
  101
  107
Net income, $m
  24
  36
  40
  45
  50
  55
  61
  66
  72
  79
  85
  92
  99
  106
  114
  122
  130
  139
  147
  157
  166
  176
  187
  198
  209
  221
  233
  246
  260
  274
  288

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
  808
  914
  1,026
  1,145
  1,270
  1,401
  1,538
  1,681
  1,830
  1,985
  2,147
  2,315
  2,489
  2,671
  2,859
  3,055
  3,259
  3,471
  3,691
  3,921
  4,160
  4,409
  4,668
  4,939
  5,221
  5,516
  5,824
  6,145
  6,482
  6,833
Adjusted assets (=assets-cash), $m
  708
  808
  914
  1,026
  1,145
  1,270
  1,401
  1,538
  1,681
  1,830
  1,985
  2,147
  2,315
  2,489
  2,671
  2,859
  3,055
  3,259
  3,471
  3,691
  3,921
  4,160
  4,409
  4,668
  4,939
  5,221
  5,516
  5,824
  6,145
  6,482
  6,833
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
  15
  17
  19
  20
  22
  24
  26
  28
  31
  33
  35
  38
  41
  43
  46
  49
  52
  55
  58
  62
  65
  69
  73
  77
  81
  86
  91
Working capital, $m
  0
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -27
  -29
  -30
  -32
  -34
  -36
  -37
  -39
Total debt, $m
  492
  563
  639
  719
  803
  892
  986
  1,083
  1,185
  1,292
  1,402
  1,518
  1,637
  1,762
  1,891
  2,026
  2,165
  2,311
  2,462
  2,619
  2,782
  2,953
  3,130
  3,315
  3,508
  3,710
  3,920
  4,139
  4,369
  4,608
  4,859
Total liabilities, $m
  505
  576
  652
  732
  816
  905
  999
  1,096
  1,198
  1,305
  1,415
  1,531
  1,650
  1,775
  1,904
  2,039
  2,178
  2,324
  2,475
  2,632
  2,795
  2,966
  3,143
  3,328
  3,521
  3,723
  3,933
  4,152
  4,382
  4,621
  4,872
Total equity, $m
  207
  232
  262
  295
  329
  364
  402
  441
  482
  525
  570
  616
  664
  714
  767
  821
  877
  935
  996
  1,059
  1,125
  1,194
  1,265
  1,340
  1,417
  1,498
  1,583
  1,671
  1,764
  1,860
  1,961
Total liabilities and equity, $m
  712
  808
  914
  1,027
  1,145
  1,269
  1,401
  1,537
  1,680
  1,830
  1,985
  2,147
  2,314
  2,489
  2,671
  2,860
  3,055
  3,259
  3,471
  3,691
  3,920
  4,160
  4,408
  4,668
  4,938
  5,221
  5,516
  5,823
  6,146
  6,481
  6,833
Debt-to-equity ratio
  2.377
  2.430
  2.430
  2.440
  2.440
  2.450
  2.450
  2.450
  2.460
  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
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
  40
  45
  50
  55
  61
  66
  72
  79
  85
  92
  99
  106
  114
  122
  130
  139
  147
  157
  166
  176
  187
  198
  209
  221
  233
  246
  260
  274
  288
Depreciation, amort., depletion, $m
  6
  2
  3
  3
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
Funds from operations, $m
  100
  38
  43
  48
  53
  59
  64
  71
  77
  84
  90
  98
  105
  113
  121
  129
  138
  147
  157
  166
  177
  187
  198
  210
  222
  235
  248
  262
  276
  291
  307
Change in working capital, $m
  0
  -1
  -1
  -1
  -1
  -1
  -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
Cash from operations, $m
  100
  38
  43
  48
  54
  59
  65
  71
  78
  84
  91
  99
  106
  114
  122
  130
  139
  148
  158
  168
  178
  189
  200
  211
  224
  236
  249
  263
  278
  293
  309
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
New CAPEX, $m
  -12
  -1
  -1
  -1
  -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
  -4
  -5
Cash from investing activities, $m
  -157
  -3
  -3
  -3
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -22
Free cash flow, $m
  -57
  35
  40
  44
  49
  55
  60
  66
  72
  78
  84
  91
  98
  105
  113
  121
  129
  138
  146
  156
  165
  175
  185
  196
  208
  219
  232
  245
  258
  272
  287
Issuance/(repayment) of debt, $m
  81
  71
  75
  80
  85
  89
  93
  98
  102
  106
  111
  115
  120
  124
  129
  134
  140
  145
  151
  157
  164
  170
  177
  185
  193
  201
  210
  220
  229
  240
  251
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
  71
  75
  80
  85
  89
  93
  98
  102
  106
  111
  115
  120
  124
  129
  134
  140
  145
  151
  157
  164
  170
  177
  185
  193
  201
  210
  220
  229
  240
  251
Total cash flow (excl. dividends), $m
  -3
  106
  115
  124
  134
  144
  153
  163
  174
  184
  195
  206
  218
  230
  242
  255
  269
  283
  297
  313
  329
  345
  363
  381
  401
  421
  442
  464
  487
  512
  537
Retained Cash Flow (-), $m
  -2
  -29
  -30
  -32
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -69
  -71
  -74
  -78
  -81
  -85
  -88
  -92
  -96
  -101
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
 
  82
  85
  92
  100
  108
  116
  124
  133
  142
  151
  160
  170
  180
  190
  201
  213
  224
  237
  249
  263
  277
  292
  307
  323
  340
  357
  376
  395
  415
  437
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
 
  74
  70
  68
  65
  61
  57
  52
  47
  42
  37
  31
  26
  22
  18
  14
  11
  8
  6
  4
  3
  2
  1
  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. is a diversified consumer finance company. The Company provides an array of loan products primarily to customers with limited access to consumer credit from banks, thrifts, credit card companies and other traditional lenders. Its products include small loans, large loans, automobile loans, retail loans, and optional payment and collateral protection insurance products. It offers small loans ranging from $500 to $2,500, through its branches. It offers large installment loans with cash proceeds to the customer ranging from $2,501 to $20,000. As of December 31, 2016, automobile loans were offered in amounts up to $27,500. As of December 31, 2016, retail loans were indirect installment loans structured as retail installment sales contracts that were offered in amounts of up to $7,500. Optional Payment and Collateral Protection Insurance Products offer customers a number of optional payment and collateral protection insurance products.

FINANCIAL RATIOS  of  Regional Management (RM)

Valuation Ratios
P/E Ratio 11.6
Price to Sales 1.2
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 2.8
Price to Free Cash Flow 3.2
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 14% 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 1.8 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 11.705 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

▶ Does RM Plcs (LSE:RM) PE Ratio Signal A Buying Opportunity?   [Sep-21-17 03:35AM  Simply Wall St.]
▶ Is It Time To Buy RM Plc (LSE:RM)?   [Sep-06-17 02:45PM  Simply Wall St.]
▶ 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]
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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