Intrinsic value of RMR Group Cl A - RMR

Previous Close

$47.60

  Intrinsic Value

$121.11

stock screener

  Rating & Target

str. buy

+154%

  Value-price divergence*

+889%

Previous close

$47.60

 
Intrinsic value

$121.11

 
Up/down potential

+154%

 
Rating

str. buy

 
Value-price divergence*

+889%

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

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

We calculate the intrinsic value of RMR 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 1.5

 

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, %
  38.34
  12.50
  11.75
  11.08
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.44
  5.39
  5.35
Revenue, $m
  267
  300
  336
  373
  412
  453
  495
  540
  586
  635
  685
  737
  791
  847
  906
  967
  1,030
  1,096
  1,164
  1,236
  1,310
  1,387
  1,468
  1,552
  1,640
  1,732
  1,828
  1,928
  2,033
  2,143
  2,257
Variable operating expenses, $m
 
  35
  39
  43
  48
  52
  57
  62
  68
  73
  79
  85
  91
  98
  104
  111
  119
  126
  134
  142
  151
  160
  169
  179
  189
  200
  211
  222
  234
  247
  260
Fixed operating expenses, $m
 
  94
  97
  99
  102
  104
  107
  109
  112
  115
  118
  121
  124
  127
  130
  133
  137
  140
  143
  147
  151
  155
  158
  162
  166
  171
  175
  179
  184
  188
  193
Total operating expenses, $m
  120
  129
  136
  142
  150
  156
  164
  171
  180
  188
  197
  206
  215
  225
  234
  244
  256
  266
  277
  289
  302
  315
  327
  341
  355
  371
  386
  401
  418
  435
  453
Operating income, $m
  147
  171
  200
  231
  263
  296
  331
  368
  406
  446
  488
  531
  576
  623
  671
  722
  775
  829
  887
  946
  1,008
  1,073
  1,140
  1,211
  1,285
  1,362
  1,443
  1,527
  1,615
  1,708
  1,804
EBITDA, $m
  158
  172
  201
  231
  263
  297
  332
  369
  408
  447
  489
  532
  577
  624
  673
  723
  776
  831
  888
  948
  1,010
  1,075
  1,143
  1,213
  1,287
  1,364
  1,445
  1,530
  1,618
  1,711
  1,808
Interest expense (income), $m
  0
  0
  1
  2
  3
  4
  5
  6
  8
  9
  10
  12
  13
  15
  16
  18
  20
  22
  23
  25
  27
  30
  32
  34
  36
  39
  41
  44
  47
  50
  53
Earnings before tax, $m
  147
  171
  199
  229
  260
  292
  326
  362
  399
  437
  477
  519
  563
  608
  655
  704
  755
  808
  863
  921
  981
  1,043
  1,109
  1,177
  1,248
  1,323
  1,401
  1,483
  1,568
  1,658
  1,751
Tax expense, $m
  25
  46
  54
  62
  70
  79
  88
  98
  108
  118
  129
  140
  152
  164
  177
  190
  204
  218
  233
  249
  265
  282
  299
  318
  337
  357
  378
  400
  423
  448
  473
Net income, $m
  37
  125
  145
  167
  190
  213
  238
  264
  291
  319
  349
  379
  411
  444
  478
  514
  551
  590
  630
  672
  716
  762
  809
  859
  911
  966
  1,023
  1,082
  1,145
  1,210
  1,278

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  66
  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
  338
  306
  342
  380
  419
  461
  505
  550
  597
  646
  697
  750
  806
  863
  922
  984
  1,049
  1,116
  1,186
  1,258
  1,334
  1,413
  1,495
  1,581
  1,670
  1,764
  1,862
  1,964
  2,070
  2,182
  2,299
Adjusted assets (=assets-cash), $m
  272
  306
  342
  380
  419
  461
  505
  550
  597
  646
  697
  750
  806
  863
  922
  984
  1,049
  1,116
  1,186
  1,258
  1,334
  1,413
  1,495
  1,581
  1,670
  1,764
  1,862
  1,964
  2,070
  2,182
  2,299
Revenue / Adjusted assets
  0.982
  0.980
  0.982
  0.982
  0.983
  0.983
  0.980
  0.982
  0.982
  0.983
  0.983
  0.983
  0.981
  0.981
  0.983
  0.983
  0.982
  0.982
  0.981
  0.983
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
  0.982
Average production assets, $m
  4
  5
  5
  6
  6
  7
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
Working capital, $m
  74
  9
  10
  11
  12
  14
  15
  16
  18
  19
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
Total debt, $m
  0
  27
  55
  85
  117
  150
  185
  221
  258
  297
  338
  380
  424
  469
  516
  566
  617
  670
  725
  783
  843
  906
  971
  1,039
  1,110
  1,184
  1,262
  1,343
  1,428
  1,517
  1,609
Total liabilities, $m
  216
  243
  271
  301
  333
  366
  401
  437
  474
  513
  554
  596
  640
  685
  732
  782
  833
  886
  941
  999
  1,059
  1,122
  1,187
  1,255
  1,326
  1,400
  1,478
  1,559
  1,644
  1,733
  1,825
Total equity, $m
  122
  63
  70
  78
  86
  95
  104
  113
  123
  133
  144
  155
  166
  178
  190
  203
  216
  230
  244
  259
  275
  291
  308
  326
  344
  363
  383
  405
  426
  449
  474
Total liabilities and equity, $m
  338
  306
  341
  379
  419
  461
  505
  550
  597
  646
  698
  751
  806
  863
  922
  985
  1,049
  1,116
  1,185
  1,258
  1,334
  1,413
  1,495
  1,581
  1,670
  1,763
  1,861
  1,964
  2,070
  2,182
  2,299
Debt-to-equity ratio
  0.000
  0.430
  0.790
  1.090
  1.350
  1.580
  1.780
  1.950
  2.100
  2.230
  2.350
  2.460
  2.550
  2.640
  2.720
  2.790
  2.850
  2.910
  2.970
  3.020
  3.070
  3.110
  3.150
  3.190
  3.230
  3.260
  3.290
  3.320
  3.350
  3.370
  3.400
Adjusted equity ratio
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206
  0.206

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  37
  125
  145
  167
  190
  213
  238
  264
  291
  319
  349
  379
  411
  444
  478
  514
  551
  590
  630
  672
  716
  762
  809
  859
  911
  966
  1,023
  1,082
  1,145
  1,210
  1,278
Depreciation, amort., depletion, $m
  11
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
Funds from operations, $m
  62
  126
  146
  168
  190
  214
  239
  265
  292
  320
  350
  380
  412
  445
  480
  515
  553
  591
  632
  674
  718
  764
  812
  862
  914
  968
  1,026
  1,085
  1,148
  1,213
  1,282
Change in working capital, $m
  -37
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
Cash from operations, $m
  99
  125
  145
  167
  189
  213
  238
  264
  291
  319
  348
  379
  410
  443
  478
  514
  551
  589
  630
  672
  716
  761
  809
  859
  911
  966
  1,023
  1,082
  1,145
  1,210
  1,278
Maintenance CAPEX, $m
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
New CAPEX, $m
  -1
  -1
  -1
  -1
  -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
Cash from investing activities, $m
  -4
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -5
  -5
  -5
  -5
Free cash flow, $m
  95
  124
  144
  166
  188
  212
  236
  262
  289
  317
  347
  377
  409
  441
  476
  511
  548
  587
  627
  669
  713
  758
  806
  856
  908
  962
  1,019
  1,078
  1,140
  1,205
  1,273
Issuance/(repayment) of debt, $m
  0
  27
  29
  30
  32
  33
  35
  36
  37
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  -47
  27
  29
  30
  32
  33
  35
  36
  37
  39
  41
  42
  44
  46
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  71
  74
  78
  81
  85
  89
  93
Total cash flow (excl. dividends), $m
  48
  151
  173
  196
  220
  245
  271
  298
  327
  356
  387
  419
  452
  487
  523
  560
  599
  640
  683
  727
  773
  821
  871
  924
  979
  1,036
  1,096
  1,159
  1,225
  1,294
  1,366
Retained Cash Flow (-), $m
  -21
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  66
  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
 
  210
  165
  188
  211
  236
  262
  289
  317
  346
  377
  408
  441
  475
  511
  548
  586
  626
  668
  712
  757
  805
  854
  906
  960
  1,017
  1,076
  1,138
  1,203
  1,271
  1,342
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  201
  151
  163
  174
  183
  190
  195
  198
  199
  197
  194
  188
  181
  171
  161
  149
  136
  123
  110
  96
  83
  71
  59
  49
  40
  31
  24
  19
  14
  10
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

The RMR Group Inc., through its subsidiary, The RMR Group LLC, provides business and property management services in the United States. It serves four publicly traded real estate investment trusts (REITs) and three real estate operating companies. As of September 30, 2016, the company had approximately 1,400 properties under management, which are primarily owned by the managed REITs. It also provides investment advisory services. The company was formerly known as REIT Management & Research Inc. and changed its name to The RMR Group Inc. in September 2015. The RMR Group Inc. was founded in 1986 and is based in Newton, Massachusetts.

FINANCIAL RATIOS  of  RMR Group Cl A (RMR)

Valuation Ratios
P/E Ratio 40
Price to Sales 5.5
Price to Book 12.1
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 15.1
Growth Rates
Sales Growth Rate 38.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 11.5%
Ret/ On Assets - 3 Yr. Avg. 6%
Return On Total Capital 33.2%
Ret/ On T. Cap. - 3 Yr. Avg. 14.4%
Return On Equity 33.2%
Return On Equity - 3 Yr. Avg. 14.4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 65.5%
Gross Margin - 3 Yr. Avg. 59%
EBITDA Margin 59.2%
EBITDA Margin - 3 Yr. Avg. 36.2%
Operating Margin 55.1%
Oper. Margin - 3 Yr. Avg. 34%
Pre-Tax Margin 55.1%
Pre-Tax Margin - 3 Yr. Avg. 33.7%
Net Profit Margin 13.9%
Net Profit Margin - 3 Yr. Avg. 7%
Effective Tax Rate 17%
Eff/ Tax Rate - 3 Yr. Avg. 7.7%
Payout Ratio 45.9%

RMR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RMR stock intrinsic value calculation we used $267 million for the last fiscal year's total revenue generated by RMR Group Cl A. The default revenue input number comes from 2016 income statement of RMR Group Cl A. 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 RMR stock valuation model: a) initial revenue growth rate of 12.5% 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 4.3%, whose default value for RMR is calculated based on our internal credit rating of RMR Group Cl A, 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 RMR Group Cl A.
    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 RMR stock the variable cost ratio is equal to 11.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $92 million in the base year in the intrinsic value calculation for RMR 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 3.5% for RMR Group Cl A.

Corporate tax rate of 27% is the nominal tax rate for RMR Group Cl A. 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 RMR 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 RMR are equal to 1.5%.

Life of production assets of 10 years is the average useful life of capital assets used in RMR Group Cl A 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 RMR is equal to 3%. 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 - $122 million for RMR Group Cl A - 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 31.238 million for RMR Group Cl A 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 RMR Group Cl A at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ Opening Bell, June 14, 2017   [Jun-14-17 09:29AM  CNBC Videos]
▶ ETFs with exposure to RMR Group, Inc. : May 29, 2017   [May-29-17 12:53PM  Capital Cube]
▶ ETFs with exposure to RMR Group, Inc. : May 18, 2017   [May-18-17 01:59PM  Capital Cube]
▶ The RMR Group Inc. Announces 17 Property Awards   [May-02-17 04:01PM  Business Wire]
▶ The RMR Group Inc. Announces Annual Meeting Results   [Mar-29-17 04:01PM  Business Wire]
Stock chart of RMR Financial statements of RMR
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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