Intrinsic value of RMR Group Cl A - RMR

Previous Close

$60.15

  Intrinsic Value

$85.63

stock screener

  Rating & Target

buy

+42%

Previous close

$60.15

 
Intrinsic value

$85.63

 
Up/down potential

+42%

 
Rating

buy

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

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 1.9

 

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, %
  38.34
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
Revenue, $m
  267
  288
  309
  331
  354
  378
  403
  429
  456
  484
  513
  544
  576
  609
  644
  680
  717
  757
  798
  841
  886
  934
  983
  1,035
  1,089
  1,146
  1,205
  1,268
  1,333
  1,402
  1,474
Variable operating expenses, $m
 
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  63
  66
  70
  74
  78
  83
  87
  92
  97
  102
  108
  113
  119
  126
  132
  139
  146
  154
  162
  170
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
  127
  133
  137
  143
  148
  154
  159
  165
  171
  177
  184
  190
  197
  204
  211
  220
  227
  235
  244
  253
  263
  271
  281
  292
  303
  314
  325
  338
  350
  363
Operating income, $m
  147
  160
  176
  194
  212
  230
  250
  270
  291
  313
  336
  361
  386
  412
  439
  468
  498
  530
  563
  597
  634
  672
  711
  753
  797
  843
  892
  943
  996
  1,052
  1,111
EBITDA, $m
  149
  161
  178
  195
  213
  232
  251
  272
  293
  315
  338
  362
  387
  414
  441
  470
  500
  532
  565
  600
  636
  674
  714
  756
  800
  847
  895
  946
  1,000
  1,056
  1,115
Interest expense (income), $m
  0
  0
  1
  1
  2
  2
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  25
  27
  28
  30
  32
Earnings before tax, $m
  147
  160
  176
  193
  210
  228
  247
  266
  287
  308
  330
  354
  378
  403
  430
  457
  487
  517
  549
  582
  617
  654
  693
  733
  775
  820
  867
  916
  968
  1,022
  1,079
Tax expense, $m
  25
  43
  47
  52
  57
  62
  67
  72
  77
  83
  89
  95
  102
  109
  116
  124
  131
  140
  148
  157
  167
  177
  187
  198
  209
  221
  234
  247
  261
  276
  291
Net income, $m
  37
  117
  128
  141
  153
  166
  180
  194
  209
  225
  241
  258
  276
  294
  314
  334
  355
  377
  401
  425
  451
  477
  506
  535
  566
  599
  633
  669
  706
  746
  787

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
  293
  315
  337
  361
  385
  411
  437
  464
  493
  523
  554
  586
  620
  655
  692
  731
  771
  813
  857
  903
  951
  1,001
  1,054
  1,109
  1,167
  1,228
  1,291
  1,358
  1,427
  1,501
Adjusted assets (=assets-cash), $m
  272
  293
  315
  337
  361
  385
  411
  437
  464
  493
  523
  554
  586
  620
  655
  692
  731
  771
  813
  857
  903
  951
  1,001
  1,054
  1,109
  1,167
  1,228
  1,291
  1,358
  1,427
  1,501
Revenue / Adjusted assets
  0.982
  0.983
  0.981
  0.982
  0.981
  0.982
  0.981
  0.982
  0.983
  0.982
  0.981
  0.982
  0.983
  0.982
  0.983
  0.983
  0.981
  0.982
  0.982
  0.981
  0.981
  0.982
  0.982
  0.982
  0.982
  0.982
  0.981
  0.982
  0.982
  0.982
  0.982
Average production assets, $m
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Working capital, $m
  74
  9
  9
  10
  11
  11
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
Total debt, $m
  0
  17
  34
  52
  70
  90
  110
  131
  153
  175
  199
  224
  250
  276
  304
  334
  364
  396
  429
  464
  501
  539
  579
  621
  665
  711
  759
  809
  862
  917
  976
Total liabilities, $m
  216
  233
  250
  268
  286
  306
  326
  347
  369
  391
  415
  440
  466
  492
  520
  550
  580
  612
  645
  680
  717
  755
  795
  837
  881
  927
  975
  1,025
  1,078
  1,133
  1,192
Total equity, $m
  122
  60
  65
  69
  74
  79
  85
  90
  96
  102
  108
  114
  121
  128
  135
  143
  151
  159
  167
  176
  186
  196
  206
  217
  228
  240
  253
  266
  280
  294
  309
Total liabilities and equity, $m
  338
  293
  315
  337
  360
  385
  411
  437
  465
  493
  523
  554
  587
  620
  655
  693
  731
  771
  812
  856
  903
  951
  1,001
  1,054
  1,109
  1,167
  1,228
  1,291
  1,358
  1,427
  1,501
Debt-to-equity ratio
  0.000
  0.270
  0.520
  0.740
  0.950
  1.130
  1.300
  1.450
  1.600
  1.730
  1.850
  1.960
  2.070
  2.160
  2.250
  2.340
  2.420
  2.490
  2.560
  2.630
  2.690
  2.750
  2.810
  2.860
  2.910
  2.960
  3.000
  3.040
  3.080
  3.120
  3.160
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
  117
  128
  141
  153
  166
  180
  194
  209
  225
  241
  258
  276
  294
  314
  334
  355
  377
  401
  425
  451
  477
  506
  535
  566
  599
  633
  669
  706
  746
  787
Depreciation, amort., depletion, $m
  2
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Funds from operations, $m
  62
  118
  130
  142
  154
  168
  181
  196
  211
  226
  243
  260
  278
  296
  316
  336
  357
  380
  403
  428
  453
  480
  509
  538
  569
  602
  636
  672
  710
  750
  792
Change in working capital, $m
  -37
  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
  2
Cash from operations, $m
  99
  117
  129
  141
  154
  167
  181
  195
  210
  226
  242
  259
  277
  295
  315
  335
  356
  378
  402
  426
  452
  479
  507
  537
  568
  600
  635
  671
  708
  748
  790
Maintenance CAPEX, $m
  0
  -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
  -3
  -4
  -4
  -4
  -4
New CAPEX, $m
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -4
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
Free cash flow, $m
  95
  116
  128
  140
  152
  166
  179
  193
  208
  224
  240
  257
  274
  293
  312
  332
  354
  376
  399
  423
  449
  475
  504
  533
  564
  596
  630
  666
  704
  743
  784
Issuance/(repayment) of debt, $m
  0
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
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
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
  53
  55
  58
Total cash flow (excl. dividends), $m
  48
  133
  145
  158
  171
  185
  199
  214
  230
  247
  264
  281
  300
  320
  340
  362
  384
  408
  432
  458
  485
  514
  543
  575
  608
  642
  678
  716
  756
  798
  843
Retained Cash Flow (-), $m
  -21
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
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
 
  194
  140
  153
  166
  180
  194
  209
  224
  241
  258
  275
  294
  313
  333
  354
  376
  399
  424
  449
  476
  504
  533
  564
  596
  630
  666
  703
  743
  784
  827
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
 
  186
  129
  133
  137
  139
  141
  141
  140
  138
  135
  131
  125
  119
  112
  104
  96
  87
  78
  69
  60
  52
  44
  37
  30
  25
  19
  15
  11
  9
  6
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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The RMR Group Inc. is a holding company. The Company's business is primarily conducted by its subsidiary, The RMR Group LLC (RMR LLC). The Company's segments include RMR LLC and All Other Operations. RMR LLC manages a portfolio of publicly owned real estate and real estate related businesses. RMR LLC manages Government Properties Income Trust, a real estate investment trust (REIT) that primarily owns properties that are leased to government tenants; Hospitality Properties Trust, an REIT that primarily owns hotels and travel centers; Select Income REIT, an REIT that primarily owns properties leased to single tenants across the United States and leased lands in Hawaii, and Senior Housing Properties Trust, an REIT that primarily owns senior living communities and medical office buildings. As of June 30, 2016, RMR LLC managed over 1,300 properties, which were located in 48 states, Washington, District of Columbia, Puerto Rico and Canada.

FINANCIAL RATIOS  of  RMR Group Cl A (RMR)

Valuation Ratios
P/E Ratio 50.5
Price to Sales 7
Price to Book 15.3
Price to Tangible Book
Price to Cash Flow 18.9
Price to Free Cash Flow 19.1
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 55.8%
EBITDA Margin - 3 Yr. Avg. 34.5%
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 7.7% 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 2.5 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 31.094 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 $1.9 billion.

RELATED COMPANIES Price Int.Val. Rating
KW Kennedy-Wilson 17.95 56.72  str.buy
SIR Select Income 25.66 5.78  str.sell
SNH Senior Housing 19.75 3.36  str.sell
FVE Five Star Seni 1.40 0.82  sell
TA TravelCenters 4.30 18.87  str.buy
GOV Government Pro 18.78 2.43  str.sell
HPT Hospitality Pr 30.57 4.76  str.sell

COMPANY NEWS

▶ ETFs with exposure to RMR Group, Inc. : December 15, 2017   [Dec-15-17 02:07PM  Capital Cube]
▶ RMR Group tops 4Q profit forecasts   [07:31AM  Associated Press]
▶ ETFs with exposure to RMR Group, Inc. : November 15, 2017   [Nov-15-17 12:26PM  Capital Cube]
▶ The RMR Group Inc. Announces Four Property Awards   [Oct-27-17 07:00AM  Business Wire]
▶ ETFs with exposure to RMR Group, Inc. : October 3, 2017   [Oct-03-17 11:33AM  Capital Cube]
▶ Is The RMR Group Inc (RMR) A Real Estate Leader?   [Sep-22-17 08:06PM  Simply Wall St.]
▶ The RMR Group Inc. Announces Three Property Awards   [Sep-21-17 08:00AM  Business Wire]
▶ 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]
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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