Intrinsic value of Monotype Imaging Holdings - TYPE

Previous Close

$19.65

  Intrinsic Value

$21.87

stock screener

  Rating & Target

hold

+11%

  Value-price divergence*

+11%

Previous close

$19.65

 
Intrinsic value

$21.87

 
Up/down potential

+11%

 
Rating

hold

 
Value-price divergence*

+11%

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

We calculate the intrinsic value of TYPE 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 0.8

 

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, %
  5.73
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.11
  5.09
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
Revenue, $m
  203
  215
  227
  239
  252
  266
  281
  296
  312
  328
  345
  363
  382
  402
  423
  445
  468
  492
  517
  543
  571
  600
  631
  663
  696
  731
  768
  807
  848
  890
  935
Variable operating expenses, $m
 
  166
  174
  182
  191
  200
  209
  219
  229
  240
  251
  236
  248
  261
  274
  289
  303
  319
  335
  352
  370
  389
  409
  430
  451
  474
  498
  523
  550
  577
  606
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
  177
  166
  174
  182
  191
  200
  209
  219
  229
  240
  251
  236
  248
  261
  274
  289
  303
  319
  335
  352
  370
  389
  409
  430
  451
  474
  498
  523
  550
  577
  606
Operating income, $m
  26
  48
  52
  57
  61
  66
  71
  77
  82
  88
  94
  128
  134
  141
  149
  156
  164
  173
  182
  191
  201
  211
  222
  233
  245
  257
  270
  284
  298
  313
  329
EBITDA, $m
  38
  79
  84
  88
  93
  98
  103
  109
  115
  121
  127
  134
  141
  148
  156
  164
  172
  181
  191
  200
  211
  221
  233
  244
  257
  270
  283
  298
  313
  328
  345
Interest expense (income), $m
  1
  4
  4
  5
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
Earnings before tax, $m
  25
  44
  48
  52
  56
  61
  65
  70
  75
  80
  86
  119
  125
  131
  138
  145
  152
  160
  168
  176
  185
  194
  204
  214
  224
  235
  247
  259
  272
  286
  300
Tax expense, $m
  10
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  32
  34
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
  67
  70
  74
  77
  81
Net income, $m
  15
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  87
  91
  96
  101
  106
  111
  116
  122
  128
  135
  142
  149
  156
  164
  172
  180
  189
  199
  209
  219

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  91
  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
  525
  458
  484
  511
  539
  569
  600
  632
  666
  701
  738
  777
  817
  860
  904
  951
  1,000
  1,051
  1,105
  1,161
  1,220
  1,282
  1,347
  1,416
  1,487
  1,562
  1,641
  1,724
  1,811
  1,902
  1,998
Adjusted assets (=assets-cash), $m
  434
  458
  484
  511
  539
  569
  600
  632
  666
  701
  738
  777
  817
  860
  904
  951
  1,000
  1,051
  1,105
  1,161
  1,220
  1,282
  1,347
  1,416
  1,487
  1,562
  1,641
  1,724
  1,811
  1,902
  1,998
Revenue / Adjusted assets
  0.468
  0.469
  0.469
  0.468
  0.468
  0.467
  0.468
  0.468
  0.468
  0.468
  0.467
  0.467
  0.468
  0.467
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
  0.468
Average production assets, $m
  95
  100
  106
  111
  118
  124
  131
  138
  145
  153
  161
  169
  178
  187
  197
  207
  218
  229
  241
  253
  266
  280
  294
  309
  324
  341
  358
  376
  395
  415
  436
Working capital, $m
  78
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -54
  -57
  -60
Total debt, $m
  105
  117
  129
  142
  156
  170
  185
  201
  217
  235
  253
  271
  291
  312
  333
  356
  380
  405
  431
  458
  487
  517
  549
  582
  617
  653
  692
  732
  774
  819
  865
Total liabilities, $m
  211
  223
  235
  248
  262
  276
  291
  307
  323
  341
  359
  377
  397
  418
  439
  462
  486
  511
  537
  564
  593
  623
  655
  688
  723
  759
  798
  838
  880
  925
  971
Total equity, $m
  314
  236
  249
  263
  277
  292
  308
  325
  342
  360
  379
  399
  420
  442
  465
  489
  514
  540
  568
  597
  627
  659
  693
  728
  764
  803
  844
  886
  931
  978
  1,027
Total liabilities and equity, $m
  525
  459
  484
  511
  539
  568
  599
  632
  665
  701
  738
  776
  817
  860
  904
  951
  1,000
  1,051
  1,105
  1,161
  1,220
  1,282
  1,348
  1,416
  1,487
  1,562
  1,642
  1,724
  1,811
  1,903
  1,998
Debt-to-equity ratio
  0.334
  0.500
  0.520
  0.540
  0.560
  0.580
  0.600
  0.620
  0.640
  0.650
  0.670
  0.680
  0.690
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.810
  0.810
  0.820
  0.830
  0.830
  0.840
  0.840
Adjusted equity ratio
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  87
  91
  96
  101
  106
  111
  116
  122
  128
  135
  142
  149
  156
  164
  172
  180
  189
  199
  209
  219
Depreciation, amort., depletion, $m
  12
  31
  31
  31
  32
  32
  32
  32
  33
  33
  33
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
Funds from operations, $m
  44
  63
  66
  70
  73
  76
  80
  84
  88
  92
  96
  93
  98
  103
  108
  113
  119
  125
  131
  138
  145
  152
  159
  167
  176
  184
  194
  203
  213
  224
  235
Change in working capital, $m
  3
  -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
  -3
  -3
  -3
Cash from operations, $m
  41
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  94
  99
  104
  109
  115
  120
  127
  133
  139
  146
  154
  161
  169
  178
  187
  196
  206
  216
  227
  238
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
New CAPEX, $m
  -3
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
Cash from investing activities, $m
  -121
  -9
  -10
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -19
  -19
  -20
  -21
  -22
  -24
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
Free cash flow, $m
  -80
  55
  58
  61
  63
  66
  69
  73
  76
  80
  83
  80
  84
  88
  93
  97
  102
  107
  113
  118
  124
  130
  137
  144
  151
  158
  166
  174
  183
  192
  202
Issuance/(repayment) of debt, $m
  105
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  47
Issuance/(repurchase) of shares, $m
  -3
  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  
  103
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  47
Total cash flow (excl. dividends), $m
  22
  67
  70
  74
  77
  81
  84
  88
  92
  97
  101
  99
  104
  109
  114
  120
  126
  132
  139
  146
  153
  161
  168
  177
  186
  195
  205
  215
  225
  237
  248
Retained Cash Flow (-), $m
  -7
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -45
  -47
  -49
Prev. year cash balance distribution, $m
 
  91
  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
 
  145
  57
  60
  63
  66
  69
  72
  75
  79
  82
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  135
  142
  149
  156
  164
  172
  181
  190
  199
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
 
  139
  52
  52
  52
  51
  50
  49
  47
  45
  43
  37
  35
  33
  31
  28
  26
  23
  20
  18
  16
  13
  11
  9
  8
  6
  5
  4
  3
  2
  1
Current shareholders' claim on cash, %
  100
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  100.0
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  100.0
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  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
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  100.0

Monotype Imaging Holdings Inc. is engaged in the development, marketing and licensing of technologies and fonts. The Company empowers expression and engagement for creatives, designers, engineers and marketers. It organizes its business operations into two areas: creative professionals and original equipment manufacturer (OEM). For Creative Professional market, it provides content across multiple devices and mediums. Its solutions, which include type, branded mobile content, visual content marketing solutions, custom design services, and tools and technologies that enable the creative process, are licensed through its direct sales channel, e-commerce platforms and partner platforms. It also provides consumer device manufacturers and independent software vendors with the right solutions for delivering consistent, compelling user experiences. It works with a range of customers, including brands, agencies and publishers. As of December 31, 2016, it offered over 17,000 typeface designs.

FINANCIAL RATIOS  of  Monotype Imaging Holdings (TYPE)

Valuation Ratios
P/E Ratio 54.1
Price to Sales 4
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 19.8
Price to Free Cash Flow 21.3
Growth Rates
Sales Growth Rate 5.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 33.4%
Total Debt to Equity 33.4%
Interest Coverage 26
Management Effectiveness
Return On Assets 3.4%
Ret/ On Assets - 3 Yr. Avg. 6.4%
Return On Total Capital 4.1%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 4.8%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 81.8%
Gross Margin - 3 Yr. Avg. 81.9%
EBITDA Margin 18.7%
EBITDA Margin - 3 Yr. Avg. 26.1%
Operating Margin 12.8%
Oper. Margin - 3 Yr. Avg. 21.1%
Pre-Tax Margin 12.3%
Pre-Tax Margin - 3 Yr. Avg. 19.9%
Net Profit Margin 7.4%
Net Profit Margin - 3 Yr. Avg. 12.9%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. 35.9%
Payout Ratio 120%

TYPE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TYPE stock intrinsic value calculation we used $203 million for the last fiscal year's total revenue generated by Monotype Imaging Holdings. The default revenue input number comes from 2016 income statement of Monotype Imaging Holdings. 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 TYPE stock valuation model: a) initial revenue growth rate of 5.7% 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 TYPE is calculated based on our internal credit rating of Monotype Imaging Holdings, 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 Monotype Imaging Holdings.
    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 TYPE stock the variable cost ratio is equal to 78.3%.

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 TYPE 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 Monotype Imaging Holdings.

Corporate tax rate of 27% is the nominal tax rate for Monotype Imaging Holdings. 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 TYPE 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 TYPE are equal to 46.6%.

Life of production assets of 27 years is the average useful life of capital assets used in Monotype Imaging Holdings 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 TYPE is equal to -6.4%. 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 - $314 million for Monotype Imaging Holdings - 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 41.717 million for Monotype Imaging Holdings 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 Monotype Imaging Holdings at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ Monotype reports 2Q loss   [Jul-28-17 10:21PM  Associated Press]
▶ Monotype reports 1Q loss   [Apr-28-17 07:14AM  Associated Press]
▶ Monotype misses Street 4Q forecasts   [07:32AM  Associated Press]
▶ Monotype to Present at the UBS Global Technology Conference   [Nov-09-16 04:30PM  Business Wire]
▶ Monotype to Host Investor Webinar on October 3   [Sep-19-16 07:30AM  Business Wire]
▶ Monotype Announces $25 Million Stock Repurchase Program   [Aug-30-16 04:30PM  Business Wire]
▶ Monotype Completes Acquisition of Olapic   [04:00PM  Business Wire]
▶ Monotype posts 2Q profit   [08:07AM  AP]
▶ Biotech Firm Zafgen in Thursdays 52-Week Low Club   [Jul-21-16 04:04PM  at 24/7 Wall St.]
▶ Monotype Announces Intent to Acquire Olapic   [06:00AM  Business Wire]
Financial statements of TYPE
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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