Intrinsic value of Monotype Imaging Holdings - TYPE

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$19.90

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$19.90

 
Intrinsic value

$20.89

 
Up/down potential

+5%

 
Rating

hold

 
Value-price divergence* premium content

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*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
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.94
  4.94
  4.95
Revenue, $m
  203
  211
  219
  228
  238
  248
  259
  270
  282
  295
  309
  323
  338
  354
  371
  388
  407
  426
  447
  468
  491
  515
  540
  567
  594
  624
  654
  686
  720
  756
  793
Variable operating expenses, $m
 
  164
  170
  175
  182
  188
  195
  203
  210
  219
  228
  209
  219
  230
  240
  252
  264
  276
  290
  304
  319
  334
  350
  367
  385
  404
  424
  445
  467
  490
  515
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
  164
  170
  175
  182
  188
  195
  203
  210
  219
  228
  209
  219
  230
  240
  252
  264
  276
  290
  304
  319
  334
  350
  367
  385
  404
  424
  445
  467
  490
  515
Operating income, $m
  26
  47
  50
  53
  56
  60
  64
  68
  72
  76
  81
  114
  119
  124
  130
  136
  143
  150
  157
  165
  173
  181
  190
  199
  209
  219
  230
  241
  253
  266
  279
EBITDA, $m
  38
  78
  81
  84
  88
  92
  95
  100
  104
  109
  114
  119
  125
  131
  137
  143
  150
  157
  165
  173
  181
  190
  199
  209
  219
  230
  241
  253
  266
  279
  293
Interest expense (income), $m
  1
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
Earnings before tax, $m
  25
  43
  46
  49
  52
  55
  58
  62
  66
  70
  74
  106
  111
  116
  121
  127
  133
  139
  145
  152
  159
  167
  175
  183
  192
  201
  211
  221
  232
  243
  255
Tax expense, $m
  10
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
Net income, $m
  15
  32
  33
  36
  38
  40
  43
  45
  48
  51
  54
  77
  81
  85
  88
  92
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
  154
  161
  169
  178
  186

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
  451
  469
  488
  508
  530
  553
  578
  604
  631
  660
  690
  722
  756
  792
  830
  869
  911
  955
  1,001
  1,049
  1,100
  1,154
  1,211
  1,270
  1,332
  1,398
  1,467
  1,539
  1,615
  1,695
Adjusted assets (=assets-cash), $m
  434
  451
  469
  488
  508
  530
  553
  578
  604
  631
  660
  690
  722
  756
  792
  830
  869
  911
  955
  1,001
  1,049
  1,100
  1,154
  1,211
  1,270
  1,332
  1,398
  1,467
  1,539
  1,615
  1,695
Revenue / Adjusted assets
  0.468
  0.468
  0.467
  0.467
  0.469
  0.468
  0.468
  0.467
  0.467
  0.468
  0.468
  0.468
  0.468
  0.468
  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
Average production assets, $m
  95
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  208
  218
  229
  240
  252
  264
  277
  291
  305
  320
  336
  352
  370
Working capital, $m
  78
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
Total debt, $m
  105
  113
  122
  131
  141
  152
  163
  175
  187
  201
  215
  229
  245
  262
  279
  297
  316
  337
  358
  380
  404
  429
  455
  482
  511
  542
  573
  607
  642
  679
  718
Total liabilities, $m
  211
  219
  228
  237
  247
  258
  269
  281
  293
  307
  321
  335
  351
  368
  385
  403
  422
  443
  464
  486
  510
  535
  561
  588
  617
  648
  679
  713
  748
  785
  824
Total equity, $m
  314
  232
  241
  251
  261
  273
  284
  297
  310
  324
  339
  355
  371
  389
  407
  426
  447
  468
  491
  514
  539
  566
  593
  622
  653
  685
  719
  754
  791
  830
  871
Total liabilities and equity, $m
  525
  451
  469
  488
  508
  531
  553
  578
  603
  631
  660
  690
  722
  757
  792
  829
  869
  911
  955
  1,000
  1,049
  1,101
  1,154
  1,210
  1,270
  1,333
  1,398
  1,467
  1,539
  1,615
  1,695
Debt-to-equity ratio
  0.334
  0.490
  0.510
  0.520
  0.540
  0.560
  0.570
  0.590
  0.600
  0.620
  0.630
  0.650
  0.660
  0.670
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.780
  0.790
  0.800
  0.800
  0.810
  0.820
  0.820
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
  33
  36
  38
  40
  43
  45
  48
  51
  54
  77
  81
  85
  88
  92
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
  154
  161
  169
  178
  186
Depreciation, amort., depletion, $m
  12
  31
  31
  31
  31
  32
  32
  32
  32
  32
  33
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Funds from operations, $m
  44
  62
  65
  67
  69
  72
  74
  77
  80
  83
  87
  83
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  150
  158
  165
  173
  182
  191
  200
Change in working capital, $m
  3
  -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
  -2
  -2
Cash from operations, $m
  41
  73
  65
  67
  70
  72
  75
  78
  81
  84
  88
  84
  88
  92
  96
  100
  105
  110
  115
  121
  126
  132
  139
  145
  152
  160
  167
  175
  184
  193
  202
Maintenance CAPEX, $m
  0
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
Cash from investing activities, $m
  -121
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -19
  -21
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -30
Free cash flow, $m
  -80
  66
  58
  59
  61
  64
  66
  68
  71
  73
  76
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  129
  136
  142
  149
  156
  164
  172
Issuance/(repayment) of debt, $m
  105
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
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
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
Total cash flow (excl. dividends), $m
  22
  74
  66
  69
  71
  74
  77
  80
  83
  87
  90
  87
  91
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
  151
  158
  166
  174
  183
  191
  201
  211
Retained Cash Flow (-), $m
  -7
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
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
 
  157
  57
  59
  61
  63
  65
  68
  70
  73
  75
  71
  74
  78
  81
  85
  89
  93
  97
  101
  106
  111
  116
  122
  128
  134
  140
  147
  154
  162
  170
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
 
  150
  52
  51
  50
  49
  47
  46
  44
  42
  40
  34
  32
  29
  27
  25
  22
  20
  18
  16
  13
  12
  10
  8
  7
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  100.0
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Monotype Imaging Holdings Inc. develops, markets, and licenses technologies and fonts in the United States, the United Kingdom, Germany, Japan, and rest of Asia. The company offers font products, including its own fonts from the Monotype Libraries, as well as fonts from third parties through its e-commerce Websites, including myfonts.com, fonts.com, fontshop.com, linotype.com, and fontfont.com. It also provides printer drivers and printer user interface technology solutions to printer manufacturers and original equipment manufacturers. In addition, the company offers screen imaging technologies, printer imaging technologies, creative tools, cloud-based technology platforms, font management solutions, and expert consultation and custom type design services. Further, it provides approximately 16,000 typeface designs, and supports approximately 250 Latin and non-Latin languages. The company’s software technologies are embedded in various consumer electronics devices, including laser printers, digital copiers, mobile phones, e-book readers, tablets, automotive displays, digital cameras, navigation devices, digital televisions, set-top boxes, and consumer appliances, as well as in various software applications and operating systems. It serves consumer device manufacturers, independent software vendors, creative and business professionals, and content creators. The company is headquartered in Woburn, Massachusetts.

FINANCIAL RATIOS  of  Monotype Imaging Holdings (TYPE)

Valuation Ratios
P/E Ratio 54.8
Price to Sales 4
Price to Book 2.6
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 21.6
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 3.9% 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 41.319 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 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]
▶ Monotype Revives One of Londons Most Iconic Typefaces   [Jun-14-16 03:00AM  Business Wire]
▶ Monotype posts 1Q profit   [07:33AM  AP]
Stock chart of TYPE Financial statements of TYPE Annual reports 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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