Intrinsic value of Monotype Imaging Holdings - TYPE

Previous Close

$18.10

  Intrinsic Value

$15.45

stock screener

  Rating & Target

hold

-15%

Previous close

$18.10

 
Intrinsic value

$15.45

 
Up/down potential

-15%

 
Rating

hold

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 0001), $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
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
  5.00
Revenue, $m
  248
  260
  273
  287
  301
  316
  332
  348
  366
  384
  403
  423
  445
  467
  490
  515
  540
  567
  596
  626
  657
  690
  724
  760
  798
  838
  880
  924
  971
  1,019
Variable operating expenses, $m
  213
  222
  231
  241
  251
  262
  273
  285
  298
  311
  288
  303
  318
  334
  350
  368
  386
  406
  426
  447
  469
  493
  518
  543
  571
  599
  629
  661
  694
  728
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
  213
  222
  231
  241
  251
  262
  273
  285
  298
  311
  288
  303
  318
  334
  350
  368
  386
  406
  426
  447
  469
  493
  518
  543
  571
  599
  629
  661
  694
  728
Operating income, $m
  34
  38
  41
  45
  49
  54
  58
  63
  68
  73
  115
  121
  127
  133
  140
  147
  154
  162
  170
  179
  187
  197
  207
  217
  228
  239
  251
  264
  277
  291
EBITDA, $m
  78
  81
  86
  90
  94
  99
  104
  109
  115
  120
  126
  133
  139
  146
  154
  161
  169
  178
  187
  196
  206
  216
  227
  238
  250
  263
  276
  290
  304
  319
Interest expense (income), $m
  1
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  18
  19
  20
  21
  23
  24
  25
  27
  29
  30
  32
  34
  36
  38
Earnings before tax, $m
  29
  32
  35
  39
  42
  46
  50
  54
  58
  62
  103
  108
  113
  119
  124
  130
  137
  143
  150
  157
  165
  173
  181
  190
  199
  209
  219
  230
  241
  253
Tax expense, $m
  8
  9
  10
  10
  11
  12
  13
  14
  16
  17
  28
  29
  31
  32
  34
  35
  37
  39
  41
  42
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
Net income, $m
  21
  24
  26
  28
  31
  33
  36
  39
  42
  46
  75
  79
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  145
  153
  160
  168
  176
  184

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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 assets, $m
  509
  535
  562
  590
  619
  650
  683
  717
  753
  790
  830
  871
  915
  961
  1,009
  1,059
  1,112
  1,168
  1,226
  1,287
  1,352
  1,419
  1,490
  1,565
  1,643
  1,725
  1,811
  1,902
  1,997
  2,097
Adjusted assets (=assets-cash), $m
  509
  535
  562
  590
  619
  650
  683
  717
  753
  790
  830
  871
  915
  961
  1,009
  1,059
  1,112
  1,168
  1,226
  1,287
  1,352
  1,419
  1,490
  1,565
  1,643
  1,725
  1,811
  1,902
  1,997
  2,097
Revenue / Adjusted assets
  0.487
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.485
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.485
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
  0.486
Average production assets, $m
  207
  218
  228
  240
  252
  264
  278
  292
  306
  321
  338
  354
  372
  391
  410
  431
  452
  475
  499
  524
  550
  577
  606
  636
  668
  702
  737
  774
  812
  853
Working capital, $m
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -80
  -84
  -88
  -92
  -97
  -102
  -107
Total debt, $m
  103
  113
  124
  135
  147
  160
  173
  187
  201
  216
  232
  249
  267
  285
  305
  325
  347
  369
  393
  418
  444
  471
  500
  530
  562
  595
  630
  667
  705
  746
Total liabilities, $m
  206
  217
  227
  239
  251
  263
  276
  290
  305
  320
  336
  353
  371
  389
  408
  429
  450
  473
  497
  521
  547
  575
  604
  634
  665
  699
  734
  770
  809
  849
Total equity, $m
  303
  318
  334
  351
  368
  387
  406
  426
  448
  470
  494
  518
  544
  572
  600
  630
  662
  695
  729
  766
  804
  844
  887
  931
  978
  1,026
  1,078
  1,132
  1,188
  1,248
Total liabilities and equity, $m
  509
  535
  561
  590
  619
  650
  682
  716
  753
  790
  830
  871
  915
  961
  1,008
  1,059
  1,112
  1,168
  1,226
  1,287
  1,351
  1,419
  1,491
  1,565
  1,643
  1,725
  1,812
  1,902
  1,997
  2,097
Debt-to-equity ratio
  0.340
  0.350
  0.370
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.540
  0.550
  0.550
  0.560
  0.560
  0.570
  0.570
  0.580
  0.580
  0.590
  0.590
  0.600
Adjusted equity ratio
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595
  0.595

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  21
  24
  26
  28
  31
  33
  36
  39
  42
  46
  75
  79
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  145
  153
  160
  168
  176
  184
Depreciation, amort., depletion, $m
  43
  44
  44
  44
  45
  45
  46
  46
  47
  47
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  25
  26
  27
  28
Funds from operations, $m
  65
  67
  70
  73
  76
  79
  82
  85
  89
  93
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
  139
  145
  153
  160
  168
  176
  184
  194
  203
  213
Change in working capital, $m
  -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
  -5
  -5
  -5
Cash from operations, $m
  66
  68
  71
  74
  77
  80
  84
  87
  91
  95
  89
  93
  97
  102
  107
  112
  118
  123
  129
  135
  142
  149
  156
  164
  172
  180
  189
  198
  208
  218
Maintenance CAPEX, $m
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
New CAPEX, $m
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
Cash from investing activities, $m
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -62
  -65
  -68
Free cash flow, $m
  50
  51
  53
  55
  57
  59
  62
  64
  66
  69
  62
  65
  68
  71
  74
  78
  82
  86
  90
  94
  98
  103
  108
  113
  119
  124
  130
  137
  143
  150
Issuance/(repayment) of debt, $m
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  40
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
Cash from financing (excl. dividends), $m  
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  23
  24
  25
  26
  27
  29
  30
  32
  33
  35
  37
  39
  40
Total cash flow (excl. dividends), $m
  59
  62
  64
  66
  69
  72
  75
  78
  81
  84
  78
  82
  86
  90
  94
  98
  103
  108
  113
  119
  124
  130
  137
  143
  150
  158
  165
  173
  182
  191
Retained Cash Flow (-), $m
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -51
  -54
  -57
  -59
Prev. year cash balance distribution, $m
  41
  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
  85
  46
  48
  50
  51
  53
  55
  57
  60
  62
  54
  57
  60
  62
  65
  68
  72
  75
  78
  82
  86
  90
  95
  99
  104
  109
  114
  120
  125
  131
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
  82
  42
  42
  41
  40
  39
  37
  36
  34
  32
  26
  24
  23
  21
  19
  17
  16
  14
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  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

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 49.8
Price to Sales 3.7
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow 18.2
Price to Free Cash Flow 19.7
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 $235.789 million for the last fiscal year's total revenue generated by Monotype Imaging Holdings. The default revenue input number comes from 0001 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% 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 86.9%.

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 5.4% 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 83.7%.

Life of production assets of 30.6 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 -10.5%. 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 - $329.368 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 42.174 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: 3Q Earnings Snapshot   [07:15AM  Associated Press]
▶ Monotype Announces Efficiency Program   [Jun-11-18 08:00AM  Business Wire]
▶ Monotype: 1Q Earnings Snapshot   [07:13AM  Associated Press]
▶ Monotype Appoints New Board Members, Names New Chair   [Apr-04-18 09:00AM  Business Wire]
▶ Monotype Earnings Report Provides Font Of Good News   [Feb-16-18 04:11PM  Investor's Business Daily]
▶ Monotype posts 4Q profit   [07:27AM  Associated Press]
▶ Monotype Issues Statement Regarding Director Nominations   [Jan-31-18 09:38AM  Business Wire]
▶ Mariko Gordon Starts 5 New Positions in 3rd Quarter   [Nov-21-17 12:33PM  GuruFocus.com]
▶ Monotype Announces Restructuring of Olapic Business   [Nov-15-17 04:05PM  Business Wire]
▶ Monotype Imaging Earns Relative Strength Rating Upgrade; Hits Key Benchmark   [Nov-07-17 03:00AM  Investor's Business Daily]
▶ Monotype misses 3Q profit forecasts   [07:22AM  Associated Press]
▶ Monotype Imaging Sees IBD RS Rating Climb To 74   [Oct-30-17 03:00AM  Investor's Business Daily]
▶ Stocks With Rising Relative Strength: Monotype Imaging   [Oct-26-17 03:00AM  Investor's Business Daily]
▶ Monotype Unveils The Wolpe Collection   [Sep-26-17 08:01AM  Business Wire]
▶ Monotype reports 2Q loss   [Jul-28-17 10:21PM  Associated Press]

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