Intrinsic value of Monotype Imaging Holdings Inc. - TYPE

Previous Close

$17.29

  Intrinsic Value

$36.93

stock screener

  Rating & Target

str. buy

+114%

Previous close

$17.29

 
Intrinsic value

$36.93

 
Up/down potential

+114%

 
Rating

str. buy

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 0.7

 

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, %
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
Revenue, $m
  271
  296
  323
  350
  379
  408
  439
  471
  505
  539
  575
  613
  652
  692
  734
  778
  824
  872
  922
  974
  1,028
  1,085
  1,145
  1,207
  1,272
  1,340
  1,411
  1,485
  1,563
  1,645
Variable operating expenses, $m
  48
  49
  51
  52
  53
  55
  56
  58
  59
  61
  28
  29
  31
  33
  35
  37
  39
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
  71
  75
  79
Fixed operating expenses, $m
  186
  190
  194
  199
  203
  207
  212
  217
  221
  226
  231
  236
  242
  247
  252
  258
  263
  269
  275
  281
  287
  294
  300
  307
  314
  320
  328
  335
  342
  350
Total operating expenses, $m
  234
  239
  245
  251
  256
  262
  268
  275
  280
  287
  259
  265
  273
  280
  287
  295
  302
  311
  319
  328
  336
  346
  355
  365
  375
  384
  396
  406
  417
  429
Operating income, $m
  37
  57
  78
  100
  123
  146
  171
  197
  224
  252
  317
  347
  379
  412
  447
  483
  521
  561
  603
  646
  692
  740
  790
  842
  897
  955
  1,016
  1,079
  1,146
  1,217
EBITDA, $m
  79
  100
  122
  144
  168
  193
  218
  245
  273
  302
  332
  364
  396
  431
  467
  504
  543
  584
  627
  672
  719
  769
  820
  874
  931
  991
  1,054
  1,119
  1,188
  1,261
Interest expense (income), $m
  1
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  26
  28
  30
  32
  34
  37
  39
  41
  44
  47
  49
  52
  55
Earnings before tax, $m
  33
  52
  72
  93
  115
  137
  161
  186
  211
  238
  301
  330
  361
  392
  426
  460
  497
  535
  574
  616
  659
  705
  753
  803
  856
  911
  969
  1,030
  1,094
  1,161
Tax expense, $m
  9
  14
  19
  25
  31
  37
  43
  50
  57
  64
  81
  89
  97
  106
  115
  124
  134
  144
  155
  166
  178
  190
  203
  217
  231
  246
  262
  278
  295
  314
Net income, $m
  24
  38
  53
  68
  84
  100
  117
  135
  154
  174
  220
  241
  263
  287
  311
  336
  363
  390
  419
  450
  481
  515
  550
  586
  625
  665
  708
  752
  799
  848

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
  547
  598
  651
  706
  764
  824
  886
  950
  1,018
  1,087
  1,160
  1,235
  1,314
  1,396
  1,481
  1,569
  1,662
  1,758
  1,859
  1,964
  2,073
  2,188
  2,308
  2,433
  2,564
  2,701
  2,844
  2,995
  3,152
  3,316
Adjusted assets (=assets-cash), $m
  547
  598
  651
  706
  764
  824
  886
  950
  1,018
  1,087
  1,160
  1,235
  1,314
  1,396
  1,481
  1,569
  1,662
  1,758
  1,859
  1,964
  2,073
  2,188
  2,308
  2,433
  2,564
  2,701
  2,844
  2,995
  3,152
  3,316
Revenue / Adjusted assets
  0.495
  0.495
  0.496
  0.496
  0.496
  0.495
  0.495
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
Average production assets, $m
  213
  233
  254
  275
  298
  321
  345
  371
  397
  424
  452
  482
  512
  544
  577
  612
  648
  685
  725
  766
  808
  853
  900
  949
  1,000
  1,053
  1,109
  1,167
  1,229
  1,293
Working capital, $m
  12
  13
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  44
  46
  49
  52
  54
  57
  60
  63
  67
  70
  74
Total debt, $m
  92
  110
  129
  149
  170
  191
  213
  236
  260
  285
  311
  338
  366
  395
  426
  457
  490
  525
  561
  598
  637
  678
  721
  766
  812
  861
  912
  966
  1,022
  1,081
Total liabilities, $m
  195
  213
  232
  252
  273
  294
  316
  339
  363
  388
  414
  441
  469
  498
  529
  560
  593
  628
  664
  701
  740
  781
  824
  869
  915
  964
  1,015
  1,069
  1,125
  1,184
Total equity, $m
  352
  384
  419
  454
  491
  530
  570
  611
  654
  699
  746
  794
  845
  897
  952
  1,009
  1,069
  1,131
  1,195
  1,263
  1,333
  1,407
  1,484
  1,564
  1,649
  1,737
  1,829
  1,925
  2,027
  2,133
Total liabilities and equity, $m
  547
  597
  651
  706
  764
  824
  886
  950
  1,017
  1,087
  1,160
  1,235
  1,314
  1,395
  1,481
  1,569
  1,662
  1,759
  1,859
  1,964
  2,073
  2,188
  2,308
  2,433
  2,564
  2,701
  2,844
  2,994
  3,152
  3,317
Debt-to-equity ratio
  0.260
  0.290
  0.310
  0.330
  0.350
  0.360
  0.370
  0.390
  0.400
  0.410
  0.420
  0.430
  0.430
  0.440
  0.450
  0.450
  0.460
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.500
  0.510
Adjusted equity ratio
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643
  0.643

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  38
  53
  68
  84
  100
  117
  135
  154
  174
  220
  241
  263
  287
  311
  336
  363
  390
  419
  450
  481
  515
  550
  586
  625
  665
  708
  752
  799
  848
Depreciation, amort., depletion, $m
  42
  43
  44
  44
  45
  46
  47
  48
  49
  50
  15
  16
  17
  19
  20
  21
  22
  23
  25
  26
  28
  29
  31
  32
  34
  36
  38
  40
  42
  44
Funds from operations, $m
  67
  81
  96
  112
  129
  146
  164
  183
  203
  223
  235
  258
  281
  305
  330
  357
  385
  414
  444
  476
  509
  544
  580
  619
  659
  701
  745
  792
  841
  892
Change in working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
Cash from operations, $m
  65
  80
  95
  111
  128
  145
  163
  182
  201
  222
  234
  256
  279
  303
  329
  355
  383
  411
  442
  473
  507
  541
  578
  616
  656
  698
  742
  788
  837
  888
Maintenance CAPEX, $m
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -42
New CAPEX, $m
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -59
  -61
  -64
Cash from investing activities, $m
  -26
  -27
  -29
  -31
  -31
  -33
  -35
  -37
  -39
  -41
  -42
  -44
  -47
  -49
  -52
  -55
  -57
  -60
  -62
  -66
  -69
  -73
  -76
  -80
  -83
  -87
  -92
  -97
  -101
  -106
Free cash flow, $m
  40
  53
  66
  81
  96
  111
  128
  145
  163
  181
  191
  211
  232
  254
  277
  301
  326
  352
  379
  408
  438
  469
  502
  536
  573
  610
  650
  692
  736
  782
Issuance/(repayment) of debt, $m
  17
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
Issuance/(repurchase) of shares, $m
  7
  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  
  24
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
Total cash flow (excl. dividends), $m
  64
  71
  85
  101
  116
  133
  150
  168
  187
  206
  217
  238
  260
  283
  307
  332
  359
  386
  415
  445
  477
  510
  545
  581
  619
  659
  702
  746
  792
  841
Retained Cash Flow (-), $m
  -32
  -33
  -34
  -36
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -50
  -53
  -55
  -57
  -59
  -62
  -65
  -68
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -97
  -101
  -106
Prev. year cash balance distribution, $m
  10
  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
  43
  38
  51
  65
  79
  94
  110
  126
  143
  161
  170
  189
  210
  231
  252
  275
  299
  324
  350
  378
  406
  436
  468
  501
  535
  571
  609
  649
  691
  735
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
  41
  35
  45
  54
  62
  68
  74
  79
  82
  84
  81
  81
  80
  77
  74
  70
  65
  60
  54
  48
  42
  36
  31
  25
  21
  17
  13
  10
  8
  6
Current shareholders' claim on cash, %
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9
  98.9

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 Inc. (TYPE)

Valuation Ratios
P/E Ratio 47.6
Price to Sales 3.5
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 17.4
Price to Free Cash Flow 18.8
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 $247 million for the last fiscal year's total revenue generated by Monotype Imaging Holdings Inc.. The default revenue input number comes from 0001 income statement of Monotype Imaging Holdings Inc.. 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 9.8% 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 Inc., 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 Inc..
    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 19%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $182 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 Inc..

Corporate tax rate of 27% is the nominal tax rate for Monotype Imaging Holdings Inc.. 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 78.6%.

Life of production assets of 29.3 years is the average useful life of capital assets used in Monotype Imaging Holdings Inc. 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 4.5%. 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 - $329.706 million for Monotype Imaging Holdings Inc. - 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 41.075 million for Monotype Imaging Holdings Inc. 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 Inc. at the current share price and the inputted number of shares is $0.7 billion.

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