Rating Update: Stock Rating B-Positive (6/11/19)-Manhattan Bridge Capital (LOAN).

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BUSINESS

Manhattan Bridge Capital, Inc., a real estate finance company, originates, services, and manages a portfolio of first mortgage loans in the United States. It offers short-term, secured, and non-banking loans to real estate investors to fund their acquisition, renovation, rehabilitation, or enhancement of properties in the New York metropolitan area. The company’s loans are principally secured by collateral consisting of real estate and accompanied by personal guarantees from the principals of the businesses. It qualifies as a real estate investment trust for federal income tax purposes. The company generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. Manhattan Bridge Capital, Inc. was founded in 1989 and is headquartered in Great Neck, New York.
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INVESTMENT RATING

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Reflecting future returns on capital that are forecasted to exceed the cost of capital, LOAN is expected to continue to be a Value Builder.

LOAN has a current Value Trend Rating of B (Positive).
The Value Trend Rating reflects inconsistent signals from PTR’s two proprietary measures of a stock’s attractiveness. LOAN has a neutral Power Rating of 52 but a good Appreciation Score of 74, resulting in the Positive Value Trend Rating.

LOAN’s stock is selling well below targeted value. The current stock price of $6.12 compares to targeted value 12 months forward of $11.
This high appreciation potential results in an appreciation score of 74 (only 26% of the universe has greater appreciation potential.)
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LOAN has a Power Rating of 52. (This neutral Power Rating indicates that LOAN’s chances of enjoying attractive investment performance over the near to intermediate term are only average.)
Factors contributing to this neutral Power Rating include: is in a strong phase current; and recent price action has been neutral. An offsetting factor is the trend in LOAN’s earnings estimates has been unfavorable in recent months.

INVESTMENT PROFILE

LOAN’s financial strength is high. Financial strength rating is 72.
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Relative to the S&P 500 Composite, Manhattan Bridge Capital has neutral Growth/Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that LOAN is lower risk. All factors are relative strengths. LOAN’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. LOAN has unusually low market capitalization.

CURRENT SIGNALS

LOAN’s current operations are stable. Return on equity is rising, reflecting: and rising tax keep rate.

LOAN’s current technical position is very weak. The stock price is in a 5.8 month down move. The stock has declined 22.7% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.

ALERTS

The stock is currently rated B.
Manhattan Bridge Capital (NASDAQ: LOAN) stock closed at $0.14 on 6/11/19 after a major decline of -77.7%. However, this decline was accompanied by exceptionally low trading volume at 21% of normal. The stock has performed in line with the market over the last nine months and has risen 1.3% during the last week.

CASH FLOW

In 2018, LOAN generated a very significant increase in cash of +$0.22 million (+159%). Sources of cash were much larger than uses. Cash generated from 2018 EBITDA totalled +$5.91 million. 2018 non-operating sources contributed no cash. In 2018, there were no cash taxes paid. Re-investment in the business amounted to -$9.40 million (-159% of EBITDA). On a net basis, debt investors pulled out -$1.92 million (-32% of EBITDA) while equity investors contributed +$5.63 million (+95% of EBITDA).
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LOAN’s Non-operating Income, %EBITDA has suffered a strong overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Manhattan Bridge Capital Peer Group. In most years, LOAN was in the third quartile and top quartile. Currently, LOAN is substantially below median at 0% of EBITDA ( $0.00 million).

LOAN’s Cash Taxes, %EBITDA enjoyed a very strong overall uptrend over the period. This improvement was accompanied by stability for the Manhattan Bridge Capital Peer Group. In most years, LOAN was in the lower quartile and second quartile. Currently, LOAN is at median at 0% of EBITDA ( $0.00 million).

LOAN’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Manhattan Bridge Capital Peer Group. In most years, LOAN was in the top quartile and lower quartile. Currently, LOAN is substantially below median at -159% of EBITDA (-$9.40 million).

LOAN’s Debt Investors, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Manhattan Bridge Capital Peer Group. In most years, LOAN was in the top quartile and second quartile. Currently, LOAN is substantially below median at -32% of EBITDA (-$1.92 million).

LOAN’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Manhattan Bridge Capital Peer Group. In most years, LOAN was in the top quartile and third quartile. Currently, LOAN is upper quartile at +95% of EBITDA (+$5.63 million).

LOAN’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by stability for the Manhattan Bridge Capital Peer Group. (Since 2016 Change in Cash, %EBITDA has experienced a minor recovery.) In most years, LOAN was in the top quartile and lower quartile. Currently, LOAN is at the upper quartile at +4% of EBITDA (+$0.22 million).
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LOAN’s Cash, %Revenue has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Manhattan Bridge Capital Peer Group. (Since 2014 Cash, %Revenue has experienced a small recovery.) In most years, LOAN was in the top quartile and third quartile. Currently, LOAN is below median at +5%.

PROFITABILITY

LOAN’s return on equity reached a new post-2009 low in 2018.
LOAN’s very strong positive trend in pretax operating return significantly augmented by a very strong positive trend in non-operating factors is a major performance consideration.
The productivity of LOAN’s assets declined over the full period 2009-2018: asset turnover has experienced a downtrend.
More than offsetting this trend, however, pretax margin enjoyed a very strong overall uptrend although it experienced a minor decline after the 2016 high.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
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LOAN’s return on equity is above median (13.1%) for the four quarters ended December, 2018.
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Operating performance (pretax return on assets) is at the upper quartile (7.5%) reflecting asset turnover that is at the upper quartile (0.13X) and at median pretax margin (58.2%).
Tax “keep” rate (income tax management) is at the upper quartile (100.0%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is at the lower quartile (1.74X).

GROWTH RATES

There are no significant differences between Manhattan Bridge Capital’s longer term growth and growth in recent years.
Manhattan Bridge Capital’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.

Annual revenue growth has been 9.8% per year.

Total asset growth has been 10.5% per year.

Annual E.P.S. growth has been 25.5% per year. (More recently it has been 28.8%.)

Equity growth has been 5.0% per year.
No consensus growth rate forecast is available for Manhattan Bridge Capital.
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Relative to the Manhattan Bridge Capital Peer Group, LOAN’s historical growth measures are generally top quartile. Revenue growth (9.8%) has been at the upper quartile. Total asset growth (10.5%) has been at the upper quartile. E.P.S. growth (25.5%) has been at the upper quartile. Equity growth (5.0%) has been below median.

Consensus growth forecast is unavailable.
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PRICE HISTORY

Over the full time period, Manhattan Bridge Capital’s stock price performance has been variable and exceptional. Between August, 2008 and June, 2019, Manhattan Bridge Capital’s stock price rose +551%; relative to the market, this was a +189% gain. Significant price moves during the period: 1) July, 2014 – December, 2016: +195%; 2) January, 2014 – June, 2014: +102%; 3) November, 2011 – October, 2013: +132%; and 4) March, 2009 – April, 2011: +191%.
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TOTAL INVESTMENT RETURNS

Current annual total return performance of -11.7% is substantially below median relative to the S&P 500 Composite.
In addition to being substantially below median relative to S&P 500 Composite, current annual total return performance through May, 2019 of -11.7% is lower quartile relative to Manhattan Bridge Capital Peer Group.

Current 5-year total return performance of 30.8% is upper quartile relative to the S&P 500 Composite.
Through May, 2019, with upper quartile current 5-year total return of 30.8% relative to S&P 500 Composite, LOAN’s total return performance is upper quartile relative to Manhattan Bridge Capital Peer Group.
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VALUATION BENCHMARKS

Relative to S&P 500 Composite, LOAN’s overall valuation is normal. The highest factor, the ratio of enterprise value/revenue, is upper quartile. Ratio of enterprise value/assets is slightly below median. Ratio of enterprise value/earnings before interest and taxes is below median. Price/earnings ratio is near the lower quartile. The lowest factor, the price/equity ratio, is at the lower quartile.
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LOAN has a major value gap compared to the median. For LOAN to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 11.18X to 14.72X. If LOAN’s ratio of enterprise value/revenue were to rise to 14.72X, its stock price would be higher by $3 to $9.
For LOAN to achieve upper quartile valuation relative to the Manhattan Bridge Capital Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 11.18X to 15.56X. If LOAN’s ratio of enterprise value/revenue were to rise to 15.56X, its stock price would increase by $3 from the current level of $6.12.

VALUE TARGETS

Reflecting future returns on capital that are forecasted to exceed the cost of capital, LOAN is expected to continue to be a Value Builder.
Manhattan Bridge Capital’s current Price Target of $12 represents a +89% change from the current price of $6.12.
This high appreciation potential results in an appreciation score of 74 (only 26% of the universe has greater appreciation potential.)
With this high Appreciation Score of 74, the neutral Power Rating of 52 results in an Value Trend Rating of B.
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Manhattan Bridge Capital’s current Price Target is $12 (-11% from the 2018 Target of $13 but +89% from the 06/11/19 price of $6.12). This slight fall in the Target is the result of a +21% increase in the equity base and a -26% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted increase in cost of equity has a very slight negative impact as well. Partially offsetting these Drivers, the forecasted increase in growth has a very large positive impact.
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PTR’s return on equity forecast is 11.6% — slightly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, steady increase between 2010 and 2018. The current forecast is well above the 2011 low of 4%.

PTR’s growth forecast is 11.0% — slightly above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2010 and 2018. The current forecast is above the 2013 low of 6%.

PTR’s cost of equity forecast is 7.2% — in line with recent levels. Forecasted cost of equity suffered a dramatic, steady increase between 2010 and 2018. The current forecast is above the 2010 low of 3.5%.
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At Manhattan Bridge Capital’s current price of $6.12, investors are placing a negative value of $-1 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 7.0% per year, and a return on equity of 16.0% versus a cost of equity of 7.1%.
PTR’s 2020 Price Target of $12 is based on these forecasts and reflects an estimated value of existing assets of $7 and a value of future investments of $5.

About John Lafferty 37832 Articles
During his career, John has developed valuation and stock rating methodologies, managed institutional portfolios and mutual funds, and provided equity research to institutional investors on thousands of companies. He has been Director of Research at PTR since its inception in 2004.

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