Intrinsic value of Descartes Systems Group Inc. (The) - DSG

Previous Close

$43.15

  Intrinsic Value

$5.03

stock screener

  Rating & Target

str. sell

-88%

Previous close

$43.15

 
Intrinsic value

$5.03

 
Up/down potential

-88%

 
Rating

str. sell

We calculate the intrinsic value of DSG 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 2017), $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 3.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  20.00
  18.50
  17.15
  15.94
  14.84
  13.86
  12.97
  12.17
  11.46
  10.81
  10.23
  9.71
  9.24
  8.81
  8.43
  8.09
  7.78
  7.50
  7.25
  7.03
  6.82
  6.64
  6.48
  6.33
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
Revenue, $m
  330
  391
  458
  531
  610
  694
  785
  880
  981
  1,087
  1,198
  1,314
  1,436
  1,562
  1,694
  1,831
  1,974
  2,122
  2,275
  2,435
  2,602
  2,774
  2,954
  3,141
  3,336
  3,538
  3,750
  3,970
  4,199
  4,439
Variable operating expenses, $m
  272
  316
  364
  417
  473
  534
  599
  667
  740
  816
  860
  944
  1,031
  1,122
  1,216
  1,315
  1,417
  1,523
  1,634
  1,748
  1,868
  1,992
  2,121
  2,255
  2,395
  2,540
  2,692
  2,850
  3,015
  3,187
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
  272
  316
  364
  417
  473
  534
  599
  667
  740
  816
  860
  944
  1,031
  1,122
  1,216
  1,315
  1,417
  1,523
  1,634
  1,748
  1,868
  1,992
  2,121
  2,255
  2,395
  2,540
  2,692
  2,850
  3,015
  3,187
Operating income, $m
  58
  75
  94
  114
  137
  160
  186
  213
  241
  271
  338
  371
  405
  441
  478
  517
  557
  598
  642
  687
  734
  783
  833
  886
  941
  998
  1,058
  1,120
  1,185
  1,252
EBITDA, $m
  114
  135
  159
  184
  211
  241
  272
  305
  340
  377
  415
  455
  497
  541
  587
  634
  684
  735
  788
  844
  901
  961
  1,023
  1,088
  1,155
  1,226
  1,299
  1,375
  1,455
  1,538
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  10
  11
  12
  14
  15
  17
  19
  20
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
Earnings before tax, $m
  58
  74
  92
  112
  133
  156
  181
  207
  234
  263
  328
  360
  393
  427
  462
  500
  538
  578
  620
  663
  708
  755
  803
  854
  907
  961
  1,019
  1,078
  1,140
  1,205
Tax expense, $m
  16
  20
  25
  30
  36
  42
  49
  56
  63
  71
  89
  97
  106
  115
  125
  135
  145
  156
  167
  179
  191
  204
  217
  231
  245
  260
  275
  291
  308
  325
Net income, $m
  42
  54
  67
  82
  97
  114
  132
  151
  171
  192
  240
  263
  287
  312
  338
  365
  393
  422
  452
  484
  517
  551
  586
  623
  662
  702
  744
  787
  832
  880

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
  748
  887
  1,039
  1,204
  1,383
  1,575
  1,779
  1,996
  2,224
  2,465
  2,717
  2,981
  3,256
  3,543
  3,842
  4,152
  4,475
  4,811
  5,160
  5,522
  5,899
  6,291
  6,698
  7,122
  7,564
  8,023
  8,502
  9,002
  9,522
  10,066
Adjusted assets (=assets-cash), $m
  748
  887
  1,039
  1,204
  1,383
  1,575
  1,779
  1,996
  2,224
  2,465
  2,717
  2,981
  3,256
  3,543
  3,842
  4,152
  4,475
  4,811
  5,160
  5,522
  5,899
  6,291
  6,698
  7,122
  7,564
  8,023
  8,502
  9,002
  9,522
  10,066
Revenue / Adjusted assets
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
  0.441
Average production assets, $m
  242
  287
  336
  389
  447
  509
  575
  645
  719
  797
  878
  963
  1,052
  1,145
  1,242
  1,342
  1,447
  1,555
  1,668
  1,785
  1,907
  2,034
  2,165
  2,302
  2,445
  2,594
  2,748
  2,910
  3,078
  3,254
Working capital, $m
  -32
  -38
  -45
  -52
  -60
  -68
  -77
  -86
  -96
  -107
  -117
  -129
  -141
  -153
  -166
  -179
  -193
  -208
  -223
  -239
  -255
  -272
  -289
  -308
  -327
  -347
  -367
  -389
  -412
  -435
Total debt, $m
  19
  40
  63
  88
  115
  144
  175
  207
  242
  278
  316
  356
  398
  441
  486
  533
  582
  632
  685
  740
  797
  856
  917
  981
  1,048
  1,118
  1,190
  1,265
  1,344
  1,426
Total liabilities, $m
  113
  134
  157
  182
  209
  238
  269
  301
  336
  372
  410
  450
  492
  535
  580
  627
  676
  726
  779
  834
  891
  950
  1,011
  1,075
  1,142
  1,212
  1,284
  1,359
  1,438
  1,520
Total equity, $m
  635
  753
  882
  1,022
  1,174
  1,337
  1,510
  1,694
  1,888
  2,093
  2,307
  2,531
  2,764
  3,008
  3,261
  3,525
  3,800
  4,085
  4,381
  4,689
  5,008
  5,341
  5,687
  6,047
  6,422
  6,812
  7,219
  7,642
  8,085
  8,546
Total liabilities and equity, $m
  748
  887
  1,039
  1,204
  1,383
  1,575
  1,779
  1,995
  2,224
  2,465
  2,717
  2,981
  3,256
  3,543
  3,841
  4,152
  4,476
  4,811
  5,160
  5,523
  5,899
  6,291
  6,698
  7,122
  7,564
  8,024
  8,503
  9,001
  9,523
  10,066
Debt-to-equity ratio
  0.030
  0.050
  0.070
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
Adjusted equity ratio
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849
  0.849

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  42
  54
  67
  82
  97
  114
  132
  151
  171
  192
  240
  263
  287
  312
  338
  365
  393
  422
  452
  484
  517
  551
  586
  623
  662
  702
  744
  787
  832
  880
Depreciation, amort., depletion, $m
  57
  61
  65
  70
  75
  80
  86
  92
  99
  105
  77
  85
  92
  100
  109
  118
  127
  136
  146
  157
  167
  178
  190
  202
  214
  228
  241
  255
  270
  285
Funds from operations, $m
  99
  115
  132
  151
  172
  194
  218
  243
  269
  297
  317
  347
  379
  412
  447
  482
  520
  558
  599
  641
  684
  729
  776
  825
  876
  929
  985
  1,042
  1,102
  1,165
Change in working capital, $m
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -23
Cash from operations, $m
  104
  121
  139
  159
  180
  203
  227
  252
  279
  308
  328
  359
  391
  424
  459
  496
  534
  573
  614
  656
  700
  746
  794
  844
  895
  949
  1,005
  1,064
  1,125
  1,189
Maintenance CAPEX, $m
  -18
  -21
  -25
  -29
  -34
  -39
  -45
  -50
  -57
  -63
  -70
  -77
  -85
  -92
  -100
  -109
  -118
  -127
  -136
  -146
  -157
  -167
  -178
  -190
  -202
  -214
  -228
  -241
  -255
  -270
New CAPEX, $m
  -40
  -45
  -49
  -54
  -58
  -62
  -66
  -70
  -74
  -78
  -82
  -85
  -89
  -93
  -97
  -100
  -104
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -155
  -161
  -168
  -176
Cash from investing activities, $m
  -58
  -66
  -74
  -83
  -92
  -101
  -111
  -120
  -131
  -141
  -152
  -162
  -174
  -185
  -197
  -209
  -222
  -236
  -249
  -263
  -279
  -294
  -310
  -327
  -345
  -363
  -383
  -402
  -423
  -446
Free cash flow, $m
  46
  55
  65
  76
  88
  101
  116
  132
  149
  167
  176
  196
  217
  239
  262
  286
  311
  338
  365
  393
  422
  452
  484
  517
  551
  586
  623
  661
  701
  743
Issuance/(repayment) of debt, $m
  19
  21
  23
  25
  27
  29
  31
  33
  35
  36
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  79
  82
Issuance/(repurchase) of shares, $m
  63
  63
  62
  59
  54
  49
  41
  33
  23
  12
  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  
  82
  84
  85
  84
  81
  78
  72
  66
  58
  48
  38
  40
  42
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  79
  82
Total cash flow (excl. dividends), $m
  128
  139
  149
  159
  169
  179
  188
  198
  207
  215
  214
  236
  259
  283
  308
  333
  360
  388
  417
  448
  479
  512
  545
  581
  617
  656
  695
  737
  780
  825
Retained Cash Flow (-), $m
  -105
  -118
  -129
  -141
  -152
  -163
  -173
  -184
  -194
  -204
  -214
  -224
  -234
  -244
  -254
  -264
  -274
  -285
  -296
  -308
  -320
  -333
  -346
  -360
  -375
  -390
  -407
  -424
  -442
  -461
Prev. year cash balance distribution, $m
  52
  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
  75
  22
  20
  19
  18
  16
  15
  14
  12
  11
  0
  12
  25
  39
  54
  70
  86
  103
  121
  140
  159
  179
  199
  221
  243
  265
  289
  313
  338
  364
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
  72
  20
  18
  16
  14
  12
  10
  9
  7
  6
  0
  5
  10
  13
  16
  18
  19
  19
  19
  18
  16
  15
  13
  11
  9
  8
  6
  5
  4
  3
Current shareholders' claim on cash, %
  97.9
  96.2
  94.9
  93.8
  92.9
  92.2
  91.7
  91.4
  91.1
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0
  91.0

Descartes Systems Group Inc (Descartes) is a Canada-based global provider of federated network and global logistics technology solutions that help its customers make and receive shipments and manage related resources. Its network-based solutions, which primarily consist of services and software, connect people to their trading partners and enable business document exchange (bookings, bills of lading, status messages); regulatory compliance and customs filing; route and resource planning, execution and monitoring; access and leverage global trade and restricted party data; inventory and asset visibility; rate and transportation management, and warehouse operations. Its solutions include Logistics Technology Platform that fuses the Descartes Global Logistics Network (Descartes GLN); customs and regulatory compliance; routing, mobile and telematics; global logistics network services; transportation management, and broker and forwarder enterprise systems. It operates through MacroPoint.

FINANCIAL RATIOS  of  Descartes Systems Group Inc. (The) (DSG)

Valuation Ratios
P/E Ratio 102.3
Price to Sales 11.9
Price to Book 5.6
Price to Tangible Book
Price to Cash Flow 33.4
Price to Free Cash Flow 36
Growth Rates
Sales Growth Rate 10%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 16.7%
Cap. Spend. - 3 Yr. Gr. Rate 18.5%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 4.5%
Return On Total Capital 5.7%
Ret/ On T. Cap. - 3 Yr. Avg. 5.1%
Return On Equity 5.7%
Return On Equity - 3 Yr. Avg. 5.2%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 72.7%
Gross Margin - 3 Yr. Avg. 70.5%
EBITDA Margin 32.4%
EBITDA Margin - 3 Yr. Avg. 30.3%
Operating Margin 14.9%
Oper. Margin - 3 Yr. Avg. 14.5%
Pre-Tax Margin 15.6%
Pre-Tax Margin - 3 Yr. Avg. 14.5%
Net Profit Margin 11.6%
Net Profit Margin - 3 Yr. Avg. 10.5%
Effective Tax Rate 25.6%
Eff/ Tax Rate - 3 Yr. Avg. 27.6%
Payout Ratio 0%

DSG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DSG stock intrinsic value calculation we used $275 million for the last fiscal year's total revenue generated by Descartes Systems Group Inc. (The). The default revenue input number comes from 2017 income statement of Descartes Systems Group Inc. (The). 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 DSG stock valuation model: a) initial revenue growth rate of 20% 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 DSG is calculated based on our internal credit rating of Descartes Systems Group Inc. (The), 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 Descartes Systems Group Inc. (The).
    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 DSG stock the variable cost ratio is equal to 84.7%.

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 DSG 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 Descartes Systems Group Inc. (The).

Corporate tax rate of 27% is the nominal tax rate for Descartes Systems Group Inc. (The). 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 DSG 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 DSG are equal to 73.3%.

Life of production assets of 11.4 years is the average useful life of capital assets used in Descartes Systems Group Inc. (The) 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 DSG is equal to -9.8%. 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 - $582 million for Descartes Systems Group Inc. (The) - 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 76.385 million for Descartes Systems Group Inc. (The) 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 Descartes Systems Group Inc. (The) at the current share price and the inputted number of shares is $3.3 billion.

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