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

Previous Close

$36.68

  Intrinsic Value

$6.34

stock screener

  Rating & Target

str. sell

-83%

Previous close

$36.68

 
Intrinsic value

$6.34

 
Up/down potential

-83%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

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 2.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  10.00
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  275
  308
  343
  380
  419
  459
  502
  546
  592
  639
  689
  740
  794
  849
  907
  967
  1,030
  1,095
  1,162
  1,233
  1,306
  1,383
  1,463
  1,546
  1,633
  1,724
  1,819
  1,919
  2,022
  2,131
  2,245
Variable operating expenses, $m
 
  257
  282
  309
  336
  365
  396
  427
  460
  494
  530
  531
  570
  610
  651
  694
  739
  786
  835
  885
  938
  993
  1,050
  1,110
  1,173
  1,238
  1,306
  1,377
  1,452
  1,530
  1,612
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
  234
  257
  282
  309
  336
  365
  396
  427
  460
  494
  530
  531
  570
  610
  651
  694
  739
  786
  835
  885
  938
  993
  1,050
  1,110
  1,173
  1,238
  1,306
  1,377
  1,452
  1,530
  1,612
Operating income, $m
  41
  51
  61
  72
  83
  94
  106
  118
  131
  145
  159
  209
  224
  240
  256
  273
  290
  309
  328
  348
  369
  390
  413
  436
  461
  486
  513
  541
  571
  601
  633
EBITDA, $m
  87
  107
  119
  132
  145
  159
  174
  189
  205
  221
  239
  256
  275
  294
  314
  335
  357
  379
  403
  427
  453
  479
  507
  536
  566
  597
  630
  665
  701
  738
  778
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
Earnings before tax, $m
  43
  51
  61
  71
  81
  92
  104
  116
  128
  141
  154
  204
  218
  233
  249
  265
  282
  300
  318
  337
  357
  378
  399
  422
  446
  470
  496
  523
  551
  580
  611
Tax expense, $m
  11
  14
  16
  19
  22
  25
  28
  31
  35
  38
  42
  55
  59
  63
  67
  72
  76
  81
  86
  91
  96
  102
  108
  114
  120
  127
  134
  141
  149
  157
  165
Net income, $m
  32
  38
  45
  52
  59
  67
  76
  84
  94
  103
  113
  149
  159
  170
  182
  194
  206
  219
  232
  246
  261
  276
  292
  308
  325
  343
  362
  382
  402
  424
  446

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  676
  699
  779
  862
  950
  1,042
  1,138
  1,237
  1,341
  1,449
  1,562
  1,679
  1,800
  1,926
  2,057
  2,193
  2,335
  2,482
  2,636
  2,796
  2,962
  3,136
  3,317
  3,506
  3,704
  3,910
  4,125
  4,351
  4,586
  4,832
  5,090
Adjusted assets (=assets-cash), $m
  624
  699
  779
  862
  950
  1,042
  1,138
  1,237
  1,341
  1,449
  1,562
  1,679
  1,800
  1,926
  2,057
  2,193
  2,335
  2,482
  2,636
  2,796
  2,962
  3,136
  3,317
  3,506
  3,704
  3,910
  4,125
  4,351
  4,586
  4,832
  5,090
Revenue / Adjusted assets
  0.441
  0.441
  0.440
  0.441
  0.441
  0.440
  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
  202
  226
  252
  279
  307
  337
  368
  400
  434
  469
  505
  543
  582
  623
  665
  709
  755
  802
  852
  904
  958
  1,014
  1,072
  1,133
  1,197
  1,264
  1,334
  1,406
  1,482
  1,562
  1,645
Working capital, $m
  25
  -30
  -34
  -37
  -41
  -45
  -49
  -53
  -58
  -63
  -67
  -73
  -78
  -83
  -89
  -95
  -101
  -107
  -114
  -121
  -128
  -136
  -143
  -152
  -160
  -169
  -178
  -188
  -198
  -209
  -220
Total debt, $m
  0
  12
  24
  36
  49
  63
  78
  93
  109
  125
  142
  159
  178
  197
  217
  237
  259
  281
  304
  328
  353
  380
  407
  435
  465
  496
  529
  563
  598
  636
  675
Total liabilities, $m
  94
  106
  118
  130
  143
  157
  172
  187
  203
  219
  236
  253
  272
  291
  311
  331
  353
  375
  398
  422
  447
  474
  501
  529
  559
  590
  623
  657
  692
  730
  769
Total equity, $m
  582
  593
  661
  732
  807
  885
  966
  1,051
  1,139
  1,231
  1,326
  1,425
  1,528
  1,635
  1,746
  1,862
  1,982
  2,108
  2,238
  2,374
  2,515
  2,663
  2,816
  2,977
  3,145
  3,320
  3,502
  3,694
  3,894
  4,103
  4,322
Total liabilities and equity, $m
  676
  699
  779
  862
  950
  1,042
  1,138
  1,238
  1,342
  1,450
  1,562
  1,678
  1,800
  1,926
  2,057
  2,193
  2,335
  2,483
  2,636
  2,796
  2,962
  3,137
  3,317
  3,506
  3,704
  3,910
  4,125
  4,351
  4,586
  4,833
  5,091
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.060
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
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
  0.849

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  32
  38
  45
  52
  59
  67
  76
  84
  94
  103
  113
  149
  159
  170
  182
  194
  206
  219
  232
  246
  261
  276
  292
  308
  325
  343
  362
  382
  402
  424
  446
Depreciation, amort., depletion, $m
  46
  55
  58
  60
  62
  65
  68
  71
  74
  77
  80
  48
  51
  55
  58
  62
  66
  70
  75
  79
  84
  89
  94
  99
  105
  111
  117
  123
  130
  137
  144
Funds from operations, $m
  112
  93
  102
  112
  122
  132
  144
  155
  167
  180
  193
  196
  210
  225
  240
  256
  272
  289
  307
  325
  345
  365
  386
  407
  430
  454
  479
  505
  532
  561
  590
Change in working capital, $m
  14
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
Cash from operations, $m
  98
  96
  106
  115
  126
  136
  148
  159
  172
  184
  197
  201
  216
  230
  246
  262
  278
  296
  314
  332
  352
  372
  393
  416
  439
  463
  488
  515
  542
  571
  601
Maintenance CAPEX, $m
  0
  -18
  -20
  -22
  -24
  -27
  -30
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -55
  -58
  -62
  -66
  -70
  -75
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -137
New CAPEX, $m
  -7
  -24
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -73
  -76
  -80
  -83
Cash from investing activities, $m
  -95
  -42
  -46
  -49
  -52
  -57
  -61
  -64
  -69
  -73
  -77
  -82
  -87
  -92
  -97
  -102
  -108
  -114
  -120
  -127
  -133
  -140
  -148
  -155
  -163
  -172
  -181
  -190
  -199
  -210
  -220
Free cash flow, $m
  3
  54
  60
  66
  73
  80
  87
  95
  103
  111
  120
  119
  129
  139
  149
  159
  170
  182
  194
  206
  219
  232
  246
  260
  276
  291
  308
  325
  343
  362
  381
Issuance/(repayment) of debt, $m
  1
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
Issuance/(repurchase) of shares, $m
  0
  26
  23
  19
  15
  10
  6
  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  
  0
  38
  35
  32
  28
  24
  20
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  37
  39
Total cash flow (excl. dividends), $m
  1
  91
  95
  98
  101
  104
  107
  110
  119
  128
  137
  137
  147
  158
  169
  180
  192
  204
  217
  230
  244
  258
  273
  289
  305
  322
  340
  359
  378
  399
  420
Retained Cash Flow (-), $m
  -39
  -63
  -68
  -71
  -75
  -78
  -81
  -85
  -88
  -92
  -95
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -136
  -141
  -147
  -154
  -161
  -168
  -175
  -183
  -191
  -200
  -209
  -219
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
 
  80
  27
  27
  27
  26
  26
  25
  30
  36
  42
  38
  44
  51
  57
  64
  71
  79
  86
  94
  102
  111
  120
  128
  138
  147
  157
  168
  178
  190
  201
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
 
  77
  25
  24
  22
  20
  19
  17
  19
  21
  22
  18
  19
  19
  19
  19
  18
  17
  16
  15
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  99.0
  98.2
  97.6
  97.2
  96.9
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8

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 87
Price to Sales 10.1
Price to Book 4.8
Price to Tangible Book
Price to Cash Flow 28.4
Price to Free Cash Flow 30.6
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 12.1% 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 76.493 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 $2.8 billion.

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Financial statements of DSG
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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