Intrinsic value of Enghouse Systems Limited - ENGH

Previous Close

$54.10

  Intrinsic Value

$69.12

stock screener

  Rating & Target

buy

+28%

Previous close

$54.10

 
Intrinsic value

$69.12

 
Up/down potential

+28%

 
Rating

buy

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

We calculate the intrinsic value of ENGH 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 2016), $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 1.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  10.39
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
  5.22
  5.20
Revenue, $m
  308
  336
  366
  397
  429
  462
  496
  532
  570
  608
  649
  691
  734
  780
  827
  876
  928
  981
  1,037
  1,096
  1,157
  1,220
  1,287
  1,357
  1,429
  1,506
  1,586
  1,669
  1,757
  1,848
  1,944
Variable operating expenses, $m
 
  114
  123
  132
  142
  152
  162
  173
  184
  195
  207
  205
  218
  231
  246
  260
  275
  291
  308
  325
  343
  362
  382
  403
  424
  447
  471
  496
  522
  549
  577
Fixed operating expenses, $m
 
  156
  160
  164
  168
  172
  176
  181
  185
  190
  195
  199
  204
  210
  215
  220
  226
  231
  237
  243
  249
  255
  262
  268
  275
  282
  289
  296
  303
  311
  319
Total operating expenses, $m
  254
  270
  283
  296
  310
  324
  338
  354
  369
  385
  402
  404
  422
  441
  461
  480
  501
  522
  545
  568
  592
  617
  644
  671
  699
  729
  760
  792
  825
  860
  896
Operating income, $m
  54
  66
  83
  101
  119
  138
  158
  179
  201
  223
  247
  286
  312
  339
  367
  396
  427
  459
  492
  527
  564
  603
  643
  686
  730
  777
  826
  877
  932
  988
  1,048
EBITDA, $m
  85
  94
  112
  131
  150
  171
  192
  214
  237
  261
  287
  313
  340
  369
  399
  430
  462
  497
  532
  570
  609
  650
  693
  738
  785
  835
  887
  942
  1,000
  1,060
  1,124
Interest expense (income), $m
  0
  0
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
Earnings before tax, $m
  54
  66
  82
  100
  117
  136
  155
  176
  197
  219
  242
  280
  305
  331
  358
  387
  417
  448
  481
  515
  551
  588
  627
  669
  712
  758
  805
  856
  908
  964
  1,022
Tax expense, $m
  7
  18
  22
  27
  32
  37
  42
  47
  53
  59
  65
  76
  82
  89
  97
  104
  113
  121
  130
  139
  149
  159
  169
  181
  192
  205
  217
  231
  245
  260
  276
Net income, $m
  47
  48
  60
  73
  86
  99
  113
  128
  144
  160
  176
  205
  223
  242
  262
  282
  304
  327
  351
  376
  402
  429
  458
  488
  520
  553
  588
  625
  663
  703
  746

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  86
  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
  419
  364
  396
  429
  463
  499
  537
  575
  616
  658
  701
  747
  794
  843
  894
  947
  1,003
  1,061
  1,121
  1,184
  1,250
  1,319
  1,391
  1,467
  1,545
  1,628
  1,714
  1,804
  1,899
  1,998
  2,102
Adjusted assets (=assets-cash), $m
  333
  364
  396
  429
  463
  499
  537
  575
  616
  658
  701
  747
  794
  843
  894
  947
  1,003
  1,061
  1,121
  1,184
  1,250
  1,319
  1,391
  1,467
  1,545
  1,628
  1,714
  1,804
  1,899
  1,998
  2,102
Revenue / Adjusted assets
  0.925
  0.923
  0.924
  0.925
  0.927
  0.926
  0.924
  0.925
  0.925
  0.924
  0.926
  0.925
  0.924
  0.925
  0.925
  0.925
  0.925
  0.925
  0.925
  0.926
  0.926
  0.925
  0.925
  0.925
  0.925
  0.925
  0.925
  0.925
  0.925
  0.925
  0.925
Average production assets, $m
  84
  91
  99
  107
  116
  125
  135
  144
  154
  165
  176
  187
  199
  211
  224
  237
  251
  266
  281
  297
  313
  331
  349
  368
  387
  408
  430
  452
  476
  501
  527
Working capital, $m
  48
  -41
  -45
  -49
  -53
  -57
  -61
  -65
  -70
  -75
  -80
  -85
  -90
  -96
  -102
  -108
  -114
  -121
  -128
  -135
  -142
  -150
  -158
  -167
  -176
  -185
  -195
  -205
  -216
  -227
  -239
Total debt, $m
  4
  18
  32
  47
  62
  79
  95
  113
  131
  150
  170
  190
  211
  233
  256
  280
  305
  331
  359
  387
  417
  448
  480
  514
  549
  587
  625
  666
  709
  753
  800
Total liabilities, $m
  151
  164
  178
  193
  208
  225
  241
  259
  277
  296
  316
  336
  357
  379
  402
  426
  451
  477
  505
  533
  563
  594
  626
  660
  695
  733
  771
  812
  855
  899
  946
Total equity, $m
  269
  200
  218
  236
  255
  275
  295
  316
  339
  362
  386
  411
  437
  464
  492
  521
  552
  583
  617
  651
  688
  726
  765
  807
  850
  895
  943
  992
  1,044
  1,099
  1,156
Total liabilities and equity, $m
  420
  364
  396
  429
  463
  500
  536
  575
  616
  658
  702
  747
  794
  843
  894
  947
  1,003
  1,060
  1,122
  1,184
  1,251
  1,320
  1,391
  1,467
  1,545
  1,628
  1,714
  1,804
  1,899
  1,998
  2,102
Debt-to-equity ratio
  0.015
  0.090
  0.150
  0.200
  0.250
  0.290
  0.320
  0.360
  0.390
  0.410
  0.440
  0.460
  0.480
  0.500
  0.520
  0.540
  0.550
  0.570
  0.580
  0.590
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.660
  0.670
  0.680
  0.690
  0.690
Adjusted equity ratio
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  47
  48
  60
  73
  86
  99
  113
  128
  144
  160
  176
  205
  223
  242
  262
  282
  304
  327
  351
  376
  402
  429
  458
  488
  520
  553
  588
  625
  663
  703
  746
Depreciation, amort., depletion, $m
  31
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  27
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  55
  58
  61
  65
  68
  72
  75
Funds from operations, $m
  33
  76
  89
  103
  117
  132
  147
  163
  180
  198
  216
  231
  251
  272
  294
  316
  340
  365
  391
  418
  447
  477
  508
  541
  575
  611
  649
  689
  731
  775
  821
Change in working capital, $m
  -27
  -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
  -12
Cash from operations, $m
  60
  79
  92
  106
  121
  136
  151
  168
  185
  203
  221
  236
  257
  278
  300
  322
  346
  372
  398
  425
  454
  484
  516
  549
  584
  621
  659
  699
  742
  786
  833
Maintenance CAPEX, $m
  0
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -53
  -55
  -58
  -61
  -65
  -68
  -72
New CAPEX, $m
  -5
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
Cash from investing activities, $m
  -64
  -20
  -21
  -22
  -24
  -26
  -27
  -29
  -31
  -33
  -35
  -36
  -39
  -40
  -43
  -45
  -48
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -73
  -76
  -80
  -84
  -89
  -93
  -98
Free cash flow, $m
  -4
  60
  71
  84
  97
  110
  124
  139
  154
  170
  187
  200
  218
  237
  257
  277
  299
  321
  345
  369
  395
  422
  451
  481
  512
  545
  579
  615
  653
  693
  735
Issuance/(repayment) of debt, $m
  0
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
Issuance/(repurchase) of shares, $m
  4
  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  
  4
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
Total cash flow (excl. dividends), $m
  -2
  73
  86
  99
  112
  126
  141
  156
  172
  189
  206
  220
  239
  259
  280
  301
  324
  347
  372
  398
  425
  453
  483
  514
  547
  582
  618
  656
  696
  738
  782
Retained Cash Flow (-), $m
  -26
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -50
  -52
  -55
  -57
Prev. year cash balance distribution, $m
 
  86
  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
 
  142
  68
  80
  93
  107
  120
  135
  150
  166
  182
  195
  213
  232
  251
  272
  293
  315
  339
  363
  389
  415
  444
  473
  504
  536
  571
  606
  644
  684
  725
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
 
  136
  62
  70
  77
  83
  87
  91
  94
  95
  96
  93
  91
  88
  84
  80
  74
  69
  62
  56
  49
  43
  37
  31
  26
  21
  17
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  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

Enghouse Systems Limited develops enterprise software solutions for a range of vertical markets. The Company operates through two segments: the Interactive Management Group and the Asset Management Group. The Interactive Management Group specializes in customer interaction software and services that are designed to manage customer communications across the enterprise. Its technologies include contact center, attendant console, voice response, dialers, agent performance optimization and analytics that support telephony environment, deployed on premise or in the cloud. The Asset Management Group provides a range of products to telecom service providers, utilities, and the oil and gas industry. Its products include Operations Support Systems (OSS), Business Support Systems (BSS), Mobile Value Added Services (VAS) solutions and conversion services. The Asset Management Group also provides fleet routing, dispatch, scheduling, communications and emergency control center solutions.

FINANCIAL RATIOS  of  Enghouse Systems Limited (ENGH)

Valuation Ratios
P/E Ratio 31
Price to Sales 4.7
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow 24.3
Price to Free Cash Flow 26.5
Growth Rates
Sales Growth Rate 10.4%
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 38%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 1.5%
Total Debt to Equity 1.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 11.8%
Ret/ On Assets - 3 Yr. Avg. 10.2%
Return On Total Capital 18.2%
Ret/ On T. Cap. - 3 Yr. Avg. 15.8%
Return On Equity 18.4%
Return On Equity - 3 Yr. Avg. 15.8%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 68.5%
Gross Margin - 3 Yr. Avg. 69.1%
EBITDA Margin 27.6%
EBITDA Margin - 3 Yr. Avg. 24.9%
Operating Margin 17.5%
Oper. Margin - 3 Yr. Avg. 15.2%
Pre-Tax Margin 17.5%
Pre-Tax Margin - 3 Yr. Avg. 15.4%
Net Profit Margin 15.3%
Net Profit Margin - 3 Yr. Avg. 13.3%
Effective Tax Rate 13%
Eff/ Tax Rate - 3 Yr. Avg. 13.7%
Payout Ratio 29.8%

ENGH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ENGH stock intrinsic value calculation we used $308 million for the last fiscal year's total revenue generated by Enghouse Systems Limited. The default revenue input number comes from 2016 income statement of Enghouse Systems Limited. 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 ENGH stock valuation model: a) initial revenue growth rate of 9.2% 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 ENGH is calculated based on our internal credit rating of Enghouse Systems Limited, 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 Enghouse Systems Limited.
    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 ENGH stock the variable cost ratio is equal to 34.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $152 million in the base year in the intrinsic value calculation for ENGH 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 Enghouse Systems Limited.

Corporate tax rate of 27% is the nominal tax rate for Enghouse Systems Limited. 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 ENGH 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 ENGH are equal to 27.1%.

Life of production assets of 7 years is the average useful life of capital assets used in Enghouse Systems Limited 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 ENGH is equal to -12.3%. 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 - $269 million for Enghouse Systems Limited - 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 26.907 million for Enghouse Systems Limited 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 Enghouse Systems Limited at the current share price and the inputted number of shares is $1.5 billion.

RELATED COMPANIES Price Int.Val. Rating
CSU Constellation 785.00 843.70  hold
OTEX Open Text Corp 42.28 118.88  str.buy
BB BlackBerry Lim 13.60 1.42  str.sell
DSG Descartes Syst 35.18 6.19  str.sell
Financial statements of ENGH
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.