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

Previous Close

$33.76

  Intrinsic Value

premium content

  Rating & Target

premium content

  Value-price divergence*

premium content

Previous close

$33.76

 
Intrinsic value

$6.54

 
Up/down potential

-81%

 
Rating

str. sell

 
Value-price divergence* premium content

Premium access subscription - $499/yr

please register and log in before paying

*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 2.6

 

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
  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
  275
  300
  327
  354
  383
  412
  443
  475
  509
  543
  579
  617
  656
  696
  738
  782
  828
  876
  926
  978
  1,033
  1,090
  1,149
  1,211
  1,276
  1,344
  1,416
  1,490
  1,568
  1,650
  1,736
Variable operating expenses, $m
 
  251
  270
  290
  310
  332
  354
  377
  401
  425
  451
  443
  471
  500
  530
  562
  595
  629
  665
  702
  741
  782
  825
  870
  916
  965
  1,016
  1,070
  1,126
  1,185
  1,246
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
  251
  270
  290
  310
  332
  354
  377
  401
  425
  451
  443
  471
  500
  530
  562
  595
  629
  665
  702
  741
  782
  825
  870
  916
  965
  1,016
  1,070
  1,126
  1,185
  1,246
Operating income, $m
  41
  49
  57
  64
  72
  81
  90
  99
  108
  118
  128
  174
  185
  196
  208
  221
  234
  247
  261
  276
  291
  307
  324
  342
  360
  379
  399
  420
  442
  466
  490
EBITDA, $m
  87
  104
  113
  123
  133
  143
  154
  165
  176
  188
  201
  214
  227
  241
  256
  271
  287
  303
  321
  339
  358
  377
  398
  420
  442
  466
  490
  516
  543
  572
  601
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  16
Earnings before tax, $m
  43
  49
  56
  64
  71
  80
  88
  97
  106
  115
  125
  170
  181
  192
  203
  215
  228
  241
  254
  268
  283
  298
  314
  331
  349
  367
  387
  407
  428
  450
  473
Tax expense, $m
  11
  13
  15
  17
  19
  21
  24
  26
  28
  31
  34
  46
  49
  52
  55
  58
  61
  65
  69
  72
  76
  81
  85
  89
  94
  99
  104
  110
  116
  122
  128
Net income, $m
  32
  36
  41
  47
  52
  58
  64
  70
  77
  84
  91
  124
  132
  140
  148
  157
  166
  176
  185
  196
  206
  218
  229
  242
  255
  268
  282
  297
  312
  329
  345

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
  681
  741
  803
  868
  935
  1,005
  1,078
  1,153
  1,232
  1,313
  1,398
  1,487
  1,578
  1,674
  1,774
  1,878
  1,987
  2,100
  2,218
  2,342
  2,471
  2,606
  2,747
  2,894
  3,049
  3,210
  3,379
  3,557
  3,742
  3,937
Adjusted assets (=assets-cash), $m
  624
  681
  741
  803
  868
  935
  1,005
  1,078
  1,153
  1,232
  1,313
  1,398
  1,487
  1,578
  1,674
  1,774
  1,878
  1,987
  2,100
  2,218
  2,342
  2,471
  2,606
  2,747
  2,894
  3,049
  3,210
  3,379
  3,557
  3,742
  3,937
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
  0.441
Average production assets, $m
  202
  220
  239
  260
  280
  302
  325
  348
  373
  398
  425
  452
  481
  510
  541
  573
  607
  642
  679
  717
  757
  799
  842
  888
  936
  985
  1,038
  1,092
  1,150
  1,210
  1,273
Working capital, $m
  25
  -29
  -32
  -35
  -38
  -40
  -43
  -47
  -50
  -53
  -57
  -60
  -64
  -68
  -72
  -77
  -81
  -86
  -91
  -96
  -101
  -107
  -113
  -119
  -125
  -132
  -139
  -146
  -154
  -162
  -170
Total debt, $m
  0
  9
  18
  27
  37
  47
  58
  69
  80
  92
  104
  117
  130
  144
  159
  174
  190
  206
  223
  241
  260
  279
  299
  321
  343
  366
  391
  416
  443
  471
  500
Total liabilities, $m
  94
  103
  112
  121
  131
  141
  152
  163
  174
  186
  198
  211
  224
  238
  253
  268
  284
  300
  317
  335
  354
  373
  393
  415
  437
  460
  485
  510
  537
  565
  594
Total equity, $m
  582
  578
  629
  682
  737
  794
  853
  915
  979
  1,046
  1,115
  1,187
  1,262
  1,340
  1,421
  1,506
  1,595
  1,687
  1,783
  1,883
  1,988
  2,098
  2,212
  2,332
  2,457
  2,588
  2,725
  2,869
  3,020
  3,177
  3,342
Total liabilities and equity, $m
  676
  681
  741
  803
  868
  935
  1,005
  1,078
  1,153
  1,232
  1,313
  1,398
  1,486
  1,578
  1,674
  1,774
  1,879
  1,987
  2,100
  2,218
  2,342
  2,471
  2,605
  2,747
  2,894
  3,048
  3,210
  3,379
  3,557
  3,742
  3,936
Debt-to-equity ratio
  0.000
  0.020
  0.030
  0.040
  0.050
  0.060
  0.070
  0.080
  0.080
  0.090
  0.090
  0.100
  0.100
  0.110
  0.110
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
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
  36
  41
  47
  52
  58
  64
  70
  77
  84
  91
  124
  132
  140
  148
  157
  166
  176
  185
  196
  206
  218
  229
  242
  255
  268
  282
  297
  312
  329
  345
Depreciation, amort., depletion, $m
  46
  55
  57
  58
  60
  62
  64
  66
  68
  70
  73
  40
  42
  45
  47
  50
  53
  56
  60
  63
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
Funds from operations, $m
  112
  91
  98
  105
  112
  120
  128
  137
  145
  154
  164
  164
  174
  185
  196
  207
  219
  232
  245
  259
  273
  288
  303
  320
  337
  355
  373
  393
  413
  435
  457
Change in working capital, $m
  14
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Cash from operations, $m
  98
  103
  100
  108
  115
  123
  131
  140
  149
  158
  167
  168
  178
  189
  200
  212
  224
  237
  250
  264
  278
  293
  309
  326
  343
  361
  380
  400
  421
  443
  466
Maintenance CAPEX, $m
  0
  -18
  -19
  -21
  -23
  -25
  -27
  -28
  -31
  -33
  -35
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -56
  -60
  -63
  -66
  -70
  -74
  -78
  -82
  -86
  -91
  -96
  -101
  -106
New CAPEX, $m
  -7
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
Cash from investing activities, $m
  -95
  -37
  -38
  -41
  -44
  -47
  -50
  -51
  -55
  -58
  -61
  -64
  -69
  -72
  -76
  -79
  -84
  -88
  -93
  -98
  -103
  -108
  -114
  -120
  -126
  -132
  -138
  -146
  -153
  -161
  -169
Free cash flow, $m
  3
  66
  62
  66
  71
  77
  82
  88
  94
  100
  106
  103
  110
  117
  124
  132
  140
  148
  157
  166
  175
  185
  196
  206
  217
  229
  241
  254
  268
  282
  297
Issuance/(repayment) of debt, $m
  1
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
Issuance/(repurchase) of shares, $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
  0
Cash from financing (excl. dividends), $m  
  0
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  26
  27
  28
  29
Total cash flow (excl. dividends), $m
  1
  75
  71
  76
  81
  87
  93
  99
  105
  111
  118
  116
  123
  131
  139
  147
  156
  165
  174
  184
  194
  205
  216
  228
  240
  253
  266
  280
  295
  310
  326
Retained Cash Flow (-), $m
  -39
  -48
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -69
  -72
  -75
  -78
  -81
  -85
  -88
  -92
  -96
  -100
  -105
  -110
  -115
  -120
  -125
  -131
  -137
  -144
  -150
  -158
  -165
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
 
  79
  20
  23
  26
  30
  33
  37
  41
  45
  49
  44
  48
  53
  57
  62
  67
  73
  78
  83
  89
  95
  101
  108
  115
  121
  129
  136
  144
  152
  161
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
 
  76
  18
  20
  22
  23
  24
  25
  26
  26
  26
  21
  21
  20
  19
  18
  17
  16
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
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

The Descartes Systems Group Inc. provides federated network and logistics technology solutions worldwide. The company’s network-based solutions offer regulatory compliance and customs filing; route and resource planning, execution, and monitoring; inventory and asset visibility; rate and transportation management; and warehouse operation services, as well as connects people to their trading partners and enable business document exchange. Its Logistics Application Suite offers a range of modular, cloud-based, and interoperable Web and wireless logistics management applications. The company’s Logistics Application Suite offers solutions, such as route planning and execution, mobile applications, and telematics and compliance; transportation management solutions comprising carrier compliance and rate management, transportation planning and execution, dock scheduling and yard management, freight audit and settlement, and logistics flow control, as well as visibility, tracking, and performance management; and global logistics network services, such as document management, community, and connectivity services. Its Logistics Application Suite solutions also include customs and regulatory compliance solutions, such as cargo security compliance, declaration and fiscal compliance, customs warehouse management, ocean regulatory services, industry program support services, global trade content, and government solutions; and broker and forwarder enterprise system solutions, such as forwarder back office, and brokerage and declaration services. In addition, the company offers consulting, implementation, and training services; and maintenance and support services. The company serves transportation providers, logistics service providers, and distribution-intensive companies through distributors, alliance partners, and value added resellers. The Descartes Systems Group Inc. was founded in 1981 and is headquartered in Waterloo, Canada.

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

Valuation Ratios
P/E Ratio 80
Price to Sales 9.3
Price to Book 4.4
Price to Tangible Book
Price to Cash Flow 26.1
Price to Free Cash Flow 28.1
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 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 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 77.196 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 $2.6 billion.


Premium access subscription - $499/yr

please register and log in before paying
RELATED COMPANIES Price Int.Val. Rating
BCE BCE Inc. 60.89 prem.  prem.
TRI Thomson Reuter 59.68 prem.  prem.
CSU Constellation 693.18 prem.  prem.
Stock chart of DSG 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.

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.