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

Previous Close

$38.24

  Intrinsic Value

$6.19

stock screener

  Rating & Target

str. sell

-84%

Previous close

$38.24

 
Intrinsic value

$6.19

 
Up/down potential

-84%

 
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 2.9

 

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
  13.20
  12.38
  11.64
  10.98
  10.38
  9.84
  9.36
  8.92
  8.53
  8.18
  7.86
  7.57
  7.32
  7.08
  6.88
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
  5.43
  5.39
Revenue, $m
  275
  311
  350
  391
  433
  478
  526
  575
  626
  679
  735
  793
  853
  915
  980
  1,047
  1,117
  1,190
  1,266
  1,345
  1,427
  1,513
  1,602
  1,695
  1,792
  1,893
  1,999
  2,110
  2,225
  2,346
  2,472
Variable operating expenses, $m
 
  259
  287
  316
  347
  379
  413
  448
  485
  523
  563
  569
  612
  657
  703
  752
  802
  854
  909
  965
  1,024
  1,086
  1,150
  1,217
  1,286
  1,359
  1,435
  1,514
  1,597
  1,684
  1,775
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
  259
  287
  316
  347
  379
  413
  448
  485
  523
  563
  569
  612
  657
  703
  752
  802
  854
  909
  965
  1,024
  1,086
  1,150
  1,217
  1,286
  1,359
  1,435
  1,514
  1,597
  1,684
  1,775
Operating income, $m
  41
  52
  63
  75
  87
  99
  113
  127
  141
  156
  172
  224
  241
  258
  276
  295
  315
  336
  357
  379
  403
  427
  452
  478
  505
  534
  564
  595
  628
  662
  697
EBITDA, $m
  87
  108
  121
  135
  150
  166
  182
  199
  217
  235
  255
  275
  295
  317
  339
  363
  387
  412
  439
  466
  494
  524
  555
  587
  621
  656
  692
  731
  771
  813
  856
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
Earnings before tax, $m
  43
  52
  63
  74
  85
  98
  110
  124
  137
  152
  167
  218
  234
  251
  269
  287
  306
  326
  346
  367
  390
  413
  437
  462
  488
  516
  544
  574
  606
  638
  673
Tax expense, $m
  11
  14
  17
  20
  23
  26
  30
  33
  37
  41
  45
  59
  63
  68
  73
  77
  83
  88
  93
  99
  105
  111
  118
  125
  132
  139
  147
  155
  164
  172
  182
Net income, $m
  32
  38
  46
  54
  62
  71
  81
  90
  100
  111
  122
  159
  171
  183
  196
  209
  223
  238
  253
  268
  284
  301
  319
  337
  357
  377
  397
  419
  442
  466
  491

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
  706
  793
  886
  983
  1,085
  1,192
  1,303
  1,419
  1,541
  1,666
  1,797
  1,934
  2,075
  2,222
  2,375
  2,534
  2,699
  2,871
  3,050
  3,236
  3,430
  3,632
  3,843
  4,063
  4,293
  4,533
  4,783
  5,045
  5,319
  5,606
Adjusted assets (=assets-cash), $m
  624
  706
  793
  886
  983
  1,085
  1,192
  1,303
  1,419
  1,541
  1,666
  1,797
  1,934
  2,075
  2,222
  2,375
  2,534
  2,699
  2,871
  3,050
  3,236
  3,430
  3,632
  3,843
  4,063
  4,293
  4,533
  4,783
  5,045
  5,319
  5,606
Revenue / Adjusted assets
  0.441
  0.441
  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
  0.441
Average production assets, $m
  202
  228
  256
  286
  318
  351
  385
  421
  459
  498
  539
  581
  625
  671
  718
  768
  819
  872
  928
  986
  1,046
  1,109
  1,174
  1,242
  1,313
  1,388
  1,465
  1,546
  1,631
  1,720
  1,812
Working capital, $m
  25
  -31
  -34
  -38
  -42
  -47
  -52
  -56
  -61
  -67
  -72
  -78
  -84
  -90
  -96
  -103
  -109
  -117
  -124
  -132
  -140
  -148
  -157
  -166
  -176
  -186
  -196
  -207
  -218
  -230
  -242
Total debt, $m
  0
  13
  26
  40
  54
  70
  86
  103
  120
  139
  158
  177
  198
  219
  242
  265
  289
  314
  339
  366
  395
  424
  454
  486
  520
  554
  590
  628
  668
  709
  752
Total liabilities, $m
  94
  107
  120
  134
  148
  164
  180
  197
  214
  233
  252
  271
  292
  313
  336
  359
  383
  408
  433
  460
  489
  518
  548
  580
  614
  648
  684
  722
  762
  803
  846
Total equity, $m
  582
  599
  673
  752
  834
  921
  1,012
  1,106
  1,205
  1,308
  1,415
  1,526
  1,642
  1,762
  1,887
  2,016
  2,151
  2,291
  2,437
  2,589
  2,747
  2,912
  3,084
  3,263
  3,450
  3,645
  3,848
  4,061
  4,284
  4,516
  4,759
Total liabilities and equity, $m
  676
  706
  793
  886
  982
  1,085
  1,192
  1,303
  1,419
  1,541
  1,667
  1,797
  1,934
  2,075
  2,223
  2,375
  2,534
  2,699
  2,870
  3,049
  3,236
  3,430
  3,632
  3,843
  4,064
  4,293
  4,532
  4,783
  5,046
  5,319
  5,605
Debt-to-equity ratio
  0.000
  0.020
  0.040
  0.050
  0.070
  0.080
  0.080
  0.090
  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
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
  0.160
  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
  46
  54
  62
  71
  81
  90
  100
  111
  122
  159
  171
  183
  196
  209
  223
  238
  253
  268
  284
  301
  319
  337
  357
  377
  397
  419
  442
  466
  491
Depreciation, amort., depletion, $m
  46
  56
  58
  61
  63
  66
  69
  72
  76
  79
  83
  51
  55
  59
  63
  67
  72
  77
  81
  86
  92
  97
  103
  109
  115
  122
  129
  136
  143
  151
  159
Funds from operations, $m
  112
  94
  104
  114
  126
  137
  150
  163
  176
  190
  205
  210
  226
  242
  259
  277
  295
  314
  334
  355
  376
  399
  422
  446
  472
  498
  526
  555
  585
  617
  650
Change in working capital, $m
  14
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
Cash from operations, $m
  98
  97
  108
  118
  130
  142
  154
  168
  181
  195
  210
  216
  232
  248
  266
  283
  302
  321
  342
  362
  384
  407
  431
  455
  481
  508
  536
  566
  597
  629
  662
Maintenance CAPEX, $m
  0
  -18
  -20
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -44
  -47
  -51
  -55
  -59
  -63
  -67
  -72
  -77
  -81
  -86
  -92
  -97
  -103
  -109
  -115
  -122
  -129
  -136
  -143
  -151
New CAPEX, $m
  -7
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
Cash from investing activities, $m
  -95
  -45
  -48
  -52
  -56
  -61
  -66
  -70
  -75
  -79
  -85
  -89
  -95
  -101
  -107
  -112
  -118
  -125
  -133
  -139
  -146
  -155
  -162
  -171
  -180
  -189
  -200
  -210
  -221
  -232
  -244
Free cash flow, $m
  3
  53
  59
  66
  73
  81
  89
  98
  107
  116
  126
  126
  137
  148
  159
  171
  183
  196
  209
  223
  238
  253
  268
  284
  301
  319
  337
  356
  376
  397
  419
Issuance/(repayment) of debt, $m
  1
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  41
  43
Issuance/(repurchase) of shares, $m
  0
  31
  28
  25
  20
  15
  10
  4
  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
  44
  41
  39
  35
  30
  26
  21
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  35
  36
  38
  40
  41
  43
Total cash flow (excl. dividends), $m
  1
  97
  101
  105
  108
  112
  115
  119
  124
  134
  145
  146
  157
  169
  181
  194
  207
  221
  235
  250
  266
  282
  299
  316
  334
  353
  373
  394
  416
  438
  462
Retained Cash Flow (-), $m
  -39
  -69
  -74
  -78
  -83
  -87
  -91
  -95
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -165
  -172
  -179
  -187
  -195
  -204
  -213
  -222
  -233
  -243
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
  27
  26
  26
  25
  25
  24
  25
  31
  38
  35
  42
  49
  57
  64
  72
  81
  89
  98
  108
  117
  127
  137
  148
  158
  170
  181
  193
  206
  219
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
  24
  23
  21
  20
  18
  16
  16
  18
  20
  17
  18
  19
  19
  19
  18
  18
  16
  15
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100
  98.8
  97.9
  97.2
  96.7
  96.3
  96.1
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0

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 90.7
Price to Sales 10.6
Price to Book 5
Price to Tangible Book
Price to Cash Flow 29.6
Price to Free Cash Flow 31.9
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 13.2% 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 76.303 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 $2.9 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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