Intrinsic value of Kinaxis Inc. - KXS

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$81.12

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$81.12

 
Intrinsic value

$75.31

 
Up/down potential

-7%

 
Rating

hold

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

We calculate the intrinsic value of KXS 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 2.1

 

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, %
  27.64
  24.20
  22.28
  20.55
  19.00
  17.60
  16.34
  15.20
  14.18
  13.26
  12.44
  11.69
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
Revenue, $m
  157
  195
  238
  287
  342
  402
  468
  539
  616
  697
  784
  876
  972
  1,073
  1,180
  1,290
  1,406
  1,526
  1,651
  1,781
  1,917
  2,057
  2,203
  2,355
  2,513
  2,677
  2,848
  3,026
  3,211
  3,404
  3,605
Variable operating expenses, $m
 
  144
  176
  212
  253
  297
  346
  398
  455
  515
  579
  647
  718
  793
  872
  954
  1,039
  1,128
  1,220
  1,317
  1,416
  1,520
  1,628
  1,741
  1,857
  1,979
  2,105
  2,236
  2,373
  2,515
  2,664
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
  132
  144
  176
  212
  253
  297
  346
  398
  455
  515
  579
  647
  718
  793
  872
  954
  1,039
  1,128
  1,220
  1,317
  1,416
  1,520
  1,628
  1,741
  1,857
  1,979
  2,105
  2,236
  2,373
  2,515
  2,664
Operating income, $m
  24
  51
  62
  75
  89
  105
  122
  141
  161
  182
  205
  229
  254
  280
  308
  337
  367
  398
  431
  465
  500
  537
  575
  615
  656
  699
  743
  790
  838
  888
  941
EBITDA, $m
  27
  54
  66
  80
  95
  111
  130
  149
  171
  193
  217
  243
  269
  297
  327
  357
  389
  423
  457
  493
  531
  570
  610
  652
  696
  742
  789
  838
  889
  943
  998
Interest expense (income), $m
  0
  0
  -2
  -1
  -1
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  16
  17
  19
  20
  22
  23
  25
  27
  29
  31
  33
Earnings before tax, $m
  24
  51
  64
  76
  90
  105
  122
  139
  159
  179
  201
  224
  248
  273
  300
  328
  357
  387
  418
  451
  485
  520
  557
  595
  634
  675
  718
  763
  809
  857
  908
Tax expense, $m
  9
  14
  17
  21
  24
  28
  33
  38
  43
  48
  54
  60
  67
  74
  81
  88
  96
  104
  113
  122
  131
  140
  150
  161
  171
  182
  194
  206
  218
  231
  245
Net income, $m
  15
  37
  47
  56
  66
  77
  89
  102
  116
  131
  147
  163
  181
  200
  219
  239
  260
  282
  305
  329
  354
  380
  406
  434
  463
  493
  524
  557
  591
  626
  663

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  173
  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
  227
  67
  82
  99
  118
  138
  161
  185
  212
  240
  270
  301
  334
  369
  406
  444
  484
  525
  568
  613
  659
  708
  758
  810
  865
  921
  980
  1,041
  1,105
  1,171
  1,240
Adjusted assets (=assets-cash), $m
  54
  67
  82
  99
  118
  138
  161
  185
  212
  240
  270
  301
  334
  369
  406
  444
  484
  525
  568
  613
  659
  708
  758
  810
  865
  921
  980
  1,041
  1,105
  1,171
  1,240
Revenue / Adjusted assets
  2.907
  2.910
  2.902
  2.899
  2.898
  2.913
  2.907
  2.914
  2.906
  2.904
  2.904
  2.910
  2.910
  2.908
  2.906
  2.905
  2.905
  2.907
  2.907
  2.905
  2.909
  2.905
  2.906
  2.907
  2.905
  2.907
  2.906
  2.907
  2.906
  2.907
  2.907
Average production assets, $m
  13
  16
  19
  23
  27
  32
  37
  43
  49
  56
  63
  70
  78
  86
  94
  103
  112
  122
  132
  143
  153
  165
  176
  188
  201
  214
  228
  242
  257
  272
  288
Working capital, $m
  124
  -61
  -74
  -90
  -107
  -125
  -146
  -168
  -192
  -218
  -245
  -273
  -303
  -335
  -368
  -403
  -439
  -476
  -515
  -556
  -598
  -642
  -687
  -735
  -784
  -835
  -889
  -944
  -1,002
  -1,062
  -1,125
Total debt, $m
  0
  -48
  -34
  -19
  -2
  17
  37
  59
  83
  108
  135
  163
  193
  224
  257
  291
  327
  364
  403
  444
  485
  529
  574
  621
  670
  721
  774
  829
  886
  946
  1,008
Total liabilities, $m
  109
  60
  74
  89
  106
  125
  145
  167
  191
  216
  243
  271
  301
  332
  365
  399
  435
  472
  511
  552
  593
  637
  682
  729
  778
  829
  882
  937
  994
  1,054
  1,116
Total equity, $m
  119
  7
  8
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  37
  41
  44
  48
  52
  57
  61
  66
  71
  76
  81
  86
  92
  98
  104
  110
  117
  124
Total liabilities and equity, $m
  228
  67
  82
  99
  118
  139
  161
  186
  212
  240
  270
  301
  334
  369
  406
  443
  483
  524
  568
  613
  659
  708
  758
  810
  864
  921
  980
  1,041
  1,104
  1,171
  1,240
Debt-to-equity ratio
  0.000
  -7.100
  -4.170
  -1.920
  -0.180
  1.190
  2.290
  3.180
  3.900
  4.500
  5.000
  5.410
  5.770
  6.080
  6.340
  6.570
  6.770
  6.940
  7.100
  7.240
  7.360
  7.470
  7.580
  7.670
  7.750
  7.830
  7.900
  7.960
  8.020
  8.080
  8.130
Adjusted equity ratio
  -1.000
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  37
  47
  56
  66
  77
  89
  102
  116
  131
  147
  163
  181
  200
  219
  239
  260
  282
  305
  329
  354
  380
  406
  434
  463
  493
  524
  557
  591
  626
  663
Depreciation, amort., depletion, $m
  3
  3
  4
  5
  5
  6
  7
  9
  10
  11
  13
  14
  16
  17
  19
  21
  22
  24
  26
  29
  31
  33
  35
  38
  40
  43
  46
  48
  51
  54
  58
Funds from operations, $m
  44
  40
  50
  60
  71
  83
  96
  110
  126
  142
  159
  177
  197
  217
  238
  260
  283
  307
  332
  358
  385
  413
  442
  472
  503
  536
  570
  605
  642
  680
  720
Change in working capital, $m
  2
  -12
  -14
  -15
  -17
  -19
  -21
  -22
  -24
  -25
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -63
Cash from operations, $m
  42
  55
  64
  76
  88
  102
  117
  133
  149
  167
  186
  206
  227
  248
  271
  294
  319
  344
  371
  398
  427
  456
  487
  519
  552
  587
  623
  661
  700
  740
  783
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -9
  -10
  -11
  -13
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -29
  -31
  -33
  -35
  -38
  -40
  -43
  -46
  -48
  -51
  -54
New CAPEX, $m
  -8
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
Cash from investing activities, $m
  -8
  -6
  -6
  -8
  -9
  -10
  -11
  -13
  -15
  -17
  -18
  -20
  -22
  -24
  -25
  -28
  -30
  -32
  -34
  -36
  -40
  -42
  -45
  -47
  -51
  -53
  -57
  -60
  -63
  -66
  -70
Free cash flow, $m
  34
  49
  57
  68
  79
  92
  105
  119
  135
  151
  168
  186
  205
  225
  245
  267
  289
  312
  336
  361
  387
  414
  443
  472
  502
  534
  567
  601
  636
  674
  712
Issuance/(repayment) of debt, $m
  0
  -48
  13
  15
  17
  19
  20
  22
  24
  25
  27
  28
  30
  31
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
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
  -48
  13
  15
  17
  19
  20
  22
  24
  25
  27
  28
  30
  31
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  62
Total cash flow (excl. dividends), $m
  39
  1
  71
  83
  96
  110
  125
  141
  158
  176
  195
  215
  235
  256
  278
  301
  325
  350
  375
  402
  429
  458
  488
  519
  551
  585
  619
  656
  694
  733
  775
Retained Cash Flow (-), $m
  -30
  -61
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Prev. year cash balance distribution, $m
 
  173
  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
 
  114
  69
  81
  94
  108
  123
  139
  156
  173
  192
  211
  232
  253
  274
  297
  321
  345
  371
  397
  425
  453
  483
  514
  546
  579
  614
  650
  687
  727
  768
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
 
  109
  64
  71
  78
  84
  89
  94
  97
  100
  101
  100
  99
  96
  92
  87
  82
  75
  68
  61
  54
  47
  40
  34
  28
  23
  18
  14
  11
  8
  6
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

Kinaxis Inc. provides cloud-based software for supply chain operations. The company offers RapidResponse, which provides supply chain planning and analytics capabilities for managing various supply chain management processes, including demand planning, supply planning, inventory management, order fulfillment, capacity planning, master scheduling, and sales and operations planning. It also offers professional services, such as implementation, technical, and training services, as well as maintenance and support services to its software products. The company serves enterprises operating in various industries, including high technology and electronics manufacturing, aerospace and defense, industrial products, life sciences and pharmaceuticals, and consumer packaged goods, as well as the automotive sector. Kinaxis Inc. sells its products in the United States, Canada, Europe, Japan, and internationally through direct sales channels, as well as through resellers and other partners. The company was formerly known as webPLAN Inc. and changed its name to Kinaxis Inc. in May 2005. Kinaxis Inc. was founded in 1984 and is headquartered in Ottawa, Canada.

FINANCIAL RATIOS  of  Kinaxis Inc. (KXS)

Valuation Ratios
P/E Ratio 134.9
Price to Sales 12.9
Price to Book 17
Price to Tangible Book
Price to Cash Flow 48.2
Price to Free Cash Flow 59.5
Growth Rates
Sales Growth Rate 27.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 33.3%
Cap. Spend. - 3 Yr. Gr. Rate 32%
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 7.5%
Ret/ On Assets - 3 Yr. Avg. 6.3%
Return On Total Capital 14.4%
Ret/ On T. Cap. - 3 Yr. Avg. 12.3%
Return On Equity 14.4%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 68.8%
Gross Margin - 3 Yr. Avg. 70.6%
EBITDA Margin 17.2%
EBITDA Margin - 3 Yr. Avg. 17.8%
Operating Margin 15.9%
Oper. Margin - 3 Yr. Avg. 19.9%
Pre-Tax Margin 15.3%
Pre-Tax Margin - 3 Yr. Avg. 15.6%
Net Profit Margin 9.6%
Net Profit Margin - 3 Yr. Avg. 7.8%
Effective Tax Rate 37.5%
Eff/ Tax Rate - 3 Yr. Avg. 60.9%
Payout Ratio 0%

KXS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KXS stock intrinsic value calculation we used $157 million for the last fiscal year's total revenue generated by Kinaxis Inc.. The default revenue input number comes from 2016 income statement of Kinaxis Inc.. 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 KXS stock valuation model: a) initial revenue growth rate of 24.2% 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 KXS is calculated based on our internal credit rating of Kinaxis Inc., 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 Kinaxis Inc..
    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 KXS stock the variable cost ratio is equal to 73.9%.

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 KXS 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 Kinaxis Inc..

Corporate tax rate of 27% is the nominal tax rate for Kinaxis Inc.. 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 KXS 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 KXS are equal to 8%.

Life of production assets of 4.2 years is the average useful life of capital assets used in Kinaxis Inc. 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 KXS is equal to -31.2%. 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 - $119 million for Kinaxis Inc. - 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 25.753 million for Kinaxis Inc. 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 Kinaxis Inc. at the current share price and the inputted number of shares is $2.1 billion.


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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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