Intrinsic value of MacDonald Dettwiler and Associates Ltd. - MDA

Previous Close

$70.72

  Intrinsic Value

$66.33

stock screener

  Rating & Target

hold

-6%

  Value-price divergence*

0%

Previous close

$70.72

 
Intrinsic value

$66.33

 
Up/down potential

-6%

 
Rating

hold

 
Value-price divergence*

0%

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

We calculate the intrinsic value of MDA 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 2.6

 

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, %
  -2.50
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,064
  2,105
  2,154
  2,209
  2,271
  2,340
  2,416
  2,498
  2,587
  2,683
  2,786
  2,896
  3,014
  3,139
  3,272
  3,413
  3,562
  3,721
  3,888
  4,065
  4,252
  4,449
  4,657
  4,876
  5,107
  5,350
  5,606
  5,875
  6,159
  6,457
  6,770
Variable operating expenses, $m
 
  1,628
  1,663
  1,703
  1,748
  1,799
  1,854
  1,914
  1,978
  2,048
  2,123
  2,110
  2,195
  2,287
  2,383
  2,486
  2,595
  2,711
  2,832
  2,961
  3,097
  3,241
  3,392
  3,552
  3,720
  3,897
  4,084
  4,280
  4,487
  4,704
  4,932
Fixed operating expenses, $m
 
  258
  265
  271
  278
  285
  292
  300
  307
  315
  323
  331
  339
  347
  356
  365
  374
  383
  393
  403
  413
  423
  434
  445
  456
  467
  479
  491
  503
  516
  529
Total operating expenses, $m
  1,843
  1,886
  1,928
  1,974
  2,026
  2,084
  2,146
  2,214
  2,285
  2,363
  2,446
  2,441
  2,534
  2,634
  2,739
  2,851
  2,969
  3,094
  3,225
  3,364
  3,510
  3,664
  3,826
  3,997
  4,176
  4,364
  4,563
  4,771
  4,990
  5,220
  5,461
Operating income, $m
  221
  219
  226
  234
  245
  256
  270
  285
  301
  320
  340
  456
  479
  505
  532
  562
  593
  627
  663
  701
  741
  785
  830
  879
  931
  985
  1,043
  1,104
  1,169
  1,237
  1,310
EBITDA, $m
  324
  365
  373
  383
  394
  408
  423
  440
  459
  480
  502
  527
  553
  582
  613
  646
  681
  718
  758
  801
  846
  894
  945
  999
  1,056
  1,117
  1,181
  1,249
  1,320
  1,396
  1,476
Interest expense (income), $m
  40
  36
  38
  40
  43
  45
  48
  51
  55
  58
  63
  67
  71
  76
  82
  87
  93
  100
  106
  113
  121
  129
  137
  146
  155
  165
  175
  186
  197
  209
  222
Earnings before tax, $m
  171
  183
  188
  194
  202
  211
  222
  233
  247
  261
  277
  389
  408
  428
  450
  474
  500
  527
  556
  587
  621
  656
  693
  733
  776
  821
  868
  919
  972
  1,028
  1,088
Tax expense, $m
  31
  49
  51
  52
  55
  57
  60
  63
  67
  71
  75
  105
  110
  116
  122
  128
  135
  142
  150
  159
  168
  177
  187
  198
  209
  222
  234
  248
  262
  278
  294
Net income, $m
  140
  134
  137
  142
  147
  154
  162
  170
  180
  191
  202
  284
  298
  313
  329
  346
  365
  385
  406
  429
  453
  479
  506
  535
  566
  599
  634
  671
  709
  751
  794

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  106
  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
  3,439
  3,401
  3,479
  3,569
  3,669
  3,780
  3,902
  4,035
  4,179
  4,334
  4,501
  4,678
  4,868
  5,071
  5,285
  5,513
  5,755
  6,011
  6,281
  6,567
  6,869
  7,187
  7,523
  7,877
  8,250
  8,642
  9,056
  9,491
  9,949
  10,431
  10,938
Adjusted assets (=assets-cash), $m
  3,333
  3,401
  3,479
  3,569
  3,669
  3,780
  3,902
  4,035
  4,179
  4,334
  4,501
  4,678
  4,868
  5,071
  5,285
  5,513
  5,755
  6,011
  6,281
  6,567
  6,869
  7,187
  7,523
  7,877
  8,250
  8,642
  9,056
  9,491
  9,949
  10,431
  10,938
Revenue / Adjusted assets
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
  0.619
Average production assets, $m
  925
  943
  965
  990
  1,017
  1,048
  1,082
  1,119
  1,159
  1,202
  1,248
  1,297
  1,350
  1,406
  1,466
  1,529
  1,596
  1,667
  1,742
  1,821
  1,905
  1,993
  2,086
  2,184
  2,288
  2,397
  2,511
  2,632
  2,759
  2,893
  3,033
Working capital, $m
  -144
  -46
  -47
  -49
  -50
  -51
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -82
  -86
  -89
  -94
  -98
  -102
  -107
  -112
  -118
  -123
  -129
  -135
  -142
  -149
Total debt, $m
  1,017
  955
  1,006
  1,064
  1,129
  1,202
  1,281
  1,368
  1,462
  1,563
  1,671
  1,787
  1,911
  2,043
  2,183
  2,332
  2,489
  2,656
  2,832
  3,019
  3,215
  3,423
  3,642
  3,873
  4,116
  4,372
  4,641
  4,925
  5,224
  5,538
  5,868
Total liabilities, $m
  2,280
  2,218
  2,269
  2,327
  2,392
  2,465
  2,544
  2,631
  2,725
  2,826
  2,934
  3,050
  3,174
  3,306
  3,446
  3,595
  3,752
  3,919
  4,095
  4,282
  4,478
  4,686
  4,905
  5,136
  5,379
  5,635
  5,904
  6,188
  6,487
  6,801
  7,131
Total equity, $m
  1,159
  1,184
  1,211
  1,242
  1,277
  1,316
  1,358
  1,404
  1,454
  1,508
  1,566
  1,628
  1,694
  1,765
  1,839
  1,919
  2,003
  2,092
  2,186
  2,285
  2,390
  2,501
  2,618
  2,741
  2,871
  3,008
  3,151
  3,303
  3,462
  3,630
  3,806
Total liabilities and equity, $m
  3,439
  3,402
  3,480
  3,569
  3,669
  3,781
  3,902
  4,035
  4,179
  4,334
  4,500
  4,678
  4,868
  5,071
  5,285
  5,514
  5,755
  6,011
  6,281
  6,567
  6,868
  7,187
  7,523
  7,877
  8,250
  8,643
  9,055
  9,491
  9,949
  10,431
  10,937
Debt-to-equity ratio
  0.877
  0.810
  0.830
  0.860
  0.880
  0.910
  0.940
  0.970
  1.010
  1.040
  1.070
  1.100
  1.130
  1.160
  1.190
  1.220
  1.240
  1.270
  1.300
  1.320
  1.350
  1.370
  1.390
  1.410
  1.430
  1.450
  1.470
  1.490
  1.510
  1.530
  1.540
Adjusted equity ratio
  0.323
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348
  0.348

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  140
  134
  137
  142
  147
  154
  162
  170
  180
  191
  202
  284
  298
  313
  329
  346
  365
  385
  406
  429
  453
  479
  506
  535
  566
  599
  634
  671
  709
  751
  794
Depreciation, amort., depletion, $m
  103
  146
  147
  148
  150
  152
  153
  155
  158
  160
  162
  71
  74
  77
  81
  84
  88
  92
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  152
  159
  167
Funds from operations, $m
  -1
  279
  284
  290
  297
  306
  315
  326
  338
  351
  365
  355
  372
  390
  409
  430
  453
  476
  502
  529
  558
  588
  621
  655
  692
  731
  772
  815
  861
  910
  961
Change in working capital, $m
  -174
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
Cash from operations, $m
  173
  280
  285
  291
  299
  307
  317
  328
  340
  353
  367
  357
  374
  393
  412
  433
  456
  480
  505
  533
  562
  593
  625
  660
  697
  736
  777
  821
  867
  916
  968
Maintenance CAPEX, $m
  0
  -51
  -52
  -53
  -54
  -56
  -58
  -59
  -61
  -64
  -66
  -69
  -71
  -74
  -77
  -81
  -84
  -88
  -92
  -96
  -100
  -105
  -110
  -115
  -120
  -126
  -132
  -138
  -145
  -152
  -159
New CAPEX, $m
  -133
  -19
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -43
  -46
  -49
  -53
  -56
  -60
  -63
  -67
  -71
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
Cash from investing activities, $m
  -132
  -70
  -74
  -78
  -82
  -87
  -92
  -96
  -101
  -107
  -112
  -118
  -124
  -130
  -137
  -144
  -151
  -159
  -167
  -175
  -184
  -193
  -203
  -213
  -223
  -235
  -247
  -259
  -272
  -286
  -300
Free cash flow, $m
  41
  211
  212
  213
  216
  220
  225
  231
  238
  246
  255
  240
  250
  262
  275
  290
  305
  321
  339
  358
  378
  400
  423
  447
  474
  501
  531
  562
  596
  631
  668
Issuance/(repayment) of debt, $m
  6
  44
  51
  58
  65
  73
  80
  87
  94
  101
  108
  116
  124
  132
  140
  149
  158
  167
  176
  186
  197
  208
  219
  231
  243
  256
  270
  284
  299
  314
  330
Issuance/(repurchase) of shares, $m
  5
  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  
  -30
  44
  51
  58
  65
  73
  80
  87
  94
  101
  108
  116
  124
  132
  140
  149
  158
  167
  176
  186
  197
  208
  219
  231
  243
  256
  270
  284
  299
  314
  330
Total cash flow (excl. dividends), $m
  7
  254
  263
  272
  282
  293
  305
  318
  332
  347
  363
  356
  374
  394
  416
  438
  462
  488
  515
  544
  575
  607
  642
  678
  717
  758
  801
  846
  894
  945
  999
Retained Cash Flow (-), $m
  -51
  -25
  -27
  -31
  -35
  -39
  -42
  -46
  -50
  -54
  -58
  -62
  -66
  -70
  -75
  -79
  -84
  -89
  -94
  -99
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -151
  -159
  -168
  -176
Prev. year cash balance distribution, $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 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
 
  230
  235
  241
  247
  254
  262
  272
  282
  293
  306
  294
  308
  324
  341
  359
  378
  399
  421
  445
  470
  497
  525
  555
  587
  621
  657
  695
  735
  777
  822
Discount rate, %
 
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
 
  216
  208
  198
  188
  178
  167
  157
  146
  135
  124
  104
  94
  84
  74
  65
  56
  48
  40
  33
  27
  21
  17
  13
  10
  7
  5
  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

MacDonald, Dettwiler and Associates Ltd. (MDA) is a Canada-based communications and information company. The Company provides operational solutions to commercial and government organizations across the world. MDA operates through two segments: Communications segment, and Surveillance and Intelligence segment. In the Communications sector, MDA offers solutions for delivery of a range of services, including television and radio distribution, broadband Internet and mobile communications. It supplies communication satellites, satellite payloads, satellite antenna subsystems, and associated ground infrastructure and support services. In the Surveillance and Intelligence sector, MDA offers solutions to monitor changes and activities across the globe. It supplies space-based and airborne surveillance solutions, imaging satellite ground systems, geospatial information services and associated support services. It also supplies robotic systems for the space and terrestrial markets.

FINANCIAL RATIOS  of  MacDonald Dettwiler and Associates Ltd. (MDA)

Valuation Ratios
P/E Ratio 18.4
Price to Sales 1.2
Price to Book 2.2
Price to Tangible Book
Price to Cash Flow 14.9
Price to Free Cash Flow 64.3
Growth Rates
Sales Growth Rate -2.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 66.3%
Cap. Spend. - 3 Yr. Gr. Rate 16.1%
Financial Strength
Quick Ratio 1
Current Ratio 0.3
LT Debt to Equity 70.1%
Total Debt to Equity 87.7%
Interest Coverage 5
Management Effectiveness
Return On Assets 4.9%
Ret/ On Assets - 3 Yr. Avg. 4.1%
Return On Total Capital 6.6%
Ret/ On T. Cap. - 3 Yr. Avg. 5.9%
Return On Equity 12.4%
Return On Equity - 3 Yr. Avg. 11.1%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 17.2%
Gross Margin - 3 Yr. Avg. 17.2%
EBITDA Margin 15.2%
EBITDA Margin - 3 Yr. Avg. 13.2%
Operating Margin 10.7%
Oper. Margin - 3 Yr. Avg. 10.7%
Pre-Tax Margin 8.3%
Pre-Tax Margin - 3 Yr. Avg. 7.1%
Net Profit Margin 6.8%
Net Profit Margin - 3 Yr. Avg. 5.3%
Effective Tax Rate 18.1%
Eff/ Tax Rate - 3 Yr. Avg. 28.8%
Payout Ratio 38.6%

MDA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MDA stock intrinsic value calculation we used $2064 million for the last fiscal year's total revenue generated by MacDonald Dettwiler and Associates Ltd.. The default revenue input number comes from 2016 income statement of MacDonald Dettwiler and Associates Ltd.. 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 MDA stock valuation model: a) initial revenue growth rate of 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 6.1%, whose default value for MDA is calculated based on our internal credit rating of MacDonald Dettwiler and Associates Ltd., 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 MacDonald Dettwiler and Associates Ltd..
    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 MDA stock the variable cost ratio is equal to 77.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $252 million in the base year in the intrinsic value calculation for MDA 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 4% for MacDonald Dettwiler and Associates Ltd..

Corporate tax rate of 27% is the nominal tax rate for MacDonald Dettwiler and Associates Ltd.. 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 MDA 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 MDA are equal to 44.8%.

Life of production assets of 18.2 years is the average useful life of capital assets used in MacDonald Dettwiler and Associates Ltd. 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 MDA is equal to -2.2%. 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 - $1159 million for MacDonald Dettwiler and Associates Ltd. - 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 36.516 million for MacDonald Dettwiler and Associates Ltd. 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 MacDonald Dettwiler and Associates Ltd. at the current share price and the inputted number of shares is $2.6 billion.

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Financial statements of MDA
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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