Intrinsic value of Pason Systems Inc. - PSI

Previous Close

$18.44

  Intrinsic Value

$1.14

stock screener

  Rating & Target

str. sell

-94%

  Value-price divergence*

-16%

Previous close

$18.44

 
Intrinsic value

$1.14

 
Up/down potential

-94%

 
Rating

str. sell

 
Value-price divergence*

-16%

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

We calculate the intrinsic value of PSI 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, %
  -43.86
  28.30
  25.97
  23.87
  21.99
  20.29
  18.76
  17.38
  16.14
  15.03
  14.03
  13.12
  12.31
  11.58
  10.92
  10.33
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.29
  7.07
  6.86
  6.67
  6.51
  6.35
  6.22
  6.10
Revenue, $m
  160
  205
  259
  320
  391
  470
  558
  655
  761
  875
  998
  1,129
  1,268
  1,415
  1,570
  1,732
  1,901
  2,079
  2,263
  2,456
  2,656
  2,864
  3,080
  3,305
  3,538
  3,781
  4,033
  4,295
  4,568
  4,852
  5,148
Variable operating expenses, $m
 
  146
  184
  227
  277
  333
  395
  463
  538
  619
  705
  797
  895
  998
  1,107
  1,222
  1,341
  1,466
  1,597
  1,732
  1,874
  2,020
  2,173
  2,331
  2,496
  2,667
  2,845
  3,030
  3,223
  3,423
  3,632
Fixed operating expenses, $m
 
  111
  113
  116
  119
  122
  125
  128
  132
  135
  138
  142
  145
  149
  153
  156
  160
  164
  168
  173
  177
  181
  186
  191
  195
  200
  205
  210
  216
  221
  227
Total operating expenses, $m
  219
  257
  297
  343
  396
  455
  520
  591
  670
  754
  843
  939
  1,040
  1,147
  1,260
  1,378
  1,501
  1,630
  1,765
  1,905
  2,051
  2,201
  2,359
  2,522
  2,691
  2,867
  3,050
  3,240
  3,439
  3,644
  3,859
Operating income, $m
  -59
  -51
  -39
  -23
  -5
  15
  38
  63
  91
  122
  155
  191
  228
  268
  310
  354
  400
  448
  498
  551
  605
  662
  721
  783
  847
  913
  982
  1,055
  1,130
  1,208
  1,290
EBITDA, $m
  -4
  3
  29
  61
  97
  138
  183
  234
  289
  349
  413
  482
  556
  633
  715
  801
  891
  984
  1,082
  1,185
  1,291
  1,401
  1,516
  1,636
  1,760
  1,889
  2,024
  2,164
  2,309
  2,461
  2,619
Interest expense (income), $m
  0
  0
  0
  1
  2
  2
  3
  4
  5
  6
  8
  9
  10
  12
  13
  15
  16
  18
  20
  22
  24
  26
  28
  31
  33
  35
  38
  41
  43
  46
  49
Earnings before tax, $m
  -58
  -51
  -39
  -24
  -7
  13
  35
  59
  86
  115
  147
  182
  218
  256
  296
  339
  383
  430
  478
  528
  581
  636
  693
  752
  814
  878
  944
  1,014
  1,086
  1,162
  1,240
Tax expense, $m
  -17
  0
  0
  0
  0
  3
  9
  16
  23
  31
  40
  49
  59
  69
  80
  91
  103
  116
  129
  143
  157
  172
  187
  203
  220
  237
  255
  274
  293
  314
  335
Net income, $m
  -41
  -51
  -39
  -24
  -7
  9
  25
  43
  63
  84
  107
  133
  159
  187
  216
  247
  280
  314
  349
  386
  424
  464
  506
  549
  594
  641
  689
  740
  793
  848
  906

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  146
  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
  435
  371
  467
  578
  705
  848
  1,008
  1,183
  1,374
  1,580
  1,802
  2,038
  2,289
  2,554
  2,833
  3,126
  3,432
  3,752
  4,085
  4,432
  4,794
  5,169
  5,559
  5,965
  6,386
  6,824
  7,280
  7,753
  8,246
  8,759
  9,293
Adjusted assets (=assets-cash), $m
  289
  371
  467
  578
  705
  848
  1,008
  1,183
  1,374
  1,580
  1,802
  2,038
  2,289
  2,554
  2,833
  3,126
  3,432
  3,752
  4,085
  4,432
  4,794
  5,169
  5,559
  5,965
  6,386
  6,824
  7,280
  7,753
  8,246
  8,759
  9,293
Revenue / Adjusted assets
  0.554
  0.553
  0.555
  0.554
  0.555
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
  0.554
Average production assets, $m
  207
  265
  334
  414
  504
  607
  721
  846
  982
  1,130
  1,289
  1,458
  1,637
  1,827
  2,026
  2,236
  2,455
  2,683
  2,922
  3,170
  3,428
  3,697
  3,976
  4,266
  4,568
  4,881
  5,207
  5,545
  5,898
  6,264
  6,646
Working capital, $m
  199
  68
  86
  106
  129
  156
  185
  217
  252
  290
  330
  374
  420
  468
  520
  573
  629
  688
  749
  813
  879
  948
  1,019
  1,094
  1,171
  1,251
  1,335
  1,422
  1,512
  1,606
  1,704
Total debt, $m
  0
  14
  29
  48
  69
  93
  119
  148
  180
  214
  251
  290
  332
  376
  422
  471
  522
  575
  630
  688
  748
  810
  875
  942
  1,012
  1,085
  1,160
  1,239
  1,321
  1,406
  1,495
Total liabilities, $m
  49
  62
  77
  96
  117
  141
  167
  196
  228
  262
  299
  338
  380
  424
  470
  519
  570
  623
  678
  736
  796
  858
  923
  990
  1,060
  1,133
  1,208
  1,287
  1,369
  1,454
  1,543
Total equity, $m
  387
  309
  389
  482
  588
  708
  840
  986
  1,146
  1,318
  1,503
  1,700
  1,909
  2,130
  2,363
  2,607
  2,862
  3,129
  3,407
  3,697
  3,998
  4,311
  4,636
  4,975
  5,326
  5,691
  6,071
  6,466
  6,877
  7,305
  7,750
Total liabilities and equity, $m
  436
  371
  466
  578
  705
  849
  1,007
  1,182
  1,374
  1,580
  1,802
  2,038
  2,289
  2,554
  2,833
  3,126
  3,432
  3,752
  4,085
  4,433
  4,794
  5,169
  5,559
  5,965
  6,386
  6,824
  7,279
  7,753
  8,246
  8,759
  9,293
Debt-to-equity ratio
  0.000
  0.040
  0.080
  0.100
  0.120
  0.130
  0.140
  0.150
  0.160
  0.160
  0.170
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
Adjusted equity ratio
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834
  0.834

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -41
  -51
  -39
  -24
  -7
  9
  25
  43
  63
  84
  107
  133
  159
  187
  216
  247
  280
  314
  349
  386
  424
  464
  506
  549
  594
  641
  689
  740
  793
  848
  906
Depreciation, amort., depletion, $m
  55
  54
  68
  84
  102
  123
  145
  170
  198
  227
  259
  292
  327
  365
  405
  447
  491
  537
  584
  634
  686
  739
  795
  853
  914
  976
  1,041
  1,109
  1,180
  1,253
  1,329
Funds from operations, $m
  13
  3
  29
  60
  95
  132
  171
  214
  261
  311
  366
  424
  487
  552
  622
  694
  771
  850
  933
  1,020
  1,110
  1,204
  1,301
  1,402
  1,507
  1,617
  1,731
  1,849
  1,973
  2,101
  2,235
Change in working capital, $m
  -7
  15
  18
  20
  23
  26
  29
  32
  35
  38
  41
  43
  46
  49
  51
  54
  56
  59
  61
  64
  66
  69
  72
  74
  77
  80
  84
  87
  90
  94
  98
Cash from operations, $m
  20
  -12
  11
  39
  72
  106
  141
  181
  226
  274
  326
  381
  441
  504
  571
  641
  714
  792
  872
  956
  1,044
  1,135
  1,229
  1,328
  1,430
  1,537
  1,647
  1,762
  1,882
  2,007
  2,137
Maintenance CAPEX, $m
  0
  -41
  -53
  -67
  -83
  -101
  -121
  -144
  -169
  -196
  -226
  -258
  -292
  -327
  -365
  -405
  -447
  -491
  -537
  -584
  -634
  -686
  -739
  -795
  -853
  -914
  -976
  -1,041
  -1,109
  -1,180
  -1,253
New CAPEX, $m
  -10
  -59
  -69
  -80
  -91
  -102
  -114
  -125
  -137
  -148
  -159
  -169
  -179
  -190
  -200
  -209
  -219
  -229
  -238
  -248
  -258
  -269
  -279
  -290
  -301
  -313
  -326
  -339
  -352
  -367
  -382
Cash from investing activities, $m
  -12
  -100
  -122
  -147
  -174
  -203
  -235
  -269
  -306
  -344
  -385
  -427
  -471
  -517
  -565
  -614
  -666
  -720
  -775
  -832
  -892
  -955
  -1,018
  -1,085
  -1,154
  -1,227
  -1,302
  -1,380
  -1,461
  -1,547
  -1,635
Free cash flow, $m
  8
  -112
  -110
  -107
  -102
  -98
  -94
  -88
  -80
  -71
  -59
  -46
  -30
  -13
  6
  26
  48
  72
  97
  123
  151
  180
  211
  243
  276
  310
  345
  382
  421
  461
  502
Issuance/(repayment) of debt, $m
  0
  14
  16
  18
  21
  24
  26
  29
  32
  34
  37
  39
  42
  44
  46
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  85
  89
Issuance/(repurchase) of shares, $m
  7
  119
  119
  117
  113
  110
  107
  103
  96
  88
  78
  64
  50
  34
  16
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  7
  133
  135
  135
  134
  134
  133
  132
  128
  122
  115
  103
  92
  78
  62
  49
  51
  53
  55
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  85
  89
Total cash flow (excl. dividends), $m
  8
  21
  25
  28
  32
  36
  40
  44
  48
  52
  55
  58
  61
  65
  68
  75
  99
  125
  152
  181
  211
  243
  276
  310
  345
  383
  421
  461
  503
  546
  591
Retained Cash Flow (-), $m
  102
  -119
  -119
  -117
  -113
  -119
  -133
  -146
  -159
  -172
  -185
  -197
  -209
  -221
  -233
  -244
  -255
  -267
  -278
  -290
  -301
  -313
  -325
  -338
  -351
  -365
  -380
  -395
  -411
  -428
  -445
Prev. year cash balance distribution, $m
 
  146
  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
 
  47
  -95
  -89
  -81
  -83
  -93
  -102
  -111
  -121
  -129
  -139
  -148
  -156
  -164
  -169
  -156
  -142
  -126
  -108
  -90
  -70
  -50
  -28
  -6
  17
  41
  66
  92
  118
  145
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
 
  46
  -87
  -77
  -66
  -64
  -67
  -69
  -70
  -69
  -68
  -66
  -63
  -59
  -55
  -50
  -40
  -31
  -23
  -17
  -11
  -7
  -4
  -2
  0
  1
  1
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  88.8
  80.8
  75.0
  70.8
  67.5
  65.0
  63.1
  61.5
  60.3
  59.4
  58.8
  58.4
  58.1
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0
  58.0

Pason Systems Inc. provides instrumentation and data management systems for drilling rigs worldwide. Its solutions include data acquisition, wellsite reporting, remote communications, and Web-based information management. The company’s products include Electronic AutoDriller, which maximizes the rate of penetration by monitoring multiple drilling parameters; Electronic Choke Actuator, a device that provides a means of remotely controlling the choke valve; and Electronic Drilling Recorder. It also offers Enhanced Pit Volume Totalizer, a comprehensive well control system; Gas Analyzer to detect the changes in relative volumes of hydrocarbon gases; Hazardous Gas Alarm System, which detects the presence of combustible gases and provides visible and audible alerts; Pit Volume Totalizer used to measure, display, and provide alarms for the main mud system; Rig Communications provides remote data communications for drillers; Rig Display, a touch screen computer to access services and applications on and around the rig floor; SideKick, a rig floor computer that allows for data entry and displays information around the rig; and Torque and Tension Sub, which provides accurate and reliable measurements of torque. In addition, the company provides abbl Directional Express allows operations engineers to manage deliverables on multiple wells; and DataHub, a Web application that collects, stores, and displays drilling data, reports, and real-time information for remote access. Further, it offers directional system, wellview field solution, and reporter. Pason Systems Inc. was founded in 1978 and is headquartered in Calgary, Canada.

FINANCIAL RATIOS  of  Pason Systems Inc. (PSI)

Valuation Ratios
P/E Ratio -38.1
Price to Sales 9.8
Price to Book 4
Price to Tangible Book
Price to Cash Flow 78
Price to Free Cash Flow 156.1
Growth Rates
Sales Growth Rate -43.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -77.3%
Cap. Spend. - 3 Yr. Gr. Rate -29.1%
Financial Strength
Quick Ratio NaN
Current Ratio 0.3
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -8.5%
Ret/ On Assets - 3 Yr. Avg. 3.6%
Return On Total Capital -9.4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity -9.4%
Return On Equity - 3 Yr. Avg. 4.6%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 50%
Gross Margin - 3 Yr. Avg. 59.1%
EBITDA Margin -1.9%
EBITDA Margin - 3 Yr. Avg. 22.4%
Operating Margin -36.9%
Oper. Margin - 3 Yr. Avg. -3.9%
Pre-Tax Margin -36.3%
Pre-Tax Margin - 3 Yr. Avg. -3.2%
Net Profit Margin -25.6%
Net Profit Margin - 3 Yr. Avg. -2.8%
Effective Tax Rate 29.3%
Eff/ Tax Rate - 3 Yr. Avg. 24.1%
Payout Ratio -139%

PSI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PSI stock intrinsic value calculation we used $160 million for the last fiscal year's total revenue generated by Pason Systems Inc.. The default revenue input number comes from 2016 income statement of Pason Systems 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 PSI stock valuation model: a) initial revenue growth rate of 28.3% 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 PSI is calculated based on our internal credit rating of Pason Systems 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 Pason Systems 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 PSI stock the variable cost ratio is equal to 71.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $108 million in the base year in the intrinsic value calculation for PSI 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 Pason Systems Inc..

Corporate tax rate of 27% is the nominal tax rate for Pason Systems 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 PSI 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 PSI are equal to 129.1%.

Life of production assets of 4.1 years is the average useful life of capital assets used in Pason Systems 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 PSI is equal to 33.1%. 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 - $387 million for Pason Systems 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 82.116 million for Pason Systems 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 Pason Systems Inc. at the current share price and the inputted number of shares is $1.5 billion.

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Stock chart of PSI Financial statements of PSI
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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