Intrinsic value of Alaska Communications Systems Group - ALSK

Previous Close

$2.35

  Intrinsic Value

$2.78

stock screener

  Rating & Target

hold

+18%

Previous close

$2.35

 
Intrinsic value

$2.78

 
Up/down potential

+18%

 
Rating

hold

We calculate the intrinsic value of ALSK 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 0.1

 

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, %
  -2.58
  5.40
  5.36
  5.32
  5.29
  5.26
  5.24
  5.21
  5.19
  5.17
  5.15
  5.14
  5.13
  5.11
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
Revenue, $m
  227
  239
  252
  266
  280
  294
  310
  326
  343
  360
  379
  399
  419
  440
  463
  486
  511
  537
  564
  593
  623
  654
  687
  722
  758
  796
  836
  878
  923
  969
  1,017
Variable operating expenses, $m
 
  195
  205
  216
  228
  240
  252
  266
  279
  294
  309
  325
  341
  359
  377
  396
  417
  438
  460
  483
  508
  533
  560
  588
  618
  649
  682
  716
  752
  790
  829
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
  208
  195
  205
  216
  228
  240
  252
  266
  279
  294
  309
  325
  341
  359
  377
  396
  417
  438
  460
  483
  508
  533
  560
  588
  618
  649
  682
  716
  752
  790
  829
Operating income, $m
  19
  44
  47
  49
  52
  54
  57
  60
  63
  67
  70
  74
  78
  81
  86
  90
  95
  99
  104
  110
  115
  121
  127
  134
  140
  147
  155
  163
  171
  179
  188
EBITDA, $m
  54
  81
  86
  90
  95
  100
  105
  111
  116
  122
  129
  135
  142
  149
  157
  165
  173
  182
  191
  201
  211
  222
  233
  245
  257
  270
  284
  298
  313
  329
  345
Interest expense (income), $m
  13
  12
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
  56
  59
  62
  65
  69
  73
  77
Earnings before tax, $m
  4
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  62
  65
  68
  71
  74
  77
  81
  85
  89
  93
  97
  102
  106
  111
Tax expense, $m
  2
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
Net income, $m
  2
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  21
  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
  442
  444
  468
  493
  519
  546
  575
  604
  636
  669
  703
  739
  777
  817
  859
  902
  948
  996
  1,047
  1,100
  1,155
  1,214
  1,275
  1,339
  1,407
  1,477
  1,552
  1,630
  1,712
  1,798
  1,888
Adjusted assets (=assets-cash), $m
  421
  444
  468
  493
  519
  546
  575
  604
  636
  669
  703
  739
  777
  817
  859
  902
  948
  996
  1,047
  1,100
  1,155
  1,214
  1,275
  1,339
  1,407
  1,477
  1,552
  1,630
  1,712
  1,798
  1,888
Revenue / Adjusted assets
  0.539
  0.538
  0.538
  0.540
  0.539
  0.538
  0.539
  0.540
  0.539
  0.538
  0.539
  0.540
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
Average production assets, $m
  368
  388
  409
  430
  453
  477
  502
  528
  556
  584
  614
  646
  679
  714
  750
  788
  829
  871
  915
  961
  1,010
  1,060
  1,114
  1,170
  1,229
  1,291
  1,356
  1,424
  1,495
  1,571
  1,649
Working capital, $m
  15
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
Total debt, $m
  180
  193
  209
  226
  243
  262
  281
  301
  322
  344
  367
  391
  417
  443
  471
  501
  531
  564
  597
  633
  670
  709
  750
  793
  838
  886
  936
  988
  1,043
  1,100
  1,161
Total liabilities, $m
  285
  297
  313
  330
  347
  366
  385
  405
  426
  448
  471
  495
  521
  547
  575
  605
  635
  668
  701
  737
  774
  813
  854
  897
  942
  990
  1,040
  1,092
  1,147
  1,204
  1,265
Total equity, $m
  158
  146
  154
  163
  171
  180
  190
  199
  210
  221
  232
  244
  256
  270
  283
  298
  313
  329
  345
  363
  381
  401
  421
  442
  464
  488
  512
  538
  565
  593
  623
Total liabilities and equity, $m
  443
  443
  467
  493
  518
  546
  575
  604
  636
  669
  703
  739
  777
  817
  858
  903
  948
  997
  1,046
  1,100
  1,155
  1,214
  1,275
  1,339
  1,406
  1,478
  1,552
  1,630
  1,712
  1,797
  1,888
Debt-to-equity ratio
  1.139
  1.320
  1.360
  1.390
  1.420
  1.450
  1.480
  1.510
  1.530
  1.560
  1.580
  1.600
  1.620
  1.640
  1.660
  1.680
  1.700
  1.710
  1.730
  1.740
  1.760
  1.770
  1.780
  1.790
  1.810
  1.820
  1.830
  1.840
  1.850
  1.850
  1.860
Adjusted equity ratio
  0.325
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330
  0.330

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  2
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  38
  40
  42
  43
  45
  47
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  81
Depreciation, amort., depletion, $m
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  71
  75
  79
  83
  87
  92
  96
  101
  106
  111
  117
  123
  129
  136
  142
  150
  157
Funds from operations, $m
  30
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
  101
  106
  111
  117
  122
  128
  135
  141
  148
  155
  163
  171
  179
  188
  197
  206
  217
  227
  238
Change in working capital, $m
  -7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  37
  60
  63
  66
  70
  73
  77
  80
  84
  88
  92
  97
  102
  107
  112
  117
  123
  129
  135
  142
  148
  156
  163
  171
  180
  188
  198
  207
  217
  228
  239
Maintenance CAPEX, $m
  0
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -56
  -59
  -62
  -65
  -68
  -71
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -136
  -142
  -150
New CAPEX, $m
  -39
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -79
Cash from investing activities, $m
  -38
  -55
  -58
  -61
  -64
  -67
  -70
  -74
  -77
  -82
  -86
  -91
  -95
  -100
  -104
  -109
  -115
  -121
  -127
  -133
  -141
  -147
  -154
  -162
  -170
  -179
  -188
  -197
  -208
  -217
  -229
Free cash flow, $m
  -1
  5
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
Issuance/(repayment) of debt, $m
  -14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
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  
  -14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
Total cash flow (excl. dividends), $m
  -15
  21
  22
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
Retained Cash Flow (-), $m
  -5
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
Prev. year cash balance distribution, $m
 
  19
  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
 
  32
  14
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  35
  36
  38
  40
  41
Discount rate, %
 
  7.20
  7.56
  7.94
  8.33
  8.75
  9.19
  9.65
  10.13
  10.64
  11.17
  11.73
  12.31
  12.93
  13.58
  14.26
  14.97
  15.72
  16.50
  17.33
  18.19
  19.10
  20.06
  21.06
  22.11
  23.22
  24.38
  25.60
  26.88
  28.22
  29.64
PV of cash for distribution, $m
 
  30
  12
  11
  11
  10
  9
  9
  8
  7
  6
  6
  5
  4
  4
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
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Alaska Communications Systems Group, Inc. is a fiber broadband and managed information technology (IT) services provider. The Company is focused primarily on business and wholesale customers in and out of Alaska. The Company also provides telecommunication services to consumers across Alaska. The Company's facilities-based communications network extends across Alaska and connects to the contiguous states through its undersea fiber optic cable systems and its usage rights on an undersea system. It serves customers in various areas, such as Business and Wholesale (broadband, voice and managed IT services); Consumer (broadband and voice services), and Other Services (including carrier termination, equipment sales, access services and support services receiving federal support funding). It provides voice and broadband services to residential customers. It provides voice and broadband origination and termination services to inter and intrastate carriers serving its retail customers.

FINANCIAL RATIOS  of  Alaska Communications Systems Group (ALSK)

Valuation Ratios
P/E Ratio 60.5
Price to Sales 0.5
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 3.3
Price to Free Cash Flow -60.5
Growth Rates
Sales Growth Rate -2.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -23.5%
Cap. Spend. - 3 Yr. Gr. Rate -4.1%
Financial Strength
Quick Ratio 11
Current Ratio 0
LT Debt to Equity 112.7%
Total Debt to Equity 113.9%
Interest Coverage 1
Management Effectiveness
Return On Assets 1.9%
Ret/ On Assets - 3 Yr. Avg. 2.6%
Return On Total Capital 0.6%
Ret/ On T. Cap. - 3 Yr. Avg. 1%
Return On Equity 1.3%
Return On Equity - 3 Yr. Avg. 2.7%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 55.1%
Gross Margin - 3 Yr. Avg. 49.8%
EBITDA Margin 22.9%
EBITDA Margin - 3 Yr. Avg. 24.4%
Operating Margin 8.4%
Oper. Margin - 3 Yr. Avg. 12.1%
Pre-Tax Margin 1.8%
Pre-Tax Margin - 3 Yr. Avg. 3.3%
Net Profit Margin 0.9%
Net Profit Margin - 3 Yr. Avg. 1.8%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 44.5%
Payout Ratio 0%

ALSK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ALSK stock intrinsic value calculation we used $227 million for the last fiscal year's total revenue generated by Alaska Communications Systems Group. The default revenue input number comes from 2016 income statement of Alaska Communications Systems Group. 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 ALSK stock valuation model: a) initial revenue growth rate of 5.4% 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 7.2%, whose default value for ALSK is calculated based on our internal credit rating of Alaska Communications Systems Group, 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 Alaska Communications Systems Group.
    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 ALSK stock the variable cost ratio is equal to 81.5%.

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 ALSK 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 7% for Alaska Communications Systems Group.

Corporate tax rate of 27% is the nominal tax rate for Alaska Communications Systems Group. 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 ALSK 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 ALSK are equal to 162.1%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Alaska Communications Systems Group 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 ALSK is equal to -1.8%. 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 - $158 million for Alaska Communications Systems Group - 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 52.431 million for Alaska Communications Systems Group 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 Alaska Communications Systems Group at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Alaska Communications posts 3Q profit   [08:13AM  Associated Press]
▶ Alaska Communications reports 2Q loss   [Aug-04-17 12:55AM  Associated Press]
▶ 9 Stocks Charles Brandes Continues to Buy   [03:13PM  GuruFocus.com]
▶ Alaska Communications reports 1Q loss   [08:27AM  Associated Press]
▶ Alaska Communications posts 4Q profit   [09:14AM  Associated Press]
▶ Alaska Communications posts 2Q profit   [Aug-04-16 07:27AM  AP]
Financial statements of ALSK
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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