Intrinsic value of Alaska Communications Systems Group - ALSK

Previous Close

$2.10

  Intrinsic Value

$3.21

stock screener

  Rating & Target

str. buy

+53%

  Value-price divergence*

-115%

Previous close

$2.10

 
Intrinsic value

$3.21

 
Up/down potential

+53%

 
Rating

str. buy

 
Value-price divergence*

-115%

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

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
  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
  227
  232
  237
  243
  250
  257
  266
  275
  285
  295
  306
  319
  331
  345
  360
  375
  392
  409
  428
  447
  468
  489
  512
  536
  562
  588
  617
  646
  677
  710
  745
Variable operating expenses, $m
 
  189
  193
  198
  204
  210
  217
  224
  232
  240
  250
  260
  270
  281
  293
  306
  319
  333
  349
  364
  381
  399
  417
  437
  458
  480
  502
  527
  552
  579
  607
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
  189
  193
  198
  204
  210
  217
  224
  232
  240
  250
  260
  270
  281
  293
  306
  319
  333
  349
  364
  381
  399
  417
  437
  458
  480
  502
  527
  552
  579
  607
Operating income, $m
  19
  43
  44
  45
  46
  48
  49
  51
  53
  55
  57
  59
  61
  64
  67
  69
  72
  76
  79
  83
  87
  91
  95
  99
  104
  109
  114
  120
  125
  131
  138
EBITDA, $m
  54
  79
  80
  82
  85
  87
  90
  93
  97
  100
  104
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
  253
Interest expense (income), $m
  13
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  22
  23
  24
  25
  27
  28
  30
  32
  33
  35
  37
  39
  42
  44
  46
  49
  52
  55
Earnings before tax, $m
  4
  30
  31
  32
  32
  33
  34
  35
  36
  37
  38
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  59
  62
  65
  67
  70
  73
  76
  80
  83
Tax expense, $m
  2
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  22
Net income, $m
  2
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61

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
  430
  439
  451
  463
  477
  493
  510
  528
  547
  568
  591
  615
  640
  668
  696
  727
  759
  793
  829
  868
  908
  950
  995
  1,042
  1,092
  1,144
  1,199
  1,257
  1,317
  1,381
Adjusted assets (=assets-cash), $m
  421
  430
  439
  451
  463
  477
  493
  510
  528
  547
  568
  591
  615
  640
  668
  696
  727
  759
  793
  829
  868
  908
  950
  995
  1,042
  1,092
  1,144
  1,199
  1,257
  1,317
  1,381
Revenue / Adjusted assets
  0.539
  0.540
  0.540
  0.539
  0.540
  0.539
  0.540
  0.539
  0.540
  0.539
  0.539
  0.540
  0.538
  0.539
  0.539
  0.539
  0.539
  0.539
  0.540
  0.539
  0.539
  0.539
  0.539
  0.539
  0.539
  0.538
  0.539
  0.539
  0.539
  0.539
  0.539
Average production assets, $m
  368
  375
  384
  394
  405
  417
  431
  445
  461
  478
  497
  516
  537
  560
  583
  608
  635
  663
  693
  725
  758
  793
  830
  869
  910
  954
  999
  1,047
  1,098
  1,151
  1,207
Working capital, $m
  15
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
Total debt, $m
  180
  184
  190
  198
  206
  216
  226
  237
  250
  263
  277
  292
  308
  325
  343
  363
  383
  405
  428
  452
  477
  504
  533
  563
  594
  627
  662
  699
  738
  779
  822
Total liabilities, $m
  285
  288
  294
  302
  310
  320
  330
  341
  354
  367
  381
  396
  412
  429
  447
  467
  487
  509
  532
  556
  581
  608
  637
  667
  698
  731
  766
  803
  842
  883
  926
Total equity, $m
  158
  142
  145
  149
  153
  158
  163
  168
  174
  181
  188
  195
  203
  211
  220
  230
  240
  251
  262
  274
  286
  300
  314
  328
  344
  360
  377
  396
  415
  435
  456
Total liabilities and equity, $m
  443
  430
  439
  451
  463
  478
  493
  509
  528
  548
  569
  591
  615
  640
  667
  697
  727
  760
  794
  830
  867
  908
  951
  995
  1,042
  1,091
  1,143
  1,199
  1,257
  1,318
  1,382
Debt-to-equity ratio
  1.139
  1.300
  1.310
  1.330
  1.350
  1.370
  1.390
  1.410
  1.430
  1.450
  1.480
  1.500
  1.520
  1.540
  1.560
  1.580
  1.600
  1.620
  1.630
  1.650
  1.670
  1.680
  1.700
  1.710
  1.730
  1.740
  1.750
  1.770
  1.780
  1.790
  1.800
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
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
Depreciation, amort., depletion, $m
  35
  36
  37
  38
  39
  40
  41
  42
  44
  46
  47
  49
  51
  53
  56
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
Funds from operations, $m
  30
  58
  59
  61
  62
  64
  66
  68
  70
  73
  75
  78
  81
  84
  88
  91
  95
  99
  103
  108
  112
  117
  122
  128
  134
  140
  146
  153
  160
  168
  176
Change in working capital, $m
  -7
  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
  -1
  -1
  -1
  -1
  -1
Cash from operations, $m
  37
  58
  59
  61
  62
  64
  66
  68
  70
  73
  75
  78
  81
  84
  88
  91
  95
  99
  103
  108
  113
  118
  123
  128
  134
  140
  147
  154
  161
  168
  176
Maintenance CAPEX, $m
  0
  -35
  -36
  -37
  -38
  -39
  -40
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -56
  -58
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
  -87
  -91
  -95
  -100
  -105
  -110
New CAPEX, $m
  -39
  -7
  -9
  -10
  -11
  -12
  -13
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -53
  -56
Cash from investing activities, $m
  -38
  -42
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -85
  -88
  -93
  -98
  -102
  -107
  -113
  -118
  -124
  -130
  -137
  -143
  -151
  -158
  -166
Free cash flow, $m
  -1
  16
  15
  14
  14
  13
  13
  12
  12
  12
  12
  11
  11
  11
  11
  11
  11
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  10
  11
  11
  11
Issuance/(repayment) of debt, $m
  -13
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
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
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  28
  30
  32
  33
  35
  37
  39
  41
  43
Total cash flow (excl. dividends), $m
  -15
  21
  22
  22
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  29
  30
  31
  32
  33
  35
  36
  37
  39
  40
  42
  44
  45
  47
  49
  51
  54
Retained Cash Flow (-), $m
  -5
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
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
 
  38
  18
  18
  18
  18
  18
  18
  18
  18
  19
  19
  19
  20
  20
  20
  21
  21
  22
  23
  23
  24
  25
  25
  26
  27
  28
  29
  30
  31
  33
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
 
  35
  16
  14
  13
  12
  11
  10
  8
  7
  6
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Alaska Communications Systems Group, Inc., through its subsidiaries, provides integrated communications services to businesses and consumers primarily in Alaska. Its services include voice and broadband services; and IT managed services comprising remote network monitoring and support service, managed IT security and IT professional services, and long distance services primarily over its own terrestrial network to business customers. The company’s business customers comprise small and medium businesses; larger enterprises; government customers, including municipal, local, state, and federal government entities; school districts; libraries; and rural health care hospitals. It also provides voice and broadband services to residential customers; voice and broadband origination and termination services to inter and intrastate carriers; and access and support services. The company markets and sells its products through direct sales channels, indirect distribution channels, and retail stores. Alaska Communications Systems Group, Inc. was founded in 1998 and is based in Anchorage, Alaska.

FINANCIAL RATIOS  of  Alaska Communications Systems Group (ALSK)

Valuation Ratios
P/E Ratio 54.1
Price to Sales 0.5
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 2.9
Price to Free Cash Flow -54.1
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 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 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 50.749 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 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]
▶ The Top 4 Telecommunications Penny Stocks for 2016 (ALSK, CBB)   [Feb-24-16 02:13AM  at Investopedia]
Stock chart of ALSK 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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