Intrinsic value of Cass Information Systems - CASS

Previous Close

$65.37

  Intrinsic Value

$81.84

stock screener

  Rating & Target

buy

+25%

Previous close

$65.37

 
Intrinsic value

$81.84

 
Up/down potential

+25%

 
Rating

buy

We calculate the intrinsic value of CASS 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 0.7

 

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, %
  3.28
  9.70
  9.23
  8.81
  8.43
  8.08
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.08
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
Revenue, $m
  126
  138
  151
  164
  178
  193
  207
  223
  239
  256
  273
  292
  311
  330
  351
  372
  394
  417
  441
  467
  493
  520
  549
  579
  610
  643
  677
  713
  751
  790
  832
Variable operating expenses, $m
 
  103
  112
  122
  132
  143
  154
  165
  177
  190
  203
  215
  229
  243
  258
  274
  290
  307
  325
  344
  363
  383
  404
  426
  450
  474
  499
  525
  553
  582
  613
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
  94
  103
  112
  122
  132
  143
  154
  165
  177
  190
  203
  215
  229
  243
  258
  274
  290
  307
  325
  344
  363
  383
  404
  426
  450
  474
  499
  525
  553
  582
  613
Operating income, $m
  32
  35
  39
  42
  46
  50
  53
  58
  62
  66
  71
  77
  82
  87
  92
  98
  104
  110
  116
  123
  130
  137
  145
  153
  161
  169
  179
  188
  198
  208
  219
EBITDA, $m
  41
  41
  45
  49
  53
  58
  62
  67
  72
  77
  82
  87
  93
  99
  105
  111
  118
  125
  132
  140
  148
  156
  164
  173
  183
  193
  203
  214
  225
  237
  249
Interest expense (income), $m
  2
  9
  13
  17
  21
  26
  30
  35
  40
  45
  50
  56
  62
  68
  74
  81
  87
  94
  102
  110
  118
  126
  135
  144
  153
  163
  174
  185
  196
  208
  221
Earnings before tax, $m
  32
  26
  26
  25
  25
  24
  23
  23
  22
  21
  20
  21
  20
  19
  18
  17
  16
  15
  14
  13
  12
  11
  10
  9
  7
  6
  5
  3
  2
  0
  -2
Tax expense, $m
  8
  7
  7
  7
  7
  6
  6
  6
  6
  6
  6
  6
  5
  5
  5
  5
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  0
  0
  0
Net income, $m
  24
  19
  19
  18
  18
  17
  17
  16
  16
  15
  15
  15
  15
  14
  13
  13
  12
  11
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  1
  0
  -2

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  149
  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
  1,505
  1,486
  1,623
  1,766
  1,915
  2,070
  2,231
  2,398
  2,572
  2,753
  2,941
  3,136
  3,339
  3,550
  3,770
  3,999
  4,238
  4,486
  4,746
  5,017
  5,299
  5,595
  5,903
  6,226
  6,563
  6,916
  7,285
  7,671
  8,076
  8,499
  8,943
Adjusted assets (=assets-cash), $m
  1,356
  1,486
  1,623
  1,766
  1,915
  2,070
  2,231
  2,398
  2,572
  2,753
  2,941
  3,136
  3,339
  3,550
  3,770
  3,999
  4,238
  4,486
  4,746
  5,017
  5,299
  5,595
  5,903
  6,226
  6,563
  6,916
  7,285
  7,671
  8,076
  8,499
  8,943
Revenue / Adjusted assets
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
  0.093
Average production assets, $m
  23
  25
  27
  29
  32
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  79
  84
  88
  93
  98
  104
  109
  115
  121
  128
  134
  141
  149
Working capital, $m
  0
  69
  75
  82
  89
  96
  104
  112
  120
  128
  137
  146
  155
  165
  175
  186
  197
  209
  221
  233
  246
  260
  274
  289
  305
  322
  339
  357
  376
  395
  416
Total debt, $m
  407
  369
  485
  606
  732
  863
  1,000
  1,141
  1,289
  1,442
  1,601
  1,766
  1,938
  2,117
  2,303
  2,497
  2,699
  2,910
  3,130
  3,359
  3,599
  3,849
  4,110
  4,383
  4,669
  4,968
  5,280
  5,607
  5,950
  6,309
  6,685
Total liabilities, $m
  1,297
  1,259
  1,375
  1,496
  1,622
  1,753
  1,890
  2,031
  2,179
  2,332
  2,491
  2,656
  2,828
  3,007
  3,193
  3,387
  3,589
  3,800
  4,020
  4,249
  4,489
  4,739
  5,000
  5,273
  5,559
  5,858
  6,170
  6,497
  6,840
  7,199
  7,575
Total equity, $m
  208
  227
  248
  270
  293
  317
  341
  367
  394
  421
  450
  480
  511
  543
  577
  612
  648
  686
  726
  768
  811
  856
  903
  953
  1,004
  1,058
  1,115
  1,174
  1,236
  1,300
  1,368
Total liabilities and equity, $m
  1,505
  1,486
  1,623
  1,766
  1,915
  2,070
  2,231
  2,398
  2,573
  2,753
  2,941
  3,136
  3,339
  3,550
  3,770
  3,999
  4,237
  4,486
  4,746
  5,017
  5,300
  5,595
  5,903
  6,226
  6,563
  6,916
  7,285
  7,671
  8,076
  8,499
  8,943
Debt-to-equity ratio
  1.957
  1.620
  1.950
  2.240
  2.500
  2.730
  2.930
  3.110
  3.270
  3.420
  3.560
  3.680
  3.790
  3.900
  3.990
  4.080
  4.160
  4.240
  4.310
  4.380
  4.440
  4.500
  4.550
  4.600
  4.650
  4.690
  4.740
  4.780
  4.820
  4.850
  4.890
Adjusted equity ratio
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153
  0.153

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  19
  19
  18
  18
  17
  17
  16
  16
  15
  15
  15
  15
  14
  13
  13
  12
  11
  11
  10
  9
  8
  7
  6
  5
  4
  3
  2
  1
  0
  -2
Depreciation, amort., depletion, $m
  9
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
Funds from operations, $m
  36
  25
  25
  25
  25
  26
  26
  26
  26
  26
  26
  26
  26
  26
  26
  26
  26
  26
  26
  26
  27
  27
  27
  27
  27
  27
  28
  28
  28
  28
  28
Change in working capital, $m
  1
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
Cash from operations, $m
  35
  19
  19
  19
  19
  18
  18
  18
  18
  17
  17
  17
  16
  16
  16
  15
  15
  15
  14
  14
  13
  13
  13
  12
  12
  11
  10
  10
  9
  9
  8
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
New CAPEX, $m
  -5
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
Cash from investing activities, $m
  -42
  -7
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -15
  -16
  -17
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -33
  -34
  -35
Free cash flow, $m
  -7
  12
  12
  11
  10
  9
  9
  8
  7
  6
  5
  4
  2
  1
  0
  -1
  -2
  -4
  -5
  -6
  -8
  -10
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -28
Issuance/(repayment) of debt, $m
  0
  111
  116
  121
  126
  131
  136
  142
  147
  153
  159
  165
  172
  179
  186
  194
  202
  211
  220
  229
  239
  250
  261
  273
  286
  299
  313
  327
  343
  359
  376
Issuance/(repurchase) of shares, $m
  -9
  0
  2
  4
  5
  6
  8
  9
  11
  12
  14
  15
  16
  18
  20
  22
  25
  27
  29
  32
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  70
Cash from financing (excl. dividends), $m  
  30
  111
  118
  125
  131
  137
  144
  151
  158
  165
  173
  180
  188
  197
  206
  216
  227
  238
  249
  261
  273
  287
  301
  316
  332
  349
  366
  384
  404
  424
  446
Total cash flow (excl. dividends), $m
  24
  124
  130
  136
  141
  147
  153
  158
  165
  171
  178
  184
  191
  199
  207
  215
  224
  234
  244
  255
  266
  278
  290
  303
  317
  332
  347
  363
  380
  398
  417
Retained Cash Flow (-), $m
  -1
  -19
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -56
  -59
  -62
  -65
  -70
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
 
  104
  109
  114
  118
  123
  128
  133
  138
  143
  149
  154
  160
  166
  173
  180
  188
  196
  204
  213
  223
  232
  243
  254
  265
  278
  291
  304
  318
  333
  348
Discount rate, %
 
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.42
  17.24
  18.11
  19.01
  19.96
  20.96
  22.01
  23.11
  24.27
  25.48
  26.75
  28.09
  29.49
  30.97
  32.52
PV of cash for distribution, $m
 
  97
  93
  89
  83
  78
  72
  66
  59
  53
  47
  41
  35
  30
  25
  20
  16
  13
  10
  8
  6
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  100.0
  99.7
  99.3
  98.8
  98.2
  97.5
  96.8
  96.0
  95.2
  94.3
  93.4
  92.5
  91.6
  90.6
  89.6
  88.6
  87.6
  86.6
  85.5
  84.4
  83.3
  82.3
  81.2
  80.1
  78.9
  77.8
  76.7
  75.6
  74.5
  73.4

Cass Information Systems, Inc. (Cass) is a provider of payment and information processing services to manufacturing, distribution and retail enterprises across the United States with operating locations in Missouri, Ohio, Massachusetts, South Carolina and Florida. The Company provides transportation invoice rating, payment processing, auditing, accounting and transportation information. It is also a processor and payer of energy invoices, including electricity, gas, waste, and other facility related expenses. The Company operates in two segments: Information Services and Banking Services. The Information Services segment provides transportation, energy, telecommunication, and environmental invoice processing and payment services to large corporations. The Banking Services segment provides banking services primarily to privately held businesses and churches. The Company, through its bank subsidiary, Cass Commercial Bank (the Bank), provides commercial banking services.

FINANCIAL RATIOS  of  Cass Information Systems (CASS)

Valuation Ratios
P/E Ratio 30.5
Price to Sales 5.8
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 20.9
Price to Free Cash Flow 24.4
Growth Rates
Sales Growth Rate 3.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.7%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 0
Current Ratio NaN
LT Debt to Equity 0%
Total Debt to Equity 195.7%
Interest Coverage 17
Management Effectiveness
Return On Assets 1.7%
Ret/ On Assets - 3 Yr. Avg. 1.7%
Return On Total Capital 3.7%
Ret/ On T. Cap. - 3 Yr. Avg. 3.5%
Return On Equity 11.6%
Return On Equity - 3 Yr. Avg. 11.7%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 98.4%
Gross Margin - 3 Yr. Avg. 98.1%
EBITDA Margin 34.1%
EBITDA Margin - 3 Yr. Avg. 34.5%
Operating Margin 25.4%
Oper. Margin - 3 Yr. Avg. 25.8%
Pre-Tax Margin 25.4%
Pre-Tax Margin - 3 Yr. Avg. 25.8%
Net Profit Margin 19%
Net Profit Margin - 3 Yr. Avg. 19.3%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 25.3%
Payout Ratio 41.7%

CASS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CASS stock intrinsic value calculation we used $126 million for the last fiscal year's total revenue generated by Cass Information Systems. The default revenue input number comes from 2016 income statement of Cass Information Systems. 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 CASS stock valuation model: a) initial revenue growth rate of 9.7% 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 7.9%, whose default value for CASS is calculated based on our internal credit rating of Cass Information Systems, 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 Cass Information Systems.
    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 CASS stock the variable cost ratio is equal to 74.6%.

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 CASS 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 Cass Information Systems.

Corporate tax rate of 27% is the nominal tax rate for Cass Information Systems. 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 CASS 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 CASS are equal to 17.9%.

Life of production assets of 3.8 years is the average useful life of capital assets used in Cass Information Systems 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 CASS is equal to 50%. 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 - $208 million for Cass Information Systems - 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 11.204 million for Cass Information Systems 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 Cass Information Systems at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Cass posts 2Q profit   [Jul-28-17 01:24AM  Associated Press]
▶ Cass posts 1Q profit   [Apr-27-17 09:38AM  Associated Press]
▶ Cass posts 4Q profit   [Feb-02-17 08:16AM  Associated Press]
▶ U.S. Shipping Demand Turns Upward on Consumer Spending   [Nov-25-16 02:31PM  at The Wall Street Journal]
▶ Today's Top Supply Chain and Logistics News From WSJ   [Aug-16-16 06:33AM  at The Wall Street Journal]
▶ Freight Shipments, Spending Declined in July   [Aug-15-16 03:49PM  at The Wall Street Journal]
▶ Transport Stocks Are Making Chart-Watchers Nervous About the Market   [Jul-07-16 03:51PM  at The Wall Street Journal]
▶ Trucking Demand Soared in February   [Mar-22-16 03:38PM  at The Wall Street Journal]
▶ Shippers Spent Less on Moving Freight in January -Cass   [Feb-11-16 04:26PM  at The Wall Street Journal]
▶ Freight Market Index Fell in December   [Jan-12-16 06:32PM  at The Wall Street Journal]
Financial statements of CASS
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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