Intrinsic value of CSG Systems International - CSGS

Previous Close

$47.98

  Intrinsic Value

$58.27

stock screener

  Rating & Target

buy

+21%

Previous close

$47.98

 
Intrinsic value

$58.27

 
Up/down potential

+21%

 
Rating

buy

We calculate the intrinsic value of CSGS 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  1.06
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  761
  801
  844
  888
  934
  983
  1,034
  1,087
  1,143
  1,201
  1,263
  1,327
  1,395
  1,466
  1,540
  1,618
  1,700
  1,786
  1,876
  1,971
  2,070
  2,175
  2,284
  2,399
  2,520
  2,646
  2,779
  2,919
  3,065
  3,219
  3,380
Variable operating expenses, $m
 
  679
  714
  750
  788
  828
  870
  914
  960
  1,008
  1,059
  1,092
  1,147
  1,206
  1,267
  1,331
  1,399
  1,469
  1,544
  1,621
  1,703
  1,789
  1,879
  1,973
  2,073
  2,177
  2,286
  2,401
  2,521
  2,648
  2,780
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
  637
  679
  714
  750
  788
  828
  870
  914
  960
  1,008
  1,059
  1,092
  1,147
  1,206
  1,267
  1,331
  1,399
  1,469
  1,544
  1,621
  1,703
  1,789
  1,879
  1,973
  2,073
  2,177
  2,286
  2,401
  2,521
  2,648
  2,780
Operating income, $m
  124
  122
  130
  137
  146
  154
  163
  173
  183
  193
  204
  235
  247
  260
  273
  287
  302
  317
  333
  350
  367
  386
  405
  426
  447
  469
  493
  518
  544
  571
  600
EBITDA, $m
  166
  157
  165
  174
  183
  193
  203
  213
  224
  235
  247
  260
  273
  287
  302
  317
  333
  350
  368
  386
  406
  426
  448
  470
  494
  519
  545
  572
  601
  631
  662
Interest expense (income), $m
  12
  13
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  38
  40
  42
  45
  48
  50
  53
  56
  60
  63
  66
  70
  74
Earnings before tax, $m
  100
  109
  117
  124
  131
  138
  146
  154
  163
  172
  181
  211
  222
  232
  244
  256
  268
  281
  295
  310
  325
  341
  358
  375
  394
  413
  434
  455
  477
  501
  526
Tax expense, $m
  37
  29
  32
  33
  35
  37
  39
  42
  44
  46
  49
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
  97
  101
  106
  112
  117
  123
  129
  135
  142
Net income, $m
  63
  80
  85
  90
  96
  101
  107
  113
  119
  125
  132
  154
  162
  170
  178
  187
  196
  205
  216
  226
  237
  249
  261
  274
  287
  302
  316
  332
  348
  366
  384

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  277
  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
  892
  648
  682
  718
  755
  794
  836
  879
  924
  971
  1,021
  1,073
  1,128
  1,185
  1,245
  1,308
  1,374
  1,444
  1,517
  1,593
  1,674
  1,758
  1,847
  1,939
  2,037
  2,139
  2,247
  2,359
  2,478
  2,602
  2,733
Adjusted assets (=assets-cash), $m
  615
  648
  682
  718
  755
  794
  836
  879
  924
  971
  1,021
  1,073
  1,128
  1,185
  1,245
  1,308
  1,374
  1,444
  1,517
  1,593
  1,674
  1,758
  1,847
  1,939
  2,037
  2,139
  2,247
  2,359
  2,478
  2,602
  2,733
Revenue / Adjusted assets
  1.237
  1.236
  1.238
  1.237
  1.237
  1.238
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
  1.237
Average production assets, $m
  108
  113
  119
  125
  132
  139
  146
  153
  161
  169
  178
  187
  197
  207
  217
  228
  240
  252
  265
  278
  292
  307
  322
  338
  355
  373
  392
  412
  432
  454
  477
Working capital, $m
  308
  84
  89
  93
  98
  103
  109
  114
  120
  126
  133
  139
  146
  154
  162
  170
  179
  188
  197
  207
  217
  228
  240
  252
  265
  278
  292
  306
  322
  338
  355
Total debt, $m
  416
  358
  389
  421
  455
  490
  527
  566
  606
  649
  694
  741
  790
  842
  896
  952
  1,012
  1,075
  1,140
  1,209
  1,281
  1,357
  1,437
  1,520
  1,608
  1,700
  1,797
  1,898
  2,005
  2,117
  2,234
Total liabilities, $m
  641
  583
  614
  646
  680
  715
  752
  791
  831
  874
  919
  966
  1,015
  1,067
  1,121
  1,177
  1,237
  1,300
  1,365
  1,434
  1,506
  1,582
  1,662
  1,745
  1,833
  1,925
  2,022
  2,123
  2,230
  2,342
  2,459
Total equity, $m
  251
  65
  68
  72
  76
  79
  84
  88
  92
  97
  102
  107
  113
  119
  125
  131
  137
  144
  152
  159
  167
  176
  185
  194
  204
  214
  225
  236
  248
  260
  273
Total liabilities and equity, $m
  892
  648
  682
  718
  756
  794
  836
  879
  923
  971
  1,021
  1,073
  1,128
  1,186
  1,246
  1,308
  1,374
  1,444
  1,517
  1,593
  1,673
  1,758
  1,847
  1,939
  2,037
  2,139
  2,247
  2,359
  2,478
  2,602
  2,732
Debt-to-equity ratio
  1.657
  5.530
  5.700
  5.860
  6.020
  6.170
  6.310
  6.440
  6.560
  6.680
  6.800
  6.900
  7.000
  7.100
  7.190
  7.280
  7.360
  7.440
  7.520
  7.590
  7.660
  7.720
  7.780
  7.840
  7.900
  7.950
  8.000
  8.050
  8.090
  8.140
  8.180
Adjusted equity ratio
  -0.042
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  63
  80
  85
  90
  96
  101
  107
  113
  119
  125
  132
  154
  162
  170
  178
  187
  196
  205
  216
  226
  237
  249
  261
  274
  287
  302
  316
  332
  348
  366
  384
Depreciation, amort., depletion, $m
  42
  35
  36
  37
  37
  38
  39
  40
  41
  42
  44
  25
  26
  27
  29
  30
  32
  33
  35
  37
  38
  40
  42
  45
  47
  49
  52
  54
  57
  60
  63
Funds from operations, $m
  42
  115
  121
  127
  133
  139
  146
  153
  160
  168
  176
  179
  188
  197
  207
  217
  227
  239
  250
  263
  276
  289
  304
  318
  334
  351
  368
  386
  405
  425
  446
Change in working capital, $m
  -42
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
Cash from operations, $m
  84
  110
  117
  122
  128
  134
  141
  147
  154
  162
  169
  172
  181
  189
  199
  209
  219
  230
  241
  253
  265
  278
  292
  306
  322
  337
  354
  372
  390
  409
  429
Maintenance CAPEX, $m
  0
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -54
  -57
  -60
New CAPEX, $m
  -22
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from investing activities, $m
  -52
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -35
  -36
  -37
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -62
  -65
  -68
  -72
  -75
  -79
  -83
Free cash flow, $m
  32
  91
  96
  100
  105
  110
  115
  121
  126
  132
  138
  140
  146
  154
  161
  169
  177
  186
  195
  205
  215
  225
  236
  248
  260
  273
  286
  300
  315
  331
  347
Issuance/(repayment) of debt, $m
  7
  -9
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
  97
  101
  107
  112
  117
Issuance/(repurchase) of shares, $m
  -24
  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  
  -19
  -9
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
  97
  101
  107
  112
  117
Total cash flow (excl. dividends), $m
  18
  82
  127
  133
  139
  145
  152
  159
  167
  175
  183
  186
  196
  205
  215
  226
  237
  248
  261
  273
  287
  301
  316
  331
  348
  365
  383
  402
  422
  443
  464
Retained Cash Flow (-), $m
  95
  -42
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Prev. year cash balance distribution, $m
 
  228
  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
 
  268
  123
  129
  135
  141
  148
  155
  162
  170
  178
  181
  190
  199
  209
  219
  230
  242
  253
  266
  279
  293
  307
  322
  338
  355
  372
  391
  410
  430
  451
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
 
  257
  113
  112
  111
  110
  107
  105
  102
  98
  93
  86
  81
  76
  70
  64
  59
  53
  47
  41
  35
  30
  25
  21
  17
  14
  11
  8
  6
  5
  3
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

CSG Systems International, Inc. (CSG) is a provider of business support solutions primarily serving the communications industry. The Company provides business support solutions (BSS) to the communications service providers (CSPs), as well as clients in various industries. CSG's solutions coordinate and manage various aspects of a service provider's customer interactions, from the initial activation of customer accounts, to the support and fulfillment of various services, and through the calculation, presentment, and accounts receivables management of monthly customer statements. The Company's primary product solutions include Revenue Management & Customer Experience Solutions; Customer Interaction Management; Managed Services; Mediation and Data Management, and Wholesale Settlement and Routing. The Company employs professional services across various sectors, including solution architecture, project management, systems implementation and business consultancy.

FINANCIAL RATIOS  of  CSG Systems International (CSGS)

Valuation Ratios
P/E Ratio 24.6
Price to Sales 2
Price to Book 6.2
Price to Tangible Book
Price to Cash Flow 18.4
Price to Free Cash Flow 25
Growth Rates
Sales Growth Rate 1.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.5%
Cap. Spend. - 3 Yr. Gr. Rate -9.9%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 146.2%
Total Debt to Equity 165.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 8.6%
Return On Equity 21.1%
Return On Equity - 3 Yr. Avg. 16.3%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 50.7%
Gross Margin - 3 Yr. Avg. 49.5%
EBITDA Margin 20.2%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin 16.3%
Oper. Margin - 3 Yr. Avg. 13.8%
Pre-Tax Margin 13.1%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 37%
Eff/ Tax Rate - 3 Yr. Avg. 37.8%
Payout Ratio 38.1%

CSGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSGS stock intrinsic value calculation we used $761 million for the last fiscal year's total revenue generated by CSG Systems International. The default revenue input number comes from 2016 income statement of CSG Systems International. 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 CSGS stock valuation model: a) initial revenue growth rate of 5.3% 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 CSGS is calculated based on our internal credit rating of CSG Systems International, 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 CSG Systems International.
    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 CSGS stock the variable cost ratio is equal to 84.9%.

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 CSGS 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 CSG Systems International.

Corporate tax rate of 27% is the nominal tax rate for CSG Systems International. 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 CSGS 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 CSGS are equal to 14.1%.

Life of production assets of 7.6 years is the average useful life of capital assets used in CSG Systems International 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 CSGS is equal to 10.5%. 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 - $251 million for CSG Systems International - 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 33.775 million for CSG Systems International 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 CSG Systems International at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ CSG to Exhibit at Mobile World Congress 2018   [Feb-19-18 06:04PM  Business Wire]
▶ CSG Systems posts 4Q profit   [Feb-07-18 05:27PM  Associated Press]
▶ TELUS Leverages CSG Managed Services for Wholesale Business   [Dec-19-17 09:00AM  Business Wire]
▶ CSG Interconnect and Settlements Solutions Lead CSP Market   [Dec-14-17 09:00AM  Business Wire]
▶ PDF Solutions (PDFS) Jumps: Stock Rises 5.4%   [Nov-24-17 08:42AM  Zacks]
▶ CSG Systems International Approves Quarterly Dividend   [Nov-20-17 09:00AM  Business Wire]
▶ CSG Systems posts 3Q profit   [Nov-01-17 06:08PM  Associated Press]
▶ CSG Systems International Approves Quarterly Dividend   [Aug-21-17 09:00AM  Business Wire]
▶ CSG Extends Long-Term Relationship with DISH   [09:00AM  Business Wire]
▶ CSG Systems posts 2Q profit   [12:33AM  Associated Press]
▶ CSG Systems posts 2Q profit   [Aug-02-17 07:29PM  Associated Press]
▶ CSG Continues Leadership in Settlements Market Share   [Jul-27-17 09:00AM  Business Wire]
▶ CSG Systems International Approves Quarterly Dividend   [May-22-17 09:00AM  Business Wire]
▶ CSG Systems posts 1Q profit   [May-03-17 06:08PM  Associated Press]
▶ TalkTalk TV to Deliver New TV Experience with Ascendon   [Feb-28-17 02:00AM  Business Wire]
▶ New Strong Sell Stocks for February 27th   [Feb-27-17 08:30AM  Zacks]
▶ CSG International to Exhibit at Mobile World Congress 2017   [Feb-20-17 12:09PM  Business Wire]
Financial statements of CSGS
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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