Intrinsic value of Fusion Telecommunications International - FSNN

Previous Close

$2.83

  Intrinsic Value

$4.69

stock screener

  Rating & Target

str. buy

+66%

Previous close

$2.83

 
Intrinsic value

$4.69

 
Up/down potential

+66%

 
Rating

str. buy

We calculate the intrinsic value of FSNN 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, %
  19.61
  22.60
  20.84
  19.26
  17.83
  16.55
  15.39
  14.35
  13.42
  12.58
  11.82
  11.14
  10.52
  9.97
  9.47
  9.03
  8.62
  8.26
  7.94
  7.64
  7.38
  7.14
  6.93
  6.73
  6.56
  6.40
  6.26
  6.14
  6.02
  5.92
  5.83
Revenue, $m
  122
  150
  181
  216
  254
  296
  342
  391
  443
  499
  558
  620
  685
  753
  825
  899
  977
  1,057
  1,141
  1,228
  1,319
  1,413
  1,511
  1,613
  1,719
  1,829
  1,943
  2,062
  2,187
  2,316
  2,451
Variable operating expenses, $m
 
  127
  152
  181
  212
  247
  285
  325
  368
  414
  462
  510
  563
  620
  678
  739
  803
  870
  939
  1,010
  1,085
  1,162
  1,243
  1,327
  1,414
  1,504
  1,598
  1,696
  1,799
  1,905
  2,016
Fixed operating expenses, $m
 
  28
  28
  29
  30
  31
  31
  32
  33
  34
  35
  35
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  48
  49
  50
  51
  53
  54
  55
  57
Total operating expenses, $m
  130
  155
  180
  210
  242
  278
  316
  357
  401
  448
  497
  545
  599
  657
  716
  778
  843
  911
  981
  1,053
  1,129
  1,207
  1,289
  1,375
  1,463
  1,554
  1,649
  1,749
  1,853
  1,960
  2,073
Operating income, $m
  -8
  -5
  0
  6
  12
  18
  26
  34
  42
  51
  61
  75
  85
  96
  108
  120
  133
  147
  160
  175
  190
  206
  222
  239
  256
  275
  294
  314
  334
  356
  378
EBITDA, $m
  5
  9
  16
  24
  32
  42
  52
  64
  76
  88
  102
  116
  131
  147
  164
  181
  199
  218
  237
  258
  279
  301
  323
  347
  372
  398
  424
  452
  481
  512
  543
Interest expense (income), $m
  0
  3
  4
  5
  6
  7
  9
  10
  12
  14
  15
  17
  19
  21
  24
  26
  28
  31
  33
  36
  39
  42
  45
  48
  51
  55
  58
  62
  66
  70
  74
Earnings before tax, $m
  -14
  -8
  -4
  1
  5
  11
  17
  23
  30
  38
  46
  57
  66
  75
  85
  95
  105
  116
  127
  139
  151
  164
  177
  191
  205
  220
  235
  252
  268
  286
  304
Tax expense, $m
  -1
  0
  0
  0
  1
  3
  5
  6
  8
  10
  12
  15
  18
  20
  23
  26
  28
  31
  34
  37
  41
  44
  48
  51
  55
  59
  64
  68
  72
  77
  82
Net income, $m
  -13
  -8
  -4
  0
  4
  8
  12
  17
  22
  28
  33
  42
  48
  55
  62
  69
  77
  85
  93
  101
  110
  120
  129
  139
  150
  160
  172
  184
  196
  209
  222

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
  0
  0
  0
  0
Total assets, $m
  132
  153
  185
  221
  260
  303
  350
  400
  454
  511
  571
  635
  702
  772
  845
  921
  1,001
  1,083
  1,169
  1,259
  1,351
  1,448
  1,548
  1,652
  1,761
  1,874
  1,991
  2,113
  2,240
  2,373
  2,511
Adjusted assets (=assets-cash), $m
  125
  153
  185
  221
  260
  303
  350
  400
  454
  511
  571
  635
  702
  772
  845
  921
  1,001
  1,083
  1,169
  1,259
  1,351
  1,448
  1,548
  1,652
  1,761
  1,874
  1,991
  2,113
  2,240
  2,373
  2,511
Revenue / Adjusted assets
  0.976
  0.980
  0.978
  0.977
  0.977
  0.977
  0.977
  0.978
  0.976
  0.977
  0.977
  0.976
  0.976
  0.975
  0.976
  0.976
  0.976
  0.976
  0.976
  0.975
  0.976
  0.976
  0.976
  0.976
  0.976
  0.976
  0.976
  0.976
  0.976
  0.976
  0.976
Average production assets, $m
  55
  67
  82
  97
  115
  133
  154
  176
  200
  225
  252
  280
  309
  340
  372
  405
  440
  477
  515
  554
  595
  637
  681
  727
  775
  825
  876
  930
  986
  1,045
  1,105
Working capital, $m
  -6
  -11
  -13
  -16
  -19
  -22
  -25
  -29
  -33
  -37
  -41
  -46
  -51
  -56
  -61
  -67
  -72
  -78
  -84
  -91
  -98
  -105
  -112
  -119
  -127
  -135
  -144
  -153
  -162
  -171
  -181
Total debt, $m
  101
  116
  145
  177
  212
  251
  293
  338
  387
  438
  492
  550
  610
  673
  738
  807
  879
  953
  1,030
  1,111
  1,194
  1,281
  1,371
  1,465
  1,563
  1,664
  1,770
  1,880
  1,994
  2,114
  2,238
Total liabilities, $m
  123
  138
  167
  199
  234
  273
  315
  360
  409
  460
  514
  572
  632
  695
  760
  829
  901
  975
  1,052
  1,133
  1,216
  1,303
  1,393
  1,487
  1,585
  1,686
  1,792
  1,902
  2,016
  2,136
  2,260
Total equity, $m
  9
  15
  19
  22
  26
  30
  35
  40
  45
  51
  57
  64
  70
  77
  84
  92
  100
  108
  117
  126
  135
  145
  155
  165
  176
  187
  199
  211
  224
  237
  251
Total liabilities and equity, $m
  132
  153
  186
  221
  260
  303
  350
  400
  454
  511
  571
  636
  702
  772
  844
  921
  1,001
  1,083
  1,169
  1,259
  1,351
  1,448
  1,548
  1,652
  1,761
  1,873
  1,991
  2,113
  2,240
  2,373
  2,511
Debt-to-equity ratio
  11.222
  7.560
  7.810
  8.000
  8.150
  8.270
  8.370
  8.450
  8.520
  8.570
  8.610
  8.650
  8.690
  8.710
  8.740
  8.760
  8.780
  8.800
  8.810
  8.830
  8.840
  8.850
  8.860
  8.870
  8.880
  8.880
  8.890
  8.900
  8.900
  8.910
  8.910
Adjusted equity ratio
  0.040
  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
  -13
  -8
  -4
  0
  4
  8
  12
  17
  22
  28
  33
  42
  48
  55
  62
  69
  77
  85
  93
  101
  110
  120
  129
  139
  150
  160
  172
  184
  196
  209
  222
Depreciation, amort., depletion, $m
  13
  14
  16
  18
  21
  24
  27
  30
  33
  37
  41
  42
  46
  51
  56
  61
  66
  71
  77
  83
  89
  95
  102
  109
  116
  123
  131
  139
  147
  156
  165
Funds from operations, $m
  -1
  6
  12
  18
  25
  32
  39
  47
  56
  65
  74
  84
  94
  106
  117
  130
  142
  156
  170
  184
  199
  215
  231
  248
  265
  284
  303
  322
  343
  365
  387
Change in working capital, $m
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
Cash from operations, $m
  0
  8
  14
  21
  28
  35
  42
  51
  59
  69
  79
  88
  99
  111
  123
  135
  148
  162
  176
  190
  206
  222
  238
  255
  273
  292
  311
  331
  352
  374
  397
Maintenance CAPEX, $m
  0
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -26
  -30
  -34
  -38
  -42
  -46
  -51
  -56
  -61
  -66
  -71
  -77
  -83
  -89
  -95
  -102
  -109
  -116
  -123
  -131
  -139
  -147
  -156
New CAPEX, $m
  -5
  -12
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
Cash from investing activities, $m
  -27
  -20
  -24
  -28
  -32
  -36
  -41
  -45
  -50
  -55
  -61
  -66
  -71
  -77
  -83
  -90
  -96
  -102
  -109
  -116
  -124
  -131
  -139
  -148
  -157
  -166
  -175
  -185
  -195
  -205
  -217
Free cash flow, $m
  -27
  -13
  -10
  -7
  -4
  -1
  2
  5
  9
  14
  19
  23
  28
  34
  40
  46
  53
  60
  67
  74
  82
  90
  99
  108
  117
  126
  136
  147
  158
  169
  180
Issuance/(repayment) of debt, $m
  26
  19
  29
  32
  35
  39
  42
  45
  48
  51
  54
  57
  60
  63
  66
  69
  71
  74
  77
  80
  84
  87
  90
  94
  98
  101
  106
  110
  115
  119
  124
Issuance/(repurchase) of shares, $m
  2
  17
  7
  3
  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  
  27
  36
  36
  35
  35
  39
  42
  45
  48
  51
  54
  57
  60
  63
  66
  69
  71
  74
  77
  80
  84
  87
  90
  94
  98
  101
  106
  110
  115
  119
  124
Total cash flow (excl. dividends), $m
  0
  23
  26
  28
  31
  37
  44
  51
  58
  65
  73
  80
  88
  97
  106
  115
  124
  134
  144
  155
  166
  177
  189
  201
  214
  228
  242
  257
  272
  288
  305
Retained Cash Flow (-), $m
  5
  -17
  -7
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
Prev. year cash balance distribution, $m
 
  3
  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
 
  9
  19
  25
  27
  33
  39
  46
  52
  60
  67
  74
  81
  90
  98
  107
  116
  126
  136
  146
  156
  168
  179
  191
  204
  217
  230
  244
  259
  275
  291
Discount rate, %
 
  13.90
  14.60
  15.32
  16.09
  16.90
  17.74
  18.63
  19.56
  20.54
  21.56
  22.64
  23.77
  24.96
  26.21
  27.52
  28.90
  30.34
  31.86
  33.45
  35.12
  36.88
  38.72
  40.66
  42.69
  44.83
  47.07
  49.42
  51.90
  54.49
  57.21
PV of cash for distribution, $m
 
  8
  14
  16
  15
  15
  15
  14
  13
  11
  9
  8
  6
  5
  4
  3
  2
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  70.9
  66.5
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9
  64.9

Fusion Telecommunications International, Inc. is a United States-based provider of integrated cloud solutions, including cloud voice, cloud connectivity, cloud infrastructure, cloud computing, and managed cloud-based applications to businesses, and voice over Internet Protocol (VoIP)-based voice services to carriers. The Company operates through two segments: Business Services and Carrier Services. Through Business Services segment, it provides cloud voice, cloud connectivity, cloud infrastructure, cloud computing and managed cloud-based applications to businesses of all sizes. Its suite of business services includes unified communications as a service, session initiation protocol trunking solution and file sharing solution. The Carrier Services segment includes termination of domestic and international carrier traffic utilizing VoIP technology. It offers solutions to small, medium and large businesses. It offers domestic and international VoIP services to carriers around the world.

FINANCIAL RATIOS  of  Fusion Telecommunications International (FSNN)

Valuation Ratios
P/E Ratio -4.5
Price to Sales 0.5
Price to Book 6.5
Price to Tangible Book
Price to Cash Flow 0
Price to Free Cash Flow -11.7
Growth Rates
Sales Growth Rate 19.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 66.7%
Cap. Spend. - 3 Yr. Gr. Rate 38%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 1077.8%
Total Debt to Equity 1122.2%
Interest Coverage 0
Management Effectiveness
Return On Assets -11%
Ret/ On Assets - 3 Yr. Avg. -5.7%
Return On Total Capital -13.1%
Ret/ On T. Cap. - 3 Yr. Avg. -9.8%
Return On Equity -113%
Return On Equity - 3 Yr. Avg. -67.4%
Asset Turnover 1
Profitability Ratios
Gross Margin 44.3%
Gross Margin - 3 Yr. Avg. 44.7%
EBITDA Margin -0.8%
EBITDA Margin - 3 Yr. Avg. 3.5%
Operating Margin -6.6%
Oper. Margin - 3 Yr. Avg. -6.5%
Pre-Tax Margin -11.5%
Pre-Tax Margin - 3 Yr. Avg. -10.1%
Net Profit Margin -10.7%
Net Profit Margin - 3 Yr. Avg. -7.3%
Effective Tax Rate 7.1%
Eff/ Tax Rate - 3 Yr. Avg. 19%
Payout Ratio 0%

FSNN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FSNN stock intrinsic value calculation we used $122 million for the last fiscal year's total revenue generated by Fusion Telecommunications International. The default revenue input number comes from 2016 income statement of Fusion Telecommunications 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 FSNN stock valuation model: a) initial revenue growth rate of 22.6% 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 13.9%, whose default value for FSNN is calculated based on our internal credit rating of Fusion Telecommunications 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 Fusion Telecommunications 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 FSNN stock the variable cost ratio is equal to 85.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $27 million in the base year in the intrinsic value calculation for FSNN 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 Fusion Telecommunications International.

Corporate tax rate of 27% is the nominal tax rate for Fusion Telecommunications 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 FSNN 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 FSNN are equal to 45.1%.

Life of production assets of 6.7 years is the average useful life of capital assets used in Fusion Telecommunications 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 FSNN is equal to -7.4%. 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 - $9 million for Fusion Telecommunications 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 22.507 million for Fusion Telecommunications 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 Fusion Telecommunications International at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ "Keeps On Keepin' On"   [Sep-27-17 09:05AM  ACCESSWIRE]
▶ "Meeting Or Exceeding Expectations"   [Aug-31-17 09:20AM  ACCESSWIRE]
▶ Fusion Reports Second Quarter 2017 Financial Results   [Aug-14-17 04:01PM  Marketwired]
▶ Fusion Added to the Russell Microcap Index   [Jun-26-17 08:45AM  Marketwired]
▶ Fusion Reports First Quarter 2017 Financial Results   [May-10-17 04:01PM  Marketwired]
▶ Fusion Acquires Cloud Services Provider Apptix   [Nov-15-16 09:04AM  Marketwired]
▶ Fusion Reports Third Quarter 2016 Results   [08:58AM  Marketwired]
▶ State Bridge Authority Selects the Fusion Cloud   [Oct-17-16 08:45AM  Marketwired]
▶ Fusion Partners With Telarus to Provide Cloud Services   [Jun-29-16 08:45AM  Marketwired]
▶ Fusion Reports First Quarter 2016 Results   [May-11-16 09:29AM  Marketwired]
Financial statements of FSNN
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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