Intrinsic value of Global Sources - GSOL

Previous Close

$20.00

  Intrinsic Value

$15.71

stock screener

  Rating & Target

sell

-21%

  Value-price divergence*

-137%

Previous close

$20.00

 
Intrinsic value

$15.71

 
Up/down potential

-21%

 
Rating

sell

 
Value-price divergence*

-137%

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

We calculate the intrinsic value of GSOL 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 0.5

 

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, %
  -7.60
  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
  158
  161
  165
  169
  174
  179
  185
  191
  198
  205
  213
  222
  231
  240
  250
  261
  273
  285
  298
  311
  325
  341
  356
  373
  391
  410
  429
  450
  471
  494
  518
Variable operating expenses, $m
 
  27
  27
  28
  29
  29
  30
  31
  32
  34
  35
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  54
  57
  60
  63
  65
  69
  72
  75
  79
  83
Fixed operating expenses, $m
 
  120
  123
  126
  129
  132
  136
  139
  143
  146
  150
  154
  157
  161
  165
  169
  174
  178
  182
  187
  192
  197
  201
  206
  212
  217
  222
  228
  234
  239
  245
Total operating expenses, $m
  141
  147
  150
  154
  158
  161
  166
  170
  175
  180
  185
  189
  194
  199
  205
  211
  218
  224
  230
  237
  244
  251
  258
  266
  275
  282
  291
  300
  309
  318
  328
Operating income, $m
  16
  15
  15
  15
  16
  17
  19
  21
  23
  26
  29
  33
  36
  41
  45
  50
  55
  61
  68
  74
  82
  90
  98
  107
  117
  127
  138
  150
  162
  176
  190
EBITDA, $m
  25
  24
  24
  25
  26
  27
  29
  31
  34
  37
  40
  44
  48
  53
  58
  64
  70
  76
  83
  90
  99
  107
  116
  126
  137
  148
  160
  173
  187
  201
  217
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  17
  15
  15
  15
  16
  17
  18
  20
  22
  25
  27
  31
  35
  39
  43
  48
  53
  58
  64
  71
  78
  86
  94
  102
  112
  121
  132
  143
  155
  168
  182
Tax expense, $m
  -1
  4
  4
  4
  4
  5
  5
  5
  6
  7
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  21
  23
  25
  28
  30
  33
  36
  39
  42
  45
  49
Net income, $m
  18
  11
  11
  11
  12
  12
  13
  15
  16
  18
  20
  23
  25
  28
  31
  35
  39
  43
  47
  52
  57
  62
  68
  75
  81
  89
  96
  105
  113
  123
  133

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  110
  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
  271
  164
  168
  172
  177
  183
  188
  195
  202
  209
  217
  226
  235
  245
  255
  266
  278
  290
  303
  317
  332
  347
  363
  380
  398
  417
  437
  458
  481
  504
  528
Adjusted assets (=assets-cash), $m
  161
  164
  168
  172
  177
  183
  188
  195
  202
  209
  217
  226
  235
  245
  255
  266
  278
  290
  303
  317
  332
  347
  363
  380
  398
  417
  437
  458
  481
  504
  528
Revenue / Adjusted assets
  0.981
  0.982
  0.982
  0.983
  0.983
  0.978
  0.984
  0.979
  0.980
  0.981
  0.982
  0.982
  0.983
  0.980
  0.980
  0.981
  0.982
  0.983
  0.983
  0.981
  0.979
  0.983
  0.981
  0.982
  0.982
  0.983
  0.982
  0.983
  0.979
  0.980
  0.981
Average production assets, $m
  79
  80
  82
  84
  86
  89
  92
  95
  98
  102
  106
  110
  115
  119
  124
  130
  136
  142
  148
  155
  162
  169
  177
  185
  194
  204
  213
  224
  234
  246
  258
Working capital, $m
  31
  -81
  -82
  -85
  -87
  -90
  -92
  -96
  -99
  -103
  -107
  -111
  -115
  -120
  -125
  -131
  -136
  -142
  -149
  -156
  -163
  -170
  -178
  -187
  -195
  -205
  -215
  -225
  -236
  -247
  -259
Total debt, $m
  0
  2
  5
  8
  11
  15
  19
  23
  28
  33
  38
  44
  50
  57
  64
  71
  79
  88
  96
  106
  116
  126
  137
  149
  161
  174
  187
  201
  216
  232
  249
Total liabilities, $m
  110
  111
  114
  117
  120
  124
  128
  132
  137
  142
  147
  153
  159
  166
  173
  180
  188
  197
  205
  215
  225
  235
  246
  258
  270
  283
  296
  310
  325
  341
  358
Total equity, $m
  162
  53
  54
  56
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  82
  86
  90
  94
  98
  102
  107
  112
  117
  123
  129
  135
  141
  148
  155
  163
  171
Total liabilities and equity, $m
  272
  164
  168
  173
  177
  183
  189
  195
  202
  210
  217
  226
  235
  245
  255
  266
  278
  291
  303
  317
  332
  347
  363
  381
  399
  418
  437
  458
  480
  504
  529
Debt-to-equity ratio
  0.000
  0.040
  0.090
  0.140
  0.190
  0.250
  0.310
  0.360
  0.420
  0.480
  0.540
  0.600
  0.660
  0.720
  0.770
  0.830
  0.880
  0.930
  0.980
  1.030
  1.080
  1.120
  1.170
  1.210
  1.250
  1.290
  1.320
  1.360
  1.390
  1.430
  1.460
Adjusted equity ratio
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  18
  11
  11
  11
  12
  12
  13
  15
  16
  18
  20
  23
  25
  28
  31
  35
  39
  43
  47
  52
  57
  62
  68
  75
  81
  89
  96
  105
  113
  123
  133
Depreciation, amort., depletion, $m
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  12
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  26
  27
Funds from operations, $m
  36
  20
  20
  21
  21
  22
  24
  25
  27
  29
  32
  34
  37
  41
  44
  48
  53
  57
  62
  68
  74
  80
  87
  94
  102
  110
  119
  128
  138
  148
  160
Change in working capital, $m
  2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from operations, $m
  34
  21
  22
  23
  24
  25
  27
  29
  31
  33
  36
  39
  42
  46
  50
  54
  58
  63
  69
  75
  81
  88
  95
  102
  111
  119
  128
  138
  149
  160
  172
Maintenance CAPEX, $m
  0
  -8
  -8
  -9
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
New CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
Cash from investing activities, $m
  -13
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -15
  -17
  -17
  -18
  -20
  -20
  -21
  -22
  -23
  -24
  -26
  -26
  -28
  -29
  -31
  -32
  -34
  -35
  -38
Free cash flow, $m
  21
  12
  12
  12
  13
  13
  15
  16
  17
  19
  21
  23
  26
  29
  32
  35
  39
  43
  48
  53
  58
  63
  69
  76
  82
  90
  97
  106
  115
  124
  134
Issuance/(repayment) of debt, $m
  0
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
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  
  -1
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
Total cash flow (excl. dividends), $m
  18
  14
  14
  15
  16
  17
  18
  20
  22
  24
  27
  29
  32
  35
  39
  43
  47
  52
  57
  62
  68
  74
  80
  87
  95
  103
  111
  120
  130
  140
  151
Retained Cash Flow (-), $m
  -14
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
Prev. year cash balance distribution, $m
 
  110
  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
 
  123
  13
  14
  14
  15
  17
  18
  20
  22
  24
  26
  29
  32
  36
  39
  43
  48
  52
  57
  63
  69
  75
  82
  89
  96
  105
  113
  122
  132
  143
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
 
  118
  12
  12
  12
  12
  12
  12
  12
  13
  13
  13
  12
  12
  12
  12
  11
  10
  10
  9
  8
  7
  6
  5
  5
  4
  3
  2
  2
  1
  1
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
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Global Sources Ltd. is a business-to-business (B2B) media company that provides information and integrated marketing services, with a particular focus on the Greater China market. The Company, together with its subsidiaries, provides services that allow global buyers to identify suppliers and products, and enable suppliers to market their products to a number of buyers. Its segments include Exhibitions, Online and other Media Services, and All Other segments. It has presence across a range of industry sectors, including electronics, fashion accessories, hardware and gifts. It creates and hosts marketing Websites that present suppliers' product and company information in a consistent and searchable manner on GlobalSources.com. Exhibitions offer international and domestic buyers direct access to manufacturers based in China and other Asian countries. It publishes printed trade magazines, which consist primarily of advertisements from suppliers and its independent editorial reports.

FINANCIAL RATIOS  of  Global Sources (GSOL)

Valuation Ratios
P/E Ratio 26.6
Price to Sales 3
Price to Book 3
Price to Tangible Book
Price to Cash Flow 14.1
Price to Free Cash Flow 14.1
Growth Rates
Sales Growth Rate -7.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.8%
Ret/ On Assets - 3 Yr. Avg. 7.6%
Return On Total Capital 11.6%
Ret/ On T. Cap. - 3 Yr. Avg. 13.3%
Return On Equity 11.6%
Return On Equity - 3 Yr. Avg. 13.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 55.7%
Gross Margin - 3 Yr. Avg. 55.9%
EBITDA Margin 16.5%
EBITDA Margin - 3 Yr. Avg. 19%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. 12.2%
Pre-Tax Margin 10.8%
Pre-Tax Margin - 3 Yr. Avg. 12.8%
Net Profit Margin 11.4%
Net Profit Margin - 3 Yr. Avg. 13%
Effective Tax Rate -5.9%
Eff/ Tax Rate - 3 Yr. Avg. 6.1%
Payout Ratio 0%

GSOL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GSOL stock intrinsic value calculation we used $158 million for the last fiscal year's total revenue generated by Global Sources. The default revenue input number comes from 2016 income statement of Global Sources. 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 GSOL 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 4.3%, whose default value for GSOL is calculated based on our internal credit rating of Global Sources, 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 Global Sources.
    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 GSOL stock the variable cost ratio is equal to 16.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $117 million in the base year in the intrinsic value calculation for GSOL 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 Global Sources.

Corporate tax rate of 27% is the nominal tax rate for Global Sources. 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 GSOL 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 GSOL are equal to 49.7%.

Life of production assets of 9.6 years is the average useful life of capital assets used in Global Sources 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 GSOL 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 - $162 million for Global Sources - 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 23.877 million for Global Sources 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 Global Sources at the current share price and the inputted number of shares is $0.5 billion.

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RELX RELX ADR 22.66 25.61  hold
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Financial statements of GSOL
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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