Intrinsic value of GSE Systems - GVP

Previous Close

$3.01

  Intrinsic Value

$0.63

stock screener

  Rating & Target

str. sell

-79%

  Value-price divergence*

-28%

Previous close

$3.01

 
Intrinsic value

$0.63

 
Up/down potential

-79%

 
Rating

str. sell

 
Value-price divergence*

-28%

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

We calculate the intrinsic value of GVP 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, %
  -7.02
  23.10
  21.29
  19.66
  18.19
  16.88
  15.69
  14.62
  13.66
  12.79
  12.01
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
Revenue, $m
  53
  65
  79
  95
  112
  131
  151
  173
  197
  222
  249
  277
  307
  338
  370
  404
  439
  476
  514
  554
  595
  638
  683
  729
  777
  827
  879
  934
  990
  1,049
  1,110
Variable operating expenses, $m
 
  70
  85
  101
  120
  140
  162
  185
  210
  237
  266
  295
  326
  359
  394
  430
  467
  506
  547
  589
  633
  679
  726
  775
  827
  880
  935
  993
  1,053
  1,116
  1,181
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
  52
  70
  85
  101
  120
  140
  162
  185
  210
  237
  266
  295
  326
  359
  394
  430
  467
  506
  547
  589
  633
  679
  726
  775
  827
  880
  935
  993
  1,053
  1,116
  1,181
Operating income, $m
  2
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -15
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -33
  -35
  -38
  -41
  -43
  -46
  -49
  -53
  -56
  -59
  -63
  -67
  -71
EBITDA, $m
  3
  -4
  -5
  -5
  -6
  -8
  -9
  -10
  -11
  -13
  -14
  -16
  -18
  -20
  -21
  -23
  -25
  -28
  -30
  -32
  -35
  -37
  -40
  -42
  -45
  -48
  -51
  -54
  -57
  -61
  -64
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
Earnings before tax, $m
  2
  -5
  -6
  -7
  -8
  -10
  -12
  -13
  -15
  -17
  -20
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -71
  -76
  -80
  -85
  -90
Tax expense, $m
  1
  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
Net income, $m
  1
  -5
  -6
  -7
  -8
  -10
  -12
  -13
  -15
  -17
  -20
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -71
  -76
  -80
  -85
  -90

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  22
  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
  54
  41
  49
  59
  70
  81
  94
  108
  123
  138
  155
  173
  191
  210
  231
  252
  274
  296
  320
  345
  371
  397
  425
  454
  484
  515
  548
  581
  616
  653
  691
Adjusted assets (=assets-cash), $m
  32
  41
  49
  59
  70
  81
  94
  108
  123
  138
  155
  173
  191
  210
  231
  252
  274
  296
  320
  345
  371
  397
  425
  454
  484
  515
  548
  581
  616
  653
  691
Revenue / Adjusted assets
  1.656
  1.585
  1.612
  1.610
  1.600
  1.617
  1.606
  1.602
  1.602
  1.609
  1.606
  1.601
  1.607
  1.610
  1.602
  1.603
  1.602
  1.608
  1.606
  1.606
  1.604
  1.607
  1.607
  1.606
  1.605
  1.606
  1.604
  1.608
  1.607
  1.606
  1.606
Average production assets, $m
  3
  4
  5
  5
  6
  7
  9
  10
  11
  13
  14
  16
  17
  19
  21
  23
  25
  27
  29
  32
  34
  36
  39
  42
  44
  47
  50
  53
  56
  60
  63
Working capital, $m
  13
  -7
  -8
  -9
  -11
  -13
  -15
  -17
  -20
  -22
  -25
  -28
  -31
  -34
  -37
  -40
  -44
  -48
  -51
  -55
  -60
  -64
  -68
  -73
  -78
  -83
  -88
  -93
  -99
  -105
  -111
Total debt, $m
  0
  4
  11
  20
  30
  40
  52
  64
  77
  92
  107
  122
  139
  156
  175
  193
  213
  234
  255
  277
  301
  325
  350
  376
  402
  431
  460
  490
  522
  555
  589
Total liabilities, $m
  33
  37
  44
  53
  63
  73
  85
  97
  110
  125
  140
  155
  172
  189
  208
  226
  246
  267
  288
  310
  334
  358
  383
  409
  435
  464
  493
  523
  555
  588
  622
Total equity, $m
  21
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  17
  19
  21
  23
  25
  27
  30
  32
  34
  37
  40
  43
  45
  48
  52
  55
  58
  62
  65
  69
Total liabilities and equity, $m
  54
  41
  49
  59
  70
  81
  94
  108
  122
  139
  156
  172
  191
  210
  231
  251
  273
  297
  320
  344
  371
  398
  426
  454
  483
  516
  548
  581
  617
  653
  691
Debt-to-equity ratio
  0.000
  0.880
  2.300
  3.400
  4.260
  4.950
  5.500
  5.940
  6.310
  6.620
  6.870
  7.090
  7.270
  7.430
  7.570
  7.690
  7.790
  7.890
  7.970
  8.040
  8.110
  8.170
  8.220
  8.270
  8.320
  8.360
  8.400
  8.430
  8.460
  8.490
  8.520
Adjusted equity ratio
  -0.031
  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
  1
  -5
  -6
  -7
  -8
  -10
  -12
  -13
  -15
  -17
  -20
  -21
  -24
  -26
  -29
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -71
  -76
  -80
  -85
  -90
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
Funds from operations, $m
  16
  -4
  -5
  -6
  -7
  -9
  -10
  -12
  -14
  -16
  -18
  -20
  -22
  -24
  -27
  -30
  -32
  -35
  -38
  -41
  -44
  -48
  -51
  -54
  -58
  -62
  -66
  -70
  -75
  -79
  -84
Change in working capital, $m
  6
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from operations, $m
  10
  -3
  -3
  -4
  -5
  -7
  -8
  -10
  -11
  -13
  -15
  -17
  -19
  -21
  -24
  -26
  -29
  -31
  -34
  -37
  -40
  -43
  -46
  -50
  -53
  -57
  -61
  -65
  -69
  -73
  -78
Maintenance CAPEX, $m
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  2
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Free cash flow, $m
  12
  -4
  -4
  -6
  -7
  -8
  -10
  -12
  -14
  -16
  -18
  -20
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -42
  -46
  -49
  -53
  -56
  -60
  -64
  -69
  -73
  -77
  -82
  -87
Issuance/(repayment) of debt, $m
  0
  4
  8
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
Issuance/(repurchase) of shares, $m
  1
  9
  7
  8
  10
  11
  13
  15
  17
  19
  21
  23
  26
  28
  31
  34
  37
  40
  43
  47
  50
  54
  58
  62
  66
  70
  74
  79
  84
  89
  94
Cash from financing (excl. dividends), $m  
  -1
  13
  15
  17
  20
  22
  24
  27
  30
  33
  36
  39
  43
  45
  49
  53
  57
  61
  64
  69
  73
  78
  83
  88
  93
  98
  103
  109
  116
  122
  128
Total cash flow (excl. dividends), $m
  11
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  32
  34
  35
  36
  38
  40
  41
Retained Cash Flow (-), $m
  -3
  -9
  -7
  -8
  -10
  -11
  -13
  -15
  -17
  -19
  -21
  -23
  -26
  -28
  -31
  -34
  -37
  -40
  -43
  -47
  -50
  -54
  -58
  -62
  -66
  -70
  -74
  -79
  -84
  -89
  -94
Prev. year cash balance distribution, $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
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
 
  21
  3
  3
  3
  2
  1
  1
  0
  -2
  -3
  -4
  -6
  -7
  -9
  -11
  -13
  -15
  -18
  -20
  -22
  -25
  -28
  -30
  -33
  -36
  -39
  -42
  -46
  -49
  -53
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
 
  20
  3
  3
  2
  2
  1
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  -1
  0
Current shareholders' claim on cash, %
  100
  50.0
  31.2
  19.6
  12.3
  7.7
  4.9
  3.1
  2.0
  1.3
  0.8
  0.5
  0.3
  0.2
  0.1
  0.1
  0.1
  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

GSE Systems, Inc. provides simulation, engineering, and training solutions and services to the nuclear and fossil power generation, oil and gas, refining, chemicals, petrochemicals, industrial gas, manufacturing, and plant utilities markets worldwide. It operates in two segments, Performance Improvement Solutions and Nuclear Industry Training and Consulting. The company offers instructors, procedure writers, work management specialists, planners, and training material developers. It also offers a software platform for online learning and learning management for the energy market. The company markets its products and services through a network of direct sales staff, agents and representatives, and strategic alliance partners. GSE Systems, Inc. was founded in 1994 and is headquartered in Sykesville, Maryland.

FINANCIAL RATIOS  of  GSE Systems (GVP)

Valuation Ratios
P/E Ratio 56.7
Price to Sales 1.1
Price to Book 2.7
Price to Tangible Book
Price to Cash Flow 5.7
Price to Free Cash Flow 5.7
Growth Rates
Sales Growth Rate -7%
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 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 2.2%
Ret/ On Assets - 3 Yr. Avg. -8.1%
Return On Total Capital 5.1%
Ret/ On T. Cap. - 3 Yr. Avg. -15.2%
Return On Equity 5.1%
Return On Equity - 3 Yr. Avg. -15.2%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 28.3%
Gross Margin - 3 Yr. Avg. 27.3%
EBITDA Margin 5.7%
EBITDA Margin - 3 Yr. Avg. -5.1%
Operating Margin 1.9%
Oper. Margin - 3 Yr. Avg. -7.9%
Pre-Tax Margin 3.8%
Pre-Tax Margin - 3 Yr. Avg. -7.2%
Net Profit Margin 1.9%
Net Profit Margin - 3 Yr. Avg. -8.4%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 8.3%
Payout Ratio 0%

GVP stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GVP stock intrinsic value calculation we used $53 million for the last fiscal year's total revenue generated by GSE Systems. The default revenue input number comes from 2016 income statement of GSE 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 GVP stock valuation model: a) initial revenue growth rate of 23.1% 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 GVP is calculated based on our internal credit rating of GSE 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 GSE 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 GVP stock the variable cost ratio is equal to 107.5%.

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 GVP 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 GSE Systems.

Corporate tax rate of 27% is the nominal tax rate for GSE 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 GVP 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 GVP are equal to 5.7%.

Life of production assets of 10 years is the average useful life of capital assets used in GSE 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 GVP is equal to -10%. 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 - $21 million for GSE 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 18.969 million for GSE 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 GSE Systems at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ GSE Systems Announces Second Quarter 2017 Financial Results   [Aug-14-17 04:05PM  Business Wire]
▶ ETFs with exposure to GSE Systems, Inc. : June 28, 2017   [Jun-28-17 02:51PM  Capital Cube]
▶ GSE Systems Announces First Quarter 2017 Financial Results   [May-15-17 04:05PM  Business Wire]
▶ ETFs with exposure to GSE Systems, Inc. : April 5, 2017   [Apr-05-17 04:50PM  Capital Cube]
▶ GSE Systems to Present at the 29th Annual ROTH Conference   [Feb-28-17 09:25AM  Business Wire]
▶ Shaikan Payment Update   [09:33AM  at noodls]
▶ GSE Awarded Over $4.6 Million in New Contracts   [Nov-02  09:00AM  Business Wire]
▶ GSE Systems Announces Corporate Restructuring   [Sep-29  08:30AM  Business Wire]
▶ 10-Q for GSE Systems, Inc.   [Aug-15  08:10PM  at Company Spotlight]
Stock chart of GVP Financial statements of GVP
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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