Intrinsic value of Hudson Global - HSON

Previous Close

$1.67

  Intrinsic Value

$0.32

stock screener

  Rating & Target

str. sell

-81%

  Value-price divergence*

-71%

Previous close

$1.67

 
Intrinsic value

$0.32

 
Up/down potential

-81%

 
Rating

str. sell

 
Value-price divergence*

-71%

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

We calculate the intrinsic value of HSON 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, %
  -8.64
  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
  423
  431
  441
  453
  465
  480
  495
  512
  530
  550
  571
  594
  618
  643
  670
  699
  730
  763
  797
  833
  871
  912
  954
  999
  1,047
  1,096
  1,149
  1,204
  1,262
  1,323
  1,388
Variable operating expenses, $m
 
  323
  331
  339
  349
  359
  371
  383
  397
  412
  428
  445
  463
  482
  502
  524
  547
  571
  597
  624
  653
  683
  715
  748
  784
  821
  860
  902
  945
  991
  1,039
Fixed operating expenses, $m
 
  119
  122
  125
  128
  131
  135
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  177
  181
  185
  190
  195
  200
  205
  210
  215
  220
  226
  232
  237
  243
Total operating expenses, $m
  430
  442
  453
  464
  477
  490
  506
  521
  538
  557
  576
  597
  619
  642
  666
  692
  719
  748
  778
  809
  843
  878
  915
  953
  994
  1,036
  1,080
  1,128
  1,177
  1,228
  1,282
Operating income, $m
  -8
  -11
  -11
  -11
  -11
  -11
  -10
  -9
  -8
  -7
  -5
  -3
  -1
  2
  4
  8
  11
  15
  19
  24
  29
  34
  40
  46
  53
  60
  68
  76
  85
  95
  105
EBITDA, $m
  -5
  -9
  -9
  -10
  -10
  -9
  -8
  -8
  -6
  -5
  -3
  -1
  1
  4
  7
  10
  14
  18
  22
  27
  32
  37
  43
  50
  57
  64
  72
  81
  90
  100
  110
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
Earnings before tax, $m
  -8
  -11
  -11
  -11
  -11
  -11
  -11
  -10
  -9
  -7
  -6
  -4
  -2
  1
  3
  6
  10
  14
  18
  22
  27
  32
  38
  44
  50
  57
  65
  73
  82
  91
  101
Tax expense, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  3
  4
  5
  6
  7
  9
  10
  12
  14
  16
  18
  20
  22
  25
  27
Net income, $m
  -9
  -11
  -11
  -11
  -11
  -11
  -11
  -10
  -9
  -7
  -6
  -4
  -2
  1
  3
  5
  7
  10
  13
  16
  20
  23
  28
  32
  37
  42
  47
  53
  60
  67
  74

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  102
  83
  85
  87
  89
  92
  95
  98
  102
  105
  109
  114
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  191
  200
  210
  220
  231
  242
  253
  266
Adjusted assets (=assets-cash), $m
  81
  83
  85
  87
  89
  92
  95
  98
  102
  105
  109
  114
  118
  123
  128
  134
  140
  146
  153
  160
  167
  175
  183
  191
  200
  210
  220
  231
  242
  253
  266
Revenue / Adjusted assets
  5.222
  5.193
  5.188
  5.207
  5.225
  5.217
  5.211
  5.224
  5.196
  5.238
  5.239
  5.211
  5.237
  5.228
  5.234
  5.216
  5.214
  5.226
  5.209
  5.206
  5.216
  5.211
  5.213
  5.230
  5.235
  5.219
  5.223
  5.212
  5.215
  5.229
  5.218
Average production assets, $m
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Working capital, $m
  33
  20
  21
  21
  22
  23
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  59
  62
  65
Total debt, $m
  8
  1
  2
  4
  5
  7
  9
  11
  13
  16
  18
  21
  24
  27
  30
  34
  38
  42
  46
  50
  55
  60
  65
  71
  77
  83
  89
  96
  103
  111
  119
Total liabilities, $m
  60
  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 equity, $m
  42
  30
  30
  31
  32
  33
  34
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  65
  69
  72
  75
  79
  83
  87
  91
  95
Total liabilities and equity, $m
  102
  83
  84
  87
  89
  92
  95
  98
  101
  106
  109
  114
  118
  123
  128
  134
  140
  146
  153
  159
  167
  175
  182
  192
  201
  210
  220
  231
  242
  254
  266
Debt-to-equity ratio
  0.190
  0.040
  0.070
  0.120
  0.160
  0.210
  0.260
  0.310
  0.360
  0.410
  0.460
  0.520
  0.570
  0.610
  0.660
  0.710
  0.750
  0.800
  0.840
  0.880
  0.920
  0.960
  1.000
  1.030
  1.070
  1.100
  1.130
  1.160
  1.190
  1.220
  1.250
Adjusted equity ratio
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358
  0.358

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -9
  -11
  -11
  -11
  -11
  -11
  -11
  -10
  -9
  -7
  -6
  -4
  -2
  1
  3
  5
  7
  10
  13
  16
  20
  23
  28
  32
  37
  42
  47
  53
  60
  67
  74
Depreciation, amort., depletion, $m
  3
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Funds from operations, $m
  -14
  -9
  -10
  -10
  -10
  -9
  -9
  -8
  -7
  -5
  -4
  -2
  0
  3
  5
  7
  10
  13
  16
  19
  23
  27
  31
  36
  41
  46
  52
  58
  64
  71
  79
Change in working capital, $m
  -5
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
Cash from operations, $m
  -9
  -9
  -10
  -10
  -10
  -10
  -9
  -9
  -8
  -6
  -5
  -3
  -1
  2
  4
  6
  8
  11
  14
  17
  21
  25
  29
  33
  38
  44
  49
  55
  62
  68
  76
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
New CAPEX, $m
  -3
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
Free cash flow, $m
  -12
  -11
  -12
  -12
  -12
  -12
  -11
  -11
  -10
  -9
  -7
  -5
  -3
  -1
  1
  3
  5
  8
  11
  14
  17
  21
  25
  29
  34
  39
  44
  50
  56
  63
  70
Issuance/(repayment) of debt, $m
  6
  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
Issuance/(repurchase) of shares, $m
  -5
  11
  12
  12
  12
  12
  12
  11
  10
  9
  7
  5
  3
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  0
  12
  13
  13
  14
  14
  14
  13
  12
  11
  10
  8
  6
  4
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
Total cash flow (excl. dividends), $m
  -13
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  7
  9
  12
  15
  18
  22
  26
  30
  35
  40
  45
  51
  57
  63
  70
  78
Retained Cash Flow (-), $m
  19
  -11
  -12
  -12
  -12
  -12
  -12
  -11
  -10
  -9
  -7
  -5
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Prev. year cash balance distribution, $m
 
  13
  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
 
  3
  -11
  -11
  -11
  -10
  -10
  -9
  -8
  -6
  -4
  -2
  0
  2
  2
  5
  7
  10
  13
  16
  19
  23
  27
  32
  36
  42
  47
  53
  59
  66
  73
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
 
  3
  -10
  -9
  -9
  -8
  -7
  -6
  -5
  -4
  -2
  -1
  0
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
Current shareholders' claim on cash, %
  100
  77.2
  59.2
  45.3
  34.8
  27.0
  21.3
  17.1
  14.1
  11.9
  10.4
  9.4
  8.8
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6
  8.6

Hudson Global, Inc. (Hudson) is a provider of professional-level recruitment and related talent solutions across the world. The Company's segments include Hudson Americas, Hudson Asia Pacific and Hudson Europe. Its service offerings include Permanent Recruitment, Temporary Contracting, Recruitment Process Outsourcing (RPO) and Talent Management solutions. The Permanent Recruitment services leverage its consultants, supported by its specialists in the delivery of its methods to identify, select and engage the talent. In Temporary Contracting, Hudson provides a range of project management, interim management and professional contract staffing services. Hudson RPO services include complete recruitment outsourcing, project-based outsourcing, contingent workforce solutions and recruitment consulting. Its Talent Management Solutions' capability encompasses services, such as talent assessment, interview training, executive coaching, employee development and outplacement.

FINANCIAL RATIOS  of  Hudson Global (HSON)

Valuation Ratios
P/E Ratio -5.9
Price to Sales 0.1
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow -5.9
Price to Free Cash Flow -4.4
Growth Rates
Sales Growth Rate -8.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 19%
Interest Coverage 0
Management Effectiveness
Return On Assets -7.9%
Ret/ On Assets - 3 Yr. Avg. -5%
Return On Total Capital -15.9%
Ret/ On T. Cap. - 3 Yr. Avg. -10.7%
Return On Equity -17.5%
Return On Equity - 3 Yr. Avg. -11.2%
Asset Turnover 3.7
Profitability Ratios
Gross Margin 41.1%
Gross Margin - 3 Yr. Avg. 40%
EBITDA Margin -1.2%
EBITDA Margin - 3 Yr. Avg. -0.7%
Operating Margin -1.7%
Oper. Margin - 3 Yr. Avg. -1.4%
Pre-Tax Margin -1.9%
Pre-Tax Margin - 3 Yr. Avg. -1.5%
Net Profit Margin -2.1%
Net Profit Margin - 3 Yr. Avg. -1.3%
Effective Tax Rate -12.5%
Eff/ Tax Rate - 3 Yr. Avg. -0.5%
Payout Ratio -33.3%

HSON stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HSON stock intrinsic value calculation we used $423 million for the last fiscal year's total revenue generated by Hudson Global. The default revenue input number comes from 2016 income statement of Hudson Global. 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 HSON 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 HSON is calculated based on our internal credit rating of Hudson Global, 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 Hudson Global.
    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 HSON stock the variable cost ratio is equal to 74.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $116 million in the base year in the intrinsic value calculation for HSON 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 Hudson Global.

Corporate tax rate of 27% is the nominal tax rate for Hudson Global. 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 HSON 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 HSON are equal to 1.8%.

Life of production assets of 2.5 years is the average useful life of capital assets used in Hudson Global 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 HSON is equal to 4.7%. 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 - $42 million for Hudson Global - 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 32.895 million for Hudson Global 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 Hudson Global at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Hudson Global posts 2Q profit   [Aug-03-17 11:08PM  Associated Press]
▶ Hudson Global Schedules Conference Call and Webcast   [Jul-26-17 07:00AM  GlobeNewswire]
▶ Hudson Global reports 1Q loss   [May-04-17 08:11AM  Associated Press]
▶ Hudson Global Schedules Conference Call and Webcast   [Apr-27-17 07:00AM  GlobeNewswire]
▶ Hudson Global reports 4Q loss   [07:17AM  Associated Press]
▶ Hudson Global Schedules Conference Call and Webcast   [Feb-21-17 05:00PM  GlobeNewswire]
▶ Hudson Global Schedules Conference Call and Webcast   [Oct-20-16 07:00AM  GlobeNewswire]
▶ Hudson Global Schedules Conference Call and Webcast   [Jul-21-16 07:00AM  GlobeNewswire]
▶ Hudson Global Schedules Conference Call and Webcast   [Apr-20-16 07:00AM  GlobeNewswire]
▶ Hudson Global Schedules Conference Call and Webcast   [Feb-04-16 05:00PM  GlobeNewswire]
▶ Hudson Global Announces Cash Dividend   [Dec-21  07:00AM  GlobeNewswire]
▶ Hudson Global Schedules Conference Call and Webcast   [Oct-26  07:00AM  GlobeNewswire]
Financial statements of HSON
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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