Intrinsic value of Mesoblast ADR - MESO

Previous Close

$6.54

  Intrinsic Value

$0.98

stock screener

  Rating & Target

str. sell

-85%

Previous close

$6.54

 
Intrinsic value

$0.98

 
Up/down potential

-85%

 
Rating

str. sell

We calculate the intrinsic value of MESO 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 2017), $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 0.6

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -95.35
  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
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
Variable operating expenses, $m
 
  1
  0
  0
  0
  -1
  -1
  -2
  -2
  -3
  -3
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
Fixed operating expenses, $m
 
  96
  99
  101
  104
  106
  109
  112
  115
  117
  120
  123
  126
  130
  133
  136
  140
  143
  147
  150
  154
  158
  162
  166
  170
  174
  179
  183
  188
  192
  197
Total operating expenses, $m
  93
  97
  99
  101
  104
  105
  108
  110
  113
  114
  117
  106
  108
  111
  113
  115
  119
  121
  124
  126
  128
  131
  134
  137
  139
  142
  145
  148
  151
  153
  156
Operating income, $m
  -90
  -95
  -97
  -99
  -101
  -103
  -106
  -108
  -110
  -112
  -114
  -103
  -105
  -108
  -110
  -112
  -115
  -117
  -119
  -122
  -124
  -127
  -129
  -132
  -134
  -137
  -140
  -142
  -145
  -147
  -150
EBITDA, $m
  -90
  -35
  -36
  -37
  -38
  -38
  -39
  -39
  -39
  -40
  -39
  -39
  -39
  -38
  -38
  -37
  -36
  -35
  -34
  -32
  -31
  -29
  -27
  -24
  -22
  -19
  -16
  -13
  -9
  -5
  -1
Interest expense (income), $m
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
Earnings before tax, $m
  -90
  -95
  -98
  -100
  -102
  -104
  -107
  -109
  -111
  -114
  -116
  -105
  -108
  -111
  -113
  -116
  -119
  -121
  -124
  -127
  -130
  -133
  -136
  -139
  -142
  -145
  -148
  -152
  -155
  -158
  -162
Tax expense, $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
  0
Net income, $m
  -77
  -95
  -98
  -100
  -102
  -104
  -107
  -109
  -111
  -114
  -116
  -105
  -108
  -111
  -113
  -116
  -119
  -121
  -124
  -127
  -130
  -133
  -136
  -139
  -142
  -145
  -148
  -152
  -155
  -158
  -162

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  46
  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
  656
  680
  696
  714
  734
  756
  780
  807
  836
  867
  900
  935
  973
  1,014
  1,057
  1,102
  1,151
  1,202
  1,256
  1,313
  1,373
  1,437
  1,504
  1,575
  1,649
  1,728
  1,811
  1,898
  1,989
  2,086
  2,187
Adjusted assets (=assets-cash), $m
  610
  680
  696
  714
  734
  756
  780
  807
  836
  867
  900
  935
  973
  1,014
  1,057
  1,102
  1,151
  1,202
  1,256
  1,313
  1,373
  1,437
  1,504
  1,575
  1,649
  1,728
  1,811
  1,898
  1,989
  2,086
  2,187
Revenue / Adjusted assets
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.002
  0.004
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
  0.003
Average production assets, $m
  455
  464
  475
  487
  501
  516
  533
  551
  570
  591
  614
  638
  664
  692
  721
  752
  785
  820
  857
  896
  937
  981
  1,027
  1,075
  1,126
  1,179
  1,236
  1,295
  1,358
  1,423
  1,493
Working capital, $m
  27
  -19
  -20
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
  -62
Total debt, $m
  0
  16
  20
  24
  28
  33
  39
  45
  52
  59
  66
  74
  83
  92
  102
  112
  123
  135
  147
  160
  174
  189
  204
  220
  237
  255
  274
  294
  315
  336
  360
Total liabilities, $m
  139
  155
  159
  163
  167
  172
  178
  184
  191
  198
  205
  213
  222
  231
  241
  251
  262
  274
  286
  299
  313
  328
  343
  359
  376
  394
  413
  433
  454
  475
  499
Total equity, $m
  517
  525
  537
  551
  566
  584
  602
  623
  645
  669
  695
  722
  751
  783
  816
  851
  888
  928
  970
  1,014
  1,060
  1,109
  1,161
  1,216
  1,273
  1,334
  1,398
  1,465
  1,536
  1,610
  1,688
Total liabilities and equity, $m
  656
  680
  696
  714
  733
  756
  780
  807
  836
  867
  900
  935
  973
  1,014
  1,057
  1,102
  1,150
  1,202
  1,256
  1,313
  1,373
  1,437
  1,504
  1,575
  1,649
  1,728
  1,811
  1,898
  1,990
  2,085
  2,187
Debt-to-equity ratio
  0.000
  0.030
  0.040
  0.040
  0.050
  0.060
  0.060
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.160
  0.170
  0.180
  0.180
  0.190
  0.190
  0.200
  0.200
  0.200
  0.210
  0.210
Adjusted equity ratio
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772
  0.772

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -77
  -95
  -98
  -100
  -102
  -104
  -107
  -109
  -111
  -114
  -116
  -105
  -108
  -111
  -113
  -116
  -119
  -121
  -124
  -127
  -130
  -133
  -136
  -139
  -142
  -145
  -148
  -152
  -155
  -158
  -162
Depreciation, amort., depletion, $m
  0
  60
  61
  62
  63
  65
  67
  68
  70
  73
  75
  64
  66
  69
  72
  75
  79
  82
  86
  90
  94
  98
  103
  107
  113
  118
  124
  130
  136
  142
  149
Funds from operations, $m
  -90
  -35
  -37
  -38
  -39
  -39
  -40
  -41
  -41
  -41
  -42
  -42
  -42
  -41
  -41
  -41
  -40
  -39
  -38
  -37
  -36
  -35
  -33
  -32
  -30
  -27
  -25
  -22
  -19
  -16
  -12
Change in working capital, $m
  5
  0
  0
  -1
  -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
Cash from operations, $m
  -95
  -35
  -36
  -37
  -38
  -39
  -39
  -40
  -40
  -40
  -41
  -41
  -40
  -40
  -40
  -39
  -39
  -38
  -37
  -36
  -35
  -33
  -31
  -29
  -27
  -25
  -23
  -20
  -17
  -13
  -10
Maintenance CAPEX, $m
  0
  -46
  -46
  -47
  -49
  -50
  -52
  -53
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -75
  -79
  -82
  -86
  -90
  -94
  -98
  -103
  -107
  -113
  -118
  -124
  -130
  -136
  -142
New CAPEX, $m
  0
  -9
  -11
  -12
  -14
  -15
  -17
  -18
  -20
  -21
  -23
  -24
  -26
  -28
  -29
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -56
  -59
  -62
  -66
  -69
Cash from investing activities, $m
  0
  -55
  -57
  -59
  -63
  -65
  -69
  -71
  -75
  -78
  -82
  -85
  -90
  -94
  -98
  -103
  -108
  -114
  -119
  -125
  -131
  -137
  -144
  -151
  -158
  -167
  -174
  -183
  -192
  -202
  -211
Free cash flow, $m
  -95
  -89
  -93
  -97
  -100
  -104
  -108
  -111
  -115
  -119
  -122
  -126
  -130
  -134
  -138
  -143
  -147
  -151
  -156
  -161
  -165
  -170
  -175
  -180
  -186
  -191
  -197
  -203
  -209
  -215
  -221
Issuance/(repayment) of debt, $m
  0
  16
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
Issuance/(repurchase) of shares, $m
  62
  149
  110
  114
  118
  122
  126
  130
  134
  138
  142
  133
  137
  142
  146
  151
  156
  161
  166
  171
  177
  182
  188
  194
  200
  206
  212
  219
  226
  233
  240
Cash from financing (excl. dividends), $m  
  60
  165
  114
  118
  123
  127
  132
  136
  141
  145
  150
  141
  146
  151
  156
  161
  167
  173
  178
  184
  191
  197
  203
  210
  217
  224
  231
  239
  247
  255
  263
Total cash flow (excl. dividends), $m
  -35
  76
  20
  21
  22
  23
  24
  24
  25
  26
  27
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  42
Retained Cash Flow (-), $m
  11
  -149
  -110
  -114
  -118
  -122
  -126
  -130
  -134
  -138
  -142
  -133
  -137
  -142
  -146
  -151
  -156
  -161
  -166
  -171
  -177
  -182
  -188
  -194
  -200
  -206
  -212
  -219
  -226
  -233
  -240
Prev. year cash balance distribution, $m
 
  46
  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
 
  -27
  -90
  -93
  -96
  -99
  -102
  -105
  -108
  -112
  -115
  -118
  -122
  -125
  -129
  -132
  -136
  -140
  -144
  -148
  -152
  -156
  -160
  -164
  -169
  -173
  -178
  -183
  -188
  -193
  -198
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
 
  -26
  -82
  -81
  -79
  -77
  -74
  -71
  -68
  -64
  -60
  -56
  -52
  -48
  -43
  -39
  -35
  -30
  -26
  -23
  -19
  -16
  -13
  -11
  -9
  -7
  -5
  -4
  -3
  -2
  -1
Current shareholders' claim on cash, %
  100
  79.6
  68.1
  58.1
  49.5
  42.2
  35.9
  30.6
  26.0
  22.2
  18.9
  16.4
  14.2
  12.3
  10.7
  9.3
  8.1
  7.1
  6.2
  5.4
  4.7
  4.2
  3.6
  3.2
  2.8
  2.5
  2.2
  2.0
  1.8
  1.6
  1.4

Mesoblast Limited is engaged in developing cell-based medicines. The Company has leveraged its technology platform, which is based on specialized cells known as mesenchymal lineage adult stem cells, to establish a portfolio of late-stage product candidates. Its allogeneic, off-the-shelf cell product candidates target advanced stages of diseases with high, unmet medical needs, including cardiovascular conditions, orthopedic disorders, immunologic and inflammatory disorders and oncologic/hematologic conditions.

FINANCIAL RATIOS  of  Mesoblast ADR (MESO)

Valuation Ratios
P/E Ratio -36.1
Price to Sales 1388.8
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow -29.2
Price to Free Cash Flow -29.2
Growth Rates
Sales Growth Rate -95.3%
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 -11.5%
Ret/ On Assets - 3 Yr. Avg. -8.3%
Return On Total Capital -14.7%
Ret/ On T. Cap. - 3 Yr. Avg. -12.1%
Return On Equity -14.7%
Return On Equity - 3 Yr. Avg. -12.1%
Asset Turnover 0
Profitability Ratios
Gross Margin -500%
Gross Margin - 3 Yr. Avg. -163.3%
EBITDA Margin -4500%
EBITDA Margin - 3 Yr. Avg. -1730.5%
Operating Margin -4550%
Oper. Margin - 3 Yr. Avg. -1742%
Pre-Tax Margin -4500%
Pre-Tax Margin - 3 Yr. Avg. -1730.5%
Net Profit Margin -3850%
Net Profit Margin - 3 Yr. Avg. -1446.4%
Effective Tax Rate 14.4%
Eff/ Tax Rate - 3 Yr. Avg. 36.7%
Payout Ratio 0%

MESO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MESO stock intrinsic value calculation we used $2 million for the last fiscal year's total revenue generated by Mesoblast ADR. The default revenue input number comes from 2017 income statement of Mesoblast ADR. 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 MESO 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 MESO is calculated based on our internal credit rating of Mesoblast ADR, 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 Mesoblast ADR.
    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 MESO stock the variable cost ratio is equal to 50%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $94 million in the base year in the intrinsic value calculation for MESO 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 Mesoblast ADR.

Corporate tax rate of 27% is the nominal tax rate for Mesoblast ADR. 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 MESO 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 MESO are equal to 22750%.

Life of production assets of 10 years is the average useful life of capital assets used in Mesoblast ADR 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 MESO is equal to -950%. 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 - $517 million for Mesoblast ADR - 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 97.515 million for Mesoblast ADR 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 Mesoblast ADR at the current share price and the inputted number of shares is $0.6 billion.

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COMPANY NEWS

▶ Should You Buy Mesoblast Limited (ASX:MSB)?   [Oct-16-17 11:29PM  Simply Wall St.]
▶ ETFs with exposure to Mesoblast Ltd. : October 9, 2017   [Oct-09-17 11:46AM  Capital Cube]
▶ ETFs with exposure to Mesoblast Ltd. : September 6, 2017   [Sep-05-17 09:25PM  Capital Cube]
▶ ETFs with exposure to Mesoblast Ltd. : June 5, 2017   [Jun-05-17 02:31PM  Capital Cube]
▶ ETFs with exposure to Mesoblast Ltd. : May 9, 2017   [May-09-17 04:48PM  Capital Cube]
▶ Mesoblast Raises US$40 Million   [Mar-27-17 06:00AM  GlobeNewswire]
Financial statements of MESO
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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