Intrinsic value of NetSol Technologies - NTWK

Previous Close

$4.40

  Intrinsic Value

$30.74

stock screener

  Rating & Target

str. buy

+599%

  Value-price divergence*

+86%

Previous close

$4.40

 
Intrinsic value

$30.74

 
Up/down potential

+599%

 
Rating

str. buy

 
Value-price divergence*

+86%

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

We calculate the intrinsic value of NTWK 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, %
  27.45
  12.50
  11.75
  11.08
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.35
  7.12
  6.91
  6.72
  6.54
  6.39
  6.25
  6.13
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.44
  5.39
  5.35
Revenue, $m
  65
  73
  82
  91
  100
  110
  121
  131
  143
  154
  167
  179
  193
  206
  221
  235
  251
  267
  283
  301
  319
  338
  357
  378
  399
  422
  445
  469
  495
  522
  550
Variable operating expenses, $m
 
  16
  17
  19
  21
  23
  25
  27
  29
  32
  34
  36
  38
  41
  44
  47
  50
  53
  57
  60
  64
  67
  71
  75
  80
  84
  89
  94
  99
  104
  110
Fixed operating expenses, $m
 
  47
  48
  50
  51
  52
  53
  55
  56
  57
  59
  60
  62
  63
  65
  67
  68
  70
  72
  74
  75
  77
  79
  81
  83
  85
  87
  90
  92
  94
  96
Total operating expenses, $m
  58
  63
  65
  69
  72
  75
  78
  82
  85
  89
  93
  96
  100
  104
  109
  114
  118
  123
  129
  134
  139
  144
  150
  156
  163
  169
  176
  184
  191
  198
  206
Operating income, $m
  6
  10
  16
  22
  28
  35
  42
  50
  57
  65
  74
  83
  92
  102
  112
  122
  132
  144
  155
  167
  180
  193
  207
  221
  236
  252
  269
  286
  304
  323
  343
EBITDA, $m
  13
  16
  23
  29
  36
  44
  52
  60
  68
  77
  86
  96
  106
  116
  127
  138
  150
  162
  175
  188
  202
  217
  232
  248
  264
  282
  300
  319
  339
  360
  382
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
Earnings before tax, $m
  6
  10
  16
  22
  28
  35
  42
  49
  56
  64
  72
  82
  91
  100
  110
  120
  130
  141
  152
  164
  177
  190
  203
  217
  232
  248
  264
  281
  299
  318
  337
Tax expense, $m
  1
  3
  4
  6
  8
  9
  11
  13
  15
  17
  20
  22
  24
  27
  30
  32
  35
  38
  41
  44
  48
  51
  55
  59
  63
  67
  71
  76
  81
  86
  91
Net income, $m
  3
  8
  12
  16
  21
  25
  30
  36
  41
  47
  53
  60
  66
  73
  80
  87
  95
  103
  111
  120
  129
  138
  148
  159
  169
  181
  193
  205
  218
  232
  246

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  12
  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
  93
  91
  102
  113
  125
  137
  150
  164
  178
  193
  208
  224
  240
  257
  275
  293
  313
  333
  353
  375
  398
  421
  446
  471
  498
  526
  555
  585
  617
  650
  685
Adjusted assets (=assets-cash), $m
  81
  91
  102
  113
  125
  137
  150
  164
  178
  193
  208
  224
  240
  257
  275
  293
  313
  333
  353
  375
  398
  421
  446
  471
  498
  526
  555
  585
  617
  650
  685
Revenue / Adjusted assets
  0.802
  0.802
  0.804
  0.805
  0.800
  0.803
  0.807
  0.799
  0.803
  0.798
  0.803
  0.799
  0.804
  0.802
  0.804
  0.802
  0.802
  0.802
  0.802
  0.803
  0.802
  0.803
  0.800
  0.803
  0.801
  0.802
  0.802
  0.802
  0.802
  0.803
  0.803
Average production assets, $m
  46
  51
  57
  64
  70
  77
  84
  92
  100
  108
  117
  126
  135
  144
  154
  165
  176
  187
  198
  211
  223
  236
  250
  265
  280
  295
  312
  329
  346
  365
  385
Working capital, $m
  25
  19
  21
  24
  26
  29
  32
  34
  37
  40
  44
  47
  50
  54
  58
  62
  66
  70
  74
  79
  84
  88
  94
  99
  105
  110
  117
  123
  130
  137
  144
Total debt, $m
  5
  4
  7
  11
  15
  18
  22
  27
  31
  36
  40
  45
  50
  55
  61
  67
  73
  79
  85
  92
  99
  106
  114
  122
  130
  138
  147
  157
  167
  177
  188
Total liabilities, $m
  29
  28
  31
  35
  39
  42
  46
  51
  55
  60
  64
  69
  74
  79
  85
  91
  97
  103
  109
  116
  123
  130
  138
  146
  154
  162
  171
  181
  191
  201
  212
Total equity, $m
  64
  63
  70
  78
  86
  95
  104
  113
  123
  133
  144
  155
  166
  178
  190
  203
  216
  230
  244
  259
  275
  291
  308
  326
  344
  363
  383
  404
  426
  449
  474
Total liabilities and equity, $m
  93
  91
  101
  113
  125
  137
  150
  164
  178
  193
  208
  224
  240
  257
  275
  294
  313
  333
  353
  375
  398
  421
  446
  472
  498
  525
  554
  585
  617
  650
  686
Debt-to-equity ratio
  0.078
  0.070
  0.110
  0.140
  0.170
  0.190
  0.220
  0.240
  0.250
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.340
  0.350
  0.350
  0.360
  0.360
  0.370
  0.370
  0.380
  0.380
  0.380
  0.390
  0.390
  0.390
  0.400
Adjusted equity ratio
  0.642
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691
  0.691

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  8
  12
  16
  21
  25
  30
  36
  41
  47
  53
  60
  66
  73
  80
  87
  95
  103
  111
  120
  129
  138
  148
  159
  169
  181
  193
  205
  218
  232
  246
Depreciation, amort., depletion, $m
  7
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  13
  13
  14
  15
  16
  18
  19
  20
  21
  22
  24
  25
  26
  28
  30
  31
  33
  35
  37
  38
Funds from operations, $m
  -10
  14
  18
  23
  29
  34
  40
  46
  52
  59
  65
  72
  80
  87
  95
  104
  113
  122
  131
  141
  151
  162
  173
  185
  197
  210
  224
  238
  253
  268
  285
Change in working capital, $m
  -12
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  2
  12
  16
  21
  26
  31
  37
  43
  49
  56
  62
  69
  76
  84
  92
  100
  108
  117
  127
  136
  147
  157
  168
  180
  192
  204
  218
  232
  246
  261
  277
Maintenance CAPEX, $m
  0
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
New CAPEX, $m
  -3
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
Cash from investing activities, $m
  -4
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -29
  -31
  -32
  -34
  -35
  -38
  -39
  -41
  -44
  -46
  -48
  -51
  -54
  -57
Free cash flow, $m
  -2
  1
  5
  9
  13
  17
  22
  27
  32
  37
  43
  48
  54
  61
  67
  74
  81
  89
  96
  104
  113
  122
  131
  140
  150
  161
  172
  183
  195
  208
  221
Issuance/(repayment) of debt, $m
  0
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  1
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
Total cash flow (excl. dividends), $m
  -3
  4
  8
  12
  17
  21
  26
  31
  36
  42
  48
  53
  60
  66
  73
  80
  87
  95
  103
  111
  120
  129
  138
  148
  159
  169
  181
  193
  205
  218
  232
Retained Cash Flow (-), $m
  -4
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  8
  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
 
  5
  1
  5
  9
  13
  17
  22
  27
  32
  37
  42
  48
  54
  60
  67
  74
  81
  88
  96
  104
  113
  121
  131
  140
  150
  161
  172
  183
  195
  208
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
 
  5
  1
  4
  7
  10
  12
  15
  17
  18
  19
  20
  21
  21
  20
  20
  19
  18
  16
  15
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
  2
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
  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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NetSol Technologies, Inc. designs, develops, markets, and exports software products to automobile finance and leasing, banking, healthcare, and financial services industries worldwide. It also provides system integration, consulting, and IT products and services. The company offers NetSol Financial Suite (NFS), an end-to-end solution covering leasing and finance cycle for the asset finance industry; and NFS Ascent platform, a lease accounting and contract processing engine. Its NFS consists of Point of Sale, a front office processing system for companies in the financial sector; Credit Application Processing System that handles incoming credit applications from dealers, agents, brokers, and the direct sales force; Contract Management System, which enables its users to manage and maintain a contract throughout its life cycle; Wholesale Finance System (WFS) that automates and manages the floor plan/bailment activities; Dealer Auditor Access System, a Web-based solution used in conjunction with WFS; and Fleet Management System to handle fleet management needs. The company’s NFS Ascent includes LeasePak, which handles various aspects of the lease or loan lifecycle; and LeasePak software-as-a-service to small and mid-sized leasing and finance companies. In addition, it offers LeaseSoft, a full lifecycle lease and finance system for funder market; and LoanSoft for consumer loan market. Further, the company provides NFS Mobility that enables a sales force for the finance and leasing company across different channels like point of sale, field investigation, and auditing. Its NFS Mobility includes mAccount, a self-service mobile solution; mPOS application, a Web and mobile enabled platform; mDealer that provides a mobile platform; mAuditor, which schedules visits, records audit exceptions, and tracks assets; and Mobile Field Investigator that permits applicant detail verification on the go. The company was founded in 1997 and is headquartered in Calabasas, California.

FINANCIAL RATIOS  of  NetSol Technologies (NTWK)

Valuation Ratios
P/E Ratio 15.7
Price to Sales 0.7
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow 23.5
Price to Free Cash Flow -47
Growth Rates
Sales Growth Rate 27.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate -26.5%
Financial Strength
Quick Ratio 3
Current Ratio 0.8
LT Debt to Equity 1.6%
Total Debt to Equity 7.8%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. -4.8%
Return On Total Capital 4.5%
Ret/ On T. Cap. - 3 Yr. Avg. -6.4%
Return On Equity 4.8%
Return On Equity - 3 Yr. Avg. -7.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 47.7%
Gross Margin - 3 Yr. Avg. 35.3%
EBITDA Margin 20%
EBITDA Margin - 3 Yr. Avg. 5.3%
Operating Margin 10.8%
Oper. Margin - 3 Yr. Avg. -11.7%
Pre-Tax Margin 9.2%
Pre-Tax Margin - 3 Yr. Avg. -13.2%
Net Profit Margin 4.6%
Net Profit Margin - 3 Yr. Avg. -12.6%
Effective Tax Rate 16.7%
Eff/ Tax Rate - 3 Yr. Avg. 5.6%
Payout Ratio 0%

NTWK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the NTWK stock intrinsic value calculation we used $65 million for the last fiscal year's total revenue generated by NetSol Technologies. The default revenue input number comes from 2016 income statement of NetSol Technologies. 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 NTWK stock valuation model: a) initial revenue growth rate of 12.5% 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 NTWK is calculated based on our internal credit rating of NetSol Technologies, 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 NetSol Technologies.
    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 NTWK stock the variable cost ratio is equal to 21.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $46 million in the base year in the intrinsic value calculation for NTWK 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 NetSol Technologies.

Corporate tax rate of 27% is the nominal tax rate for NetSol Technologies. 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 NTWK 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 NTWK are equal to 70%.

Life of production assets of 10 years is the average useful life of capital assets used in NetSol Technologies 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 NTWK is equal to 26.2%. 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 - $64 million for NetSol Technologies - 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 11.443 million for NetSol Technologies 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 NetSol Technologies at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ NETSOL Technologies Announces Stock Repurchase Program   [Jul-18-17 08:00AM  GlobeNewswire]
▶ NETSOL Announces Stock Repurchase Program   [08:00AM  GlobeNewswire]
▶ Aldermore Asset Finance Goes Live with NetSols LeaseSoft V8   [Apr-22-16 08:00AM  GlobeNewswire]
Stock chart of NTWK Financial statements of NTWK
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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