Intrinsic value of Pioneer Power Solutions - PPSI

Previous Close

$7.15

  Intrinsic Value

$1.81

stock screener

  Rating & Target

str. sell

-75%

Previous close

$7.15

 
Intrinsic value

$1.81

 
Up/down potential

-75%

 
Rating

str. sell

We calculate the intrinsic value of PPSI 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  6.54
  3.40
  3.56
  3.70
  3.83
  3.95
  4.06
  4.15
  4.23
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.63
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.82
  4.84
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
Revenue, $m
  114
  118
  122
  127
  131
  137
  142
  148
  154
  161
  168
  176
  183
  192
  201
  210
  220
  230
  241
  252
  264
  277
  290
  305
  319
  335
  351
  368
  387
  406
  426
Variable operating expenses, $m
 
  51
  52
  54
  56
  59
  61
  63
  66
  69
  72
  74
  77
  81
  84
  88
  93
  97
  101
  106
  111
  117
  122
  128
  135
  141
  148
  155
  163
  171
  179
Fixed operating expenses, $m
 
  69
  70
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
  92
  95
  97
  99
  102
  104
  107
  110
  113
  115
  118
  121
  124
  127
  131
  134
  137
  141
Total operating expenses, $m
  114
  120
  122
  126
  130
  135
  139
  143
  148
  153
  158
  162
  167
  173
  179
  185
  192
  199
  205
  213
  221
  230
  237
  246
  256
  265
  275
  286
  297
  308
  320
Operating income, $m
  1
  -1
  -1
  0
  1
  2
  4
  5
  7
  9
  11
  14
  16
  19
  21
  24
  28
  31
  35
  39
  43
  48
  53
  58
  64
  70
  76
  83
  90
  98
  106
EBITDA, $m
  4
  1
  2
  3
  4
  6
  7
  9
  10
  12
  14
  17
  19
  22
  25
  28
  31
  35
  39
  43
  48
  52
  58
  63
  69
  75
  82
  89
  96
  104
  113
Interest expense (income), $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Earnings before tax, $m
  0
  -3
  -2
  -1
  0
  1
  2
  3
  5
  7
  8
  11
  14
  16
  19
  22
  25
  28
  31
  35
  39
  44
  48
  53
  59
  64
  71
  77
  84
  91
  99
Tax expense, $m
  1
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  21
  23
  25
  27
Net income, $m
  -1
  -3
  -2
  -1
  0
  1
  1
  2
  4
  5
  6
  8
  10
  12
  14
  16
  18
  20
  23
  26
  29
  32
  35
  39
  43
  47
  51
  56
  61
  67
  72

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  77
  80
  82
  85
  89
  92
  96
  100
  104
  109
  113
  119
  124
  129
  135
  142
  148
  155
  163
  170
  179
  187
  196
  206
  216
  226
  237
  249
  261
  274
  287
Adjusted assets (=assets-cash), $m
  77
  80
  82
  85
  89
  92
  96
  100
  104
  109
  113
  119
  124
  129
  135
  142
  148
  155
  163
  170
  179
  187
  196
  206
  216
  226
  237
  249
  261
  274
  287
Revenue / Adjusted assets
  1.481
  1.475
  1.488
  1.494
  1.472
  1.489
  1.479
  1.480
  1.481
  1.477
  1.487
  1.479
  1.476
  1.488
  1.489
  1.479
  1.486
  1.484
  1.479
  1.482
  1.475
  1.481
  1.480
  1.481
  1.477
  1.482
  1.481
  1.478
  1.483
  1.482
  1.484
Average production assets, $m
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
  49
  51
  53
  56
  59
  62
Working capital, $m
  2
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  58
  60
  63
  66
  69
  73
  76
  80
  84
  88
  92
  97
Total debt, $m
  28
  30
  32
  34
  36
  38
  41
  43
  46
  49
  52
  55
  59
  63
  67
  71
  75
  80
  85
  90
  95
  101
  107
  113
  120
  127
  134
  142
  150
  158
  167
Total liabilities, $m
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  86
  90
  94
  98
  103
  108
  113
  118
  124
  130
  136
  143
  150
  157
  165
  173
  181
  190
Total equity, $m
  26
  27
  28
  29
  30
  31
  32
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  58
  60
  63
  66
  70
  73
  76
  80
  84
  88
  93
  97
Total liabilities and equity, $m
  77
  80
  83
  86
  89
  92
  96
  100
  104
  109
  113
  118
  124
  130
  136
  142
  148
  155
  163
  171
  178
  187
  196
  206
  216
  226
  237
  249
  261
  274
  287
Debt-to-equity ratio
  1.077
  1.100
  1.130
  1.160
  1.190
  1.220
  1.250
  1.280
  1.310
  1.330
  1.360
  1.380
  1.410
  1.430
  1.460
  1.480
  1.500
  1.520
  1.540
  1.560
  1.580
  1.590
  1.610
  1.630
  1.640
  1.660
  1.670
  1.690
  1.700
  1.710
  1.720
Adjusted equity ratio
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338
  0.338

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  -3
  -2
  -1
  0
  1
  1
  2
  4
  5
  6
  8
  10
  12
  14
  16
  18
  20
  23
  26
  29
  32
  35
  39
  43
  47
  51
  56
  61
  67
  72
Depreciation, amort., depletion, $m
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
Funds from operations, $m
  -21
  0
  1
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  37
  40
  44
  48
  53
  57
  62
  68
  73
  79
Change in working capital, $m
  -12
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
Cash from operations, $m
  -9
  -1
  0
  1
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  30
  34
  37
  41
  45
  49
  54
  58
  63
  69
  75
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
New CAPEX, $m
  -1
  -1
  -1
  -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 investing activities, $m
  -1
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
Free cash flow, $m
  -10
  -3
  -3
  -2
  -1
  0
  0
  1
  2
  3
  5
  6
  7
  9
  11
  12
  14
  17
  19
  22
  24
  27
  31
  34
  38
  42
  46
  50
  55
  60
  65
Issuance/(repayment) of debt, $m
  10
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Issuance/(repurchase) of shares, $m
  0
  4
  3
  2
  1
  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
Cash from financing (excl. dividends), $m  
  10
  6
  5
  4
  3
  3
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Total cash flow (excl. dividends), $m
  0
  2
  2
  2
  3
  3
  3
  4
  5
  6
  8
  9
  11
  12
  14
  17
  19
  21
  24
  27
  30
  33
  37
  40
  44
  48
  53
  58
  63
  68
  74
Retained Cash Flow (-), $m
  1
  -4
  -3
  -2
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
Prev. year cash balance distribution, $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 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
 
  -1
  -1
  0
  1
  1
  2
  3
  4
  5
  6
  7
  9
  11
  12
  14
  17
  19
  21
  24
  27
  30
  34
  37
  41
  45
  49
  54
  59
  64
  69
Discount rate, %
 
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
 
  -1
  -1
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  94.6
  90.5
  87.5
  85.7
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0
  85.0

Pioneer Power Solutions, Inc. manufactures, sells and services a range of specialty electrical transmission, distribution and on-site power generation equipment for applications in the utility, industrial, commercial and backup power markets. The Company operates through two segments: Transmission & Distribution Solutions (T&D Solutions) and Critical Power Solutions (Critical Power). The T&D Solutions segment consists of two primary product categories: electrical transformers and switchgear. These solutions are marketed principally through its Pioneer Transformers Ltd., Jefferson Electric, Inc. and Pioneer CEP brand names. Its Critical Power business provides customers with power generation equipment, paralleling switchgear, related electrical distribution infrastructure, and a data collection and monitoring platform. These solutions are marketed by its operations in Minneapolis, doing business under the Pioneer Critical Power Inc. and Titan Energy Systems Inc. brand names.

FINANCIAL RATIOS  of  Pioneer Power Solutions (PPSI)

Valuation Ratios
P/E Ratio -62.2
Price to Sales 0.5
Price to Book 2.4
Price to Tangible Book
Price to Cash Flow -6.9
Price to Free Cash Flow -6.2
Growth Rates
Sales Growth Rate 6.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -19.7%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 15.4%
Total Debt to Equity 107.7%
Interest Coverage 1
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. -2.5%
Return On Total Capital -2%
Ret/ On T. Cap. - 3 Yr. Avg. -4.9%
Return On Equity -3.8%
Return On Equity - 3 Yr. Avg. -8.2%
Asset Turnover 1.6
Profitability Ratios
Gross Margin 20.2%
Gross Margin - 3 Yr. Avg. 19.8%
EBITDA Margin 3.5%
EBITDA Margin - 3 Yr. Avg. -0%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. -0.5%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. -2.8%
Net Profit Margin -0.9%
Net Profit Margin - 3 Yr. Avg. -2.2%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 11.1%
Payout Ratio 0%

PPSI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PPSI stock intrinsic value calculation we used $114 million for the last fiscal year's total revenue generated by Pioneer Power Solutions. The default revenue input number comes from 2016 income statement of Pioneer Power Solutions. 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 PPSI stock valuation model: a) initial revenue growth rate of 3.4% 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 9%, whose default value for PPSI is calculated based on our internal credit rating of Pioneer Power Solutions, 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 Pioneer Power Solutions.
    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 PPSI stock the variable cost ratio is equal to 43%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $67 million in the base year in the intrinsic value calculation for PPSI 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 4.3% for Pioneer Power Solutions.

Corporate tax rate of 27% is the nominal tax rate for Pioneer Power Solutions. 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 PPSI 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 PPSI are equal to 14.5%.

Life of production assets of 8.8 years is the average useful life of capital assets used in Pioneer Power Solutions 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 PPSI is equal to 22.8%. 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 - $26 million for Pioneer Power Solutions - 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 8.752 million for Pioneer Power Solutions 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 Pioneer Power Solutions at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Pioneer Power Solutions, Inc. to Host Earnings Call   [Nov-10-17 07:15AM  ACCESSWIRE]
▶ Pioneer Reports Third Quarter 2017 Financial Results   [Nov-09-17 04:05PM  PR Newswire]
▶ Pioneer Reports Second Quarter 2017 Financial Results   [Aug-10-17 04:05PM  PR Newswire]
▶ Pioneer Launches Line of Private Label Engine Generators   [Aug-03-17 08:00AM  PR Newswire]
▶ Pioneer Reports First Quarter 2017 Financial Results   [May-11-17 04:05PM  PR Newswire]
▶ /C O R R E C T I O N -- Pioneer Power Solutions, Inc./   [May-12-16 04:05PM  PR Newswire]
▶ Pioneer Announces Fourth Quarter 2015 Results   [Mar-29-16 07:40PM  at noodls]
Financial statements of PPSI
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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