Intrinsic value of Sapiens International - SPNS

Previous Close

$10.90

  Intrinsic Value

$13.46

stock screener

  Rating & Target

buy

+23%

  Value-price divergence*

+1657%

Previous close

$10.90

 
Intrinsic value

$13.46

 
Up/down potential

+23%

 
Rating

buy

 
Value-price divergence*

+1657%

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

We calculate the intrinsic value of SPNS 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 0.5

 

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, %
  16.13
  14.00
  13.10
  12.29
  11.56
  10.90
  10.31
  9.78
  9.30
  8.87
  8.49
  8.14
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.22
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
Revenue, $m
  216
  246
  278
  313
  349
  387
  427
  469
  512
  558
  605
  654
  705
  759
  814
  871
  931
  993
  1,058
  1,125
  1,195
  1,268
  1,343
  1,423
  1,505
  1,591
  1,681
  1,775
  1,873
  1,975
  2,082
Variable operating expenses, $m
 
  212
  239
  268
  298
  329
  362
  397
  433
  471
  511
  544
  587
  631
  677
  725
  774
  826
  880
  936
  994
  1,054
  1,117
  1,183
  1,252
  1,323
  1,398
  1,476
  1,558
  1,643
  1,732
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
  191
  212
  239
  268
  298
  329
  362
  397
  433
  471
  511
  544
  587
  631
  677
  725
  774
  826
  880
  936
  994
  1,054
  1,117
  1,183
  1,252
  1,323
  1,398
  1,476
  1,558
  1,643
  1,732
Operating income, $m
  25
  34
  39
  45
  51
  58
  64
  71
  79
  86
  94
  110
  119
  128
  137
  147
  157
  167
  178
  189
  201
  213
  226
  239
  253
  268
  283
  299
  315
  332
  350
EBITDA, $m
  35
  45
  51
  57
  64
  71
  78
  86
  94
  102
  111
  120
  129
  139
  149
  160
  171
  182
  194
  206
  219
  233
  246
  261
  276
  292
  308
  326
  344
  362
  382
Interest expense (income), $m
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
Earnings before tax, $m
  25
  34
  39
  44
  50
  56
  62
  69
  76
  83
  90
  106
  114
  122
  131
  140
  149
  159
  169
  180
  191
  203
  215
  227
  240
  254
  268
  283
  298
  315
  332
Tax expense, $m
  5
  9
  10
  12
  13
  15
  17
  19
  20
  22
  24
  28
  31
  33
  35
  38
  40
  43
  46
  49
  52
  55
  58
  61
  65
  69
  72
  76
  81
  85
  90
Net income, $m
  19
  24
  28
  32
  36
  41
  45
  50
  55
  60
  66
  77
  83
  89
  95
  102
  109
  116
  124
  131
  139
  148
  157
  166
  175
  185
  196
  206
  218
  230
  242

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  79
  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
  258
  204
  231
  259
  289
  321
  354
  388
  424
  462
  501
  542
  584
  628
  674
  722
  771
  823
  876
  932
  990
  1,050
  1,113
  1,179
  1,247
  1,318
  1,393
  1,470
  1,552
  1,636
  1,725
Adjusted assets (=assets-cash), $m
  179
  204
  231
  259
  289
  321
  354
  388
  424
  462
  501
  542
  584
  628
  674
  722
  771
  823
  876
  932
  990
  1,050
  1,113
  1,179
  1,247
  1,318
  1,393
  1,470
  1,552
  1,636
  1,725
Revenue / Adjusted assets
  1.207
  1.206
  1.203
  1.208
  1.208
  1.206
  1.206
  1.209
  1.208
  1.208
  1.208
  1.207
  1.207
  1.209
  1.208
  1.206
  1.208
  1.207
  1.208
  1.207
  1.207
  1.208
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
Average production assets, $m
  36
  40
  46
  51
  57
  63
  70
  77
  84
  91
  99
  107
  116
  124
  133
  143
  153
  163
  173
  184
  196
  208
  220
  233
  247
  261
  276
  291
  307
  324
  341
Working capital, $m
  72
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
  -63
  -67
Total debt, $m
  15
  24
  34
  44
  54
  66
  78
  90
  103
  116
  130
  145
  160
  176
  192
  209
  227
  246
  265
  285
  305
  327
  349
  373
  397
  423
  450
  477
  506
  537
  569
Total liabilities, $m
  64
  73
  83
  93
  103
  115
  127
  139
  152
  165
  179
  194
  209
  225
  241
  258
  276
  295
  314
  334
  354
  376
  398
  422
  446
  472
  499
  526
  555
  586
  618
Total equity, $m
  194
  131
  148
  166
  186
  206
  227
  249
  272
  297
  322
  348
  375
  403
  433
  463
  495
  528
  563
  598
  635
  674
  715
  757
  800
  846
  894
  944
  996
  1,051
  1,108
Total liabilities and equity, $m
  258
  204
  231
  259
  289
  321
  354
  388
  424
  462
  501
  542
  584
  628
  674
  721
  771
  823
  877
  932
  989
  1,050
  1,113
  1,179
  1,246
  1,318
  1,393
  1,470
  1,551
  1,637
  1,726
Debt-to-equity ratio
  0.077
  0.180
  0.230
  0.260
  0.290
  0.320
  0.340
  0.360
  0.380
  0.390
  0.410
  0.420
  0.430
  0.440
  0.440
  0.450
  0.460
  0.460
  0.470
  0.480
  0.480
  0.480
  0.490
  0.490
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
Adjusted equity ratio
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642
  0.642

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  24
  28
  32
  36
  41
  45
  50
  55
  60
  66
  77
  83
  89
  95
  102
  109
  116
  124
  131
  139
  148
  157
  166
  175
  185
  196
  206
  218
  230
  242
Depreciation, amort., depletion, $m
  10
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  28
  30
  32
Funds from operations, $m
  19
  36
  40
  44
  49
  54
  59
  65
  70
  76
  83
  87
  94
  101
  108
  115
  123
  131
  140
  148
  158
  167
  177
  187
  198
  209
  221
  233
  246
  260
  274
Change in working capital, $m
  -7
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Cash from operations, $m
  26
  37
  41
  45
  50
  55
  61
  66
  72
  78
  84
  89
  95
  102
  110
  117
  125
  133
  142
  151
  160
  169
  179
  190
  201
  212
  224
  236
  249
  263
  277
Maintenance CAPEX, $m
  0
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -28
  -30
New CAPEX, $m
  -10
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
Cash from investing activities, $m
  -8
  -8
  -9
  -10
  -11
  -11
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -21
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -33
  -36
  -37
  -39
  -41
  -43
  -45
  -48
Free cash flow, $m
  18
  28
  32
  36
  40
  44
  48
  53
  58
  63
  68
  71
  77
  83
  89
  95
  102
  109
  116
  124
  131
  139
  148
  157
  166
  175
  185
  196
  206
  218
  230
Issuance/(repayment) of debt, $m
  -1
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  23
  24
  26
  27
  28
  29
  30
  32
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
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  23
  24
  26
  27
  28
  29
  30
  32
Total cash flow (excl. dividends), $m
  17
  37
  41
  46
  50
  55
  60
  65
  70
  76
  82
  86
  92
  99
  105
  112
  120
  127
  135
  143
  152
  161
  170
  180
  190
  201
  212
  223
  235
  248
  261
Retained Cash Flow (-), $m
  -13
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -57
Prev. year cash balance distribution, $m
 
  79
  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
 
  100
  24
  27
  31
  35
  39
  43
  47
  52
  57
  60
  65
  70
  76
  82
  88
  94
  101
  108
  115
  122
  130
  138
  146
  155
  164
  173
  183
  194
  204
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
 
  96
  22
  24
  26
  27
  28
  29
  30
  30
  30
  28
  28
  27
  26
  24
  22
  21
  19
  17
  15
  13
  11
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Sapiens International Corporation N.V., together with its subsidiaries, provides software solutions for the insurance industry primarily in North America, the United Kingdom, Europe, Israel, and the Asia Pacific. It offers software solutions for the management of a range of products, including Sapiens ALIS, Sapiens TOPAZ, Sapiens Retirement, and Sapiens Closed Books for life, pension, annuity, and retirement. The company also provides a software suite of solutions supporting various business lines, including personal, commercial, and specialty lines, as well as a solution for the management of reinsurance contracts. These solutions include Sapiens IDIT and Sapiens Reinsurance. In addition, it offers Sapiens DECISION, an enterprise-scale platform that enables institutions to author, store, and manage various organizational business logic. The banks, mortgage institutions, and insurers use Sapiens DECISION to track, verify, and ensure that every decision is based on the up-to-date rules and policies. Further, the company provides technology-based solutions based on its eMerge platform, which provides end-to-end, modular business solutions, ensuring rapid time to market. Additionally, it offers services, such as project delivery and implementation, business and technical consulting related to products, project and program management, training, user acceptance testing, migration, maintenance and support services, hosting, and product upgrades. The company markets and sells its products and services through direct sales force, as well as through channel partners and system integrators. Sapiens International Corporation N.V. was founded in 1982 and is headquartered in Holon, Israel.

FINANCIAL RATIOS  of  Sapiens International (SPNS)

Valuation Ratios
P/E Ratio 28.1
Price to Sales 2.5
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 20.6
Price to Free Cash Flow 33.4
Growth Rates
Sales Growth Rate 16.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 11.1%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 7.7%
Total Debt to Equity 7.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 7.4%
Return On Total Capital 9.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9.1%
Return On Equity 10.1%
Return On Equity - 3 Yr. Avg. 9.8%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 39.8%
Gross Margin - 3 Yr. Avg. 38.8%
EBITDA Margin 16.2%
EBITDA Margin - 3 Yr. Avg. 16.8%
Operating Margin 11.6%
Oper. Margin - 3 Yr. Avg. 11.3%
Pre-Tax Margin 11.6%
Pre-Tax Margin - 3 Yr. Avg. 11.5%
Net Profit Margin 8.8%
Net Profit Margin - 3 Yr. Avg. 9.5%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. 13.3%
Payout Ratio 52.6%

SPNS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SPNS stock intrinsic value calculation we used $216 million for the last fiscal year's total revenue generated by Sapiens International. The default revenue input number comes from 2016 income statement of Sapiens International. 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 SPNS stock valuation model: a) initial revenue growth rate of 14% 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 SPNS is calculated based on our internal credit rating of Sapiens International, 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 Sapiens International.
    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 SPNS stock the variable cost ratio is equal to 86.6%.

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 SPNS 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 Sapiens International.

Corporate tax rate of 27% is the nominal tax rate for Sapiens International. 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 SPNS 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 SPNS are equal to 16.4%.

Life of production assets of 10.8 years is the average useful life of capital assets used in Sapiens International 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 SPNS is equal to -3.2%. 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 - $194 million for Sapiens International - 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 46.827 million for Sapiens International 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 Sapiens International at the current share price and the inputted number of shares is $0.5 billion.

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COMPANY NEWS

▶ Sapiens reports 2Q loss   [Aug-07-17 10:39PM  Associated Press]
▶ Sapiens Reports Q2 2017 Financial Results   [01:53AM  PR Newswire]
▶ Sapiens Establishes Local Office in South Africa   [Aug-03-17 05:14AM  PR Newswire]
▶ Sapiens reports 1Q loss   [May-15-17 07:08AM  Associated Press]
▶ Sapiens Reports Q1 2017 Financial Results   [06:18AM  PR Newswire]
▶ Why Shares of Sapiens International Plunged Today   [Apr-27-17 03:47PM  Motley Fool]
▶ Alexander Forbes in Partnership with Sapiens   [Apr-06-17 04:20AM  PR Newswire]
▶ Sapiens posts 4Q profit   [06:29AM  Associated Press]
▶ Sapiens Reports Q4 2016 Financial Results   [03:00AM  PR Newswire]
▶ Is Newpark Resources Inc (NR) a Good Stock To Buy?   [Dec-12-16 01:24PM  at Insider Monkey]
▶ Sapiens Reports Q3 2016 Financial Results   [05:59AM  PR Newswire]
▶ Sapiens DECISION Announces Planned Analytics Component   [Sep-15-16 01:19PM  PR Newswire]
▶ Sapiens Reports Q2 2016 Financial Results   [04:31AM  PR Newswire]
Stock chart of SPNS Financial statements of SPNS
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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