Intrinsic value of Sapiens International - SPNS

Previous Close

$11.72

  Intrinsic Value

$24.70

stock screener

  Rating & Target

str. buy

+111%

Previous close

$11.72

 
Intrinsic value

$24.70

 
Up/down potential

+111%

 
Rating

str. buy

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 0.6

 

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
  30.20
  27.68
  25.41
  23.37
  21.53
  19.88
  18.39
  17.05
  15.85
  14.76
  13.79
  12.91
  12.12
  11.41
  10.76
  10.19
  9.67
  9.20
  8.78
  8.40
  8.06
  7.76
  7.48
  7.23
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
Revenue, $m
  216
  281
  359
  450
  556
  675
  809
  958
  1,122
  1,300
  1,491
  1,697
  1,916
  2,148
  2,393
  2,651
  2,921
  3,203
  3,498
  3,805
  4,125
  4,458
  4,804
  5,163
  5,536
  5,925
  6,328
  6,747
  7,184
  7,638
  8,110
Variable operating expenses, $m
 
  241
  306
  382
  469
  569
  681
  804
  940
  1,088
  1,248
  1,411
  1,594
  1,787
  1,991
  2,205
  2,429
  2,664
  2,910
  3,165
  3,431
  3,708
  3,995
  4,294
  4,605
  4,928
  5,263
  5,612
  5,975
  6,352
  6,745
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
  241
  306
  382
  469
  569
  681
  804
  940
  1,088
  1,248
  1,411
  1,594
  1,787
  1,991
  2,205
  2,429
  2,664
  2,910
  3,165
  3,431
  3,708
  3,995
  4,294
  4,605
  4,928
  5,263
  5,612
  5,975
  6,352
  6,745
Operating income, $m
  25
  40
  53
  68
  86
  106
  129
  154
  181
  211
  244
  286
  322
  361
  403
  446
  491
  539
  589
  640
  694
  750
  808
  869
  932
  997
  1,065
  1,135
  1,209
  1,285
  1,365
EBITDA, $m
  35
  52
  66
  83
  102
  124
  148
  176
  206
  238
  274
  311
  351
  394
  439
  486
  536
  588
  642
  698
  757
  818
  881
  947
  1,016
  1,087
  1,161
  1,238
  1,318
  1,401
  1,488
Interest expense (income), $m
  0
  1
  1
  2
  3
  4
  5
  7
  8
  10
  12
  14
  16
  18
  21
  23
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
  64
  68
  73
  78
Earnings before tax, $m
  25
  39
  52
  66
  83
  102
  124
  147
  173
  201
  232
  272
  306
  343
  382
  423
  466
  510
  557
  606
  656
  709
  764
  821
  880
  941
  1,005
  1,071
  1,140
  1,212
  1,287
Tax expense, $m
  5
  11
  14
  18
  22
  28
  33
  40
  47
  54
  63
  73
  83
  93
  103
  114
  126
  138
  150
  164
  177
  191
  206
  222
  238
  254
  271
  289
  308
  327
  347
Net income, $m
  19
  29
  38
  48
  61
  75
  90
  107
  126
  147
  169
  198
  224
  251
  279
  309
  340
  373
  407
  442
  479
  518
  557
  599
  642
  687
  734
  782
  832
  885
  940

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
  233
  297
  373
  460
  559
  671
  794
  929
  1,077
  1,236
  1,406
  1,587
  1,780
  1,983
  2,196
  2,420
  2,654
  2,898
  3,153
  3,418
  3,693
  3,980
  4,278
  4,587
  4,908
  5,243
  5,590
  5,952
  6,328
  6,719
Adjusted assets (=assets-cash), $m
  179
  233
  297
  373
  460
  559
  671
  794
  929
  1,077
  1,236
  1,406
  1,587
  1,780
  1,983
  2,196
  2,420
  2,654
  2,898
  3,153
  3,418
  3,693
  3,980
  4,278
  4,587
  4,908
  5,243
  5,590
  5,952
  6,328
  6,719
Revenue / Adjusted assets
  1.207
  1.206
  1.209
  1.206
  1.209
  1.208
  1.206
  1.207
  1.208
  1.207
  1.206
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
  1.207
Average production assets, $m
  36
  46
  59
  74
  91
  111
  133
  157
  184
  213
  245
  278
  314
  352
  392
  435
  479
  525
  574
  624
  677
  731
  788
  847
  908
  972
  1,038
  1,107
  1,178
  1,253
  1,330
Working capital, $m
  72
  -9
  -11
  -14
  -18
  -22
  -26
  -31
  -36
  -42
  -48
  -54
  -61
  -69
  -77
  -85
  -93
  -103
  -112
  -122
  -132
  -143
  -154
  -165
  -177
  -190
  -202
  -216
  -230
  -244
  -260
Total debt, $m
  15
  34
  58
  85
  116
  151
  191
  235
  284
  336
  393
  454
  519
  588
  661
  737
  817
  901
  989
  1,080
  1,175
  1,273
  1,376
  1,482
  1,593
  1,708
  1,828
  1,952
  2,082
  2,216
  2,356
Total liabilities, $m
  64
  83
  107
  134
  165
  200
  240
  284
  333
  385
  442
  503
  568
  637
  710
  786
  866
  950
  1,038
  1,129
  1,224
  1,322
  1,425
  1,531
  1,642
  1,757
  1,877
  2,001
  2,131
  2,265
  2,405
Total equity, $m
  194
  150
  191
  240
  296
  359
  431
  510
  597
  691
  793
  903
  1,019
  1,143
  1,273
  1,410
  1,554
  1,704
  1,861
  2,024
  2,194
  2,371
  2,555
  2,746
  2,945
  3,151
  3,366
  3,589
  3,821
  4,062
  4,314
Total liabilities and equity, $m
  258
  233
  298
  374
  461
  559
  671
  794
  930
  1,076
  1,235
  1,406
  1,587
  1,780
  1,983
  2,196
  2,420
  2,654
  2,899
  3,153
  3,418
  3,693
  3,980
  4,277
  4,587
  4,908
  5,243
  5,590
  5,952
  6,327
  6,719
Debt-to-equity ratio
  0.077
  0.230
  0.300
  0.350
  0.390
  0.420
  0.440
  0.460
  0.480
  0.490
  0.500
  0.500
  0.510
  0.510
  0.520
  0.520
  0.530
  0.530
  0.530
  0.530
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.550
  0.550
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
  29
  38
  48
  61
  75
  90
  107
  126
  147
  169
  198
  224
  251
  279
  309
  340
  373
  407
  442
  479
  518
  557
  599
  642
  687
  734
  782
  832
  885
  940
Depreciation, amort., depletion, $m
  10
  12
  13
  14
  16
  18
  20
  22
  24
  27
  30
  26
  29
  33
  36
  40
  44
  49
  53
  58
  63
  68
  73
  78
  84
  90
  96
  102
  109
  116
  123
Funds from operations, $m
  19
  40
  51
  63
  77
  92
  110
  129
  151
  174
  199
  224
  253
  283
  315
  349
  384
  421
  460
  500
  542
  585
  630
  677
  726
  777
  830
  885
  942
  1,001
  1,063
Change in working capital, $m
  -7
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
Cash from operations, $m
  26
  43
  53
  66
  80
  96
  114
  134
  156
  180
  205
  231
  260
  291
  323
  357
  393
  430
  469
  510
  552
  596
  641
  689
  738
  789
  843
  898
  956
  1,015
  1,078
Maintenance CAPEX, $m
  0
  -3
  -4
  -5
  -7
  -8
  -10
  -12
  -15
  -17
  -20
  -23
  -26
  -29
  -33
  -36
  -40
  -44
  -49
  -53
  -58
  -63
  -68
  -73
  -78
  -84
  -90
  -96
  -102
  -109
  -116
New CAPEX, $m
  -10
  -11
  -13
  -15
  -17
  -20
  -22
  -24
  -27
  -29
  -31
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -59
  -61
  -64
  -66
  -69
  -72
  -74
  -77
Cash from investing activities, $m
  -8
  -14
  -17
  -20
  -24
  -28
  -32
  -36
  -42
  -46
  -51
  -57
  -62
  -67
  -73
  -78
  -84
  -90
  -97
  -103
  -110
  -118
  -125
  -132
  -139
  -148
  -156
  -165
  -174
  -183
  -193
Free cash flow, $m
  18
  29
  36
  45
  56
  68
  82
  97
  115
  134
  154
  174
  198
  223
  250
  279
  308
  340
  372
  406
  442
  479
  517
  557
  599
  642
  686
  733
  782
  832
  884
Issuance/(repayment) of debt, $m
  -1
  19
  23
  27
  31
  35
  40
  44
  48
  53
  57
  61
  65
  69
  73
  76
  80
  84
  87
  91
  95
  99
  103
  107
  111
  115
  120
  124
  129
  135
  140
Issuance/(repurchase) of shares, $m
  1
  6
  4
  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
  25
  27
  27
  31
  35
  40
  44
  48
  53
  57
  61
  65
  69
  73
  76
  80
  84
  87
  91
  95
  99
  103
  107
  111
  115
  120
  124
  129
  135
  140
Total cash flow (excl. dividends), $m
  17
  54
  63
  72
  87
  103
  122
  142
  163
  186
  211
  235
  263
  292
  323
  355
  388
  423
  460
  497
  537
  577
  620
  664
  709
  757
  806
  857
  911
  967
  1,024
Retained Cash Flow (-), $m
  -13
  -35
  -41
  -49
  -56
  -64
  -71
  -79
  -87
  -95
  -102
  -109
  -117
  -123
  -130
  -137
  -144
  -150
  -157
  -163
  -170
  -177
  -184
  -191
  -199
  -206
  -215
  -223
  -232
  -241
  -251
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
 
  98
  21
  24
  31
  40
  50
  62
  76
  92
  109
  126
  147
  169
  193
  218
  245
  273
  303
  334
  366
  400
  436
  472
  511
  550
  592
  634
  679
  725
  773
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
 
  94
  20
  21
  26
  31
  36
  42
  48
  53
  57
  60
  63
  64
  65
  64
  62
  59
  56
  51
  47
  41
  36
  31
  26
  21
  17
  14
  11
  8
  6
Current shareholders' claim on cash, %
  100
  98.3
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5
  97.5

Sapiens International Corporation N.V. (Sapiens) is a provider of software solutions for the insurance industry, with a focus on the financial services sector. The Company operates in provider of software solutions segment. Its software solutions portfolio consists of Life, Pension, Annuity and Retirement Solutions, including software solutions for the management of a range of products for life, pension, annuity and retirement; Property and Casualty/General Insurance Solutions, including a software suite of solutions, supporting a range of business lines, including personal, commercial and specialty lines, as well as a solution for the management of reinsurance contracts; Sapiens DECISION, which is a business decision management solution, and Technology-Based Solutions, such as Sapiens eMerge. Its services include project delivery and implementation, business and technical consulting related to its products, project and program management, training and user acceptance testing.

FINANCIAL RATIOS  of  Sapiens International (SPNS)

Valuation Ratios
P/E Ratio 30.2
Price to Sales 2.7
Price to Book 3
Price to Tangible Book
Price to Cash Flow 22.1
Price to Free Cash Flow 35.9
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 30.2% 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 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 49.036 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 $0.6 billion.

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COMPANY NEWS

▶ Sapiens beats 3Q profit forecasts   [05:02AM  Associated Press]
▶ Sapiens Hosts Global Client Conference in Portugal   [Oct-19-17 08:35AM  PR Newswire]
▶ 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]
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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