Intrinsic value of Total System Services - TSS

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$53.49

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$53.49

 
Intrinsic value

$650.60

 
Up/down potential

+999%

 
Rating

str. buy

 
Value-price divergence* premium content

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

We calculate the intrinsic value of TSS 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 9.8

 

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, %
  50.00
  57.90
  52.61
  47.85
  43.56
  39.71
  36.24
  33.11
  30.30
  27.77
  25.49
  23.45
  21.60
  19.94
  18.45
  17.10
  15.89
  14.80
  13.82
  12.94
  12.15
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
Revenue, $m
  4,170
  6,584
  10,048
  14,857
  21,329
  29,798
  40,596
  54,038
  70,413
  89,968
  112,905
  139,375
  169,481
  203,277
  240,774
  281,951
  326,757
  375,126
  426,976
  482,227
  540,798
  602,619
  667,631
  735,793
  807,080
  881,490
  959,041
  1,039,772
  1,123,745
  1,211,043
  1,301,770
Variable operating expenses, $m
 
  5,131
  7,658
  11,166
  15,888
  22,066
  29,944
  39,751
  51,697
  65,964
  82,698
  101,682
  123,647
  148,302
  175,659
  205,700
  238,389
  273,676
  311,504
  351,813
  394,544
  439,646
  487,076
  536,804
  588,812
  643,099
  699,676
  758,575
  819,838
  883,527
  949,718
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
  3,597
  5,131
  7,658
  11,166
  15,888
  22,066
  29,944
  39,751
  51,697
  65,964
  82,698
  101,682
  123,647
  148,302
  175,659
  205,700
  238,389
  273,676
  311,504
  351,813
  394,544
  439,646
  487,076
  536,804
  588,812
  643,099
  699,676
  758,575
  819,838
  883,527
  949,718
Operating income, $m
  573
  1,454
  2,390
  3,691
  5,441
  7,731
  10,652
  14,287
  18,715
  24,004
  30,207
  37,693
  45,835
  54,974
  65,115
  76,251
  88,369
  101,449
  115,472
  130,414
  146,254
  162,973
  180,555
  198,989
  218,268
  238,391
  259,364
  281,197
  303,907
  327,516
  352,052
EBITDA, $m
  947
  2,013
  3,072
  4,542
  6,521
  9,110
  12,411
  16,521
  21,527
  27,505
  34,518
  42,610
  51,815
  62,147
  73,610
  86,199
  99,898
  114,685
  130,537
  147,429
  165,335
  184,235
  204,111
  224,950
  246,744
  269,493
  293,202
  317,883
  343,556
  370,245
  397,983
Interest expense (income), $m
  84
  116
  201
  324
  494
  722
  1,022
  1,403
  1,879
  2,457
  3,149
  3,959
  4,895
  5,959
  7,154
  8,480
  9,935
  11,519
  13,229
  15,062
  17,015
  19,085
  21,270
  23,569
  25,978
  28,498
  31,128
  33,870
  36,723
  39,692
  42,778
Earnings before tax, $m
  461
  1,338
  2,189
  3,367
  4,947
  7,009
  9,630
  12,884
  16,837
  21,546
  27,058
  33,733
  40,940
  49,015
  57,961
  67,772
  78,434
  89,930
  102,243
  115,352
  129,240
  143,888
  159,285
  175,420
  192,290
  209,893
  228,236
  247,328
  267,184
  287,824
  309,275
Tax expense, $m
  161
  361
  591
  909
  1,336
  1,892
  2,600
  3,479
  4,546
  5,818
  7,306
  9,108
  11,054
  13,234
  15,650
  18,298
  21,177
  24,281
  27,606
  31,145
  34,895
  38,850
  43,007
  47,363
  51,918
  56,671
  61,624
  66,778
  72,140
  77,713
  83,504
Net income, $m
  320
  976
  1,598
  2,458
  3,612
  5,117
  7,030
  9,405
  12,291
  15,729
  19,753
  24,625
  29,886
  35,781
  42,312
  49,473
  57,257
  65,649
  74,638
  84,207
  94,345
  105,038
  116,278
  128,057
  140,372
  153,222
  166,612
  180,549
  195,044
  210,112
  225,771

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  425
  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
  6,366
  9,380
  14,314
  21,163
  30,383
  42,447
  57,829
  76,978
  100,303
  128,159
  160,833
  198,540
  241,426
  289,568
  342,983
  401,639
  465,466
  534,367
  608,228
  686,933
  770,368
  858,432
  951,042
  1,048,138
  1,149,687
  1,255,684
  1,366,155
  1,481,156
  1,600,776
  1,725,133
  1,854,374
Adjusted assets (=assets-cash), $m
  5,941
  9,380
  14,314
  21,163
  30,383
  42,447
  57,829
  76,978
  100,303
  128,159
  160,833
  198,540
  241,426
  289,568
  342,983
  401,639
  465,466
  534,367
  608,228
  686,933
  770,368
  858,432
  951,042
  1,048,138
  1,149,687
  1,255,684
  1,366,155
  1,481,156
  1,600,776
  1,725,133
  1,854,374
Revenue / Adjusted assets
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
  0.702
Average production assets, $m
  1,560
  2,463
  3,758
  5,556
  7,977
  11,144
  15,183
  20,210
  26,334
  33,648
  42,226
  52,126
  63,386
  76,025
  90,049
  105,450
  122,207
  140,297
  159,689
  180,353
  202,259
  225,380
  249,694
  275,186
  301,848
  329,677
  358,681
  388,875
  420,281
  452,930
  486,862
Working capital, $m
  603
  362
  553
  817
  1,173
  1,639
  2,233
  2,972
  3,873
  4,948
  6,210
  7,666
  9,321
  11,180
  13,243
  15,507
  17,972
  20,632
  23,484
  26,522
  29,744
  33,144
  36,720
  40,469
  44,389
  48,482
  52,747
  57,187
  61,806
  66,607
  71,597
Total debt, $m
  3,364
  5,748
  9,247
  14,103
  20,639
  29,193
  40,099
  53,675
  70,213
  89,963
  113,129
  139,863
  170,269
  204,402
  242,273
  283,860
  329,114
  377,964
  430,332
  486,134
  545,289
  607,726
  673,387
  742,228
  814,226
  889,378
  967,702
  1,049,238
  1,134,048
  1,222,217
  1,313,849
Total liabilities, $m
  4,266
  6,650
  10,149
  15,005
  21,541
  30,095
  41,001
  54,577
  71,115
  90,865
  114,031
  140,765
  171,171
  205,304
  243,175
  284,762
  330,016
  378,866
  431,234
  487,036
  546,191
  608,628
  674,289
  743,130
  815,128
  890,280
  968,604
  1,050,140
  1,134,950
  1,223,119
  1,314,751
Total equity, $m
  2,100
  2,729
  4,165
  6,159
  8,841
  12,352
  16,828
  22,400
  29,188
  37,294
  46,802
  57,775
  70,255
  84,264
  99,808
  116,877
  135,451
  155,501
  176,994
  199,898
  224,177
  249,804
  276,753
  305,008
  334,559
  365,404
  397,551
  431,017
  465,826
  502,014
  539,623
Total liabilities and equity, $m
  6,366
  9,379
  14,314
  21,164
  30,382
  42,447
  57,829
  76,977
  100,303
  128,159
  160,833
  198,540
  241,426
  289,568
  342,983
  401,639
  465,467
  534,367
  608,228
  686,934
  770,368
  858,432
  951,042
  1,048,138
  1,149,687
  1,255,684
  1,366,155
  1,481,157
  1,600,776
  1,725,133
  1,854,374
Debt-to-equity ratio
  1.602
  2.110
  2.220
  2.290
  2.330
  2.360
  2.380
  2.400
  2.410
  2.410
  2.420
  2.420
  2.420
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
  2.430
Adjusted equity ratio
  0.282
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291
  0.291

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  320
  976
  1,598
  2,458
  3,612
  5,117
  7,030
  9,405
  12,291
  15,729
  19,753
  24,625
  29,886
  35,781
  42,312
  49,473
  57,257
  65,649
  74,638
  84,207
  94,345
  105,038
  116,278
  128,057
  140,372
  153,222
  166,612
  180,549
  195,044
  210,112
  225,771
Depreciation, amort., depletion, $m
  374
  559
  682
  851
  1,080
  1,378
  1,759
  2,234
  2,811
  3,501
  4,311
  4,918
  5,980
  7,172
  8,495
  9,948
  11,529
  13,236
  15,065
  17,014
  19,081
  21,262
  23,556
  25,961
  28,476
  31,102
  33,838
  36,686
  39,649
  42,729
  45,930
Funds from operations, $m
  646
  1,536
  2,280
  3,309
  4,691
  6,495
  8,789
  11,639
  15,102
  19,230
  24,063
  29,543
  35,866
  42,953
  50,807
  59,421
  68,785
  78,885
  89,703
  101,222
  113,426
  126,300
  139,834
  154,018
  168,848
  184,324
  200,450
  217,235
  234,693
  252,841
  271,701
Change in working capital, $m
  -72
  133
  191
  264
  356
  466
  594
  739
  901
  1,076
  1,262
  1,456
  1,656
  1,859
  2,062
  2,265
  2,464
  2,660
  2,852
  3,039
  3,221
  3,400
  3,576
  3,749
  3,921
  4,093
  4,265
  4,440
  4,619
  4,801
  4,990
Cash from operations, $m
  718
  1,692
  2,089
  3,045
  4,335
  6,029
  8,195
  10,899
  14,202
  18,155
  22,802
  28,087
  34,210
  41,094
  48,745
  57,157
  66,321
  76,225
  86,851
  98,183
  110,204
  122,900
  136,258
  150,269
  164,927
  180,231
  196,185
  212,795
  230,075
  248,040
  266,711
Maintenance CAPEX, $m
  0
  -147
  -232
  -355
  -524
  -753
  -1,051
  -1,432
  -1,907
  -2,484
  -3,174
  -3,984
  -4,918
  -5,980
  -7,172
  -8,495
  -9,948
  -11,529
  -13,236
  -15,065
  -17,014
  -19,081
  -21,262
  -23,556
  -25,961
  -28,476
  -31,102
  -33,838
  -36,686
  -39,649
  -42,729
New CAPEX, $m
  -143
  -903
  -1,296
  -1,798
  -2,421
  -3,167
  -4,038
  -5,028
  -6,124
  -7,314
  -8,578
  -9,900
  -11,260
  -12,639
  -14,024
  -15,400
  -16,758
  -18,090
  -19,392
  -20,664
  -21,906
  -23,121
  -24,315
  -25,492
  -26,661
  -27,829
  -29,004
  -30,193
  -31,406
  -32,650
  -33,932
Cash from investing activities, $m
  -2,493
  -1,050
  -1,528
  -2,153
  -2,945
  -3,920
  -5,089
  -6,460
  -8,031
  -9,798
  -11,752
  -13,884
  -16,178
  -18,619
  -21,196
  -23,895
  -26,706
  -29,619
  -32,628
  -35,729
  -38,920
  -42,202
  -45,577
  -49,048
  -52,622
  -56,305
  -60,106
  -64,031
  -68,092
  -72,299
  -76,661
Free cash flow, $m
  -1,775
  641
  561
  892
  1,391
  2,109
  3,106
  4,440
  6,171
  8,357
  11,049
  14,203
  18,033
  22,475
  27,548
  33,261
  39,615
  46,606
  54,223
  62,454
  71,284
  80,698
  90,681
  101,220
  112,305
  123,926
  136,079
  148,764
  161,982
  175,741
  190,050
Issuance/(repayment) of debt, $m
  1,942
  2,435
  3,499
  4,856
  6,537
  8,554
  10,906
  13,577
  16,538
  19,750
  23,166
  26,735
  30,406
  34,132
  37,871
  41,587
  45,253
  48,850
  52,368
  55,802
  59,155
  62,437
  65,660
  68,841
  71,998
  75,152
  78,324
  81,536
  84,811
  88,169
  91,632
Issuance/(repurchase) of shares, $m
  -19
  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  
  1,895
  2,435
  3,499
  4,856
  6,537
  8,554
  10,906
  13,577
  16,538
  19,750
  23,166
  26,735
  30,406
  34,132
  37,871
  41,587
  45,253
  48,850
  52,368
  55,802
  59,155
  62,437
  65,660
  68,841
  71,998
  75,152
  78,324
  81,536
  84,811
  88,169
  91,632
Total cash flow (excl. dividends), $m
  109
  3,076
  4,060
  5,748
  7,927
  10,663
  14,011
  18,016
  22,709
  28,107
  34,215
  40,938
  48,439
  56,608
  65,420
  74,849
  84,869
  95,456
  106,591
  118,256
  130,440
  143,136
  156,342
  170,062
  184,303
  199,078
  214,403
  230,300
  246,793
  263,910
  281,682
Retained Cash Flow (-), $m
  -257
  -1,003
  -1,436
  -1,993
  -2,683
  -3,511
  -4,476
  -5,572
  -6,788
  -8,106
  -9,508
  -10,973
  -12,480
  -14,009
  -15,544
  -17,069
  -18,574
  -20,050
  -21,494
  -22,903
  -24,280
  -25,627
  -26,949
  -28,255
  -29,551
  -30,845
  -32,147
  -33,465
  -34,809
  -36,188
  -37,609
Prev. year cash balance distribution, $m
 
  374
  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
 
  2,447
  2,624
  3,755
  5,244
  7,152
  9,535
  12,444
  15,921
  20,001
  24,707
  29,965
  35,959
  42,598
  49,876
  57,780
  66,295
  75,406
  85,097
  95,353
  106,160
  117,509
  129,392
  141,807
  154,752
  168,232
  182,256
  196,835
  211,984
  227,722
  244,073
Discount rate, %
 
  7.70
  8.09
  8.49
  8.91
  9.36
  9.83
  10.32
  10.83
  11.38
  11.95
  12.54
  13.17
  13.83
  14.52
  15.25
  16.01
  16.81
  17.65
  18.53
  19.46
  20.43
  21.45
  22.52
  23.65
  24.83
  26.07
  27.38
  28.75
  30.18
  31.69
PV of cash for distribution, $m
 
  2,272
  2,246
  2,941
  3,727
  4,573
  5,433
  6,258
  6,991
  7,584
  7,994
  8,168
  8,148
  7,910
  7,474
  6,877
  6,162
  5,375
  4,564
  3,772
  3,032
  2,369
  1,799
  1,326
  948
  657
  441
  286
  179
  108
  63
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

Total System Services, Inc. provides payment processing, merchant, and related payment services to financial and nonfinancial institutions in the United States, Europe, Canada, Mexico, and internationally. It operates through four segments: North America Services, International Services, Merchant Services, and NetSpend. The company offers account processing and output services, including processing the card application, initiating service for the cardholder, processing card transaction for the issuing retailer or financial institution, and accumulating the accountÂ’s transactions. It also provides fraud management services to monitor the unauthorized use of accounts; fraud detection systems for identifying fraudulent transactions; and other services, such as customized communication services to cardholders, and information verification services associated with granting credit, debt collection, and customer service. In addition, the company offers processing services, acquiring solutions, related systems, and integrated support services, which include processing various payment forms, such as credit, debit, prepaid, electronic benefit transfer, and electronic check; authorization and capture of transactions; clearing and settlement of transactions; information reporting services related to transactions; merchant billing services; and point-of-sale equipment sales and service. Further, it provides general purpose reloadable prepaid debit cards and payroll cards, as well as alternative financial services to underbanked and other consumers. The company was founded in 1982 and is headquartered in Columbus, Georgia.

FINANCIAL RATIOS  of  Total System Services (TSS)

Valuation Ratios
P/E Ratio 30.7
Price to Sales 2.4
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 13.7
Price to Free Cash Flow 17.1
Growth Rates
Sales Growth Rate 50%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -29.6%
Cap. Spend. - 3 Yr. Gr. Rate -5.9%
Financial Strength
Quick Ratio 8
Current Ratio 0.2
LT Debt to Equity 157.8%
Total Debt to Equity 160.2%
Interest Coverage 6
Management Effectiveness
Return On Assets 7.3%
Ret/ On Assets - 3 Yr. Avg. 9%
Return On Total Capital 7.3%
Ret/ On T. Cap. - 3 Yr. Avg. 9.7%
Return On Equity 16.2%
Return On Equity - 3 Yr. Avg. 18.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 28.2%
Gross Margin - 3 Yr. Avg. 31.1%
EBITDA Margin 22%
EBITDA Margin - 3 Yr. Avg. 26.2%
Operating Margin 13.7%
Oper. Margin - 3 Yr. Avg. 16.4%
Pre-Tax Margin 11.1%
Pre-Tax Margin - 3 Yr. Avg. 15%
Net Profit Margin 7.7%
Net Profit Margin - 3 Yr. Avg. 11.3%
Effective Tax Rate 34.9%
Eff/ Tax Rate - 3 Yr. Avg. 32.8%
Payout Ratio 22.8%

TSS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TSS stock intrinsic value calculation we used $4170 million for the last fiscal year's total revenue generated by Total System Services. The default revenue input number comes from 2016 income statement of Total System Services. 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 TSS stock valuation model: a) initial revenue growth rate of 57.9% 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 7.7%, whose default value for TSS is calculated based on our internal credit rating of Total System Services, 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 Total System Services.
    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 TSS stock the variable cost ratio is equal to 80.8%.

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 TSS 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 Total System Services.

Corporate tax rate of 27% is the nominal tax rate for Total System Services. 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 TSS 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 TSS are equal to 37.4%.

Life of production assets of 10.6 years is the average useful life of capital assets used in Total System Services 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 TSS is equal to 5.5%. 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 - $2100 million for Total System Services - 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 184.063 million for Total System Services 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 Total System Services at the current share price and the inputted number of shares is $9.8 billion.


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COMPANY NEWS

▶ TSYS subsidiary NetSpend settles Federal Trade Commission charges   [Apr-07-17 07:27AM  American City Business Journals]
▶ TSYS subsidiary NetSpend settles Federal Trade Commission charges   [Apr-02-17 10:35AM  at bizjournals.com]
▶ TSYS to Broadcast First-Quarter 2017 Results   [Mar-30-17 09:00AM  Business Wire]
▶ TSYS Announces First-Quarter 2017 Dividend   [Mar-08-17 09:00AM  Business Wire]
▶ Netspend Hires Jeff Johnson to Lead Commercial Prepaid   [Mar-02-17 09:00AM  Business Wire]
▶ Columbus lands $25M credit card production facility with 145 jobs   [Feb-27-17 02:56PM  at bizjournals.com]
▶ TSYS Announces Executive Transition   [09:15AM  Business Wire]
▶ TSYS Renews Payments Agreement with Advanzia Bank   [Dec-06-16 04:00AM  Business Wire]
▶ TSYS Announces Fourth-Quarter 2016 Dividend   [Dec-02-16 09:00AM  Business Wire]
▶ TSYS Signs Payments Agreement with Virgin Money   [Nov-30-16 04:00AM  Business Wire]
▶ TSYS Renews Payments Agreement with Rabobank   [04:00AM  Business Wire]
▶ TSYS Reports Third Quarter Earnings   [04:15PM  Business Wire]
▶ Raintree Systems Partners with TransFirst®   [Oct-13-16 02:00PM  PR Newswire]
▶ TSYS to Broadcast Third-Quarter 2016 Results   [09:00AM  Business Wire]
▶ TSYS Announces Resignation of John Shlonsky   [Sep-29-16 04:15PM  Business Wire]
▶ [$$] The Roundup   [Sep-06-16 09:49AM  at The Wall Street Journal]
▶ TSYS Announces Third-Quarter 2016 Dividend   [09:00AM  Business Wire]
▶ How Netspend Works and Makes Money (TSS)   [Aug-27-16 10:00AM  at Investopedia]
▶ TSYS Extends Payments Agreement with Swisscard   [Aug-18-16 04:00AM  Business Wire]
Stock chart of TSS Financial statements of TSS
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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