Intrinsic value of Versum Materials - VSM

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$32.02

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$32.02

 
Intrinsic value

$5.77

 
Up/down potential

-82%

 
Rating

str. sell

 
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 VSM 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 3.5

 

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, %
  -3.87
  10.20
  9.68
  9.21
  8.79
  8.41
  8.07
  7.76
  7.49
  7.24
  7.01
  6.81
  6.63
  6.47
  6.32
  6.19
  6.07
  5.96
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.34
  5.30
  5.27
  5.24
Revenue, $m
  970
  1,069
  1,172
  1,280
  1,393
  1,510
  1,632
  1,759
  1,890
  2,027
  2,169
  2,317
  2,471
  2,631
  2,797
  2,970
  3,151
  3,338
  3,534
  3,739
  3,952
  4,174
  4,407
  4,650
  4,904
  5,169
  5,447
  5,738
  6,042
  6,360
  6,694
Variable operating expenses, $m
 
  832
  911
  993
  1,079
  1,168
  1,261
  1,357
  1,457
  1,562
  1,670
  1,764
  1,881
  2,003
  2,130
  2,262
  2,399
  2,542
  2,691
  2,847
  3,009
  3,179
  3,356
  3,540
  3,734
  3,936
  4,147
  4,369
  4,600
  4,843
  5,097
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
  691
  832
  911
  993
  1,079
  1,168
  1,261
  1,357
  1,457
  1,562
  1,670
  1,764
  1,881
  2,003
  2,130
  2,262
  2,399
  2,542
  2,691
  2,847
  3,009
  3,179
  3,356
  3,540
  3,734
  3,936
  4,147
  4,369
  4,600
  4,843
  5,097
Operating income, $m
  279
  237
  262
  287
  314
  342
  371
  402
  433
  466
  500
  553
  589
  628
  667
  709
  752
  796
  843
  892
  943
  996
  1,051
  1,109
  1,170
  1,233
  1,299
  1,369
  1,441
  1,517
  1,597
EBITDA, $m
  326
  291
  319
  348
  379
  410
  444
  478
  514
  551
  590
  630
  672
  715
  760
  807
  856
  907
  961
  1,016
  1,074
  1,135
  1,198
  1,264
  1,333
  1,405
  1,480
  1,559
  1,642
  1,729
  1,819
Interest expense (income), $m
  0
  34
  26
  29
  32
  36
  39
  43
  47
  51
  55
  59
  64
  68
  73
  78
  84
  89
  95
  101
  107
  114
  120
  127
  135
  143
  151
  159
  168
  177
  187
Earnings before tax, $m
  279
  203
  236
  259
  282
  307
  332
  359
  386
  415
  445
  494
  526
  559
  594
  630
  668
  707
  748
  791
  836
  882
  931
  982
  1,035
  1,091
  1,149
  1,210
  1,273
  1,340
  1,410
Tax expense, $m
  59
  55
  64
  70
  76
  83
  90
  97
  104
  112
  120
  133
  142
  151
  160
  170
  180
  191
  202
  214
  226
  238
  251
  265
  279
  294
  310
  327
  344
  362
  381
Net income, $m
  212
  148
  172
  189
  206
  224
  242
  262
  282
  303
  325
  360
  384
  408
  434
  460
  488
  516
  546
  577
  610
  644
  680
  717
  756
  796
  839
  883
  930
  978
  1,029

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  106
  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
  1,044
  1,034
  1,134
  1,238
  1,347
  1,460
  1,578
  1,701
  1,828
  1,961
  2,098
  2,241
  2,390
  2,544
  2,705
  2,873
  3,047
  3,229
  3,418
  3,616
  3,822
  4,037
  4,262
  4,497
  4,742
  4,999
  5,268
  5,549
  5,843
  6,151
  6,474
Adjusted assets (=assets-cash), $m
  938
  1,034
  1,134
  1,238
  1,347
  1,460
  1,578
  1,701
  1,828
  1,961
  2,098
  2,241
  2,390
  2,544
  2,705
  2,873
  3,047
  3,229
  3,418
  3,616
  3,822
  4,037
  4,262
  4,497
  4,742
  4,999
  5,268
  5,549
  5,843
  6,151
  6,474
Revenue / Adjusted assets
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
  1.034
Average production assets, $m
  378
  416
  456
  498
  542
  587
  635
  684
  735
  789
  844
  901
  961
  1,023
  1,088
  1,155
  1,226
  1,299
  1,375
  1,454
  1,537
  1,624
  1,714
  1,809
  1,908
  2,011
  2,119
  2,232
  2,350
  2,474
  2,604
Working capital, $m
  364
  291
  319
  348
  379
  411
  444
  478
  514
  551
  590
  630
  672
  716
  761
  808
  857
  908
  961
  1,017
  1,075
  1,135
  1,199
  1,265
  1,334
  1,406
  1,482
  1,561
  1,643
  1,730
  1,821
Total debt, $m
  986
  735
  825
  919
  1,017
  1,119
  1,226
  1,336
  1,450
  1,570
  1,693
  1,822
  1,956
  2,095
  2,240
  2,390
  2,547
  2,711
  2,881
  3,059
  3,245
  3,438
  3,641
  3,852
  4,073
  4,304
  4,546
  4,799
  5,064
  5,341
  5,631
Total liabilities, $m
  1,181
  930
  1,020
  1,114
  1,212
  1,314
  1,421
  1,531
  1,645
  1,765
  1,888
  2,017
  2,151
  2,290
  2,435
  2,585
  2,742
  2,906
  3,076
  3,254
  3,440
  3,633
  3,836
  4,047
  4,268
  4,499
  4,741
  4,994
  5,259
  5,536
  5,826
Total equity, $m
  -137
  103
  113
  124
  135
  146
  158
  170
  183
  196
  210
  224
  239
  254
  271
  287
  305
  323
  342
  362
  382
  404
  426
  450
  474
  500
  527
  555
  584
  615
  647
Total liabilities and equity, $m
  1,044
  1,033
  1,133
  1,238
  1,347
  1,460
  1,579
  1,701
  1,828
  1,961
  2,098
  2,241
  2,390
  2,544
  2,706
  2,872
  3,047
  3,229
  3,418
  3,616
  3,822
  4,037
  4,262
  4,497
  4,742
  4,999
  5,268
  5,549
  5,843
  6,151
  6,473
Debt-to-equity ratio
  -7.197
  7.110
  7.280
  7.430
  7.550
  7.660
  7.760
  7.850
  7.930
  8.010
  8.070
  8.130
  8.180
  8.230
  8.280
  8.320
  8.360
  8.400
  8.430
  8.460
  8.490
  8.520
  8.540
  8.570
  8.590
  8.610
  8.630
  8.650
  8.670
  8.680
  8.700
Adjusted equity ratio
  -0.259
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  212
  148
  172
  189
  206
  224
  242
  262
  282
  303
  325
  360
  384
  408
  434
  460
  488
  516
  546
  577
  610
  644
  680
  717
  756
  796
  839
  883
  930
  978
  1,029
Depreciation, amort., depletion, $m
  47
  54
  57
  61
  64
  68
  72
  76
  81
  85
  90
  77
  82
  87
  93
  99
  105
  111
  118
  124
  131
  139
  147
  155
  163
  172
  181
  191
  201
  211
  223
Funds from operations, $m
  246
  202
  229
  249
  270
  292
  315
  338
  363
  388
  415
  437
  466
  496
  527
  559
  592
  627
  664
  702
  741
  783
  826
  871
  919
  968
  1,020
  1,074
  1,130
  1,190
  1,252
Change in working capital, $m
  -7
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  53
  56
  58
  61
  63
  66
  69
  72
  76
  79
  83
  87
  91
Cash from operations, $m
  253
  169
  201
  220
  240
  260
  282
  304
  327
  351
  376
  397
  424
  452
  481
  512
  543
  576
  610
  646
  683
  722
  763
  805
  849
  896
  944
  995
  1,048
  1,103
  1,161
Maintenance CAPEX, $m
  0
  -32
  -36
  -39
  -43
  -46
  -50
  -54
  -58
  -63
  -67
  -72
  -77
  -82
  -87
  -93
  -99
  -105
  -111
  -118
  -124
  -131
  -139
  -147
  -155
  -163
  -172
  -181
  -191
  -201
  -211
New CAPEX, $m
  -36
  -38
  -40
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -83
  -87
  -90
  -94
  -99
  -103
  -108
  -113
  -118
  -124
  -130
Cash from investing activities, $m
  -62
  -70
  -76
  -81
  -87
  -92
  -97
  -103
  -109
  -116
  -122
  -129
  -137
  -144
  -152
  -160
  -169
  -178
  -187
  -197
  -207
  -218
  -229
  -241
  -254
  -266
  -280
  -294
  -309
  -325
  -341
Free cash flow, $m
  191
  99
  125
  139
  153
  168
  184
  200
  217
  235
  253
  267
  287
  308
  329
  351
  374
  398
  423
  449
  476
  504
  534
  564
  596
  629
  664
  701
  739
  778
  820
Issuance/(repayment) of debt, $m
  572
  -245
  90
  94
  98
  102
  106
  110
  115
  119
  124
  129
  134
  139
  145
  151
  157
  164
  170
  178
  186
  194
  202
  211
  221
  231
  242
  253
  265
  277
  290
Issuance/(repurchase) of shares, $m
  0
  386
  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  
  -106
  141
  90
  94
  98
  102
  106
  110
  115
  119
  124
  129
  134
  139
  145
  151
  157
  164
  170
  178
  186
  194
  202
  211
  221
  231
  242
  253
  265
  277
  290
Total cash flow (excl. dividends), $m
  88
  -146
  215
  233
  251
  270
  290
  311
  332
  354
  377
  396
  421
  447
  474
  502
  531
  562
  594
  627
  662
  698
  736
  776
  817
  861
  906
  954
  1,003
  1,056
  1,110
Retained Cash Flow (-), $m
  846
  -340
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
  -32
Prev. year cash balance distribution, $m
 
  100
  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
 
  0
  205
  223
  240
  259
  278
  298
  319
  341
  363
  382
  406
  431
  458
  485
  514
  544
  575
  607
  641
  677
  714
  752
  793
  835
  879
  925
  974
  1,025
  1,078
Discount rate, %
 
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.41
  27.73
  29.12
  30.58
  32.10
  33.71
  35.40
  37.17
  39.02
  40.97
  43.02
  45.17
  47.43
  49.81
PV of cash for distribution, $m
 
  0
  162
  153
  142
  130
  118
  104
  91
  78
  65
  53
  43
  33
  26
  19
  14
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Versum Materials, Inc. develops, manufactures, transports, and handles specialty materials to the semiconductor and display industries in the United States, Taiwan, South Korea, China, Europe, and rest of Asia. It operates in two segments, Materials, and Delivery Systems and Services (DS&S). The Materials segment provides specialty chemicals and materials used in semiconductors, as well as specialty gases used in the semiconductor manufacturing process, including high purity process materials for deposition, metallization, and chamber cleaning and etching; chemicals mechanical planarization slurries; organosilanes; organometallics and liquid dopants for thin film deposition; and formulated chemical products for post-etch cleaning primarily for the manufacture of silicon and compound semiconductors, and thin film transistor liquid crystal displays. The DS&S segment develops, designs, manufactures, and sells bulk gas, specialty gas, and specialty chemical cabinets and systems, which are used to manage the delivery of principal materials into the semiconductor manufacturing process; and flow and temperature control systems and analytical systems to capture data. It also engages in the project management for installation and startup of the gas and chemical delivery systems, and inventory management; and provision of spare parts, equipment upgrades, equipment maintenance, and training services. In addition, this segment offers on-site services to assist customers in managing the inventory of gases and chemicals comprising ordering, product changes and monitoring, quality assurance, operation of delivery systems, and managing the bulk gas and specialty gas operations. The company was founded in 2015 and is headquartered in Tempe, Arizona.

FINANCIAL RATIOS  of  Versum Materials (VSM)

Valuation Ratios
P/E Ratio 16.4
Price to Sales 3.6
Price to Book -25.3
Price to Tangible Book
Price to Cash Flow 13.7
Price to Free Cash Flow 16
Growth Rates
Sales Growth Rate -3.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 63.6%
Cap. Spend. - 3 Yr. Gr. Rate 3.7%
Financial Strength
Quick Ratio 18
Current Ratio 1
LT Debt to Equity -715.3%
Total Debt to Equity -719.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 22%
Ret/ On Assets - 3 Yr. Avg. 21.7%
Return On Total Capital 27.2%
Ret/ On T. Cap. - 3 Yr. Avg. 26.8%
Return On Equity 74.1%
Return On Equity - 3 Yr. Avg. 42.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 44.4%
Gross Margin - 3 Yr. Avg. 38.5%
EBITDA Margin 33.6%
EBITDA Margin - 3 Yr. Avg. 28.3%
Operating Margin 28.8%
Oper. Margin - 3 Yr. Avg. 22.6%
Pre-Tax Margin 28.8%
Pre-Tax Margin - 3 Yr. Avg. 22.7%
Net Profit Margin 21.9%
Net Profit Margin - 3 Yr. Avg. 17.7%
Effective Tax Rate 21.1%
Eff/ Tax Rate - 3 Yr. Avg. 18.4%
Payout Ratio 0%

VSM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VSM stock intrinsic value calculation we used $970 million for the last fiscal year's total revenue generated by Versum Materials. The default revenue input number comes from 2016 income statement of Versum Materials. 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 VSM stock valuation model: a) initial revenue growth rate of 10.2% 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 12.1%, whose default value for VSM is calculated based on our internal credit rating of Versum Materials, 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 Versum Materials.
    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 VSM stock the variable cost ratio is equal to 78%.

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 VSM 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 Versum Materials.

Corporate tax rate of 27% is the nominal tax rate for Versum Materials. 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 VSM 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 VSM are equal to 38.9%.

Life of production assets of 11.7 years is the average useful life of capital assets used in Versum Materials 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 VSM is equal to 27.2%. 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 - $-137 million for Versum Materials - 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 109.15 million for Versum Materials 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 Versum Materials at the current share price and the inputted number of shares is $3.5 billion.


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