Intrinsic value of ARRIS International plc - ARRS

Previous Close

$31.61

  Intrinsic Value

$18.53

stock screener

  Rating & Target

sell

-41%

Previous close

$31.61

 
Intrinsic value

$18.53

 
Up/down potential

-41%

 
Rating

sell

We calculate the intrinsic value of ARRS 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 0001), $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 5.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.80
  3.02
  3.22
  3.40
  3.56
  3.70
  3.83
  3.95
  4.05
  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
  4.88
  4.90
Revenue, $m
  6,932
  7,141
  7,371
  7,621
  7,892
  8,184
  8,498
  8,833
  9,191
  9,573
  9,978
  10,408
  10,864
  11,346
  11,856
  12,395
  12,965
  13,565
  14,199
  14,866
  15,570
  16,311
  17,091
  17,912
  18,777
  19,686
  20,642
  21,648
  22,705
  23,817
Variable operating expenses, $m
  3,902
  4,019
  4,147
  4,287
  4,438
  4,602
  4,777
  4,964
  5,164
  5,377
  5,575
  5,815
  6,070
  6,339
  6,624
  6,926
  7,244
  7,579
  7,933
  8,306
  8,699
  9,113
  9,549
  10,008
  10,491
  10,999
  11,533
  12,095
  12,686
  13,307
Fixed operating expenses, $m
  2,892
  2,956
  3,021
  3,087
  3,155
  3,225
  3,296
  3,368
  3,442
  3,518
  3,595
  3,674
  3,755
  3,838
  3,922
  4,009
  4,097
  4,187
  4,279
  4,373
  4,469
  4,568
  4,668
  4,771
  4,876
  4,983
  5,093
  5,205
  5,319
  5,436
Total operating expenses, $m
  6,794
  6,975
  7,168
  7,374
  7,593
  7,827
  8,073
  8,332
  8,606
  8,895
  9,170
  9,489
  9,825
  10,177
  10,546
  10,935
  11,341
  11,766
  12,212
  12,679
  13,168
  13,681
  14,217
  14,779
  15,367
  15,982
  16,626
  17,300
  18,005
  18,743
Operating income, $m
  138
  166
  203
  247
  299
  358
  425
  501
  585
  677
  808
  918
  1,038
  1,169
  1,309
  1,461
  1,624
  1,799
  1,986
  2,187
  2,401
  2,630
  2,874
  3,133
  3,410
  3,704
  4,016
  4,348
  4,700
  5,073
EBITDA, $m
  430
  466
  511
  565
  627
  697
  777
  865
  963
  1,069
  1,186
  1,313
  1,451
  1,599
  1,759
  1,931
  2,116
  2,314
  2,525
  2,751
  2,992
  3,249
  3,522
  3,813
  4,122
  4,451
  4,799
  5,169
  5,562
  5,977
Interest expense (income), $m
  71
  114
  121
  128
  136
  145
  154
  165
  175
  187
  200
  213
  227
  242
  258
  274
  292
  311
  331
  351
  374
  397
  421
  447
  474
  503
  533
  564
  597
  632
  669
Earnings before tax, $m
  23
  45
  75
  111
  154
  204
  261
  326
  398
  478
  595
  691
  797
  911
  1,035
  1,169
  1,313
  1,468
  1,635
  1,813
  2,004
  2,209
  2,427
  2,659
  2,907
  3,171
  3,452
  3,750
  4,067
  4,404
Tax expense, $m
  6
  12
  20
  30
  41
  55
  70
  88
  107
  129
  161
  187
  215
  246
  279
  316
  355
  396
  441
  490
  541
  596
  655
  718
  785
  856
  932
  1,013
  1,098
  1,189
Net income, $m
  17
  33
  54
  81
  112
  149
  190
  238
  290
  349
  434
  505
  582
  665
  756
  853
  959
  1,072
  1,193
  1,324
  1,463
  1,612
  1,771
  1,941
  2,122
  2,315
  2,520
  2,738
  2,969
  3,215

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
Total assets, $m
  7,535
  7,762
  8,012
  8,284
  8,579
  8,896
  9,237
  9,602
  9,991
  10,405
  10,846
  11,313
  11,808
  12,333
  12,887
  13,473
  14,092
  14,745
  15,433
  16,159
  16,924
  17,729
  18,577
  19,470
  20,409
  21,398
  22,437
  23,530
  24,680
  25,888
Adjusted assets (=assets-cash), $m
  7,535
  7,762
  8,012
  8,284
  8,579
  8,896
  9,237
  9,602
  9,991
  10,405
  10,846
  11,313
  11,808
  12,333
  12,887
  13,473
  14,092
  14,745
  15,433
  16,159
  16,924
  17,729
  18,577
  19,470
  20,409
  21,398
  22,437
  23,530
  24,680
  25,888
Revenue / Adjusted assets
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
  0.920
Average production assets, $m
  2,315
  2,385
  2,462
  2,546
  2,636
  2,734
  2,838
  2,950
  3,070
  3,197
  3,333
  3,476
  3,628
  3,790
  3,960
  4,140
  4,330
  4,531
  4,742
  4,965
  5,200
  5,448
  5,708
  5,983
  6,271
  6,575
  6,894
  7,230
  7,584
  7,955
Working capital, $m
  506
  521
  538
  556
  576
  597
  620
  645
  671
  699
  728
  760
  793
  828
  866
  905
  946
  990
  1,037
  1,085
  1,137
  1,191
  1,248
  1,308
  1,371
  1,437
  1,507
  1,580
  1,657
  1,739
Total debt, $m
  2,241
  2,375
  2,523
  2,684
  2,859
  3,047
  3,248
  3,464
  3,695
  3,940
  4,201
  4,477
  4,771
  5,081
  5,409
  5,756
  6,123
  6,509
  6,917
  7,346
  7,799
  8,276
  8,778
  9,307
  9,863
  10,448
  11,063
  11,710
  12,391
  13,106
Total liabilities, $m
  4,460
  4,595
  4,743
  4,904
  5,079
  5,266
  5,468
  5,684
  5,914
  6,160
  6,421
  6,697
  6,991
  7,301
  7,629
  7,976
  8,342
  8,729
  9,137
  9,566
  10,019
  10,496
  10,998
  11,526
  12,082
  12,667
  13,283
  13,930
  14,610
  15,326
Total equity, $m
  3,074
  3,167
  3,269
  3,380
  3,500
  3,630
  3,769
  3,917
  4,076
  4,245
  4,425
  4,616
  4,818
  5,032
  5,258
  5,497
  5,750
  6,016
  6,297
  6,593
  6,905
  7,234
  7,580
  7,944
  8,327
  8,730
  9,154
  9,600
  10,069
  10,562
Total liabilities and equity, $m
  7,534
  7,762
  8,012
  8,284
  8,579
  8,896
  9,237
  9,601
  9,990
  10,405
  10,846
  11,313
  11,809
  12,333
  12,887
  13,473
  14,092
  14,745
  15,434
  16,159
  16,924
  17,730
  18,578
  19,470
  20,409
  21,397
  22,437
  23,530
  24,679
  25,888
Debt-to-equity ratio
  0.730
  0.750
  0.770
  0.790
  0.820
  0.840
  0.860
  0.880
  0.910
  0.930
  0.950
  0.970
  0.990
  1.010
  1.030
  1.050
  1.060
  1.080
  1.100
  1.110
  1.130
  1.140
  1.160
  1.170
  1.180
  1.200
  1.210
  1.220
  1.230
  1.240
Adjusted equity ratio
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408
  0.408

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  17
  33
  54
  81
  112
  149
  190
  238
  290
  349
  434
  505
  582
  665
  756
  853
  959
  1,072
  1,193
  1,324
  1,463
  1,612
  1,771
  1,941
  2,122
  2,315
  2,520
  2,738
  2,969
  3,215
Depreciation, amort., depletion, $m
  292
  300
  309
  318
  328
  339
  351
  364
  378
  392
  379
  395
  412
  431
  450
  470
  492
  515
  539
  564
  591
  619
  649
  680
  713
  747
  783
  822
  862
  904
Funds from operations, $m
  309
  333
  363
  399
  440
  488
  542
  602
  668
  741
  813
  900
  994
  1,096
  1,206
  1,324
  1,451
  1,587
  1,732
  1,888
  2,054
  2,231
  2,420
  2,621
  2,835
  3,062
  3,303
  3,559
  3,831
  4,119
Change in working capital, $m
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  31
  33
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  70
  73
  77
  81
Cash from operations, $m
  295
  318
  346
  381
  421
  467
  519
  577
  642
  713
  783
  868
  961
  1,061
  1,168
  1,284
  1,409
  1,543
  1,686
  1,839
  2,003
  2,177
  2,363
  2,561
  2,772
  2,996
  3,233
  3,486
  3,754
  4,038
Maintenance CAPEX, $m
  -256
  -263
  -271
  -280
  -289
  -300
  -311
  -323
  -335
  -349
  -363
  -379
  -395
  -412
  -431
  -450
  -470
  -492
  -515
  -539
  -564
  -591
  -619
  -649
  -680
  -713
  -747
  -783
  -822
  -862
New CAPEX, $m
  -62
  -70
  -77
  -84
  -91
  -98
  -105
  -112
  -120
  -127
  -135
  -144
  -152
  -161
  -170
  -180
  -190
  -201
  -212
  -223
  -235
  -248
  -261
  -274
  -289
  -304
  -319
  -336
  -353
  -371
Cash from investing activities, $m
  -318
  -333
  -348
  -364
  -380
  -398
  -416
  -435
  -455
  -476
  -498
  -523
  -547
  -573
  -601
  -630
  -660
  -693
  -727
  -762
  -799
  -839
  -880
  -923
  -969
  -1,017
  -1,066
  -1,119
  -1,175
  -1,233
Free cash flow, $m
  -22
  -15
  -2
  17
  41
  70
  104
  143
  187
  237
  285
  346
  413
  487
  567
  654
  749
  850
  960
  1,077
  1,204
  1,339
  1,484
  1,638
  1,803
  1,979
  2,167
  2,367
  2,579
  2,805
Issuance/(repayment) of debt, $m
  124
  135
  148
  161
  174
  188
  202
  216
  230
  245
  261
  277
  293
  310
  328
  347
  366
  387
  408
  430
  453
  477
  502
  528
  556
  585
  615
  647
  680
  715
Issuance/(repurchase) of shares, $m
  65
  60
  47
  30
  8
  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  
  189
  195
  195
  191
  182
  188
  202
  216
  230
  245
  261
  277
  293
  310
  328
  347
  366
  387
  408
  430
  453
  477
  502
  528
  556
  585
  615
  647
  680
  715
Total cash flow (excl. dividends), $m
  167
  179
  194
  209
  223
  258
  305
  359
  417
  482
  545
  623
  707
  798
  896
  1,001
  1,115
  1,237
  1,367
  1,507
  1,656
  1,816
  1,986
  2,167
  2,359
  2,564
  2,782
  3,014
  3,259
  3,520
Retained Cash Flow (-), $m
  -82
  -93
  -102
  -111
  -120
  -130
  -139
  -149
  -159
  -169
  -180
  -191
  -202
  -214
  -226
  -239
  -252
  -266
  -281
  -296
  -312
  -329
  -346
  -364
  -383
  -403
  -424
  -446
  -469
  -493
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
  85
  86
  92
  97
  103
  128
  166
  210
  259
  313
  366
  432
  505
  584
  669
  762
  862
  970
  1,086
  1,211
  1,344
  1,487
  1,640
  1,802
  1,976
  2,161
  2,358
  2,568
  2,790
  3,027
Discount rate, %
  4.60
  4.83
  5.07
  5.33
  5.59
  5.87
  6.16
  6.47
  6.80
  7.14
  7.49
  7.87
  8.26
  8.67
  9.11
  9.56
  10.04
  10.54
  11.07
  11.62
  12.21
  12.82
  13.46
  14.13
  14.84
  15.58
  16.36
  17.17
  18.03
  18.93
PV of cash for distribution, $m
  81
  78
  79
  79
  79
  91
  109
  127
  143
  157
  165
  174
  180
  182
  181
  177
  170
  160
  148
  134
  120
  105
  90
  76
  62
  50
  39
  30
  23
  17
Current shareholders' claim on cash, %
  98.8
  97.8
  97.0
  96.5
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4

ARRIS International plc is a media entertainment and data communications solutions provider. The Company operates in two segments: Customer Premises Equipment (CPE), and Network & Cloud (N&C). The Company enables service providers, including cable, telephone, and digital broadcast satellite operators, and media programmers to deliver media, voice and Internet Protocol (IP) data services to their subscribers. It is engaged in offering set-tops, digital video and IP television (IPTV) distribution systems, broadband access infrastructure platforms, and associated data and voice CPE, which it also sells directly to consumers through retail channels. Its solutions are complemented by an array of services, including technical support, repair and refurbishment, and system design and integration. The CPE segment consists of CPE Products-Video and CPE Products-Broadband. The N&C segment consists of Infrastructure Products, Cloud Software and Global Services.

FINANCIAL RATIOS  of  ARRIS International plc (ARRS)

Valuation Ratios
P/E Ratio 333.8
Price to Sales 0.9
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 16.6
Price to Free Cash Flow 20.6
Growth Rates
Sales Growth Rate 42.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -19.1%
Cap. Spend. - 3 Yr. Gr. Rate 0.3%
Financial Strength
Quick Ratio 13
Current Ratio 0.1
LT Debt to Equity 68.4%
Total Debt to Equity 71%
Interest Coverage 1
Management Effectiveness
Return On Assets 0.7%
Ret/ On Assets - 3 Yr. Avg. 4.3%
Return On Total Capital 0.4%
Ret/ On T. Cap. - 3 Yr. Avg. 4.6%
Return On Equity 0.7%
Return On Equity - 3 Yr. Avg. 9.2%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 25%
Gross Margin - 3 Yr. Avg. 28.1%
EBITDA Margin 8.6%
EBITDA Margin - 3 Yr. Avg. 10%
Operating Margin 1.6%
Oper. Margin - 3 Yr. Avg. 4.1%
Pre-Tax Margin 0.4%
Pre-Tax Margin - 3 Yr. Avg. 2.4%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 62.5%
Eff/ Tax Rate - 3 Yr. Avg. 15.7%
Payout Ratio 0%

ARRS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ARRS stock intrinsic value calculation we used $6743 million for the last fiscal year's total revenue generated by ARRIS International plc. The default revenue input number comes from 0001 income statement of ARRIS International plc. 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 ARRS stock valuation model: a) initial revenue growth rate of 2.8% 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 4.6%, whose default value for ARRS is calculated based on our internal credit rating of ARRIS International plc, 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 ARRIS International plc.
    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 ARRS stock the variable cost ratio is equal to 56.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $2830 million in the base year in the intrinsic value calculation for ARRS 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 5.4% for ARRIS International plc.

Corporate tax rate of 27% is the nominal tax rate for ARRIS International plc. 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 ARRS 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 ARRS are equal to 33.4%.

Life of production assets of 8.8 years is the average useful life of capital assets used in ARRIS International plc 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 ARRS is equal to 7.3%. 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 - $2991.841 million for ARRIS International plc - 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 174.037 million for ARRIS International plc 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 ARRIS International plc at the current share price and the inputted number of shares is $5.5 billion.

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