Intrinsic value of AudioCodes Ltd. - AUDC

Previous Close

$15.93

  Intrinsic Value

$5.99

stock screener

  Rating & Target

str. sell

-62%

Previous close

$15.93

 
Intrinsic value

$5.99

 
Up/down potential

-62%

 
Rating

str. sell

We calculate the intrinsic value of AUDC 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 0.5

 

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, %
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
  5.16
  5.14
  5.13
Revenue, $m
  169
  182
  195
  208
  222
  237
  252
  268
  285
  302
  320
  339
  358
  378
  400
  422
  445
  469
  495
  521
  549
  578
  609
  640
  674
  709
  746
  784
  824
  867
Variable operating expenses, $m
  137
  147
  157
  168
  180
  192
  204
  217
  230
  244
  258
  273
  289
  305
  322
  340
  359
  379
  399
  420
  443
  466
  491
  516
  543
  572
  601
  632
  665
  699
Fixed operating expenses, $m
  20
  21
  21
  22
  22
  23
  23
  24
  24
  25
  25
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  34
  35
  36
  37
  38
  38
Total operating expenses, $m
  157
  168
  178
  190
  202
  215
  227
  241
  254
  269
  283
  299
  316
  332
  350
  368
  388
  409
  429
  451
  475
  498
  524
  550
  577
  607
  637
  669
  703
  737
Operating income, $m
  12
  14
  16
  18
  20
  23
  25
  28
  30
  33
  36
  40
  43
  46
  50
  53
  57
  61
  66
  70
  75
  80
  85
  90
  96
  102
  108
  115
  122
  129
EBITDA, $m
  14
  16
  18
  20
  23
  25
  28
  30
  33
  36
  39
  42
  46
  49
  53
  57
  61
  65
  70
  74
  79
  85
  90
  96
  102
  108
  115
  122
  129
  137
Interest expense (income), $m
  0
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  14
  15
  16
  17
  19
Earnings before tax, $m
  11
  13
  15
  17
  18
  20
  22
  25
  27
  29
  32
  35
  37
  40
  43
  46
  50
  53
  57
  60
  64
  69
  73
  78
  82
  88
  93
  99
  104
  111
Tax expense, $m
  3
  4
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
Net income, $m
  8
  10
  11
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  32
  34
  36
  39
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  81

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
  184
  198
  212
  227
  242
  258
  275
  292
  310
  329
  348
  369
  390
  412
  435
  460
  485
  511
  539
  568
  598
  630
  663
  698
  734
  772
  812
  854
  898
  944
Adjusted assets (=assets-cash), $m
  184
  198
  212
  227
  242
  258
  275
  292
  310
  329
  348
  369
  390
  412
  435
  460
  485
  511
  539
  568
  598
  630
  663
  698
  734
  772
  812
  854
  898
  944
Revenue / Adjusted assets
  0.918
  0.919
  0.920
  0.916
  0.917
  0.919
  0.916
  0.918
  0.919
  0.918
  0.920
  0.919
  0.918
  0.917
  0.920
  0.917
  0.918
  0.918
  0.918
  0.917
  0.918
  0.917
  0.919
  0.917
  0.918
  0.918
  0.919
  0.918
  0.918
  0.918
Average production assets, $m
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  47
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116
  122
  128
Working capital, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
Total debt, $m
  15
  21
  28
  35
  42
  49
  57
  65
  73
  81
  90
  100
  110
  120
  130
  142
  153
  165
  178
  191
  205
  220
  235
  251
  268
  285
  304
  323
  343
  364
Total liabilities, $m
  85
  91
  98
  104
  111
  119
  126
  134
  143
  151
  160
  170
  179
  190
  200
  211
  223
  235
  248
  261
  275
  290
  305
  321
  338
  355
  374
  393
  413
  434
Total equity, $m
  99
  107
  115
  123
  131
  139
  148
  158
  167
  178
  188
  199
  211
  223
  235
  248
  262
  276
  291
  307
  323
  340
  358
  377
  396
  417
  439
  461
  485
  510
Total liabilities and equity, $m
  184
  198
  213
  227
  242
  258
  274
  292
  310
  329
  348
  369
  390
  413
  435
  459
  485
  511
  539
  568
  598
  630
  663
  698
  734
  772
  813
  854
  898
  944
Debt-to-equity ratio
  0.150
  0.200
  0.240
  0.280
  0.320
  0.350
  0.380
  0.410
  0.440
  0.460
  0.480
  0.500
  0.520
  0.540
  0.550
  0.570
  0.590
  0.600
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.680
  0.680
  0.690
  0.700
  0.710
  0.710
Adjusted equity ratio
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540
  0.540

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  10
  11
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  29
  32
  34
  36
  39
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  81
Depreciation, amort., depletion, $m
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Funds from operations, $m
  10
  11
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  33
  35
  37
  40
  43
  46
  48
  52
  55
  58
  62
  66
  70
  74
  79
  83
  88
Change in working capital, $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 from operations, $m
  10
  11
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  33
  35
  37
  40
  43
  45
  48
  52
  55
  58
  62
  66
  70
  74
  78
  83
  88
Maintenance CAPEX, $m
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
Free cash flow, $m
  7
  8
  9
  11
  12
  13
  15
  16
  18
  19
  21
  23
  25
  26
  28
  31
  33
  35
  38
  40
  43
  46
  49
  52
  55
  59
  63
  66
  71
  75
Issuance/(repayment) of debt, $m
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
Total cash flow (excl. dividends), $m
  13
  14
  16
  17
  19
  21
  22
  24
  26
  28
  30
  32
  34
  37
  39
  42
  44
  47
  50
  54
  57
  60
  64
  68
  72
  76
  81
  86
  91
  96
Retained Cash Flow (-), $m
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
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
  6
  7
  8
  9
  11
  12
  13
  15
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  41
  43
  46
  49
  52
  56
  59
  63
  67
  71
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
  6
  6
  7
  8
  8
  9
  9
  9
  9
  9
  9
  9
  9
  8
  8
  7
  7
  6
  5
  5
  4
  4
  3
  3
  2
  2
  1
  1
  1
  1
Current shareholders' claim on cash, %
  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

AudioCodes Ltd. designs, develops and sells Voice over-Internet Protocol (VoIP) and converged VoIP, and data networking solutions, products and applications that facilitate Unified Communications (UC) and Contact Center (CC) services. The Company categorizes its products and services into two main business lines: network and technology. Network products consist of customer premises equipment (CPE), gateways for the enterprise and service provider (or carrier) markets and of carrier-grade-oriented low- and mid-density media gateways for service providers and Enterprise Session Border Controls (ESBCs). Complementing its media gateways and session border gateways as network products are its multi-service business routers (MSBR), Internet Protocol (IP) phones, media servers, mobile VoIP solutions and value added application products. Technology products consist of its chips and boards business products. Its products are deployed in enterprise, service provider cloud networks.

FINANCIAL RATIOS  of  AudioCodes Ltd. (AUDC)

Valuation Ratios
P/E Ratio 32.3
Price to Sales 3.5
Price to Book 4.7
Price to Tangible Book
Price to Cash Flow 28.7
Price to Free Cash Flow 30.4
Growth Rates
Sales Growth Rate 4.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio 10
Current Ratio 0.1
LT Debt to Equity 8.3%
Total Debt to Equity 11%
Interest Coverage 0
Management Effectiveness
Return On Assets 8.5%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 12.9%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 14.2%
Return On Equity - 3 Yr. Avg. 4.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 60.3%
Gross Margin - 3 Yr. Avg. 59.4%
EBITDA Margin 7.5%
EBITDA Margin - 3 Yr. Avg. 5.3%
Operating Margin 5.5%
Oper. Margin - 3 Yr. Avg. 3.4%
Pre-Tax Margin 5.5%
Pre-Tax Margin - 3 Yr. Avg. 3.2%
Net Profit Margin 11%
Net Profit Margin - 3 Yr. Avg. 3.7%
Effective Tax Rate -100%
Eff/ Tax Rate - 3 Yr. Avg. 33.3%
Payout Ratio 0%

AUDC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AUDC stock intrinsic value calculation we used $157 million for the last fiscal year's total revenue generated by AudioCodes Ltd.. The default revenue input number comes from 0001 income statement of AudioCodes Ltd.. 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 AUDC stock valuation model: a) initial revenue growth rate of 7.7% 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 AUDC is calculated based on our internal credit rating of AudioCodes Ltd., 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 AudioCodes Ltd..
    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 AUDC stock the variable cost ratio is equal to 80.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $20 million in the base year in the intrinsic value calculation for AUDC 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 AudioCodes Ltd..

Corporate tax rate of 27% is the nominal tax rate for AudioCodes Ltd.. 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 AUDC 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 AUDC are equal to 14.8%.

Life of production assets of 17.4 years is the average useful life of capital assets used in AudioCodes Ltd. 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 AUDC is equal to 0.3%. 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 - $92.381 million for AudioCodes Ltd. - 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 29.341 million for AudioCodes Ltd. 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 AudioCodes Ltd. at the current share price and the inputted number of shares is $0.5 billion.

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