Intrinsic value of Aspen Technology - AZPN

Previous Close

$66.37

  Intrinsic Value

$23.57

stock screener

  Rating & Target

str. sell

-64%

Previous close

$66.37

 
Intrinsic value

$23.57

 
Up/down potential

-64%

 
Rating

str. sell

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

We calculate the intrinsic value of AZPN 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 2017), $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 4.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.33
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.64
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
  5.20
  5.18
Revenue, $m
  483
  526
  570
  616
  664
  713
  765
  819
  875
  933
  993
  1,056
  1,121
  1,189
  1,260
  1,334
  1,411
  1,492
  1,576
  1,664
  1,755
  1,851
  1,951
  2,056
  2,166
  2,281
  2,401
  2,527
  2,659
  2,797
  2,942
Variable operating expenses, $m
 
  290
  314
  339
  365
  392
  420
  449
  479
  511
  544
  573
  608
  645
  684
  724
  766
  809
  855
  902
  952
  1,004
  1,059
  1,115
  1,175
  1,237
  1,302
  1,371
  1,442
  1,517
  1,596
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
  271
  290
  314
  339
  365
  392
  420
  449
  479
  511
  544
  573
  608
  645
  684
  724
  766
  809
  855
  902
  952
  1,004
  1,059
  1,115
  1,175
  1,237
  1,302
  1,371
  1,442
  1,517
  1,596
Operating income, $m
  212
  235
  256
  277
  299
  321
  345
  370
  395
  422
  449
  483
  513
  544
  577
  610
  646
  683
  721
  761
  803
  847
  893
  941
  991
  1,044
  1,099
  1,156
  1,217
  1,280
  1,346
EBITDA, $m
  218
  243
  264
  285
  307
  330
  354
  379
  405
  432
  460
  489
  519
  550
  583
  617
  653
  690
  729
  770
  812
  857
  903
  952
  1,003
  1,056
  1,111
  1,170
  1,231
  1,295
  1,362
Interest expense (income), $m
  3
  1
  -8
  -7
  -7
  -7
  -6
  -6
  -5
  -5
  -4
  -3
  -3
  -2
  -2
  -1
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  9
  10
  11
  12
  14
Earnings before tax, $m
  210
  234
  264
  284
  306
  328
  351
  375
  400
  426
  453
  487
  516
  546
  578
  611
  646
  682
  720
  759
  800
  843
  888
  935
  984
  1,036
  1,090
  1,146
  1,206
  1,268
  1,332
Tax expense, $m
  48
  63
  71
  77
  83
  89
  95
  101
  108
  115
  122
  131
  139
  148
  156
  165
  174
  184
  194
  205
  216
  228
  240
  253
  266
  280
  294
  310
  325
  342
  360
Net income, $m
  162
  171
  192
  207
  223
  239
  256
  274
  292
  311
  331
  355
  377
  399
  422
  446
  472
  498
  525
  554
  584
  616
  648
  683
  719
  756
  796
  837
  880
  925
  973

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  102
  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
  248
  159
  172
  186
  201
  216
  231
  247
  264
  282
  300
  319
  339
  359
  381
  403
  427
  451
  476
  503
  531
  560
  590
  622
  655
  690
  726
  764
  804
  846
  889
Adjusted assets (=assets-cash), $m
  146
  159
  172
  186
  201
  216
  231
  247
  264
  282
  300
  319
  339
  359
  381
  403
  427
  451
  476
  503
  531
  560
  590
  622
  655
  690
  726
  764
  804
  846
  889
Revenue / Adjusted assets
  3.308
  3.308
  3.314
  3.312
  3.303
  3.301
  3.312
  3.316
  3.314
  3.309
  3.310
  3.310
  3.307
  3.312
  3.307
  3.310
  3.304
  3.308
  3.311
  3.308
  3.305
  3.305
  3.307
  3.305
  3.307
  3.306
  3.307
  3.308
  3.307
  3.306
  3.309
Average production assets, $m
  28
  30
  32
  35
  38
  41
  44
  47
  50
  53
  57
  60
  64
  68
  72
  76
  80
  85
  90
  95
  100
  106
  111
  117
  123
  130
  137
  144
  152
  159
  168
Working capital, $m
  -321
  -308
  -334
  -361
  -389
  -418
  -448
  -480
  -512
  -546
  -582
  -619
  -657
  -697
  -738
  -782
  -827
  -874
  -923
  -975
  -1,029
  -1,085
  -1,144
  -1,205
  -1,269
  -1,337
  -1,407
  -1,481
  -1,558
  -1,639
  -1,724
Total debt, $m
  140
  -226
  -214
  -201
  -188
  -175
  -161
  -146
  -131
  -115
  -99
  -82
  -64
  -45
  -26
  -6
  15
  37
  60
  84
  109
  135
  162
  190
  220
  252
  284
  319
  354
  392
  431
Total liabilities, $m
  509
  143
  155
  168
  181
  194
  208
  223
  238
  254
  270
  287
  305
  324
  343
  363
  384
  406
  429
  453
  478
  504
  531
  559
  589
  621
  653
  688
  723
  761
  800
Total equity, $m
  -261
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  73
  76
  80
  85
  89
Total liabilities and equity, $m
  248
  159
  172
  187
  201
  216
  231
  248
  264
  282
  300
  319
  339
  360
  381
  403
  427
  451
  477
  503
  531
  560
  590
  621
  654
  690
  726
  764
  803
  846
  889
Debt-to-equity ratio
  -0.536
  -14.230
  -12.420
  -10.820
  -9.390
  -8.110
  -6.960
  -5.910
  -4.960
  -4.090
  -3.290
  -2.560
  -1.890
  -1.260
  -0.690
  -0.150
  0.350
  0.820
  1.250
  1.660
  2.050
  2.410
  2.740
  3.060
  3.360
  3.650
  3.920
  4.170
  4.410
  4.640
  4.850
Adjusted equity ratio
  -1.788
  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
  162
  171
  192
  207
  223
  239
  256
  274
  292
  311
  331
  355
  377
  399
  422
  446
  472
  498
  525
  554
  584
  616
  648
  683
  719
  756
  796
  837
  880
  925
  973
Depreciation, amort., depletion, $m
  6
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
Funds from operations, $m
  182
  179
  200
  216
  232
  248
  265
  283
  302
  321
  341
  361
  382
  405
  429
  453
  479
  506
  534
  563
  593
  625
  659
  694
  730
  768
  808
  850
  894
  940
  988
Change in working capital, $m
  0
  -25
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -54
  -56
  -59
  -61
  -64
  -67
  -70
  -74
  -77
  -81
  -85
Cash from operations, $m
  182
  204
  226
  243
  260
  277
  296
  315
  335
  355
  377
  398
  421
  445
  470
  497
  524
  553
  583
  614
  647
  681
  717
  755
  794
  836
  879
  924
  971
  1,021
  1,073
Maintenance CAPEX, $m
  0
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
New CAPEX, $m
  -3
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
Cash from investing activities, $m
  -37
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Free cash flow, $m
  145
  199
  221
  237
  254
  271
  289
  308
  327
  347
  368
  389
  411
  435
  460
  486
  513
  541
  570
  601
  633
  667
  702
  739
  777
  818
  860
  904
  951
  999
  1,050
Issuance/(repayment) of debt, $m
  0
  -264
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
Issuance/(repurchase) of shares, $m
  -362
  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
Cash from financing (excl. dividends), $m  
  -362
  -158
  12
  13
  13
  14
  14
  15
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
Total cash flow (excl. dividends), $m
  -216
  41
  233
  250
  267
  285
  303
  322
  342
  363
  385
  406
  429
  454
  479
  506
  534
  563
  593
  625
  658
  693
  729
  767
  807
  849
  893
  938
  986
  1,037
  1,090
Retained Cash Flow (-), $m
  186
  -277
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
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
 
  -236
  232
  248
  265
  283
  301
  321
  341
  361
  383
  404
  427
  452
  477
  504
  531
  560
  591
  622
  655
  690
  726
  764
  804
  845
  889
  935
  982
  1,033
  1,085
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
 
  -227
  212
  216
  218
  219
  219
  217
  213
  208
  201
  192
  182
  172
  160
  148
  135
  122
  109
  96
  83
  71
  60
  50
  41
  33
  26
  20
  15
  11
  8
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

Aspen Technology, Inc. is a global provider of process optimization software solutions designed to manage and optimize plant and process design, operational performance, and supply chain planning. The Company's aspenONE software and related services have been developed specifically for companies in the process industries, including the energy, chemicals, and engineering and construction industries. It operates through two segments, including subscription and software, which provides licensing of process optimization software solutions and associated support services, and services, which includes professional services and training. It has developed applications to design and optimize processes across the business areas, including engineering, manufacturing and supply chain. Its products include Aspen HYSYS, Aspen Economic Evaluation, Aspen Info Plus.21, Aspen PIMS Advanced Optimization, Aspen Collaborative Demand Manager and Aspen Supply Planner.

FINANCIAL RATIOS  of  Aspen Technology (AZPN)

Valuation Ratios
P/E Ratio 30.1
Price to Sales 10.1
Price to Book -18.7
Price to Tangible Book
Price to Cash Flow 26.8
Price to Free Cash Flow 27.2
Growth Rates
Sales Growth Rate 2.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -25%
Cap. Spend. - 3 Yr. Gr. Rate -9.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity -53.6%
Interest Coverage 71
Management Effectiveness
Return On Assets 49.2%
Ret/ On Assets - 3 Yr. Avg. 40%
Return On Total Capital -578.6%
Ret/ On T. Cap. - 3 Yr. Avg. 615.2%
Return On Equity -96.4%
Return On Equity - 3 Yr. Avg. 117.4%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 90.1%
Gross Margin - 3 Yr. Avg. 89.6%
EBITDA Margin 45.3%
EBITDA Margin - 3 Yr. Avg. 44.5%
Operating Margin 43.9%
Oper. Margin - 3 Yr. Avg. 43.1%
Pre-Tax Margin 43.5%
Pre-Tax Margin - 3 Yr. Avg. 43%
Net Profit Margin 33.5%
Net Profit Margin - 3 Yr. Avg. 30%
Effective Tax Rate 22.9%
Eff/ Tax Rate - 3 Yr. Avg. 30.2%
Payout Ratio 0%

AZPN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AZPN stock intrinsic value calculation we used $483 million for the last fiscal year's total revenue generated by Aspen Technology. The default revenue input number comes from 2017 income statement of Aspen Technology. 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 AZPN stock valuation model: a) initial revenue growth rate of 8.8% 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 4.3%, whose default value for AZPN is calculated based on our internal credit rating of Aspen Technology, 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 Aspen Technology.
    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 AZPN stock the variable cost ratio is equal to 55.3%.

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 AZPN 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 Aspen Technology.

Corporate tax rate of 27% is the nominal tax rate for Aspen Technology. 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 AZPN 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 AZPN are equal to 5.7%.

Life of production assets of 10.8 years is the average useful life of capital assets used in Aspen Technology 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 AZPN is equal to -58.6%. 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 - $-261 million for Aspen Technology - 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 73.134 million for Aspen Technology 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 Aspen Technology at the current share price and the inputted number of shares is $4.9 billion.

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COMPANY NEWS

▶ Aspen Technology tops Street 1Q forecasts   [Oct-26-17 05:05PM  Associated Press]
▶ Should You Be Holding Aspen Technology Inc (AZPN) Right Now?   [Oct-02-17 03:02PM  Simply Wall St.]
▶ Top Ranked Growth Stocks to Buy for August 22nd   [Aug-22-17 09:35AM  Zacks]
▶ Aspen Technology tops Street 4Q forecasts   [Aug-10-17 09:25PM  Associated Press]
▶ Aspen Technology to Host Investor Day 2017   [May-25-17 08:30AM  Business Wire]
▶ Aspen Technology posts 3Q profit   [May-02-17 04:42PM  Associated Press]
▶ New Strong Buy Stocks for February 23rd   [Feb-23-17 07:04AM  Zacks]
▶ Aspen Technology posts 2Q profit   [Jan-26-17 04:34PM  Associated Press]
Financial statements of AZPN
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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