Intrinsic value of BroadSoft - BSFT

Previous Close

$53.25

  Intrinsic Value

$25.04

stock screener

  Rating & Target

str. sell

-53%

  Value-price divergence*

-64%

Previous close

$53.25

 
Intrinsic value

$25.04

 
Up/down potential

-53%

 
Rating

str. sell

 
Value-price divergence*

-64%

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

We calculate the intrinsic value of BSFT 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 1.6

 

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, %
  22.22
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
Revenue, $m
  341
  370
  400
  431
  464
  498
  533
  570
  608
  647
  688
  731
  776
  822
  871
  921
  974
  1,029
  1,086
  1,146
  1,209
  1,275
  1,343
  1,415
  1,490
  1,569
  1,651
  1,738
  1,828
  1,923
  2,022
Variable operating expenses, $m
 
  350
  377
  406
  436
  468
  500
  534
  569
  605
  643
  675
  716
  759
  803
  850
  899
  949
  1,002
  1,058
  1,116
  1,176
  1,239
  1,306
  1,375
  1,448
  1,524
  1,603
  1,687
  1,774
  1,866
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
  325
  350
  377
  406
  436
  468
  500
  534
  569
  605
  643
  675
  716
  759
  803
  850
  899
  949
  1,002
  1,058
  1,116
  1,176
  1,239
  1,306
  1,375
  1,448
  1,524
  1,603
  1,687
  1,774
  1,866
Operating income, $m
  16
  20
  23
  25
  28
  30
  33
  36
  39
  42
  45
  57
  60
  64
  67
  71
  75
  80
  84
  89
  94
  99
  104
  109
  115
  121
  128
  134
  141
  149
  156
EBITDA, $m
  37
  37
  40
  43
  46
  50
  53
  57
  61
  65
  69
  73
  77
  82
  87
  92
  97
  103
  108
  114
  121
  127
  134
  141
  149
  157
  165
  173
  182
  192
  202
Interest expense (income), $m
  3
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  41
  43
  46
  48
  51
  54
  57
  60
  64
Earnings before tax, $m
  2
  13
  15
  16
  17
  19
  20
  22
  23
  25
  27
  37
  39
  41
  43
  45
  47
  50
  52
  55
  58
  60
  63
  66
  70
  73
  77
  80
  84
  88
  93
Tax expense, $m
  1
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Net income, $m
  1
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  61
  64
  68

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  219
  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
  651
  469
  507
  547
  588
  631
  676
  722
  770
  820
  872
  927
  983
  1,042
  1,104
  1,168
  1,234
  1,304
  1,377
  1,453
  1,532
  1,616
  1,703
  1,794
  1,889
  1,989
  2,093
  2,202
  2,317
  2,437
  2,563
Adjusted assets (=assets-cash), $m
  432
  469
  507
  547
  588
  631
  676
  722
  770
  820
  872
  927
  983
  1,042
  1,104
  1,168
  1,234
  1,304
  1,377
  1,453
  1,532
  1,616
  1,703
  1,794
  1,889
  1,989
  2,093
  2,202
  2,317
  2,437
  2,563
Revenue / Adjusted assets
  0.789
  0.789
  0.789
  0.788
  0.789
  0.789
  0.788
  0.789
  0.790
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
  0.789
Average production assets, $m
  45
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  95
  101
  107
  113
  120
  127
  134
  141
  149
  157
  166
  175
  184
  194
  204
  215
  226
  238
  250
  263
Working capital, $m
  228
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
Total debt, $m
  201
  231
  262
  294
  327
  362
  398
  436
  475
  515
  558
  602
  647
  695
  745
  797
  851
  907
  966
  1,028
  1,092
  1,160
  1,230
  1,304
  1,381
  1,462
  1,546
  1,635
  1,728
  1,825
  1,927
Total liabilities, $m
  350
  380
  411
  443
  476
  511
  547
  585
  624
  664
  707
  751
  796
  844
  894
  946
  1,000
  1,056
  1,115
  1,177
  1,241
  1,309
  1,379
  1,453
  1,530
  1,611
  1,695
  1,784
  1,877
  1,974
  2,076
Total equity, $m
  301
  89
  96
  104
  112
  120
  128
  137
  146
  156
  166
  176
  187
  198
  210
  222
  235
  248
  262
  276
  291
  307
  323
  341
  359
  378
  398
  418
  440
  463
  487
Total liabilities and equity, $m
  651
  469
  507
  547
  588
  631
  675
  722
  770
  820
  873
  927
  983
  1,042
  1,104
  1,168
  1,235
  1,304
  1,377
  1,453
  1,532
  1,616
  1,702
  1,794
  1,889
  1,989
  2,093
  2,202
  2,317
  2,437
  2,563
Debt-to-equity ratio
  0.668
  2.590
  2.720
  2.830
  2.930
  3.020
  3.100
  3.180
  3.250
  3.310
  3.360
  3.420
  3.470
  3.510
  3.550
  3.590
  3.630
  3.660
  3.690
  3.720
  3.750
  3.780
  3.800
  3.830
  3.850
  3.870
  3.890
  3.910
  3.920
  3.940
  3.960
Adjusted equity ratio
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  46
  48
  51
  53
  56
  59
  61
  64
  68
Depreciation, amort., depletion, $m
  21
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  16
  17
  18
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  45
Funds from operations, $m
  50
  26
  28
  30
  31
  33
  35
  37
  39
  41
  43
  43
  46
  48
  51
  54
  56
  59
  63
  66
  69
  73
  76
  80
  84
  88
  93
  98
  102
  108
  113
Change in working capital, $m
  -17
  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
  2
  3
Cash from operations, $m
  67
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  42
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  75
  78
  82
  86
  91
  95
  100
  105
  110
Maintenance CAPEX, $m
  0
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
  -37
  -39
  -41
  -43
New CAPEX, $m
  -16
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
Cash from investing activities, $m
  -156
  -12
  -12
  -13
  -14
  -14
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -27
  -28
  -29
  -30
  -32
  -34
  -36
  -38
  -39
  -42
  -43
  -46
  -48
  -51
  -53
  -56
Free cash flow, $m
  -89
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  21
  22
  24
  25
  26
  28
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
Issuance/(repayment) of debt, $m
  0
  30
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  102
Issuance/(repurchase) of shares, $m
  15
  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  
  -2
  30
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  59
  62
  64
  67
  70
  74
  77
  81
  85
  89
  93
  97
  102
Total cash flow (excl. dividends), $m
  -93
  44
  46
  48
  50
  52
  55
  57
  59
  62
  65
  65
  68
  71
  75
  78
  82
  85
  89
  94
  98
  103
  107
  113
  118
  124
  129
  136
  142
  149
  156
Retained Cash Flow (-), $m
  -44
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Prev. year cash balance distribution, $m
 
  219
  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
 
  256
  39
  40
  42
  44
  46
  48
  50
  52
  55
  55
  58
  60
  63
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  105
  110
  115
  120
  126
  132
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
 
  245
  35
  35
  35
  34
  33
  32
  31
  30
  29
  26
  25
  23
  21
  19
  18
  16
  14
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
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

BroadSoft, Inc. is a global provider of software and services that enable telecommunications service providers to deliver hosted, cloud-based Unified Communications (UC) to their enterprise customers. The BroadSoft Business solution is a communications and collaboration offering that enables telecommunications service providers to offer businesses and other enterprises UC features and functionalities on a cloud-delivered basis without the need for traditional premise-based private branch exchange (PBX) equipment. BroadSoft Business includes its UC-One, Team-One and CC-One applications. The capabilities of the BroadSoft Business offering can be accessed through desk phones, smartphones, tablets, laptops and personal computers. Its BroadWorks SIP Trunking solution enables service providers to provide Internet protocol (IP) interconnectivity and additional services to enterprises that already have premise-based PBXs. Its training services include systems administration and provisioning.

FINANCIAL RATIOS  of  BroadSoft (BSFT)

Valuation Ratios
P/E Ratio 1616.1
Price to Sales 4.7
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow 24.1
Price to Free Cash Flow 31.7
Growth Rates
Sales Growth Rate 22.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 23.1%
Cap. Spend. - 3 Yr. Gr. Rate 21.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 66.8%
Total Debt to Equity 66.8%
Interest Coverage 2
Management Effectiveness
Return On Assets 0.4%
Ret/ On Assets - 3 Yr. Avg. 0.2%
Return On Total Capital 0.2%
Ret/ On T. Cap. - 3 Yr. Avg. 0.1%
Return On Equity 0.4%
Return On Equity - 3 Yr. Avg. 0.1%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 73.3%
Gross Margin - 3 Yr. Avg. 72.9%
EBITDA Margin 7.6%
EBITDA Margin - 3 Yr. Avg. 7.2%
Operating Margin 4.7%
Oper. Margin - 3 Yr. Avg. 4.4%
Pre-Tax Margin 0.6%
Pre-Tax Margin - 3 Yr. Avg. -0.1%
Net Profit Margin 0.3%
Net Profit Margin - 3 Yr. Avg. 0.1%
Effective Tax Rate 50%
Eff/ Tax Rate - 3 Yr. Avg. 50%
Payout Ratio 0%

BSFT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BSFT stock intrinsic value calculation we used $341 million for the last fiscal year's total revenue generated by BroadSoft. The default revenue input number comes from 2016 income statement of BroadSoft. 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 BSFT stock valuation model: a) initial revenue growth rate of 8.5% 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 BSFT is calculated based on our internal credit rating of BroadSoft, 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 BroadSoft.
    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 BSFT stock the variable cost ratio is equal to 94.7%.

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 BSFT 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 BroadSoft.

Corporate tax rate of 27% is the nominal tax rate for BroadSoft. 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 BSFT 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 BSFT are equal to 13%.

Life of production assets of 5.8 years is the average useful life of capital assets used in BroadSoft 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 BSFT is equal to 2.6%. 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 - $301 million for BroadSoft - 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 30.698 million for BroadSoft 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 BroadSoft at the current share price and the inputted number of shares is $1.6 billion.

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COMPANY NEWS

▶ BroadSoft to Announce Q3 Fiscal Results on November 6, 2017   [Oct-16-17 05:00PM  GlobeNewswire]
▶ Broadsoft Earns Relative Strength Rating Upgrade; Hits Key Threshold   [Sep-11-17 03:00AM  Investor's Business Daily]
▶ Wolf Pack Descends on BroadSoft   [Sep-10-17 09:00AM  TheStreet.com]
▶ [$$] Time Warner Cable Subscriber Data Exposed   [Sep-01-17 06:12PM  The Wall Street Journal]
▶ BroadSoft Stock Surges, May Consider Sale   [02:57PM  TheStreet.com]
▶ BroadSoft reports 2Q loss   [Aug-07-17 11:57PM  Associated Press]
▶ BroadSoft to Announce Q2 Fiscal Results on August 7, 2017   [Jul-17-17 05:00PM  GlobeNewswire]
▶ [$$] Outlooks Soft in Communications Tech   [May-09-17 07:49AM  Barrons.com]
▶ BroadSoft Launches BroadCloud PaaS   [May-08-17 08:00AM  GlobeNewswire]
▶ ETFs with exposure to BroadSoft, Inc. : May 5, 2017   [May-05-17 03:54PM  Capital Cube]
▶ What Happened in the Stock Market Today   [04:55PM  Motley Fool]
▶ Why BroadSoft Inc. Stock Plunged Today   [03:59PM  Motley Fool]
▶ BroadSoft reports 1Q loss   [07:42AM  Associated Press]
▶ BroadSoft to Announce Q1 Fiscal Results on May 1, 2017   [Apr-12-17 05:00PM  GlobeNewswire]
▶ BroadSoft beats Street 4Q forecasts   [08:19AM  Associated Press]
Financial statements of BSFT
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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