Intrinsic value of CDK Global, Inc. - CDK

Previous Close

$48.59

  Intrinsic Value

$8.88

stock screener

  Rating & Target

str. sell

-82%

Previous close

$48.59

 
Intrinsic value

$8.88

 
Up/down potential

-82%

 
Rating

str. sell

We calculate the intrinsic value of CDK 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 6.1

 

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, %
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  2,389
  2,511
  2,638
  2,772
  2,912
  3,060
  3,214
  3,377
  3,547
  3,726
  3,913
  4,110
  4,317
  4,534
  4,761
  5,000
  5,251
  5,515
  5,791
  6,082
  6,386
  6,706
  7,042
  7,395
  7,766
  8,154
  8,563
  8,991
  9,441
  9,914
Variable operating expenses, $m
  1,863
  1,957
  2,056
  2,159
  2,268
  2,382
  2,502
  2,627
  2,759
  2,897
  3,029
  3,182
  3,342
  3,510
  3,686
  3,871
  4,065
  4,269
  4,484
  4,708
  4,944
  5,192
  5,452
  5,725
  6,012
  6,313
  6,629
  6,961
  7,309
  7,675
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
  1,863
  1,957
  2,056
  2,159
  2,268
  2,382
  2,502
  2,627
  2,759
  2,897
  3,029
  3,182
  3,342
  3,510
  3,686
  3,871
  4,065
  4,269
  4,484
  4,708
  4,944
  5,192
  5,452
  5,725
  6,012
  6,313
  6,629
  6,961
  7,309
  7,675
Operating income, $m
  526
  554
  582
  613
  644
  678
  713
  749
  788
  828
  884
  928
  975
  1,024
  1,075
  1,129
  1,186
  1,245
  1,308
  1,373
  1,442
  1,514
  1,590
  1,670
  1,754
  1,841
  1,933
  2,030
  2,132
  2,239
EBITDA, $m
  585
  615
  646
  679
  713
  749
  787
  827
  868
  912
  958
  1,006
  1,057
  1,110
  1,166
  1,224
  1,286
  1,350
  1,418
  1,489
  1,564
  1,642
  1,724
  1,811
  1,901
  1,996
  2,096
  2,201
  2,311
  2,427
Interest expense (income), $m
  50
  142
  100
  107
  114
  122
  130
  139
  148
  157
  167
  177
  188
  200
  212
  224
  237
  251
  266
  281
  297
  314
  331
  350
  369
  390
  411
  434
  457
  482
  508
Earnings before tax, $m
  385
  454
  475
  498
  522
  547
  574
  601
  631
  661
  706
  740
  775
  812
  851
  892
  935
  980
  1,027
  1,076
  1,128
  1,183
  1,240
  1,301
  1,364
  1,430
  1,500
  1,573
  1,650
  1,731
Tax expense, $m
  104
  122
  128
  135
  141
  148
  155
  162
  170
  178
  191
  200
  209
  219
  230
  241
  252
  264
  277
  291
  305
  319
  335
  351
  368
  386
  405
  425
  445
  467
Net income, $m
  281
  331
  347
  364
  381
  400
  419
  439
  460
  483
  516
  540
  566
  593
  621
  651
  682
  715
  750
  786
  824
  864
  905
  949
  996
  1,044
  1,095
  1,148
  1,204
  1,263

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
  2,844
  2,989
  3,141
  3,300
  3,467
  3,642
  3,827
  4,020
  4,222
  4,435
  4,658
  4,893
  5,139
  5,397
  5,668
  5,953
  6,251
  6,565
  6,894
  7,240
  7,603
  7,984
  8,384
  8,804
  9,245
  9,708
  10,194
  10,704
  11,240
  11,802
Adjusted assets (=assets-cash), $m
  2,844
  2,989
  3,141
  3,300
  3,467
  3,642
  3,827
  4,020
  4,222
  4,435
  4,658
  4,893
  5,139
  5,397
  5,668
  5,953
  6,251
  6,565
  6,894
  7,240
  7,603
  7,984
  8,384
  8,804
  9,245
  9,708
  10,194
  10,704
  11,240
  11,802
Revenue / Adjusted assets
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
Average production assets, $m
  831
  874
  918
  965
  1,013
  1,065
  1,119
  1,175
  1,234
  1,296
  1,362
  1,430
  1,502
  1,578
  1,657
  1,740
  1,827
  1,919
  2,015
  2,116
  2,222
  2,334
  2,451
  2,574
  2,702
  2,838
  2,980
  3,129
  3,286
  3,450
Working capital, $m
  62
  65
  69
  72
  76
  80
  84
  88
  92
  97
  102
  107
  112
  118
  124
  130
  137
  143
  151
  158
  166
  174
  183
  192
  202
  212
  223
  234
  245
  258
Total debt, $m
  1,852
  1,983
  2,119
  2,263
  2,413
  2,571
  2,737
  2,910
  3,093
  3,284
  3,485
  3,696
  3,918
  4,150
  4,394
  4,650
  4,919
  5,201
  5,498
  5,809
  6,135
  6,478
  6,838
  7,216
  7,613
  8,029
  8,467
  8,926
  9,408
  9,915
Total liabilities, $m
  2,560
  2,690
  2,827
  2,970
  3,120
  3,278
  3,444
  3,618
  3,800
  3,992
  4,193
  4,404
  4,625
  4,857
  5,101
  5,357
  5,626
  5,909
  6,205
  6,516
  6,843
  7,185
  7,545
  7,923
  8,320
  8,737
  9,174
  9,633
  10,116
  10,622
Total equity, $m
  284
  299
  314
  330
  347
  364
  383
  402
  422
  444
  466
  489
  514
  540
  567
  595
  625
  657
  689
  724
  760
  798
  838
  880
  924
  971
  1,019
  1,070
  1,124
  1,180
Total liabilities and equity, $m
  2,844
  2,989
  3,141
  3,300
  3,467
  3,642
  3,827
  4,020
  4,222
  4,436
  4,659
  4,893
  5,139
  5,397
  5,668
  5,952
  6,251
  6,566
  6,894
  7,240
  7,603
  7,983
  8,383
  8,803
  9,244
  9,708
  10,193
  10,703
  11,240
  11,802
Debt-to-equity ratio
  6.510
  6.630
  6.750
  6.860
  6.960
  7.060
  7.150
  7.240
  7.320
  7.410
  7.480
  7.550
  7.620
  7.690
  7.750
  7.810
  7.870
  7.920
  7.970
  8.020
  8.070
  8.110
  8.160
  8.200
  8.230
  8.270
  8.310
  8.340
  8.370
  8.400
Adjusted equity ratio
  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
  281
  331
  347
  364
  381
  400
  419
  439
  460
  483
  516
  540
  566
  593
  621
  651
  682
  715
  750
  786
  824
  864
  905
  949
  996
  1,044
  1,095
  1,148
  1,204
  1,263
Depreciation, amort., depletion, $m
  59
  61
  63
  66
  69
  71
  74
  77
  81
  84
  74
  78
  82
  86
  91
  95
  100
  105
  110
  116
  121
  128
  134
  141
  148
  155
  163
  171
  180
  189
Funds from operations, $m
  339
  392
  410
  430
  450
  471
  493
  516
  541
  567
  590
  618
  648
  679
  712
  746
  782
  820
  860
  901
  945
  991
  1,039
  1,090
  1,143
  1,199
  1,258
  1,319
  1,384
  1,452
Change in working capital, $m
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
Cash from operations, $m
  336
  389
  407
  426
  446
  467
  489
  512
  537
  562
  585
  613
  643
  673
  706
  740
  776
  813
  853
  894
  937
  983
  1,031
  1,081
  1,134
  1,189
  1,247
  1,308
  1,372
  1,440
Maintenance CAPEX, $m
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -71
  -74
  -78
  -82
  -86
  -91
  -95
  -100
  -105
  -110
  -116
  -121
  -128
  -134
  -141
  -148
  -155
  -163
  -171
  -180
New CAPEX, $m
  -41
  -42
  -44
  -47
  -49
  -51
  -54
  -56
  -59
  -62
  -65
  -69
  -72
  -75
  -79
  -83
  -87
  -92
  -96
  -101
  -106
  -111
  -117
  -123
  -129
  -135
  -142
  -149
  -157
  -164
Cash from investing activities, $m
  -84
  -87
  -92
  -97
  -102
  -106
  -112
  -117
  -123
  -129
  -136
  -143
  -150
  -157
  -165
  -174
  -182
  -192
  -201
  -211
  -222
  -232
  -245
  -257
  -270
  -283
  -297
  -312
  -328
  -344
Free cash flow, $m
  253
  301
  315
  329
  345
  360
  377
  395
  413
  432
  449
  470
  492
  516
  540
  566
  593
  622
  651
  683
  716
  750
  786
  824
  864
  906
  950
  996
  1,045
  1,096
Issuance/(repayment) of debt, $m
  -768
  130
  137
  143
  150
  158
  166
  174
  182
  191
  201
  211
  221
  232
  244
  256
  269
  282
  296
  311
  327
  343
  360
  378
  397
  417
  437
  459
  482
  506
Issuance/(repurchase) of shares, $m
  624
  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  
  -144
  130
  137
  143
  150
  158
  166
  174
  182
  191
  201
  211
  221
  232
  244
  256
  269
  282
  296
  311
  327
  343
  360
  378
  397
  417
  437
  459
  482
  506
Total cash flow (excl. dividends), $m
  108
  431
  452
  473
  495
  518
  543
  569
  595
  624
  650
  681
  714
  748
  784
  822
  862
  904
  948
  994
  1,042
  1,093
  1,146
  1,202
  1,261
  1,323
  1,387
  1,455
  1,527
  1,602
Retained Cash Flow (-), $m
  -905
  -14
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -49
  -51
  -54
  -56
Prev. year cash balance distribution, $m
  256
  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
  -541
  417
  436
  457
  478
  501
  524
  549
  575
  603
  628
  658
  689
  722
  757
  794
  832
  873
  915
  959
  1,006
  1,055
  1,106
  1,160
  1,217
  1,276
  1,339
  1,404
  1,473
  1,546
Discount rate, %
  10.10
  10.61
  11.14
  11.69
  12.28
  12.89
  13.53
  14.21
  14.92
  15.67
  16.45
  17.27
  18.14
  19.05
  20.00
  21.00
  22.05
  23.15
  24.31
  25.52
  26.80
  28.14
  29.55
  31.02
  32.57
  34.20
  35.91
  37.71
  39.59
  41.57
PV of cash for distribution, $m
  -491
  341
  318
  294
  268
  242
  216
  190
  165
  141
  118
  97
  79
  63
  49
  38
  28
  21
  15
  10
  7
  5
  3
  2
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  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

CDK Global, Inc. provides integrated information technology and digital marketing solutions. The Company's segments include Retail Solutions North America, Advertising North America and CDK International. Through its Retail Solutions North America segment, the Company provides technology-based solutions, including automotive Website platforms, that help automotive retailers, original equipment manufacturers (OEMs) and other industry participants manage the acquisition, sale, financing, insuring, parts supply, repair and maintenance of vehicles. Through its Advertising North America segment, the Company provides advertising solutions, including management of digital advertising spend, for OEMs and automotive retailers. As of June 30, 2016, through its CDK International segment, it provided technology-based solutions similar to the retail solutions provided in its Retail Solutions North America segment in approximately 100 countries outside of the United States and Canada.

FINANCIAL RATIOS  of  CDK Global, Inc. (CDK)

Valuation Ratios
P/E Ratio 23
Price to Sales 3.1
Price to Book -91.9
Price to Tangible Book
Price to Cash Flow 15.8
Price to Free Cash Flow 20.2
Growth Rates
Sales Growth Rate 5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 46.9%
Cap. Spend. - 3 Yr. Gr. Rate 16.4%
Financial Strength
Quick Ratio 15
Current Ratio 0.3
LT Debt to Equity -2871.6%
Total Debt to Equity -2935.1%
Interest Coverage 10
Management Effectiveness
Return On Assets 12.6%
Ret/ On Assets - 3 Yr. Avg. 10.3%
Return On Total Capital 16.1%
Ret/ On T. Cap. - 3 Yr. Avg. 13.5%
Return On Equity 207%
Return On Equity - 3 Yr. Avg. 87.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 44.4%
Gross Margin - 3 Yr. Avg. 41.3%
EBITDA Margin 25%
EBITDA Margin - 3 Yr. Avg. 22.2%
Operating Margin 22%
Oper. Margin - 3 Yr. Avg. 18.9%
Pre-Tax Margin 19.6%
Pre-Tax Margin - 3 Yr. Avg. 17.2%
Net Profit Margin 13.3%
Net Profit Margin - 3 Yr. Avg. 11.1%
Effective Tax Rate 30.3%
Eff/ Tax Rate - 3 Yr. Avg. 33.8%
Payout Ratio 27.4%

CDK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CDK stock intrinsic value calculation we used $2273 million for the last fiscal year's total revenue generated by CDK Global, Inc.. The default revenue input number comes from 0001 income statement of CDK Global, Inc.. 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 CDK stock valuation model: a) initial revenue growth rate of 5.1% 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 10.1%, whose default value for CDK is calculated based on our internal credit rating of CDK Global, Inc., 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 CDK Global, Inc..
    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 CDK 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 CDK 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 CDK Global, Inc..

Corporate tax rate of 27% is the nominal tax rate for CDK Global, Inc.. 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 CDK 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 CDK are equal to 34.8%.

Life of production assets of 18.3 years is the average useful life of capital assets used in CDK Global, Inc. 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 CDK 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 - $-364.8 million for CDK Global, Inc. - 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 124.785 million for CDK Global, Inc. 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 CDK Global, Inc. at the current share price and the inputted number of shares is $6.1 billion.

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