Intrinsic value of CSG Systems International, Inc. - CSGS

Previous Close

$53.68

  Intrinsic Value

$96.36

stock screener

  Rating & Target

str. buy

+80%

Previous close

$53.68

 
Intrinsic value

$96.36

 
Up/down potential

+80%

 
Rating

str. buy

We calculate the intrinsic value of CSGS 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 1.8

 

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, %
  20.50
  18.95
  17.56
  16.30
  15.17
  14.15
  13.24
  12.41
  11.67
  11.01
  10.40
  9.86
  9.38
  8.94
  8.55
  8.19
  7.87
  7.58
  7.33
  7.09
  6.88
  6.70
  6.53
  6.37
  6.24
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  1,054
  1,254
  1,474
  1,715
  1,975
  2,254
  2,553
  2,870
  3,204
  3,557
  3,927
  4,315
  4,719
  5,141
  5,580
  6,038
  6,513
  7,007
  7,520
  8,054
  8,608
  9,185
  9,784
  10,408
  11,057
  11,732
  12,437
  13,171
  13,936
  14,734
Variable operating expenses, $m
  911
  1,083
  1,271
  1,477
  1,700
  1,939
  2,195
  2,466
  2,753
  3,055
  3,364
  3,696
  4,043
  4,404
  4,780
  5,172
  5,579
  6,002
  6,442
  6,899
  7,374
  7,868
  8,381
  8,915
  9,471
  10,050
  10,654
  11,282
  11,938
  12,622
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
  911
  1,083
  1,271
  1,477
  1,700
  1,939
  2,195
  2,466
  2,753
  3,055
  3,364
  3,696
  4,043
  4,404
  4,780
  5,172
  5,579
  6,002
  6,442
  6,899
  7,374
  7,868
  8,381
  8,915
  9,471
  10,050
  10,654
  11,282
  11,938
  12,622
Operating income, $m
  143
  172
  203
  238
  275
  315
  358
  403
  451
  502
  563
  619
  677
  737
  800
  866
  934
  1,005
  1,078
  1,155
  1,234
  1,317
  1,403
  1,492
  1,585
  1,682
  1,783
  1,888
  1,998
  2,112
EBITDA, $m
  195
  232
  272
  317
  365
  417
  472
  530
  592
  657
  726
  797
  872
  950
  1,031
  1,116
  1,203
  1,295
  1,390
  1,488
  1,591
  1,697
  1,808
  1,923
  2,043
  2,168
  2,298
  2,434
  2,575
  2,723
Interest expense (income), $m
  12
  19
  28
  37
  47
  58
  71
  84
  97
  112
  128
  144
  161
  179
  198
  218
  238
  260
  282
  305
  328
  353
  379
  406
  434
  463
  493
  524
  557
  591
  627
Earnings before tax, $m
  124
  144
  166
  190
  216
  244
  274
  306
  339
  374
  419
  457
  497
  539
  582
  627
  674
  723
  774
  826
  881
  938
  997
  1,058
  1,122
  1,189
  1,259
  1,331
  1,407
  1,486
Tax expense, $m
  33
  39
  45
  51
  58
  66
  74
  83
  92
  101
  113
  123
  134
  145
  157
  169
  182
  195
  209
  223
  238
  253
  269
  286
  303
  321
  340
  359
  380
  401
Net income, $m
  90
  105
  121
  139
  158
  178
  200
  223
  247
  273
  306
  334
  363
  393
  425
  458
  492
  528
  565
  603
  643
  685
  728
  773
  819
  868
  919
  972
  1,027
  1,085

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
  1,343
  1,598
  1,878
  2,184
  2,516
  2,872
  3,252
  3,655
  4,082
  4,531
  5,003
  5,496
  6,012
  6,549
  7,109
  7,691
  8,297
  8,926
  9,580
  10,259
  10,966
  11,700
  12,464
  13,258
  14,085
  14,946
  15,843
  16,778
  17,753
  18,770
Adjusted assets (=assets-cash), $m
  1,343
  1,598
  1,878
  2,184
  2,516
  2,872
  3,252
  3,655
  4,082
  4,531
  5,003
  5,496
  6,012
  6,549
  7,109
  7,691
  8,297
  8,926
  9,580
  10,259
  10,966
  11,700
  12,464
  13,258
  14,085
  14,946
  15,843
  16,778
  17,753
  18,770
Revenue / Adjusted assets
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
  0.785
Average production assets, $m
  279
  332
  391
  454
  523
  597
  676
  760
  849
  943
  1,041
  1,143
  1,251
  1,362
  1,479
  1,600
  1,726
  1,857
  1,993
  2,134
  2,281
  2,434
  2,593
  2,758
  2,930
  3,109
  3,296
  3,490
  3,693
  3,905
Working capital, $m
  113
  134
  158
  183
  211
  241
  273
  307
  343
  381
  420
  462
  505
  550
  597
  646
  697
  750
  805
  862
  921
  983
  1,047
  1,114
  1,183
  1,255
  1,331
  1,409
  1,491
  1,577
Total debt, $m
  514
  687
  876
  1,083
  1,307
  1,548
  1,805
  2,078
  2,366
  2,670
  2,988
  3,322
  3,670
  4,034
  4,412
  4,806
  5,215
  5,640
  6,082
  6,542
  7,019
  7,516
  8,032
  8,569
  9,128
  9,710
  10,316
  10,948
  11,607
  12,295
Total liabilities, $m
  908
  1,080
  1,270
  1,477
  1,701
  1,941
  2,198
  2,471
  2,760
  3,063
  3,382
  3,716
  4,064
  4,427
  4,806
  5,199
  5,609
  6,034
  6,476
  6,935
  7,413
  7,909
  8,425
  8,962
  9,521
  10,103
  10,710
  11,342
  12,001
  12,688
Total equity, $m
  435
  518
  609
  708
  815
  930
  1,054
  1,184
  1,323
  1,468
  1,621
  1,781
  1,948
  2,122
  2,303
  2,492
  2,688
  2,892
  3,104
  3,324
  3,553
  3,791
  4,038
  4,296
  4,563
  4,842
  5,133
  5,436
  5,752
  6,081
Total liabilities and equity, $m
  1,343
  1,598
  1,879
  2,185
  2,516
  2,871
  3,252
  3,655
  4,083
  4,531
  5,003
  5,497
  6,012
  6,549
  7,109
  7,691
  8,297
  8,926
  9,580
  10,259
  10,966
  11,700
  12,463
  13,258
  14,084
  14,945
  15,843
  16,778
  17,753
  18,769
Debt-to-equity ratio
  1.180
  1.330
  1.440
  1.530
  1.600
  1.660
  1.710
  1.750
  1.790
  1.820
  1.840
  1.870
  1.880
  1.900
  1.920
  1.930
  1.940
  1.950
  1.960
  1.970
  1.980
  1.980
  1.990
  1.990
  2.000
  2.010
  2.010
  2.010
  2.020
  2.020
Adjusted equity ratio
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324
  0.324

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  90
  105
  121
  139
  158
  178
  200
  223
  247
  273
  306
  334
  363
  393
  425
  458
  492
  528
  565
  603
  643
  685
  728
  773
  819
  868
  919
  972
  1,027
  1,085
Depreciation, amort., depletion, $m
  52
  60
  69
  79
  90
  102
  114
  127
  141
  155
  163
  179
  195
  213
  231
  250
  270
  290
  311
  333
  356
  380
  405
  431
  458
  486
  515
  545
  577
  610
Funds from operations, $m
  142
  165
  191
  218
  248
  280
  314
  350
  388
  429
  468
  512
  558
  606
  656
  708
  762
  818
  876
  937
  999
  1,065
  1,133
  1,204
  1,277
  1,354
  1,434
  1,517
  1,604
  1,695
Change in working capital, $m
  19
  21
  24
  26
  28
  30
  32
  34
  36
  38
  40
  41
  43
  45
  47
  49
  51
  53
  55
  57
  59
  62
  64
  67
  69
  72
  75
  79
  82
  85
Cash from operations, $m
  123
  144
  167
  192
  220
  250
  282
  316
  353
  391
  429
  471
  515
  561
  609
  659
  711
  765
  821
  880
  940
  1,003
  1,069
  1,137
  1,208
  1,282
  1,358
  1,439
  1,522
  1,609
Maintenance CAPEX, $m
  -36
  -44
  -52
  -61
  -71
  -82
  -93
  -106
  -119
  -133
  -147
  -163
  -179
  -195
  -213
  -231
  -250
  -270
  -290
  -311
  -333
  -356
  -380
  -405
  -431
  -458
  -486
  -515
  -545
  -577
New CAPEX, $m
  -47
  -53
  -58
  -64
  -69
  -74
  -79
  -84
  -89
  -93
  -98
  -103
  -107
  -112
  -116
  -121
  -126
  -131
  -136
  -141
  -147
  -153
  -159
  -165
  -172
  -179
  -187
  -194
  -203
  -212
Cash from investing activities, $m
  -83
  -97
  -110
  -125
  -140
  -156
  -172
  -190
  -208
  -226
  -245
  -266
  -286
  -307
  -329
  -352
  -376
  -401
  -426
  -452
  -480
  -509
  -539
  -570
  -603
  -637
  -673
  -709
  -748
  -789
Free cash flow, $m
  39
  47
  57
  68
  80
  94
  110
  127
  145
  165
  183
  206
  229
  254
  280
  307
  335
  364
  395
  427
  460
  494
  530
  566
  605
  645
  686
  729
  774
  821
Issuance/(repayment) of debt, $m
  155
  172
  190
  207
  224
  241
  257
  273
  288
  304
  319
  334
  348
  363
  378
  394
  409
  425
  442
  459
  477
  496
  516
  537
  559
  582
  606
  632
  659
  688
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  
  155
  172
  190
  207
  224
  241
  257
  273
  288
  304
  319
  334
  348
  363
  378
  394
  409
  425
  442
  459
  477
  496
  516
  537
  559
  582
  606
  632
  659
  688
Total cash flow (excl. dividends), $m
  194
  219
  246
  275
  304
  335
  367
  400
  433
  468
  502
  539
  578
  617
  658
  700
  744
  790
  837
  886
  937
  990
  1,046
  1,104
  1,164
  1,227
  1,292
  1,361
  1,433
  1,508
Retained Cash Flow (-), $m
  -74
  -82
  -91
  -99
  -107
  -115
  -123
  -131
  -138
  -146
  -153
  -160
  -167
  -174
  -181
  -189
  -196
  -204
  -212
  -220
  -229
  -238
  -247
  -257
  -268
  -279
  -291
  -303
  -316
  -330
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
  120
  137
  155
  175
  197
  220
  244
  269
  295
  323
  349
  379
  411
  443
  477
  512
  548
  586
  625
  666
  708
  752
  798
  846
  896
  948
  1,002
  1,058
  1,117
  1,179
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
  115
  125
  135
  144
  153
  159
  165
  168
  170
  169
  166
  162
  156
  149
  140
  130
  119
  108
  96
  85
  73
  62
  52
  43
  35
  28
  22
  16
  12
  9
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

CSG Systems International, Inc. (CSG) is a provider of business support solutions primarily serving the communications industry. The Company provides business support solutions (BSS) to the communications service providers (CSPs), as well as clients in various industries. CSG's solutions coordinate and manage various aspects of a service provider's customer interactions, from the initial activation of customer accounts, to the support and fulfillment of various services, and through the calculation, presentment, and accounts receivables management of monthly customer statements. The Company's primary product solutions include Revenue Management & Customer Experience Solutions; Customer Interaction Management; Managed Services; Mediation and Data Management, and Wholesale Settlement and Routing. The Company employs professional services across various sectors, including solution architecture, project management, systems implementation and business consultancy.

FINANCIAL RATIOS  of  CSG Systems International, Inc. (CSGS)

Valuation Ratios
P/E Ratio 27.5
Price to Sales 2.3
Price to Book 6.9
Price to Tangible Book
Price to Cash Flow 20.6
Price to Free Cash Flow 27.9
Growth Rates
Sales Growth Rate 1.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -18.5%
Cap. Spend. - 3 Yr. Gr. Rate -9.9%
Financial Strength
Quick Ratio 6
Current Ratio 0.1
LT Debt to Equity 146.2%
Total Debt to Equity 165.7%
Interest Coverage 9
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 6.9%
Return On Total Capital 9.8%
Ret/ On T. Cap. - 3 Yr. Avg. 8.6%
Return On Equity 21.1%
Return On Equity - 3 Yr. Avg. 16.3%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 50.7%
Gross Margin - 3 Yr. Avg. 49.5%
EBITDA Margin 20.2%
EBITDA Margin - 3 Yr. Avg. 18.5%
Operating Margin 16.3%
Oper. Margin - 3 Yr. Avg. 13.8%
Pre-Tax Margin 13.1%
Pre-Tax Margin - 3 Yr. Avg. 11.4%
Net Profit Margin 8.3%
Net Profit Margin - 3 Yr. Avg. 7.1%
Effective Tax Rate 37%
Eff/ Tax Rate - 3 Yr. Avg. 37.8%
Payout Ratio 38.1%

CSGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSGS stock intrinsic value calculation we used $875 million for the last fiscal year's total revenue generated by CSG Systems International, Inc.. The default revenue input number comes from 0001 income statement of CSG Systems International, 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 CSGS stock valuation model: a) initial revenue growth rate of 20.5% 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 CSGS is calculated based on our internal credit rating of CSG Systems International, 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 CSG Systems International, 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 CSGS stock the variable cost ratio is equal to 86.6%.

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 CSGS 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 CSG Systems International, Inc..

Corporate tax rate of 27% is the nominal tax rate for CSG Systems International, 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 CSGS 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 CSGS are equal to 26.5%.

Life of production assets of 6.4 years is the average useful life of capital assets used in CSG Systems International, 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 CSGS is equal to 10.7%. 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 - $361.024 million for CSG Systems International, 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 33.052 million for CSG Systems International, 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 CSG Systems International, Inc. at the current share price and the inputted number of shares is $1.8 billion.

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