Intrinsic value of CSG Systems International - CSGS

Previous Close

$44.55

  Intrinsic Value

$48.11

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  Rating & Target

hold

+8%

Previous close

$44.55

 
Intrinsic value

$48.11

 
Up/down potential

+8%

 
Rating

hold

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

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 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 1.5

 

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, %
  1.06
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  761
  776
  794
  814
  837
  863
  891
  921
  954
  989
  1,027
  1,068
  1,111
  1,157
  1,206
  1,258
  1,313
  1,372
  1,434
  1,499
  1,568
  1,640
  1,717
  1,798
  1,883
  1,972
  2,067
  2,166
  2,271
  2,381
  2,496
Variable operating expenses, $m
 
  659
  673
  690
  709
  730
  753
  778
  805
  834
  865
  878
  914
  952
  992
  1,035
  1,080
  1,128
  1,179
  1,233
  1,290
  1,349
  1,412
  1,479
  1,549
  1,622
  1,700
  1,782
  1,868
  1,958
  2,053
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
  637
  659
  673
  690
  709
  730
  753
  778
  805
  834
  865
  878
  914
  952
  992
  1,035
  1,080
  1,128
  1,179
  1,233
  1,290
  1,349
  1,412
  1,479
  1,549
  1,622
  1,700
  1,782
  1,868
  1,958
  2,053
Operating income, $m
  124
  118
  121
  124
  128
  133
  138
  143
  149
  155
  162
  189
  197
  205
  214
  223
  233
  243
  254
  266
  278
  291
  305
  319
  334
  350
  367
  384
  403
  422
  443
EBITDA, $m
  166
  152
  156
  160
  164
  169
  175
  180
  187
  194
  201
  209
  218
  227
  236
  247
  257
  269
  281
  294
  307
  321
  336
  352
  369
  387
  405
  424
  445
  467
  489
Interest expense (income), $m
  12
  13
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
Earnings before tax, $m
  100
  105
  109
  112
  116
  120
  124
  128
  134
  139
  145
  171
  178
  185
  192
  200
  209
  218
  227
  237
  248
  259
  271
  283
  296
  310
  324
  340
  356
  372
  390
Tax expense, $m
  37
  28
  29
  30
  31
  32
  33
  35
  36
  38
  39
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  76
  80
  84
  88
  92
  96
  101
  105
Net income, $m
  63
  76
  79
  82
  84
  87
  90
  94
  97
  101
  106
  125
  130
  135
  140
  146
  152
  159
  166
  173
  181
  189
  198
  207
  216
  226
  237
  248
  260
  272
  285

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  277
  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
  892
  628
  642
  658
  677
  697
  720
  745
  771
  800
  830
  863
  898
  936
  975
  1,017
  1,062
  1,109
  1,159
  1,212
  1,267
  1,326
  1,388
  1,453
  1,522
  1,595
  1,671
  1,751
  1,836
  1,925
  2,018
Adjusted assets (=assets-cash), $m
  615
  628
  642
  658
  677
  697
  720
  745
  771
  800
  830
  863
  898
  936
  975
  1,017
  1,062
  1,109
  1,159
  1,212
  1,267
  1,326
  1,388
  1,453
  1,522
  1,595
  1,671
  1,751
  1,836
  1,925
  2,018
Revenue / Adjusted assets
  1.237
  1.236
  1.237
  1.237
  1.236
  1.238
  1.238
  1.236
  1.237
  1.236
  1.237
  1.238
  1.237
  1.236
  1.237
  1.237
  1.236
  1.237
  1.237
  1.237
  1.238
  1.237
  1.237
  1.237
  1.237
  1.236
  1.237
  1.237
  1.237
  1.237
  1.237
Average production assets, $m
  108
  109
  112
  115
  118
  122
  126
  130
  134
  139
  145
  151
  157
  163
  170
  177
  185
  193
  202
  211
  221
  231
  242
  253
  265
  278
  291
  305
  320
  336
  352
Working capital, $m
  308
  82
  83
  86
  88
  91
  94
  97
  100
  104
  108
  112
  117
  122
  127
  132
  138
  144
  151
  157
  165
  172
  180
  189
  198
  207
  217
  227
  238
  250
  262
Total debt, $m
  416
  340
  353
  368
  384
  403
  423
  445
  469
  495
  522
  552
  583
  617
  653
  690
  731
  773
  818
  865
  916
  968
  1,024
  1,083
  1,145
  1,210
  1,279
  1,351
  1,427
  1,507
  1,591
Total liabilities, $m
  641
  565
  578
  593
  609
  628
  648
  670
  694
  720
  747
  777
  808
  842
  878
  915
  956
  998
  1,043
  1,090
  1,141
  1,193
  1,249
  1,308
  1,370
  1,435
  1,504
  1,576
  1,652
  1,732
  1,816
Total equity, $m
  251
  63
  64
  66
  68
  70
  72
  74
  77
  80
  83
  86
  90
  94
  98
  102
  106
  111
  116
  121
  127
  133
  139
  145
  152
  159
  167
  175
  184
  192
  202
Total liabilities and equity, $m
  892
  628
  642
  659
  677
  698
  720
  744
  771
  800
  830
  863
  898
  936
  976
  1,017
  1,062
  1,109
  1,159
  1,211
  1,268
  1,326
  1,388
  1,453
  1,522
  1,594
  1,671
  1,751
  1,836
  1,924
  2,018
Debt-to-equity ratio
  1.657
  5.410
  5.490
  5.580
  5.680
  5.770
  5.870
  5.980
  6.080
  6.190
  6.290
  6.390
  6.500
  6.590
  6.690
  6.790
  6.880
  6.970
  7.060
  7.140
  7.220
  7.300
  7.380
  7.450
  7.520
  7.590
  7.650
  7.720
  7.770
  7.830
  7.890
Adjusted equity ratio
  -0.042
  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
  63
  76
  79
  82
  84
  87
  90
  94
  97
  101
  106
  125
  130
  135
  140
  146
  152
  159
  166
  173
  181
  189
  198
  207
  216
  226
  237
  248
  260
  272
  285
Depreciation, amort., depletion, $m
  42
  35
  35
  35
  36
  36
  37
  37
  38
  38
  39
  20
  21
  21
  22
  23
  24
  25
  27
  28
  29
  30
  32
  33
  35
  37
  38
  40
  42
  44
  46
Funds from operations, $m
  42
  111
  114
  117
  120
  123
  127
  131
  135
  140
  145
  145
  150
  156
  163
  170
  177
  184
  193
  201
  210
  219
  229
  240
  251
  263
  275
  288
  302
  316
  331
Change in working capital, $m
  -42
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  12
  12
Cash from operations, $m
  84
  109
  112
  115
  118
  121
  124
  128
  132
  136
  141
  140
  146
  152
  158
  164
  171
  178
  186
  194
  203
  212
  221
  232
  242
  253
  265
  278
  291
  304
  319
Maintenance CAPEX, $m
  0
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -44
New CAPEX, $m
  -22
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
Cash from investing activities, $m
  -52
  -16
  -17
  -18
  -18
  -20
  -20
  -21
  -22
  -23
  -23
  -25
  -26
  -28
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -39
  -41
  -43
  -45
  -48
  -50
  -52
  -55
  -58
  -60
Free cash flow, $m
  32
  93
  96
  97
  99
  102
  104
  107
  110
  114
  117
  116
  120
  124
  129
  134
  140
  146
  152
  158
  165
  173
  180
  188
  197
  206
  215
  225
  236
  247
  258
Issuance/(repayment) of debt, $m
  7
  -27
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
Issuance/(repurchase) of shares, $m
  -24
  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  
  -19
  -27
  13
  15
  17
  18
  20
  22
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  69
  72
  76
  80
  84
Total cash flow (excl. dividends), $m
  18
  66
  109
  112
  116
  120
  124
  129
  134
  139
  145
  145
  151
  158
  165
  172
  180
  188
  197
  206
  215
  225
  236
  247
  259
  271
  284
  298
  312
  327
  343
Retained Cash Flow (-), $m
  95
  -40
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
Prev. year cash balance distribution, $m
 
  228
  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
 
  254
  107
  110
  114
  118
  122
  127
  131
  136
  142
  142
  148
  154
  161
  168
  176
  183
  192
  201
  210
  220
  230
  241
  252
  264
  276
  290
  303
  318
  333
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
 
  244
  98
  96
  94
  91
  89
  86
  82
  78
  74
  67
  63
  59
  54
  49
  45
  40
  35
  31
  27
  23
  19
  16
  13
  10
  8
  6
  5
  3
  3
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

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 (CSGS)

Valuation Ratios
P/E Ratio 22.8
Price to Sales 1.9
Price to Book 5.7
Price to Tangible Book
Price to Cash Flow 17.1
Price to Free Cash Flow 23.2
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 $761 million for the last fiscal year's total revenue generated by CSG Systems International. The default revenue input number comes from 2016 income statement of CSG Systems International. 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 2% 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, 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.
    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 84.9%.

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 3.5% for CSG Systems International.

Corporate tax rate of 27% is the nominal tax rate for CSG Systems International. 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 14.1%.

Life of production assets of 7.6 years is the average useful life of capital assets used in CSG Systems International 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 10.5%. 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 - $251 million for CSG Systems International - 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 33.528 million for CSG Systems International 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 at the current share price and the inputted number of shares is $1.5 billion.

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COMPANY NEWS

▶ CSG Interconnect and Settlements Solutions Lead CSP Market   [Dec-14-17 09:00AM  Business Wire]
▶ PDF Solutions (PDFS) Jumps: Stock Rises 5.4%   [Nov-24-17 08:42AM  Zacks]
▶ CSG Systems International Approves Quarterly Dividend   [Nov-20-17 09:00AM  Business Wire]
▶ CSG Systems posts 3Q profit   [Nov-01-17 06:08PM  Associated Press]
▶ CSG Systems International Approves Quarterly Dividend   [Aug-21-17 09:00AM  Business Wire]
▶ CSG Extends Long-Term Relationship with DISH   [09:00AM  Business Wire]
▶ CSG Systems posts 2Q profit   [12:33AM  Associated Press]
▶ CSG Systems posts 2Q profit   [Aug-02-17 07:29PM  Associated Press]
▶ CSG Continues Leadership in Settlements Market Share   [Jul-27-17 09:00AM  Business Wire]
▶ CSG Systems International Approves Quarterly Dividend   [May-22-17 09:00AM  Business Wire]
▶ CSG Systems posts 1Q profit   [May-03-17 06:08PM  Associated Press]
▶ TalkTalk TV to Deliver New TV Experience with Ascendon   [Feb-28-17 02:00AM  Business Wire]
▶ New Strong Sell Stocks for February 27th   [Feb-27-17 08:30AM  Zacks]
▶ CSG International to Exhibit at Mobile World Congress 2017   [Feb-20-17 12:09PM  Business Wire]
▶ CSG Systems posts 4Q profit   [05:42PM  AP]
Financial statements of CSGS
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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