Intrinsic value of CSP Inc. - CSPI

Previous Close

$15.07

  Intrinsic Value

$44.99

stock screener

  Rating & Target

str. buy

+199%

Previous close

$15.07

 
Intrinsic value

$44.99

 
Up/down potential

+199%

 
Rating

str. buy

We calculate the intrinsic value of CSPI 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 0.1

 

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, %
  14.10
  13.19
  12.37
  11.63
  10.97
  10.37
  9.84
  9.35
  8.92
  8.53
  8.17
  7.86
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
  6.37
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
  5.65
  5.59
  5.53
  5.48
  5.43
Revenue, $m
  83
  94
  106
  118
  131
  145
  159
  174
  190
  206
  222
  240
  258
  277
  297
  317
  338
  360
  383
  407
  432
  458
  485
  513
  542
  573
  605
  638
  673
  710
Variable operating expenses, $m
  57
  65
  73
  81
  90
  99
  109
  119
  130
  141
  152
  164
  176
  189
  203
  217
  231
  246
  262
  278
  295
  313
  331
  351
  371
  392
  414
  436
  460
  485
Fixed operating expenses, $m
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  50
Total operating expenses, $m
  84
  92
  101
  109
  119
  129
  139
  150
  162
  173
  185
  198
  211
  224
  239
  254
  269
  284
  301
  318
  336
  355
  374
  395
  416
  438
  461
  484
  509
  535
Operating income, $m
  0
  3
  6
  9
  12
  16
  20
  24
  28
  33
  37
  42
  47
  52
  58
  63
  69
  75
  82
  89
  96
  103
  110
  118
  127
  135
  145
  154
  164
  175
EBITDA, $m
  0
  3
  6
  9
  13
  17
  20
  25
  29
  33
  38
  43
  48
  53
  59
  64
  70
  76
  83
  90
  97
  104
  112
  120
  128
  137
  146
  156
  166
  176
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  10
Earnings before tax, $m
  0
  2
  5
  8
  12
  15
  19
  23
  27
  31
  35
  40
  45
  49
  55
  60
  65
  71
  77
  84
  90
  97
  104
  112
  120
  128
  137
  146
  155
  165
Tax expense, $m
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  10
  11
  12
  13
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  32
  35
  37
  39
  42
  45
Net income, $m
  0
  2
  4
  6
  9
  11
  14
  17
  19
  22
  26
  29
  32
  36
  40
  44
  48
  52
  56
  61
  66
  71
  76
  82
  87
  93
  100
  106
  113
  121

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
  50
  57
  64
  71
  79
  87
  96
  105
  114
  124
  134
  145
  155
  167
  179
  191
  204
  217
  231
  245
  260
  276
  292
  309
  327
  345
  364
  385
  406
  428
Adjusted assets (=assets-cash), $m
  50
  57
  64
  71
  79
  87
  96
  105
  114
  124
  134
  145
  155
  167
  179
  191
  204
  217
  231
  245
  260
  276
  292
  309
  327
  345
  364
  385
  406
  428
Revenue / Adjusted assets
  1.660
  1.649
  1.656
  1.662
  1.658
  1.667
  1.656
  1.657
  1.667
  1.661
  1.657
  1.655
  1.665
  1.659
  1.659
  1.660
  1.657
  1.659
  1.658
  1.661
  1.662
  1.659
  1.661
  1.660
  1.657
  1.661
  1.662
  1.657
  1.658
  1.659
Average production assets, $m
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
Working capital, $m
  10
  12
  13
  15
  16
  18
  20
  21
  23
  25
  27
  30
  32
  34
  36
  39
  42
  44
  47
  50
  53
  56
  60
  63
  67
  70
  74
  79
  83
  87
Total debt, $m
  3
  6
  10
  13
  17
  21
  25
  30
  34
  39
  44
  49
  54
  60
  66
  72
  78
  84
  91
  98
  105
  113
  121
  129
  138
  147
  156
  166
  176
  187
Total liabilities, $m
  24
  28
  31
  35
  39
  43
  47
  51
  56
  60
  65
  71
  76
  81
  87
  93
  99
  106
  113
  120
  127
  135
  143
  151
  159
  168
  178
  188
  198
  209
Total equity, $m
  26
  29
  33
  36
  40
  45
  49
  54
  58
  63
  69
  74
  80
  85
  91
  98
  104
  111
  118
  126
  133
  141
  150
  158
  167
  177
  187
  197
  208
  219
Total liabilities and equity, $m
  50
  57
  64
  71
  79
  88
  96
  105
  114
  123
  134
  145
  156
  166
  178
  191
  203
  217
  231
  246
  260
  276
  293
  309
  326
  345
  365
  385
  406
  428
Debt-to-equity ratio
  0.120
  0.210
  0.300
  0.360
  0.420
  0.470
  0.520
  0.550
  0.590
  0.610
  0.640
  0.660
  0.680
  0.700
  0.720
  0.730
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.820
  0.830
  0.840
  0.840
  0.850
  0.860
Adjusted equity ratio
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512
  0.512

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  2
  4
  6
  9
  11
  14
  17
  19
  22
  26
  29
  32
  36
  40
  44
  48
  52
  56
  61
  66
  71
  76
  82
  87
  93
  100
  106
  113
  121
Depreciation, amort., depletion, $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
Funds from operations, $m
  0
  2
  4
  7
  9
  12
  14
  17
  20
  23
  26
  30
  33
  37
  41
  45
  49
  53
  57
  62
  67
  72
  77
  83
  89
  95
  101
  108
  115
  122
Change in working capital, $m
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
Cash from operations, $m
  -1
  1
  3
  5
  7
  10
  12
  15
  18
  21
  24
  28
  31
  34
  38
  42
  46
  50
  55
  59
  64
  69
  74
  80
  85
  91
  97
  104
  111
  118
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
New CAPEX, $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 investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Free cash flow, $m
  -2
  0
  2
  5
  7
  9
  12
  15
  17
  20
  23
  27
  30
  34
  37
  41
  45
  49
  53
  58
  63
  67
  73
  78
  84
  89
  95
  102
  109
  116
Issuance/(repayment) of debt, $m
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
Issuance/(repurchase) of shares, $m
  4
  2
  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  
  7
  5
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
Total cash flow (excl. dividends), $m
  5
  5
  6
  8
  11
  13
  16
  19
  22
  25
  28
  32
  35
  39
  43
  47
  51
  56
  60
  65
  70
  75
  81
  86
  92
  98
  105
  112
  119
  126
Retained Cash Flow (-), $m
  -4
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
Prev. year cash balance distribution, $m
  11
  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
  13
  2
  2
  4
  7
  9
  12
  14
  17
  20
  23
  26
  30
  33
  37
  41
  45
  49
  53
  58
  62
  67
  72
  78
  83
  89
  95
  101
  108
  115
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
  12
  2
  2
  4
  5
  7
  8
  9
  10
  11
  11
  11
  11
  11
  11
  10
  10
  9
  8
  7
  6
  6
  5
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  92.0
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9

CSP Inc. and its subsidiaries develop and market information technology (IT) integration solutions, security and managed services, network adapters, and cluster computer systems. The Company operates in two segments: High Performance Products (HPP) and Technology Solutions (TS). The HPP segment comprises two product lines: its Multicomputer product portfolio of computing systems for digital signal processing (DSP) applications within the defense market, and its Myricom product line of network Ethernet adapters that are offered to both commercial and government customers. In the TS segment, the Company focuses on value added reseller (VAR) integrated solutions, including third-party hardware, software and technical computer-related consulting services and managed services. Its DSP product line utilizes hardware components and open source software to deliver computer solutions to the customers. It provides installation, integration, logistical assistance and other value-added services.

FINANCIAL RATIOS  of  CSP Inc. (CSPI)

Valuation Ratios
P/E Ratio 19.8
Price to Sales 0.5
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 19.8
Price to Free Cash Flow 19.8
Growth Rates
Sales Growth Rate 7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 3.9%
Return On Total Capital 15.4%
Ret/ On T. Cap. - 3 Yr. Avg. 10.4%
Return On Equity 15.4%
Return On Equity - 3 Yr. Avg. 10.4%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 22.5%
Gross Margin - 3 Yr. Avg. 22.7%
EBITDA Margin 4.5%
EBITDA Margin - 3 Yr. Avg. 3.5%
Operating Margin 2.7%
Oper. Margin - 3 Yr. Avg. 1.9%
Pre-Tax Margin 3.6%
Pre-Tax Margin - 3 Yr. Avg. 2.5%
Net Profit Margin 2.7%
Net Profit Margin - 3 Yr. Avg. 1.9%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 16.7%
Payout Ratio 66.7%

CSPI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSPI stock intrinsic value calculation we used $73 million for the last fiscal year's total revenue generated by CSP Inc.. The default revenue input number comes from 0001 income statement of CSP 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 CSPI stock valuation model: a) initial revenue growth rate of 14.1% 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 4.3%, whose default value for CSPI is calculated based on our internal credit rating of CSP 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 CSP 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 CSPI stock the variable cost ratio is equal to 68.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $26 million in the base year in the intrinsic value calculation for CSPI 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 CSP Inc..

Corporate tax rate of 27% is the nominal tax rate for CSP 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 CSPI 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 CSPI are equal to 1.3%.

Life of production assets of 1.6 years is the average useful life of capital assets used in CSP 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 CSPI is equal to 12.3%. 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 - $33.802 million for CSP 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 4.019 million for CSP 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 CSP Inc. at the current share price and the inputted number of shares is $0.1 billion.

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