Intrinsic value of CSP - CSPI

Previous Close

$11.01

  Intrinsic Value

$80.53

stock screener

  Rating & Target

str. buy

+631%

  Value-price divergence*

+239%

Previous close

$11.01

 
Intrinsic value

$80.53

 
Up/down potential

+631%

 
Rating

str. buy

 
Value-price divergence*

+239%

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

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 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 0.0

 

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, %
  15.73
  14.80
  13.82
  12.94
  12.14
  11.43
  10.79
  10.21
  9.69
  9.22
  8.80
  8.42
  8.08
  7.77
  7.49
  7.24
  7.02
  6.82
  6.63
  6.47
  6.32
  6.19
  6.07
  5.97
  5.87
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
Revenue, $m
  103
  118
  135
  152
  170
  190
  210
  232
  254
  278
  302
  328
  354
  382
  410
  440
  471
  503
  536
  571
  607
  645
  684
  725
  767
  812
  858
  906
  957
  1,009
  1,065
Variable operating expenses, $m
 
  93
  106
  119
  134
  149
  165
  182
  200
  218
  238
  258
  278
  300
  322
  346
  370
  395
  422
  449
  477
  507
  538
  570
  603
  638
  674
  712
  752
  793
  837
Fixed operating expenses, $m
 
  19
  20
  20
  21
  21
  22
  23
  23
  24
  24
  25
  26
  26
  27
  28
  28
  29
  30
  30
  31
  32
  33
  34
  34
  35
  36
  37
  38
  39
  40
Total operating expenses, $m
  100
  112
  126
  139
  155
  170
  187
  205
  223
  242
  262
  283
  304
  326
  349
  374
  398
  424
  452
  479
  508
  539
  571
  604
  637
  673
  710
  749
  790
  832
  877
Operating income, $m
  4
  6
  9
  12
  16
  19
  23
  27
  31
  36
  40
  45
  50
  55
  61
  67
  73
  79
  85
  92
  99
  106
  114
  122
  130
  138
  147
  157
  167
  177
  188
EBITDA, $m
  5
  6
  9
  12
  16
  19
  23
  27
  31
  36
  40
  45
  50
  55
  61
  67
  73
  79
  85
  92
  99
  106
  114
  122
  130
  138
  147
  157
  167
  177
  188
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
  4
  6
  9
  12
  15
  18
  22
  26
  30
  34
  39
  43
  48
  53
  58
  63
  69
  75
  81
  87
  94
  101
  108
  115
  123
  131
  140
  149
  158
  168
  178
Tax expense, $m
  1
  2
  2
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  20
  22
  24
  25
  27
  29
  31
  33
  35
  38
  40
  43
  45
  48
Net income, $m
  3
  4
  6
  9
  11
  13
  16
  19
  22
  25
  28
  31
  35
  39
  42
  46
  50
  55
  59
  64
  69
  74
  79
  84
  90
  96
  102
  109
  116
  123
  130

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  13
  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
  49
  41
  47
  53
  60
  66
  74
  81
  89
  97
  106
  115
  124
  133
  143
  154
  165
  176
  187
  200
  212
  225
  239
  253
  268
  284
  300
  317
  334
  353
  372
Adjusted assets (=assets-cash), $m
  36
  41
  47
  53
  60
  66
  74
  81
  89
  97
  106
  115
  124
  133
  143
  154
  165
  176
  187
  200
  212
  225
  239
  253
  268
  284
  300
  317
  334
  353
  372
Revenue / Adjusted assets
  2.861
  2.878
  2.872
  2.868
  2.833
  2.879
  2.838
  2.864
  2.854
  2.866
  2.849
  2.852
  2.855
  2.872
  2.867
  2.857
  2.855
  2.858
  2.866
  2.855
  2.863
  2.867
  2.862
  2.866
  2.862
  2.859
  2.860
  2.858
  2.865
  2.858
  2.863
Average production assets, $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
  0
Working capital, $m
  25
  14
  16
  18
  20
  22
  25
  27
  30
  33
  35
  38
  41
  45
  48
  51
  55
  59
  63
  67
  71
  75
  80
  85
  90
  95
  100
  106
  112
  118
  125
Total debt, $m
  0
  5
  10
  15
  20
  26
  32
  39
  46
  53
  60
  68
  76
  84
  92
  101
  111
  120
  130
  141
  152
  163
  175
  187
  200
  213
  227
  242
  257
  273
  289
Total liabilities, $m
  31
  36
  41
  46
  51
  57
  63
  70
  77
  84
  91
  99
  107
  115
  123
  132
  142
  151
  161
  172
  183
  194
  206
  218
  231
  244
  258
  273
  288
  304
  320
Total equity, $m
  18
  6
  7
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  42
  44
  46
  49
  52
Total liabilities and equity, $m
  49
  42
  48
  53
  59
  66
  73
  81
  89
  97
  106
  115
  124
  134
  143
  153
  165
  175
  187
  200
  212
  225
  239
  253
  268
  283
  300
  317
  334
  353
  372
Debt-to-equity ratio
  0.000
  0.800
  1.450
  2.000
  2.450
  2.830
  3.160
  3.440
  3.690
  3.900
  4.080
  4.250
  4.390
  4.520
  4.640
  4.740
  4.840
  4.930
  5.000
  5.080
  5.140
  5.200
  5.260
  5.310
  5.360
  5.410
  5.450
  5.490
  5.530
  5.560
  5.590
Adjusted equity ratio
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139
  0.139

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  4
  6
  9
  11
  13
  16
  19
  22
  25
  28
  31
  35
  39
  42
  46
  50
  55
  59
  64
  69
  74
  79
  84
  90
  96
  102
  109
  116
  123
  130
Depreciation, amort., depletion, $m
  1
  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
Funds from operations, $m
  6
  4
  6
  9
  11
  13
  16
  19
  22
  25
  28
  31
  35
  39
  42
  46
  50
  55
  59
  64
  69
  74
  79
  84
  90
  96
  102
  109
  116
  123
  130
Change in working capital, $m
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
Cash from operations, $m
  5
  2
  4
  7
  9
  11
  14
  16
  19
  22
  25
  28
  32
  35
  39
  43
  47
  51
  55
  60
  64
  69
  74
  79
  85
  91
  97
  103
  110
  117
  124
Maintenance 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
  0
New CAPEX, $m
  -1
  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
  -1
  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
Free cash flow, $m
  4
  2
  4
  7
  9
  11
  14
  16
  19
  22
  25
  28
  32
  35
  39
  43
  47
  51
  55
  60
  64
  69
  74
  79
  85
  91
  97
  103
  110
  117
  124
Issuance/(repayment) of debt, $m
  0
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
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
  0
Cash from financing (excl. dividends), $m  
  1
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
Total cash flow (excl. dividends), $m
  4
  7
  9
  12
  14
  17
  20
  23
  26
  29
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  75
  80
  86
  92
  98
  104
  111
  118
  125
  132
  140
Retained Cash Flow (-), $m
  2
  -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
  -2
  -2
  -3
  -3
Prev. year cash balance distribution, $m
 
  13
  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
 
  19
  9
  11
  13
  16
  19
  22
  25
  28
  31
  35
  39
  42
  46
  50
  55
  59
  64
  68
  73
  79
  84
  90
  96
  102
  108
  115
  122
  130
  138
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
 
  19
  8
  10
  11
  12
  14
  15
  16
  16
  16
  17
  16
  16
  16
  15
  14
  13
  12
  11
  9
  8
  7
  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

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 (CSPI)

Valuation Ratios
P/E Ratio 14
Price to Sales 0.4
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 8.4
Price to Free Cash Flow 10.5
Growth Rates
Sales Growth Rate 15.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.3%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 15.8%
Ret/ On T. Cap. - 3 Yr. Avg. 6.8%
Return On Equity 15.8%
Return On Equity - 3 Yr. Avg. 6.8%
Asset Turnover 2.1
Profitability Ratios
Gross Margin 24.3%
Gross Margin - 3 Yr. Avg. 23.4%
EBITDA Margin 4.9%
EBITDA Margin - 3 Yr. Avg. 2.8%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 1.8%
Pre-Tax Margin 3.9%
Pre-Tax Margin - 3 Yr. Avg. 1.7%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. 1.4%
Effective Tax Rate 25%
Eff/ Tax Rate - 3 Yr. Avg. 8.3%
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 $103 million for the last fiscal year's total revenue generated by CSP. The default revenue input number comes from 2016 income statement of CSP. 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 14.8% 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, 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.
    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 78.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $19 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 3.5% for CSP.

Corporate tax rate of 27% is the nominal tax rate for CSP. 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 0%.

Life of production assets of 0 years is the average useful life of capital assets used in CSP 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 11.7%. 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 - $18 million for CSP - 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 3.92 million for CSP 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 at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ ETFs with exposure to CSP, Inc. : September 7, 2017   [Sep-07-17 12:52PM  Capital Cube]
▶ CSP Inc. Promotes Two Senior Executives   [Aug-17-17 02:30PM  GlobeNewswire]
▶ CSPi Reports Third-Quarter Fiscal 2017 Financial Results   [Aug-14-17 08:44AM  GlobeNewswire]
▶ CSPi joins the Cisco Security Technology Alliance Ecosystem   [Jul-19-17 09:01AM  GlobeNewswire]
▶ CSP Inc. Announces Filing Extension for Form 10-Q   [May-15-17 09:00AM  GlobeNewswire]
▶ CSP Inc. Announces Filing Extension for Form 10-Q   [Feb-14-17 09:30AM  GlobeNewswire]
▶ CSPi to Attend FloCon 2017   [Jan-05-17 09:00AM  GlobeNewswire]
▶ CSP Inc. Announces Filing Extension for Form 10-K   [Dec-29-16 06:28PM  GlobeNewswire]
▶ CSPi Named to CRNs 2016 Solution Provider 500 List   [Jun-09-16 09:00AM  GlobeNewswire]
▶ CSP Inc. Appoints Ismail Azeri to Its Board of Directors   [Jan-04-16 11:27AM  GlobeNewswire]
▶ 10-Q for CSP, Inc.   [Aug-16  08:12PM  at Company Spotlight]
▶ 10-Q for CSP, Inc.   [May-17  08:11PM  at Company Spotlight]
Financial statements of CSPI
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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