Intrinsic value of Caesarstone Ltd. - CSTE

Previous Close

$14.87

  Intrinsic Value

$12.25

stock screener

  Rating & Target

hold

-18%

Previous close

$14.87

 
Intrinsic value

$12.25

 
Up/down potential

-18%

 
Rating

hold

We calculate the intrinsic value of CSTE 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 0.5

 

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, %
  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
  588
  601
  616
  634
  653
  674
  697
  722
  749
  777
  808
  841
  876
  913
  952
  994
  1,038
  1,085
  1,134
  1,187
  1,242
  1,300
  1,361
  1,425
  1,493
  1,564
  1,640
  1,719
  1,802
  1,889
Variable operating expenses, $m
  217
  221
  227
  232
  239
  246
  253
  262
  271
  280
  269
  280
  292
  304
  317
  331
  346
  361
  378
  395
  413
  433
  453
  475
  497
  521
  546
  572
  600
  629
Fixed operating expenses, $m
  344
  352
  360
  368
  376
  384
  392
  401
  410
  419
  428
  438
  447
  457
  467
  477
  488
  499
  510
  521
  532
  544
  556
  568
  581
  593
  606
  620
  633
  647
Total operating expenses, $m
  561
  573
  587
  600
  615
  630
  645
  663
  681
  699
  697
  718
  739
  761
  784
  808
  834
  860
  888
  916
  945
  977
  1,009
  1,043
  1,078
  1,114
  1,152
  1,192
  1,233
  1,276
Operating income, $m
  26
  28
  30
  34
  39
  44
  51
  59
  68
  78
  111
  123
  137
  152
  168
  186
  205
  225
  247
  271
  296
  323
  352
  382
  415
  450
  487
  527
  568
  613
EBITDA, $m
  75
  77
  80
  84
  90
  97
  105
  114
  124
  135
  148
  162
  177
  194
  212
  232
  253
  275
  299
  325
  353
  383
  414
  448
  484
  522
  563
  606
  652
  700
Interest expense (income), $m
  0
  4
  4
  5
  6
  7
  8
  9
  11
  12
  14
  15
  17
  19
  21
  23
  25
  28
  30
  33
  35
  38
  42
  45
  48
  52
  56
  60
  64
  69
  73
Earnings before tax, $m
  22
  23
  25
  28
  31
  36
  42
  48
  56
  65
  96
  106
  118
  131
  145
  161
  177
  195
  214
  235
  257
  281
  307
  334
  363
  394
  427
  462
  500
  540
Tax expense, $m
  6
  6
  7
  7
  8
  10
  11
  13
  15
  17
  26
  29
  32
  35
  39
  43
  48
  53
  58
  63
  70
  76
  83
  90
  98
  106
  115
  125
  135
  146
Net income, $m
  16
  17
  18
  20
  23
  26
  31
  35
  41
  47
  70
  78
  86
  96
  106
  117
  129
  142
  156
  172
  188
  205
  224
  244
  265
  288
  312
  338
  365
  394

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
  629
  644
  660
  679
  699
  722
  746
  773
  802
  832
  865
  900
  938
  978
  1,020
  1,064
  1,112
  1,162
  1,215
  1,270
  1,329
  1,391
  1,457
  1,526
  1,598
  1,675
  1,755
  1,840
  1,929
  2,023
Adjusted assets (=assets-cash), $m
  629
  644
  660
  679
  699
  722
  746
  773
  802
  832
  865
  900
  938
  978
  1,020
  1,064
  1,112
  1,162
  1,215
  1,270
  1,329
  1,391
  1,457
  1,526
  1,598
  1,675
  1,755
  1,840
  1,929
  2,023
Revenue / Adjusted assets
  0.935
  0.933
  0.933
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.933
  0.934
  0.933
  0.934
  0.933
  0.935
  0.935
  0.935
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
  0.934
Average production assets, $m
  239
  244
  250
  257
  265
  274
  283
  293
  304
  316
  328
  341
  356
  371
  387
  404
  422
  441
  461
  482
  504
  528
  552
  579
  606
  635
  666
  698
  732
  767
Working capital, $m
  159
  162
  166
  171
  176
  182
  188
  195
  202
  210
  218
  227
  236
  247
  257
  268
  280
  293
  306
  320
  335
  351
  367
  385
  403
  422
  443
  464
  487
  510
Total debt, $m
  21
  24
  28
  33
  38
  43
  49
  56
  63
  70
  78
  87
  96
  106
  116
  127
  138
  151
  163
  177
  191
  207
  223
  239
  257
  276
  295
  316
  338
  361
Total liabilities, $m
  153
  157
  161
  166
  171
  176
  182
  189
  196
  203
  211
  220
  229
  239
  249
  260
  271
  283
  296
  310
  324
  339
  355
  372
  390
  409
  428
  449
  471
  494
Total equity, $m
  476
  486
  499
  513
  529
  546
  564
  584
  606
  629
  654
  681
  709
  739
  771
  805
  840
  878
  918
  960
  1,005
  1,052
  1,101
  1,153
  1,208
  1,266
  1,327
  1,391
  1,458
  1,529
Total liabilities and equity, $m
  629
  643
  660
  679
  700
  722
  746
  773
  802
  832
  865
  901
  938
  978
  1,020
  1,065
  1,111
  1,161
  1,214
  1,270
  1,329
  1,391
  1,456
  1,525
  1,598
  1,675
  1,755
  1,840
  1,929
  2,023
Debt-to-equity ratio
  0.040
  0.050
  0.060
  0.060
  0.070
  0.080
  0.090
  0.100
  0.100
  0.110
  0.120
  0.130
  0.140
  0.140
  0.150
  0.160
  0.160
  0.170
  0.180
  0.180
  0.190
  0.200
  0.200
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.240
Adjusted equity ratio
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756
  0.756

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  16
  17
  18
  20
  23
  26
  31
  35
  41
  47
  70
  78
  86
  96
  106
  117
  129
  142
  156
  172
  188
  205
  224
  244
  265
  288
  312
  338
  365
  394
Depreciation, amort., depletion, $m
  48
  49
  50
  51
  51
  52
  53
  55
  56
  57
  37
  39
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  76
  79
  83
  87
Funds from operations, $m
  65
  66
  68
  71
  74
  79
  84
  90
  97
  104
  107
  116
  127
  138
  150
  163
  177
  192
  209
  226
  245
  265
  287
  310
  334
  360
  388
  417
  448
  481
Change in working capital, $m
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  24
Cash from operations, $m
  62
  62
  64
  66
  69
  73
  78
  83
  90
  97
  99
  108
  117
  128
  139
  152
  165
  180
  196
  212
  230
  250
  270
  292
  316
  341
  367
  395
  426
  457
Maintenance CAPEX, $m
  -27
  -27
  -28
  -28
  -29
  -30
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -63
  -66
  -69
  -72
  -76
  -79
  -83
New CAPEX, $m
  -5
  -5
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -28
  -29
  -31
  -32
  -34
  -36
Cash from investing activities, $m
  -32
  -32
  -34
  -35
  -37
  -39
  -40
  -42
  -44
  -47
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -81
  -85
  -89
  -94
  -98
  -103
  -108
  -113
  -119
Free cash flow, $m
  30
  30
  30
  31
  32
  34
  37
  41
  45
  50
  50
  57
  64
  72
  81
  91
  101
  113
  125
  139
  153
  169
  185
  203
  222
  243
  265
  288
  312
  339
Issuance/(repayment) of debt, $m
  3
  4
  4
  5
  5
  6
  6
  6
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
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  
  3
  4
  4
  5
  5
  6
  6
  6
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
Total cash flow (excl. dividends), $m
  33
  33
  34
  35
  37
  40
  43
  48
  52
  58
  58
  66
  73
  82
  91
  102
  113
  125
  138
  152
  168
  184
  201
  220
  240
  261
  284
  308
  334
  362
Retained Cash Flow (-), $m
  -9
  -11
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -55
  -58
  -61
  -64
  -67
  -71
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
  24
  22
  21
  21
  22
  23
  25
  27
  31
  35
  34
  39
  45
  52
  60
  68
  77
  87
  98
  110
  123
  137
  152
  168
  185
  204
  223
  244
  267
  291
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
  23
  20
  19
  17
  17
  17
  17
  17
  18
  18
  16
  17
  17
  17
  18
  17
  17
  16
  15
  14
  13
  11
  10
  9
  7
  6
  5
  4
  3
  2
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

Caesarstone Ltd., formerly Caesarstone Sdot-Yam Ltd., is a manufacturer of engineered quartz surfaces. The Company's products consist of engineered quartz, which are installed as countertops in residential kitchens. Its products are primarily used as kitchen countertops in the renovation, remodeling and residential construction end markets. The other applications of its products include vanity tops, wall panels, back splashes, floor tiles, stairs, and other interior surfaces that are used in a range of residential and non-residential applications. Its product offerings include over four collections, such as Classico, Concetto, Motivo and Supernatural, which are marketed as specialty product collections. It sells its products under the Caesarstone brand. Its designs range from fine-grained patterns to coarse-grained color blends with a variegated visual texture. It offers over 70 different colors, with four textures and three thicknesses available for each of the collection's colors.

FINANCIAL RATIOS  of  Caesarstone Ltd. (CSTE)

Valuation Ratios
P/E Ratio 6.8
Price to Sales 0.9
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow 5
Price to Free Cash Flow 6.5
Growth Rates
Sales Growth Rate 7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -70.1%
Cap. Spend. - 3 Yr. Gr. Rate -3.2%
Financial Strength
Quick Ratio 9
Current Ratio 0.2
LT Debt to Equity 1.8%
Total Debt to Equity 4.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 13.5%
Ret/ On Assets - 3 Yr. Avg. 16.2%
Return On Total Capital 17.2%
Ret/ On T. Cap. - 3 Yr. Avg. 21.1%
Return On Equity 17.9%
Return On Equity - 3 Yr. Avg. 22%
Asset Turnover 1
Profitability Ratios
Gross Margin 39.3%
Gross Margin - 3 Yr. Avg. 40.6%
EBITDA Margin 21.7%
EBITDA Margin - 3 Yr. Avg. 23.2%
Operating Margin 17.3%
Oper. Margin - 3 Yr. Avg. 19.3%
Pre-Tax Margin 16.5%
Pre-Tax Margin - 3 Yr. Avg. 18.7%
Net Profit Margin 13.9%
Net Profit Margin - 3 Yr. Avg. 15.7%
Effective Tax Rate 14.6%
Eff/ Tax Rate - 3 Yr. Avg. 14.9%
Payout Ratio 0%

CSTE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CSTE stock intrinsic value calculation we used $576 million for the last fiscal year's total revenue generated by Caesarstone Ltd.. The default revenue input number comes from 0001 income statement of Caesarstone Ltd.. 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 CSTE 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 CSTE is calculated based on our internal credit rating of Caesarstone Ltd., 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 Caesarstone Ltd..
    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 CSTE stock the variable cost ratio is equal to 37%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $337 million in the base year in the intrinsic value calculation for CSTE 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 21.7% for Caesarstone Ltd..

Corporate tax rate of 27% is the nominal tax rate for Caesarstone Ltd.. 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 CSTE 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 CSTE are equal to 40.6%.

Life of production assets of 8.8 years is the average useful life of capital assets used in Caesarstone Ltd. 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 CSTE is equal to 27%. 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 - $466.501 million for Caesarstone Ltd. - 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 34.348 million for Caesarstone Ltd. 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 Caesarstone Ltd. at the current share price and the inputted number of shares is $0.5 billion.

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