Intrinsic value of Computer Task Group - CTG

Previous Close

$5.00

  Intrinsic Value

$1.26

stock screener

  Rating & Target

str. sell

-75%

Previous close

$5.00

 
Intrinsic value

$1.26

 
Up/down potential

-75%

 
Rating

str. sell

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

We calculate the intrinsic value of CTG 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 0.1

 

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, %
  -11.92
  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
  325
  332
  339
  348
  358
  368
  380
  393
  407
  422
  439
  456
  475
  494
  515
  537
  561
  586
  612
  640
  669
  701
  733
  768
  804
  842
  883
  925
  970
  1,017
  1,066
Variable operating expenses, $m
 
  64
  66
  67
  69
  71
  74
  76
  79
  82
  85
  88
  92
  96
  100
  104
  109
  114
  119
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
  207
Fixed operating expenses, $m
 
  301
  309
  317
  325
  333
  341
  349
  358
  367
  376
  386
  395
  405
  415
  426
  436
  447
  459
  470
  482
  494
  506
  519
  532
  545
  559
  573
  587
  602
  617
Total operating expenses, $m
  358
  365
  375
  384
  394
  404
  415
  425
  437
  449
  461
  474
  487
  501
  515
  530
  545
  561
  578
  594
  612
  630
  648
  668
  688
  708
  730
  752
  775
  799
  824
Operating income, $m
  -33
  -34
  -36
  -36
  -36
  -36
  -34
  -32
  -30
  -27
  -23
  -18
  -13
  -7
  0
  7
  16
  25
  35
  46
  58
  71
  85
  100
  116
  134
  153
  173
  195
  218
  243
EBITDA, $m
  -31
  -34
  -35
  -36
  -36
  -35
  -34
  -32
  -29
  -26
  -22
  -18
  -12
  -6
  1
  8
  16
  26
  36
  47
  59
  72
  86
  101
  118
  135
  154
  174
  196
  219
  244
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
Earnings before tax, $m
  -34
  -34
  -36
  -36
  -37
  -36
  -35
  -33
  -30
  -27
  -23
  -19
  -14
  -8
  -1
  6
  14
  23
  33
  44
  56
  69
  83
  98
  114
  131
  150
  170
  191
  214
  239
Tax expense, $m
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  2
  4
  6
  9
  12
  15
  19
  22
  26
  31
  35
  40
  46
  52
  58
  64
Net income, $m
  -35
  -34
  -36
  -36
  -37
  -36
  -35
  -33
  -30
  -27
  -23
  -19
  -14
  -8
  -1
  5
  11
  17
  24
  32
  41
  50
  60
  71
  83
  96
  109
  124
  140
  156
  174

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  9
  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
  127
  120
  123
  126
  130
  134
  138
  143
  148
  153
  159
  166
  172
  179
  187
  195
  204
  213
  222
  232
  243
  254
  266
  279
  292
  306
  321
  336
  352
  369
  387
Adjusted assets (=assets-cash), $m
  118
  120
  123
  126
  130
  134
  138
  143
  148
  153
  159
  166
  172
  179
  187
  195
  204
  213
  222
  232
  243
  254
  266
  279
  292
  306
  321
  336
  352
  369
  387
Revenue / Adjusted assets
  2.754
  2.767
  2.756
  2.762
  2.754
  2.746
  2.754
  2.748
  2.750
  2.758
  2.761
  2.747
  2.762
  2.760
  2.754
  2.754
  2.750
  2.751
  2.757
  2.759
  2.753
  2.760
  2.756
  2.753
  2.753
  2.752
  2.751
  2.753
  2.756
  2.756
  2.755
Average production assets, $m
  6
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
Working capital, $m
  53
  45
  46
  47
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  95
  99
  104
  109
  114
  119
  125
  131
  137
  144
Total debt, $m
  5
  6
  7
  8
  10
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  40
  44
  47
  52
  56
  61
  65
  70
  76
  81
  87
  94
  100
  107
  115
Total liabilities, $m
  48
  49
  50
  51
  53
  54
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  83
  87
  90
  95
  99
  104
  108
  113
  119
  124
  130
  137
  143
  150
  158
Total equity, $m
  79
  71
  73
  75
  77
  79
  82
  85
  88
  91
  94
  98
  102
  106
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  190
  199
  209
  219
  230
Total liabilities and equity, $m
  127
  120
  123
  126
  130
  133
  138
  143
  148
  153
  159
  165
  172
  179
  187
  195
  204
  213
  222
  233
  243
  255
  266
  278
  292
  305
  320
  336
  352
  369
  388
Debt-to-equity ratio
  0.063
  0.080
  0.100
  0.110
  0.130
  0.140
  0.160
  0.180
  0.200
  0.210
  0.230
  0.250
  0.270
  0.280
  0.300
  0.310
  0.330
  0.350
  0.360
  0.370
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.490
  0.500
Adjusted equity ratio
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -35
  -34
  -36
  -36
  -37
  -36
  -35
  -33
  -30
  -27
  -23
  -19
  -14
  -8
  -1
  5
  11
  17
  24
  32
  41
  50
  60
  71
  83
  96
  109
  124
  140
  156
  174
Depreciation, amort., depletion, $m
  2
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
Funds from operations, $m
  -2
  -34
  -35
  -36
  -36
  -35
  -34
  -32
  -30
  -27
  -23
  -18
  -13
  -7
  0
  5
  11
  18
  25
  33
  42
  51
  61
  72
  84
  97
  111
  125
  141
  158
  176
Change in working capital, $m
  -4
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Cash from operations, $m
  2
  -35
  -36
  -37
  -37
  -37
  -36
  -34
  -32
  -29
  -25
  -21
  -16
  -10
  -3
  2
  8
  15
  22
  29
  38
  47
  57
  68
  79
  92
  105
  120
  135
  152
  169
Maintenance CAPEX, $m
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
New CAPEX, $m
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  -3
  0
  0
  0
  -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
Free cash flow, $m
  -1
  -35
  -37
  -38
  -38
  -38
  -37
  -35
  -33
  -30
  -26
  -22
  -17
  -11
  -4
  1
  7
  13
  20
  28
  36
  46
  55
  66
  78
  90
  103
  118
  133
  149
  167
Issuance/(repayment) of debt, $m
  3
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Issuance/(repurchase) of shares, $m
  -1
  36
  37
  38
  39
  38
  37
  36
  33
  31
  27
  23
  18
  12
  6
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  2
  37
  38
  39
  40
  40
  39
  38
  35
  33
  29
  26
  21
  15
  9
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Total cash flow (excl. dividends), $m
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  10
  17
  24
  32
  41
  50
  60
  71
  83
  96
  109
  124
  140
  156
  174
Retained Cash Flow (-), $m
  39
  -36
  -37
  -38
  -39
  -38
  -37
  -36
  -33
  -31
  -27
  -23
  -18
  -12
  -6
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
Prev. year cash balance distribution, $m
 
  9
  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
 
  -25
  -36
  -37
  -37
  -36
  -35
  -33
  -30
  -27
  -24
  -19
  -14
  -8
  -1
  0
  5
  12
  19
  26
  34
  43
  53
  64
  75
  87
  101
  115
  130
  146
  164
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
 
  -24
  -33
  -32
  -30
  -28
  -25
  -22
  -19
  -16
  -12
  -9
  -6
  -3
  0
  0
  1
  3
  3
  4
  4
  4
  4
  4
  4
  3
  3
  2
  2
  2
  1
Current shareholders' claim on cash, %
  100
  66.1
  43.3
  28.3
  18.6
  12.4
  8.4
  5.9
  4.2
  3.1
  2.4
  1.9
  1.6
  1.5
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4
  1.4

Computer Task Group, Incorporated (CTG) is an information technology (IT) solutions and staffing services company. The Company primarily operates in the segment of providing IT services to its clients. The Company has operations in North America and Europe. The Company is engaged in providing IT services, including IT Solutions, and IT and other Staffing. CTG provides these primary services to all of the markets that it serves. The services provided encompass the IT business solution life cycle, including phases for planning, developing, implementing, managing, and maintaining the IT solution. It provides administrative or warehouse employees to clients to supplement the IT resources. The Company promotes a portion of its services through five vertical market focus areas: technology service providers, manufacturing, healthcare (which includes services provided to healthcare providers, health insurers, and life sciences companies), financial services, and diversified industrials.

FINANCIAL RATIOS  of  Computer Task Group (CTG)

Valuation Ratios
P/E Ratio -2.3
Price to Sales 0.2
Price to Book 1
Price to Tangible Book
Price to Cash Flow 39.9
Price to Free Cash Flow 0
Growth Rates
Sales Growth Rate -11.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -12.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 6.3%
Total Debt to Equity 6.3%
Interest Coverage 0
Management Effectiveness
Return On Assets -24.1%
Ret/ On Assets - 3 Yr. Avg. -4.7%
Return On Total Capital -34.5%
Ret/ On T. Cap. - 3 Yr. Avg. -6.5%
Return On Equity -35.5%
Return On Equity - 3 Yr. Avg. -6.8%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 18.2%
Gross Margin - 3 Yr. Avg. 18.8%
EBITDA Margin -9.8%
EBITDA Margin - 3 Yr. Avg. -0.4%
Operating Margin -10.2%
Oper. Margin - 3 Yr. Avg. -1%
Pre-Tax Margin -10.5%
Pre-Tax Margin - 3 Yr. Avg. -1.1%
Net Profit Margin -10.8%
Net Profit Margin - 3 Yr. Avg. -2.1%
Effective Tax Rate -2.9%
Eff/ Tax Rate - 3 Yr. Avg. 24.9%
Payout Ratio -8.6%

CTG stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CTG stock intrinsic value calculation we used $325 million for the last fiscal year's total revenue generated by Computer Task Group. The default revenue input number comes from 2016 income statement of Computer Task Group. 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 CTG 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 CTG is calculated based on our internal credit rating of Computer Task Group, 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 Computer Task Group.
    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 CTG stock the variable cost ratio is equal to 19.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $294 million in the base year in the intrinsic value calculation for CTG 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 Computer Task Group.

Corporate tax rate of 27% is the nominal tax rate for Computer Task Group. 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 CTG 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 CTG are equal to 1.8%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Computer Task Group 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 CTG is equal to 13.5%. 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 - $79 million for Computer Task Group - 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 15.699 million for Computer Task Group 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 Computer Task Group at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ CTG Appoints Jeff Gerkin Executive Vice President, Sales   [Dec-11-17 09:25AM  GlobeNewswire]
▶ Computer Task Group posts 3Q profit   [07:07AM  Associated Press]
▶ CTG Reports 2017 Third Quarter Results   [06:55AM  GlobeNewswire]
▶ Computer Task Group posts 2Q profit   [Jul-25-17 09:56PM  Associated Press]
▶ CTG Reports 2017 Second Quarter Results   [06:55AM  GlobeNewswire]
▶ 9 Stocks Charles Brandes Continues to Buy   [Jun-01-17 03:13PM  GuruFocus.com]
▶ CTG Announces Application Advantage(TM) Solution Portfolio   [May-16-17 09:26AM  GlobeNewswire]
▶ Computer Task Group posts 1Q profit   [Apr-25-17 07:28AM  Associated Press]
▶ CTG Reports 2017 First Quarter Results   [06:55AM  GlobeNewswire]
▶ Computer Task Group posts 4Q profit   [07:30AM  Associated Press]
▶ CTG to Present at NobleCon13 on January 31   [Jan-17-17 09:00AM  GlobeNewswire]
▶ Do Hedge Funds Love Sunshine Bancorp Inc (SBCP)?   [Dec-18-16 10:24AM  at Insider Monkey]
▶ Is SAExploration Holdings, Inc. (SAEX) A Good Stock To Buy?   [Dec-17-16 03:43PM  at Insider Monkey]
▶ CTG Reports 2016 Third Quarter Results   [06:55AM  GlobeNewswire]
▶ CTG Appoints Strategic Staffing Services Vice President   [Oct-10-16 09:00AM  GlobeNewswire]
▶ CTG Declares Quarterly Dividend   [09:25AM  GlobeNewswire]
▶ CTG Reports 2016 Second Quarter Results   [06:55AM  GlobeNewswire]
Financial statements of CTG
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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