Intrinsic value of Evolving Systems - EVOL

Previous Close

$5.65

  Intrinsic Value

$18.24

stock screener

  Rating & Target

str. buy

+223%

Previous close

$5.65

 
Intrinsic value

$18.24

 
Up/down potential

+223%

 
Rating

str. buy

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

We calculate the intrinsic value of EVOL 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.

Please visit our new site that uses elements of artificial intelligence for stock valuation: artificial intelligence value of Evolving Systems (EVOL) stock.

STOCK VALUATION INPUT DATA

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  -3.85
  33.30
  30.47
  27.92
  25.63
  23.57
  21.71
  20.04
  18.54
  17.18
  15.96
  14.87
  13.88
  12.99
  12.19
  11.47
  10.83
  10.24
  9.72
  9.25
  8.82
  8.44
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
Revenue, $m
  25
  33
  43
  56
  70
  86
  105
  126
  150
  175
  203
  233
  266
  300
  337
  376
  416
  459
  504
  550
  599
  649
  702
  756
  813
  872
  934
  997
  1,064
  1,132
  1,204
Variable operating expenses, $m
 
  26
  33
  42
  52
  64
  77
  92
  109
  128
  148
  167
  190
  215
  241
  269
  298
  329
  361
  394
  429
  465
  502
  542
  582
  624
  668
  714
  762
  811
  862
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
  19
  26
  33
  42
  52
  64
  77
  92
  109
  128
  148
  167
  190
  215
  241
  269
  298
  329
  361
  394
  429
  465
  502
  542
  582
  624
  668
  714
  762
  811
  862
Operating income, $m
  6
  7
  10
  14
  18
  22
  28
  34
  40
  48
  56
  66
  75
  85
  96
  107
  118
  130
  143
  156
  170
  184
  199
  215
  231
  248
  265
  283
  302
  322
  342
EBITDA, $m
  7
  10
  13
  16
  20
  25
  31
  37
  44
  51
  59
  68
  78
  88
  98
  110
  122
  134
  147
  161
  175
  190
  205
  221
  237
  255
  273
  291
  311
  331
  352
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  12
  13
  14
  16
  17
  18
  19
  20
Earnings before tax, $m
  5
  7
  10
  13
  17
  21
  26
  32
  38
  45
  53
  63
  72
  81
  91
  101
  112
  123
  135
  147
  160
  174
  188
  202
  217
  233
  250
  267
  284
  303
  322
Tax expense, $m
  2
  2
  3
  4
  5
  6
  7
  9
  10
  12
  14
  17
  19
  22
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  59
  63
  67
  72
  77
  82
  87
Net income, $m
  3
  5
  7
  10
  12
  16
  19
  23
  28
  33
  38
  46
  52
  59
  66
  74
  82
  90
  99
  108
  117
  127
  137
  148
  159
  170
  182
  195
  207
  221
  235

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  44
  48
  63
  80
  101
  124
  151
  182
  215
  252
  293
  336
  383
  433
  486
  541
  600
  661
  726
  793
  863
  935
  1,011
  1,090
  1,172
  1,257
  1,345
  1,437
  1,532
  1,632
  1,735
Adjusted assets (=assets-cash), $m
  36
  48
  63
  80
  101
  124
  151
  182
  215
  252
  293
  336
  383
  433
  486
  541
  600
  661
  726
  793
  863
  935
  1,011
  1,090
  1,172
  1,257
  1,345
  1,437
  1,532
  1,632
  1,735
Revenue / Adjusted assets
  0.694
  0.688
  0.683
  0.700
  0.693
  0.694
  0.695
  0.692
  0.698
  0.694
  0.693
  0.693
  0.695
  0.693
  0.693
  0.695
  0.693
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.694
  0.695
  0.694
  0.694
Average production assets, $m
  6
  7
  10
  12
  15
  19
  23
  28
  33
  39
  45
  51
  58
  66
  74
  83
  92
  101
  111
  121
  132
  143
  154
  166
  179
  192
  205
  219
  234
  249
  265
Working capital, $m
  8
  3
  3
  4
  6
  7
  8
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  37
  40
  44
  48
  52
  56
  61
  65
  70
  75
  80
  85
  91
  96
Total debt, $m
  6
  8
  14
  20
  27
  36
  46
  57
  69
  82
  97
  112
  129
  147
  166
  186
  208
  230
  253
  277
  302
  329
  356
  384
  414
  445
  477
  510
  544
  580
  617
Total liabilities, $m
  14
  17
  23
  29
  36
  45
  55
  66
  78
  91
  106
  121
  138
  156
  175
  195
  217
  239
  262
  286
  311
  338
  365
  393
  423
  454
  486
  519
  553
  589
  626
Total equity, $m
  29
  31
  40
  51
  64
  80
  97
  116
  138
  161
  187
  215
  245
  277
  310
  346
  383
  423
  464
  507
  551
  598
  646
  696
  749
  803
  860
  918
  979
  1,043
  1,109
Total liabilities and equity, $m
  43
  48
  63
  80
  100
  125
  152
  182
  216
  252
  293
  336
  383
  433
  485
  541
  600
  662
  726
  793
  862
  936
  1,011
  1,089
  1,172
  1,257
  1,346
  1,437
  1,532
  1,632
  1,735
Debt-to-equity ratio
  0.207
  0.270
  0.340
  0.390
  0.430
  0.450
  0.470
  0.490
  0.500
  0.510
  0.520
  0.520
  0.530
  0.530
  0.540
  0.540
  0.540
  0.540
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.550
  0.560
  0.560
  0.560
  0.560
Adjusted equity ratio
  0.583
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639
  0.639

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  5
  7
  10
  12
  16
  19
  23
  28
  33
  38
  46
  52
  59
  66
  74
  82
  90
  99
  108
  117
  127
  137
  148
  159
  170
  182
  195
  207
  221
  235
Depreciation, amort., depletion, $m
  1
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  9
  9
  10
Funds from operations, $m
  9
  8
  10
  12
  15
  18
  22
  27
  31
  37
  42
  48
  54
  61
  69
  77
  85
  94
  103
  112
  122
  132
  143
  154
  165
  177
  190
  203
  216
  230
  244
Change in working capital, $m
  2
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
Cash from operations, $m
  7
  7
  9
  11
  14
  17
  21
  25
  29
  34
  40
  45
  52
  59
  66
  74
  82
  90
  99
  108
  118
  128
  138
  149
  161
  173
  185
  197
  211
  224
  239
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -9
  -9
New CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Cash from investing activities, $m
  0
  -2
  -2
  -3
  -3
  -5
  -5
  -6
  -6
  -7
  -7
  -9
  -9
  -10
  -10
  -12
  -12
  -12
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -20
  -20
  -21
  -23
  -24
  -25
Free cash flow, $m
  7
  5
  6
  8
  10
  13
  16
  19
  23
  28
  32
  37
  43
  49
  55
  62
  70
  77
  86
  94
  103
  112
  122
  132
  142
  153
  164
  176
  188
  201
  214
Issuance/(repayment) of debt, $m
  -4
  4
  5
  6
  7
  9
  10
  11
  12
  13
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  34
  36
  37
Issuance/(repurchase) of shares, $m
  0
  2
  2
  2
  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
Cash from financing (excl. dividends), $m  
  -4
  6
  7
  8
  8
  9
  10
  11
  12
  13
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  34
  36
  37
Total cash flow (excl. dividends), $m
  2
  12
  14
  16
  18
  22
  26
  30
  35
  41
  47
  53
  60
  67
  74
  82
  91
  100
  109
  118
  128
  138
  149
  160
  172
  184
  196
  209
  223
  237
  251
Retained Cash Flow (-), $m
  3
  -8
  -9
  -11
  -13
  -15
  -17
  -19
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -47
  -48
  -50
  -52
  -54
  -56
  -59
  -61
  -63
  -66
Prev. year cash balance distribution, $m
 
  6
  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
 
  10
  4
  5
  5
  6
  8
  11
  14
  17
  21
  25
  30
  35
  41
  47
  53
  60
  68
  75
  83
  92
  101
  110
  119
  129
  140
  150
  162
  173
  185
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
 
  10
  4
  4
  4
  5
  6
  7
  9
  10
  11
  12
  13
  13
  14
  14
  14
  13
  12
  12
  11
  10
  8
  7
  6
  5
  4
  3
  2
  2
  1
Current shareholders' claim on cash, %
  100
  95.9
  93.3
  91.9
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4
  91.4

Evolving Systems, Inc. is a provider of software solutions for service enablement, on-device activation and management of services for connected devices for network operators. The Company operates in two segments: license fees and services revenue, and customer support revenue. Its service activation solution, Tertio is used to activate voice, video and data services for wireless, wireline and cable network operators. Its Subscriber Identity Module (SIM) card activation solution, Dynamic SIM Allocation is used to allocate and assign resources to Mobile Network Operators devices that rely on SIM cards. Its Mobile Data Enablement solution provides a data consumption and policy management solution for wireless carriers and Mobile Virtual Network Operators that monitor the usage and consumption of data services. Its Total Number Management product is an automated database solution that enables operators to manage their telephone numbers, as well as other communication identifiers.

FINANCIAL RATIOS  of  Evolving Systems (EVOL)

Valuation Ratios
P/E Ratio 22.4
Price to Sales 2.7
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 9.6
Price to Free Cash Flow 9.6
Growth Rates
Sales Growth Rate -3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 13.8%
Total Debt to Equity 20.7%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.4%
Ret/ On Assets - 3 Yr. Avg. 8.9%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 11.2%
Return On Equity 9.8%
Return On Equity - 3 Yr. Avg. 12.3%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 76%
Gross Margin - 3 Yr. Avg. 74.1%
EBITDA Margin 24%
EBITDA Margin - 3 Yr. Avg. 22%
Operating Margin 24%
Oper. Margin - 3 Yr. Avg. 24.4%
Pre-Tax Margin 20%
Pre-Tax Margin - 3 Yr. Avg. 20.7%
Net Profit Margin 12%
Net Profit Margin - 3 Yr. Avg. 14.5%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. 30%
Payout Ratio 100%

EVOL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the EVOL stock intrinsic value calculation we used $25 million for the last fiscal year's total revenue generated by Evolving Systems. The default revenue input number comes from 2016 income statement of Evolving Systems. 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 EVOL stock valuation model: a) initial revenue growth rate of 33.3% 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 EVOL is calculated based on our internal credit rating of Evolving Systems, 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 Evolving Systems.
    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 EVOL stock the variable cost ratio is equal to 80%.

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 EVOL 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 Evolving Systems.

Corporate tax rate of 27% is the nominal tax rate for Evolving Systems. 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 EVOL 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 EVOL are equal to 22%.

Life of production assets of 27.5 years is the average useful life of capital assets used in Evolving Systems 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 EVOL is equal to 8%. 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 - $29 million for Evolving Systems - 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 12.528 million for Evolving Systems 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 Evolving Systems at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Evolving Systems posts 3Q profit   [Nov-13-17 06:13PM  Associated Press]
▶ Evolving Systems Completes Acquisition of Lumata   [Sep-07-17 08:00AM  GlobeNewswire]
▶ Evolving Systems posts 2Q profit   [Aug-10-17 01:08AM  Associated Press]
▶ Colorado medical device company names CFO in bid to join major stock exchange   [Jun-09-17 02:40PM  American City Business Journals]
▶ Evolving Systems posts 1Q profit   [May-11-17 05:50PM  Associated Press]
▶ New Jersey, Colorado tech firms engage in a nasty donnybrook   [May-10-17 10:11AM  American City Business Journals]
▶ Evolving Systems posts 4Q profit   [04:18PM  Associated Press]
▶ Evolving Systems posts 2Q profit   [Aug-02-16 05:26PM  AP]
▶ Evolving Systems posts 1Q profit   [May-03-16 05:11PM  AP]
Financial statements of EVOL
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