Intrinsic value of Information Services Group - III

Previous Close

$4.11

  Intrinsic Value

$3.71

stock screener

  Rating & Target

hold

-10%

Previous close

$4.11

 
Intrinsic value

$3.71

 
Up/down potential

-10%

 
Rating

hold

We calculate the intrinsic value of III 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 0.2

 

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, %
  4.40
  4.46
  4.51
  4.56
  4.61
  4.65
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.97
  4.97
  4.97
Revenue, $m
  281
  294
  307
  321
  336
  352
  368
  385
  404
  423
  443
  465
  487
  511
  535
  562
  589
  618
  648
  680
  714
  749
  786
  825
  866
  908
  954
  1,001
  1,051
  1,103
Variable operating expenses, $m
  216
  225
  235
  245
  256
  267
  279
  292
  305
  319
  323
  339
  355
  372
  390
  409
  429
  450
  472
  496
  520
  546
  573
  601
  631
  662
  695
  729
  766
  804
Fixed operating expenses, $m
  54
  55
  57
  58
  59
  60
  62
  63
  64
  66
  67
  69
  70
  72
  73
  75
  77
  78
  80
  82
  84
  86
  87
  89
  91
  93
  95
  97
  100
  102
Total operating expenses, $m
  270
  280
  292
  303
  315
  327
  341
  355
  369
  385
  390
  408
  425
  444
  463
  484
  506
  528
  552
  578
  604
  632
  660
  690
  722
  755
  790
  826
  866
  906
Operating income, $m
  11
  13
  16
  18
  21
  24
  27
  30
  34
  38
  53
  57
  62
  67
  72
  77
  83
  89
  96
  103
  110
  118
  126
  134
  144
  153
  163
  174
  185
  197
EBITDA, $m
  29
  32
  34
  37
  40
  44
  47
  51
  55
  59
  64
  69
  74
  79
  85
  91
  98
  104
  112
  119
  127
  136
  145
  155
  165
  176
  187
  199
  211
  225
Interest expense (income), $m
  2
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
Earnings before tax, $m
  4
  6
  8
  10
  13
  15
  18
  20
  23
  26
  41
  45
  48
  53
  57
  61
  66
  72
  77
  83
  89
  96
  103
  110
  118
  126
  135
  144
  153
  164
Tax expense, $m
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  26
  28
  30
  32
  34
  36
  39
  41
  44
Net income, $m
  3
  5
  6
  8
  9
  11
  13
  15
  17
  19
  30
  33
  35
  38
  42
  45
  48
  52
  56
  61
  65
  70
  75
  80
  86
  92
  98
  105
  112
  120

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
  234
  245
  256
  267
  280
  293
  307
  321
  336
  352
  369
  387
  406
  425
  446
  468
  490
  514
  540
  566
  594
  624
  654
  687
  721
  756
  794
  833
  875
  918
Adjusted assets (=assets-cash), $m
  234
  245
  256
  267
  280
  293
  307
  321
  336
  352
  369
  387
  406
  425
  446
  468
  490
  514
  540
  566
  594
  624
  654
  687
  721
  756
  794
  833
  875
  918
Revenue / Adjusted assets
  1.201
  1.200
  1.199
  1.202
  1.200
  1.201
  1.199
  1.199
  1.202
  1.202
  1.201
  1.202
  1.200
  1.202
  1.200
  1.201
  1.202
  1.202
  1.200
  1.201
  1.202
  1.200
  1.202
  1.201
  1.201
  1.201
  1.202
  1.202
  1.201
  1.202
Average production assets, $m
  66
  69
  72
  75
  79
  82
  86
  90
  94
  99
  104
  109
  114
  119
  125
  131
  138
  145
  152
  159
  167
  175
  184
  193
  203
  213
  223
  234
  246
  258
Working capital, $m
  39
  41
  43
  45
  47
  49
  51
  54
  56
  59
  62
  65
  68
  71
  74
  78
  82
  86
  90
  95
  99
  104
  109
  115
  120
  126
  133
  139
  146
  153
Total debt, $m
  121
  129
  137
  145
  154
  163
  173
  183
  194
  206
  218
  230
  244
  258
  273
  288
  305
  322
  340
  359
  379
  400
  422
  445
  470
  495
  522
  551
  580
  612
Total liabilities, $m
  168
  175
  183
  192
  201
  210
  220
  230
  241
  253
  265
  277
  291
  305
  320
  335
  352
  369
  387
  406
  426
  447
  469
  492
  517
  542
  569
  598
  627
  658
Total equity, $m
  66
  69
  72
  76
  79
  83
  87
  91
  95
  100
  104
  109
  115
  120
  126
  132
  139
  146
  153
  160
  168
  176
  185
  194
  204
  214
  225
  236
  248
  260
Total liabilities and equity, $m
  234
  244
  255
  268
  280
  293
  307
  321
  336
  353
  369
  386
  406
  425
  446
  467
  491
  515
  540
  566
  594
  623
  654
  686
  721
  756
  794
  834
  875
  918
Debt-to-equity ratio
  1.830
  1.860
  1.890
  1.910
  1.940
  1.970
  1.990
  2.020
  2.040
  2.060
  2.080
  2.110
  2.130
  2.140
  2.160
  2.180
  2.200
  2.210
  2.230
  2.240
  2.250
  2.270
  2.280
  2.290
  2.300
  2.310
  2.320
  2.330
  2.340
  2.350
Adjusted equity ratio
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283
  0.283

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  3
  5
  6
  8
  9
  11
  13
  15
  17
  19
  30
  33
  35
  38
  42
  45
  48
  52
  56
  61
  65
  70
  75
  80
  86
  92
  98
  105
  112
  120
Depreciation, amort., depletion, $m
  18
  18
  19
  19
  19
  20
  20
  21
  21
  22
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  25
  26
  27
Funds from operations, $m
  21
  23
  25
  27
  29
  31
  33
  35
  38
  41
  41
  44
  47
  51
  55
  59
  63
  67
  72
  77
  83
  88
  94
  101
  107
  114
  122
  130
  138
  147
Change in working capital, $m
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
Cash from operations, $m
  20
  21
  23
  25
  27
  29
  31
  33
  36
  38
  38
  41
  44
  48
  51
  55
  59
  63
  68
  73
  78
  83
  89
  95
  102
  108
  115
  123
  131
  139
Maintenance CAPEX, $m
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
New CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Cash from investing activities, $m
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -16
  -18
  -19
  -19
  -20
  -22
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -37
  -38
Free cash flow, $m
  10
  11
  12
  14
  15
  17
  18
  20
  22
  24
  23
  25
  28
  30
  33
  36
  39
  42
  46
  49
  53
  58
  62
  67
  72
  77
  83
  88
  95
  101
Issuance/(repayment) of debt, $m
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
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  
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  31
Total cash flow (excl. dividends), $m
  17
  19
  20
  22
  24
  26
  28
  30
  33
  35
  35
  38
  41
  44
  48
  51
  55
  59
  64
  68
  73
  79
  84
  90
  96
  103
  109
  117
  124
  133
Retained Cash Flow (-), $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
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
  14
  16
  17
  19
  20
  22
  24
  26
  28
  31
  30
  33
  36
  39
  42
  45
  49
  53
  57
  61
  65
  70
  75
  81
  86
  92
  99
  106
  113
  120
Discount rate, %
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
  13
  13
  13
  13
  13
  12
  12
  11
  10
  9
  8
  7
  6
  5
  4
  4
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
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

Information Services Group, Inc. is a technology insights, market intelligence and advisory services company. The Company operates in the segment of fact-based sourcing advisory services. It supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services with a focus on information technology, business process transformation, program management services and enterprise resource planning. It offers service lines, including research, consulting, managed services, network carrier services, robotic process automation (RPA), outsourcing advisory and provider services. It specializes in digital transformation services, including automation, cloud and data analytics; managed governance and risk services; network carrier services; technology strategy and operations design; change management, and technology research and analysis.

FINANCIAL RATIOS  of  Information Services Group (III)

Valuation Ratios
P/E Ratio -24.7
Price to Sales 0.8
Price to Book 3
Price to Tangible Book
Price to Cash Flow 15.7
Price to Free Cash Flow 19.2
Growth Rates
Sales Growth Rate 3.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 100%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 203.5%
Total Debt to Equity 214%
Interest Coverage -2
Management Effectiveness
Return On Assets -2.5%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. 2.1%
Return On Equity -13.6%
Return On Equity - 3 Yr. Avg. 4.1%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 38.7%
Gross Margin - 3 Yr. Avg. 40%
EBITDA Margin 2.3%
EBITDA Margin - 3 Yr. Avg. 6.5%
Operating Margin -0.9%
Oper. Margin - 3 Yr. Avg. 3.2%
Pre-Tax Margin -2.3%
Pre-Tax Margin - 3 Yr. Avg. 2.1%
Net Profit Margin -3.2%
Net Profit Margin - 3 Yr. Avg. 0.7%
Effective Tax Rate -20%
Eff/ Tax Rate - 3 Yr. Avg. 19.2%
Payout Ratio 0%

III stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the III stock intrinsic value calculation we used $269.554 million for the last fiscal year's total revenue generated by Information Services Group. The default revenue input number comes from 0001 income statement of Information Services 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 III stock valuation model: a) initial revenue growth rate of 4.4% 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 8.1%, whose default value for III is calculated based on our internal credit rating of Information Services 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 Information Services 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 III stock the variable cost ratio is equal to 77%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $53 million in the base year in the intrinsic value calculation for III 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 5.8% for Information Services Group.

Corporate tax rate of 27% is the nominal tax rate for Information Services 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 III 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 III are equal to 23.4%.

Life of production assets of 9.5 years is the average useful life of capital assets used in Information Services 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 III is equal to 13.9%. 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 - $63.537 million for Information Services 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 45.102 million for Information Services 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 Information Services Group at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ ISG: 3Q Earnings Snapshot   [07:11PM  Associated Press]
▶ BFSI Leading Charge for Next-Gen ADM in Australia   [Nov-07-18 05:00PM  PR Newswire]
▶ Imperial Reports Third Quarter Production Results   [Oct-18-18 06:32PM  GlobeNewswire]
▶ ISG Launches ISG Blockchain Now   [Oct-09-18 09:00AM  PR Newswire]
▶ ISG Smartalks Webinar to Discuss Accelerating RPA   [Oct-08-18 09:26AM  PR Newswire]
▶ Brexit to Impact UK, European ADM Markets   [05:00AM  PR Newswire]
▶ Brazil ADM Providers Pivoting to Agile Development   [Sep-14-18 02:13PM  PR Newswire]
▶ ISG to Offer Annual RPA Checkup at SSON Virtual Event   [Sep-12-18 09:00AM  PR Newswire]
▶ ISG to Host Inaugural ISG Future Networks Summit   [Sep-10-18 02:05PM  PR Newswire]
▶ Explosion in App Economy Transforming ADM   [Sep-07-18 01:17PM  PR Newswire]
▶ ISG Makes $7 Million Payment to Further Reduce Debt   [Sep-06-18 09:00AM  PR Newswire]
▶ ISG to Reveal Next-Gen Network Strategies in CFO Webcast   [Sep-04-18 12:09PM  PR Newswire]
▶ ISG to Discuss Blockchain on CFO Magazine Webcast   [Aug-28-18 11:47AM  PR Newswire]
▶ ISG Expands Provider Evaluations to Brazil   [Aug-14-18 08:00AM  PR Newswire]
▶ ISG: 2Q Earnings Snapshot   [07:02AM  Associated Press]
▶ ISG Names Todd D. Lavieri Vice Chairman   [Jul-26-18 09:30AM  PR Newswire]
▶ ISG to Participate in July 11 IAOP Webinar   [Jul-10-18 09:00AM  PR Newswire]
▶ ISG Automation Summit to Explore 'Bot 3.0'   [Jun-27-18 09:00AM  PR Newswire]
▶ Adoption of Social Business Models Growing, Says ISG   [Jun-21-18 11:31AM  PR Newswire]
▶ ISG to Host Inaugural ISG Future Networks Summit   [Jun-20-18 11:51AM  PR Newswire]
▶ ISG Awarded IT Services Contract by State of Texas   [Jun-07-18 10:07AM  PR Newswire]
▶ ISG Offers Look at the Automated Enterprise   [Jun-04-18 12:59PM  PR Newswire]

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