Intrinsic value of Internet Initiative Japan, Inc. - IIJI

Previous Close

$10.12

  Intrinsic Value

$13.09

stock screener

  Rating & Target

buy

+29%

Previous close

$10.12

 
Intrinsic value

$13.09

 
Up/down potential

+29%

 
Rating

buy

We calculate the intrinsic value of IIJI 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 0.9

 

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, %
  8.10
  7.79
  7.51
  7.26
  7.03
  6.83
  6.65
  6.48
  6.33
  6.20
  6.08
  5.97
  5.88
  5.79
  5.71
  5.64
  5.57
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
Revenue, $m
  1,665
  1,794
  1,929
  2,069
  2,215
  2,366
  2,523
  2,687
  2,857
  3,034
  3,219
  3,411
  3,612
  3,821
  4,039
  4,266
  4,504
  4,753
  5,012
  5,284
  5,568
  5,866
  6,177
  6,502
  6,844
  7,201
  7,576
  7,968
  8,379
  8,811
Variable operating expenses, $m
  1,477
  1,589
  1,705
  1,826
  1,951
  2,082
  2,217
  2,358
  2,505
  2,658
  2,777
  2,943
  3,115
  3,296
  3,484
  3,680
  3,886
  4,100
  4,324
  4,558
  4,803
  5,060
  5,328
  5,609
  5,904
  6,212
  6,535
  6,874
  7,228
  7,600
Fixed operating expenses, $m
  117
  119
  122
  124
  127
  130
  133
  136
  139
  142
  145
  148
  151
  155
  158
  161
  165
  169
  172
  176
  180
  184
  188
  192
  196
  201
  205
  210
  214
  219
Total operating expenses, $m
  1,594
  1,708
  1,827
  1,950
  2,078
  2,212
  2,350
  2,494
  2,644
  2,800
  2,922
  3,091
  3,266
  3,451
  3,642
  3,841
  4,051
  4,269
  4,496
  4,734
  4,983
  5,244
  5,516
  5,801
  6,100
  6,413
  6,740
  7,084
  7,442
  7,819
Operating income, $m
  72
  87
  103
  119
  137
  155
  173
  193
  213
  234
  297
  321
  345
  370
  397
  425
  454
  484
  516
  550
  585
  622
  660
  701
  744
  788
  835
  885
  937
  991
EBITDA, $m
  203
  226
  249
  273
  299
  325
  352
  381
  410
  441
  474
  507
  543
  580
  618
  658
  701
  745
  791
  839
  890
  943
  999
  1,057
  1,119
  1,183
  1,251
  1,321
  1,396
  1,474
Interest expense (income), $m
  3
  20
  23
  26
  29
  33
  36
  40
  44
  48
  52
  56
  61
  66
  71
  76
  81
  87
  93
  99
  105
  112
  119
  126
  134
  142
  150
  159
  168
  178
  188
Earnings before tax, $m
  52
  64
  77
  90
  104
  118
  133
  149
  165
  182
  241
  260
  279
  300
  321
  343
  367
  392
  417
  445
  473
  503
  534
  567
  602
  638
  676
  717
  759
  803
Tax expense, $m
  14
  17
  21
  24
  28
  32
  36
  40
  45
  49
  65
  70
  75
  81
  87
  93
  99
  106
  113
  120
  128
  136
  144
  153
  163
  172
  183
  194
  205
  217
Net income, $m
  38
  47
  56
  66
  76
  86
  97
  109
  121
  133
  176
  190
  204
  219
  234
  251
  268
  286
  305
  325
  345
  367
  390
  414
  439
  466
  494
  523
  554
  586

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
  1,451
  1,564
  1,682
  1,804
  1,931
  2,063
  2,200
  2,343
  2,491
  2,645
  2,806
  2,974
  3,149
  3,331
  3,521
  3,720
  3,927
  4,144
  4,370
  4,607
  4,855
  5,114
  5,385
  5,669
  5,967
  6,278
  6,605
  6,947
  7,305
  7,681
Adjusted assets (=assets-cash), $m
  1,451
  1,564
  1,682
  1,804
  1,931
  2,063
  2,200
  2,343
  2,491
  2,645
  2,806
  2,974
  3,149
  3,331
  3,521
  3,720
  3,927
  4,144
  4,370
  4,607
  4,855
  5,114
  5,385
  5,669
  5,967
  6,278
  6,605
  6,947
  7,305
  7,681
Revenue / Adjusted assets
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
  1.147
Average production assets, $m
  456
  492
  529
  567
  607
  648
  691
  736
  783
  831
  882
  935
  990
  1,047
  1,107
  1,169
  1,234
  1,302
  1,373
  1,448
  1,526
  1,607
  1,692
  1,782
  1,875
  1,973
  2,076
  2,183
  2,296
  2,414
Working capital, $m
  175
  188
  203
  217
  233
  248
  265
  282
  300
  319
  338
  358
  379
  401
  424
  448
  473
  499
  526
  555
  585
  616
  649
  683
  719
  756
  795
  837
  880
  925
Total debt, $m
  419
  478
  540
  604
  670
  739
  811
  885
  963
  1,044
  1,128
  1,216
  1,307
  1,402
  1,502
  1,606
  1,714
  1,827
  1,946
  2,070
  2,199
  2,335
  2,477
  2,625
  2,781
  2,944
  3,114
  3,293
  3,481
  3,678
Total liabilities, $m
  759
  818
  880
  944
  1,010
  1,079
  1,151
  1,225
  1,303
  1,384
  1,468
  1,555
  1,647
  1,742
  1,842
  1,945
  2,054
  2,167
  2,286
  2,409
  2,539
  2,675
  2,816
  2,965
  3,121
  3,284
  3,454
  3,633
  3,821
  4,017
Total equity, $m
  692
  746
  802
  861
  921
  984
  1,049
  1,117
  1,188
  1,262
  1,339
  1,419
  1,502
  1,589
  1,680
  1,774
  1,873
  1,977
  2,085
  2,197
  2,316
  2,439
  2,569
  2,704
  2,846
  2,995
  3,150
  3,314
  3,485
  3,664
Total liabilities and equity, $m
  1,451
  1,564
  1,682
  1,805
  1,931
  2,063
  2,200
  2,342
  2,491
  2,646
  2,807
  2,974
  3,149
  3,331
  3,522
  3,719
  3,927
  4,144
  4,371
  4,606
  4,855
  5,114
  5,385
  5,669
  5,967
  6,279
  6,604
  6,947
  7,306
  7,681
Debt-to-equity ratio
  0.610
  0.640
  0.670
  0.700
  0.730
  0.750
  0.770
  0.790
  0.810
  0.830
  0.840
  0.860
  0.870
  0.880
  0.890
  0.900
  0.920
  0.920
  0.930
  0.940
  0.950
  0.960
  0.960
  0.970
  0.980
  0.980
  0.990
  0.990
  1.000
  1.000
Adjusted equity ratio
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477
  0.477

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  38
  47
  56
  66
  76
  86
  97
  109
  121
  133
  176
  190
  204
  219
  234
  251
  268
  286
  305
  325
  345
  367
  390
  414
  439
  466
  494
  523
  554
  586
Depreciation, amort., depletion, $m
  132
  139
  146
  154
  162
  170
  179
  188
  197
  207
  176
  187
  198
  209
  221
  234
  247
  260
  275
  290
  305
  321
  338
  356
  375
  395
  415
  437
  459
  483
Funds from operations, $m
  170
  186
  202
  220
  238
  257
  276
  297
  318
  340
  352
  376
  402
  428
  456
  485
  515
  546
  579
  614
  650
  689
  729
  770
  814
  861
  909
  960
  1,013
  1,069
Change in working capital, $m
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
Cash from operations, $m
  157
  172
  188
  205
  223
  241
  260
  279
  300
  321
  333
  356
  381
  406
  433
  461
  490
  520
  552
  586
  621
  657
  696
  736
  779
  823
  870
  919
  970
  1,024
Maintenance CAPEX, $m
  -85
  -91
  -98
  -106
  -113
  -121
  -130
  -138
  -147
  -157
  -166
  -176
  -187
  -198
  -209
  -221
  -234
  -247
  -260
  -275
  -290
  -305
  -321
  -338
  -356
  -375
  -395
  -415
  -437
  -459
New CAPEX, $m
  -34
  -36
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -65
  -68
  -71
  -74
  -78
  -81
  -85
  -89
  -93
  -98
  -103
  -108
  -113
  -118
Cash from investing activities, $m
  -119
  -127
  -135
  -144
  -153
  -162
  -173
  -183
  -194
  -206
  -217
  -229
  -242
  -255
  -269
  -283
  -299
  -315
  -331
  -349
  -368
  -386
  -406
  -427
  -449
  -473
  -498
  -523
  -550
  -577
Free cash flow, $m
  39
  45
  53
  61
  69
  78
  87
  96
  106
  116
  116
  127
  139
  151
  164
  177
  191
  205
  221
  237
  253
  271
  289
  308
  329
  350
  372
  396
  421
  447
Issuance/(repayment) of debt, $m
  58
  59
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
Issuance/(repurchase) of shares, $m
  13
  7
  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  
  71
  66
  61
  64
  66
  69
  72
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  118
  124
  130
  136
  142
  149
  156
  163
  171
  179
  188
  197
Total cash flow (excl. dividends), $m
  110
  112
  114
  125
  136
  147
  159
  171
  184
  197
  200
  215
  230
  246
  263
  281
  299
  319
  339
  360
  383
  406
  431
  457
  484
  513
  543
  575
  608
  643
Retained Cash Flow (-), $m
  -51
  -54
  -56
  -58
  -61
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -83
  -87
  -91
  -95
  -99
  -103
  -108
  -113
  -118
  -124
  -129
  -135
  -142
  -149
  -156
  -163
  -171
  -179
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
  58
  58
  58
  67
  75
  84
  93
  103
  113
  123
  123
  135
  147
  159
  172
  186
  200
  215
  231
  247
  265
  283
  302
  322
  342
  364
  387
  412
  437
  464
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
  56
  53
  51
  55
  58
  61
  63
  64
  65
  65
  59
  58
  56
  53
  51
  47
  44
  40
  36
  31
  27
  23
  20
  16
  13
  11
  8
  6
  5
  3
Current shareholders' claim on cash, %
  98.6
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8
  97.8

Internet Initiative Japan Inc. (IIJ) is an Internet service provider (ISP) in Japan that offers Internet connectivity services for both enterprises and consumers. The Company provides Internet connectivity services, wide area network (WAN) services, outsourcing services, systems integration and equipment sales as total network solutions to Japanese corporate clients and governmental organizations. The Company operates through two segments: a network services and systems integration business segment and an ATM operation business segment. The network services and systems integration business segment consist of its Internet connectivity services for enterprise and consumers, WAN services, outsourcing services, systems integration and equipment sales. The ATM operation business is conducted by its subsidiary, Trust Networks Inc. (Trust Networks), which operates automated teller machines (ATMs) and its network systems.

FINANCIAL RATIOS  of  Internet Initiative Japan, Inc. (IIJI)

Valuation Ratios
P/E Ratio 16.3
Price to Sales 0.3
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 7.1
Price to Free Cash Flow -16.3
Growth Rates
Sales Growth Rate 12.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -3.2%
Cap. Spend. - 3 Yr. Gr. Rate 3.1%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 28.2%
Total Debt to Equity 49.4%
Interest Coverage 17
Management Effectiveness
Return On Assets 2.7%
Ret/ On Assets - 3 Yr. Avg. 3.2%
Return On Total Capital 3.5%
Ret/ On T. Cap. - 3 Yr. Avg. 4.2%
Return On Equity 4.9%
Return On Equity - 3 Yr. Avg. 5.5%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 16%
Gross Margin - 3 Yr. Avg. 17.2%
EBITDA Margin 10.6%
EBITDA Margin - 3 Yr. Avg. 11.5%
Operating Margin 3.3%
Oper. Margin - 3 Yr. Avg. 3.9%
Pre-Tax Margin 3.4%
Pre-Tax Margin - 3 Yr. Avg. 4%
Net Profit Margin 2%
Net Profit Margin - 3 Yr. Avg. 2.5%
Effective Tax Rate 40.4%
Eff/ Tax Rate - 3 Yr. Avg. 37.8%
Payout Ratio 35.7%

IIJI stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IIJI stock intrinsic value calculation we used $1540 million for the last fiscal year's total revenue generated by Internet Initiative Japan, Inc.. The default revenue input number comes from 0001 income statement of Internet Initiative Japan, Inc.. 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 IIJI stock valuation model: a) initial revenue growth rate of 8.1% 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 IIJI is calculated based on our internal credit rating of Internet Initiative Japan, Inc., 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 Internet Initiative Japan, Inc..
    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 IIJI stock the variable cost ratio is equal to 88.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $114 million in the base year in the intrinsic value calculation for IIJI 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 5.4% for Internet Initiative Japan, Inc..

Corporate tax rate of 27% is the nominal tax rate for Internet Initiative Japan, Inc.. 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 IIJI 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 IIJI are equal to 27.4%.

Life of production assets of 4.3 years is the average useful life of capital assets used in Internet Initiative Japan, Inc. 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 IIJI is equal to 10.5%. 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 - $640.89829782 million for Internet Initiative Japan, Inc. - 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 90.141 million for Internet Initiative Japan, Inc. 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 Internet Initiative Japan, Inc. at the current share price and the inputted number of shares is $0.9 billion.

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