Intrinsic value of Internet Initiative Japan ADR - IIJI

Previous Close

$9.75

  Intrinsic Value

$3.07

stock screener

  Rating & Target

str. sell

-69%

  Value-price divergence*

-98%

Previous close

$9.75

 
Intrinsic value

$3.07

 
Up/down potential

-69%

 
Rating

str. sell

 
Value-price divergence*

-98%

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

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 2017), $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
2017(a)
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  12.25
  13.30
  12.47
  11.72
  11.05
  10.45
  9.90
  9.41
  8.97
  8.57
  8.22
  7.89
  7.60
  7.34
  7.11
  6.90
  6.71
  6.54
  6.38
  6.25
  6.12
  6.01
  5.91
  5.82
  5.74
  5.66
  5.60
  5.54
  5.48
  5.43
  5.39
Revenue, $m
  1,374
  1,557
  1,751
  1,956
  2,172
  2,399
  2,637
  2,885
  3,144
  3,413
  3,694
  3,985
  4,288
  4,603
  4,930
  5,271
  5,624
  5,992
  6,374
  6,772
  7,187
  7,619
  8,069
  8,538
  9,028
  9,539
  10,073
  10,631
  11,214
  11,823
  12,461
Variable operating expenses, $m
 
  1,489
  1,674
  1,870
  2,076
  2,292
  2,518
  2,755
  3,002
  3,258
  3,526
  3,798
  4,087
  4,387
  4,699
  5,023
  5,360
  5,711
  6,075
  6,455
  6,850
  7,261
  7,690
  8,138
  8,605
  9,092
  9,600
  10,132
  10,687
  11,268
  11,876
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
  1,329
  1,489
  1,674
  1,870
  2,076
  2,292
  2,518
  2,755
  3,002
  3,258
  3,526
  3,798
  4,087
  4,387
  4,699
  5,023
  5,360
  5,711
  6,075
  6,455
  6,850
  7,261
  7,690
  8,138
  8,605
  9,092
  9,600
  10,132
  10,687
  11,268
  11,876
Operating income, $m
  44
  68
  77
  86
  97
  107
  118
  130
  142
  155
  168
  187
  201
  216
  231
  247
  264
  281
  299
  318
  337
  358
  379
  401
  424
  448
  473
  499
  526
  555
  585
EBITDA, $m
  139
  153
  172
  192
  213
  235
  259
  283
  308
  335
  362
  391
  421
  452
  484
  517
  552
  588
  626
  665
  705
  748
  792
  838
  886
  936
  988
  1,043
  1,100
  1,160
  1,223
Interest expense (income), $m
  3
  6
  8
  10
  13
  16
  19
  22
  25
  28
  31
  35
  39
  42
  46
  50
  55
  59
  64
  68
  73
  79
  84
  90
  96
  102
  108
  115
  122
  129
  137
Earnings before tax, $m
  47
  62
  69
  76
  83
  91
  100
  108
  117
  127
  137
  152
  163
  174
  185
  197
  209
  222
  235
  249
  264
  279
  295
  311
  328
  346
  365
  384
  404
  426
  448
Tax expense, $m
  19
  17
  19
  20
  23
  25
  27
  29
  32
  34
  37
  41
  44
  47
  50
  53
  57
  60
  64
  67
  71
  75
  80
  84
  89
  93
  98
  104
  109
  115
  121
Net income, $m
  28
  45
  50
  55
  61
  67
  73
  79
  86
  93
  100
  111
  119
  127
  135
  144
  153
  162
  172
  182
  193
  204
  215
  227
  239
  253
  266
  280
  295
  311
  327

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  191
  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
  1,196
  1,139
  1,281
  1,431
  1,589
  1,755
  1,929
  2,110
  2,300
  2,497
  2,702
  2,915
  3,137
  3,367
  3,607
  3,856
  4,114
  4,383
  4,663
  4,954
  5,258
  5,573
  5,903
  6,246
  6,604
  6,978
  7,369
  7,777
  8,203
  8,649
  9,115
Adjusted assets (=assets-cash), $m
  1,005
  1,139
  1,281
  1,431
  1,589
  1,755
  1,929
  2,110
  2,300
  2,497
  2,702
  2,915
  3,137
  3,367
  3,607
  3,856
  4,114
  4,383
  4,663
  4,954
  5,258
  5,573
  5,903
  6,246
  6,604
  6,978
  7,369
  7,777
  8,203
  8,649
  9,115
Revenue / Adjusted assets
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
  1.367
Average production assets, $m
  352
  399
  448
  501
  556
  614
  675
  739
  805
  874
  946
  1,020
  1,098
  1,178
  1,262
  1,349
  1,440
  1,534
  1,632
  1,734
  1,840
  1,950
  2,066
  2,186
  2,311
  2,442
  2,579
  2,722
  2,871
  3,027
  3,190
Working capital, $m
  207
  157
  177
  198
  219
  242
  266
  291
  318
  345
  373
  402
  433
  465
  498
  532
  568
  605
  644
  684
  726
  770
  815
  862
  912
  963
  1,017
  1,074
  1,133
  1,194
  1,259
Total debt, $m
  287
  230
  300
  373
  451
  532
  617
  706
  799
  895
  996
  1,100
  1,209
  1,322
  1,439
  1,561
  1,688
  1,820
  1,957
  2,100
  2,248
  2,403
  2,564
  2,733
  2,908
  3,091
  3,283
  3,483
  3,692
  3,910
  4,138
Total liabilities, $m
  615
  558
  628
  701
  779
  860
  945
  1,034
  1,127
  1,223
  1,324
  1,428
  1,537
  1,650
  1,767
  1,889
  2,016
  2,148
  2,285
  2,428
  2,576
  2,731
  2,892
  3,061
  3,236
  3,419
  3,611
  3,811
  4,020
  4,238
  4,466
Total equity, $m
  581
  581
  653
  730
  810
  895
  984
  1,076
  1,173
  1,273
  1,378
  1,487
  1,600
  1,717
  1,839
  1,966
  2,098
  2,235
  2,378
  2,527
  2,681
  2,842
  3,010
  3,186
  3,368
  3,559
  3,758
  3,966
  4,184
  4,411
  4,649
Total liabilities and equity, $m
  1,196
  1,139
  1,281
  1,431
  1,589
  1,755
  1,929
  2,110
  2,300
  2,496
  2,702
  2,915
  3,137
  3,367
  3,606
  3,855
  4,114
  4,383
  4,663
  4,955
  5,257
  5,573
  5,902
  6,247
  6,604
  6,978
  7,369
  7,777
  8,204
  8,649
  9,115
Debt-to-equity ratio
  0.494
  0.400
  0.460
  0.510
  0.560
  0.590
  0.630
  0.660
  0.680
  0.700
  0.720
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.850
  0.860
  0.860
  0.870
  0.870
  0.880
  0.880
  0.890
  0.890
Adjusted equity ratio
  0.469
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  28
  45
  50
  55
  61
  67
  73
  79
  86
  93
  100
  111
  119
  127
  135
  144
  153
  162
  172
  182
  193
  204
  215
  227
  239
  253
  266
  280
  295
  311
  327
Depreciation, amort., depletion, $m
  95
  85
  95
  106
  117
  128
  140
  153
  166
  180
  195
  204
  220
  236
  252
  270
  288
  307
  326
  347
  368
  390
  413
  437
  462
  488
  516
  544
  574
  605
  638
Funds from operations, $m
  -3
  130
  145
  161
  178
  195
  213
  232
  252
  273
  294
  315
  338
  362
  388
  414
  441
  469
  498
  529
  561
  594
  628
  664
  702
  741
  782
  825
  869
  916
  965
Change in working capital, $m
  -67
  18
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  40
  42
  44
  45
  47
  49
  52
  54
  56
  59
  62
  64
Cash from operations, $m
  64
  112
  126
  140
  156
  172
  189
  207
  226
  246
  266
  286
  308
  331
  355
  379
  405
  432
  460
  489
  519
  550
  583
  617
  652
  689
  728
  768
  810
  855
  901
Maintenance CAPEX, $m
  0
  -70
  -80
  -90
  -100
  -111
  -123
  -135
  -148
  -161
  -175
  -189
  -204
  -220
  -236
  -252
  -270
  -288
  -307
  -326
  -347
  -368
  -390
  -413
  -437
  -462
  -488
  -516
  -544
  -574
  -605
New CAPEX, $m
  -92
  -47
  -50
  -53
  -55
  -58
  -61
  -64
  -66
  -69
  -72
  -75
  -78
  -81
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -111
  -115
  -120
  -125
  -131
  -137
  -143
  -149
  -156
  -163
Cash from investing activities, $m
  -64
  -117
  -130
  -143
  -155
  -169
  -184
  -199
  -214
  -230
  -247
  -264
  -282
  -301
  -320
  -339
  -361
  -382
  -405
  -428
  -453
  -479
  -505
  -533
  -562
  -593
  -625
  -659
  -693
  -730
  -768
Free cash flow, $m
  0
  -5
  -4
  -2
  0
  3
  6
  9
  12
  16
  19
  22
  26
  30
  35
  40
  45
  50
  55
  60
  66
  72
  77
  83
  90
  96
  103
  110
  117
  124
  132
Issuance/(repayment) of debt, $m
  32
  66
  70
  74
  77
  81
  85
  89
  93
  97
  101
  105
  109
  113
  117
  122
  127
  132
  137
  143
  149
  155
  161
  168
  176
  183
  191
  200
  209
  218
  228
Issuance/(repurchase) of shares, $m
  -13
  23
  22
  21
  20
  18
  16
  13
  11
  8
  5
  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  
  32
  89
  92
  95
  97
  99
  101
  102
  104
  105
  106
  105
  109
  113
  117
  122
  127
  132
  137
  143
  149
  155
  161
  168
  176
  183
  191
  200
  209
  218
  228
Total cash flow (excl. dividends), $m
  31
  83
  88
  93
  97
  102
  107
  111
  116
  120
  125
  126
  135
  143
  152
  162
  171
  182
  192
  203
  214
  226
  239
  252
  265
  279
  294
  310
  326
  343
  361
Retained Cash Flow (-), $m
  -16
  -68
  -72
  -77
  -81
  -85
  -89
  -93
  -97
  -101
  -105
  -109
  -113
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -155
  -161
  -168
  -175
  -183
  -191
  -199
  -208
  -217
  -227
  -238
Prev. year cash balance distribution, $m
 
  68
  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
 
  83
  16
  16
  17
  17
  18
  18
  19
  20
  20
  18
  22
  26
  30
  35
  39
  44
  49
  54
  60
  65
  71
  77
  83
  89
  95
  102
  108
  115
  123
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
 
  80
  14
  14
  14
  13
  13
  12
  12
  11
  11
  8
  9
  10
  10
  10
  10
  10
  9
  8
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  97.3
  95.1
  93.2
  91.7
  90.4
  89.4
  88.7
  88.1
  87.8
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6
  87.6

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 ADR (IIJI)

Valuation Ratios
P/E Ratio 15.7
Price to Sales 0.3
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 6.9
Price to Free Cash Flow -15.7
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 $1374 million for the last fiscal year's total revenue generated by Internet Initiative Japan ADR. The default revenue input number comes from 2017 income statement of Internet Initiative Japan ADR. 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 13.3% 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 IIJI is calculated based on our internal credit rating of Internet Initiative Japan ADR, 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 ADR.
    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 95.7%.

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 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 3.5% for Internet Initiative Japan ADR.

Corporate tax rate of 27% is the nominal tax rate for Internet Initiative Japan ADR. 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 25.6%.

Life of production assets of 4.3 years is the average useful life of capital assets used in Internet Initiative Japan ADR 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 10.1%. 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 - $581 million for Internet Initiative Japan ADR - 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 95.915 million for Internet Initiative Japan ADR 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 ADR at the current share price and the inputted number of shares is $0.9 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Internet Initiative posts 4Q profit   [May-15-17 05:36AM  Associated Press]
▶ Internet Initiative posts 3Q profit   [Feb-08-17 02:14PM  Associated Press]
▶ Internet Initiative posts 1Q profit   [Aug-05-16 07:01AM  AP]
▶ IIJ Appoints New Executive Officer   [Mar-24-16 11:21PM  at noodls]
▶ IIJ Acquires RYUKOSHA NETWARE Inc.   [Dec-01  01:10AM  at noodls]
▶ IIJ and Biznet to Run a Joint Cloud Venture in Indonesia   [Nov-05  09:10PM  GlobeNewswire]
▶ 3 Stocks Moving The Telecommunications Industry Upward   [Oct-15  04:33PM  at TheStreet]
Financial statements of IIJI
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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