Intrinsic value of Internet Initiative Japan ADR - IIJI

Previous Close

$11.03

  Intrinsic Value

$7.22

stock screener

  Rating & Target

sell

-35%

Previous close

$11.03

 
Intrinsic value

$7.22

 
Up/down potential

-35%

 
Rating

sell

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 1.0

 

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
  3,611
  3,820
  4,038
  4,266
  4,504
  4,753
  5,012
  5,284
  5,568
  5,865
  6,176
  6,502
  6,843
  7,201
  7,575
  7,968
  8,379
  8,810
Variable operating expenses, $m
  1,479
  1,594
  1,713
  1,837
  1,966
  2,099
  2,238
  2,383
  2,533
  2,690
  2,845
  3,015
  3,192
  3,377
  3,570
  3,771
  3,982
  4,201
  4,431
  4,671
  4,922
  5,185
  5,460
  5,748
  6,050
  6,366
  6,697
  7,043
  7,407
  7,788
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
  1,596
  1,713
  1,835
  1,961
  2,093
  2,229
  2,371
  2,519
  2,672
  2,832
  2,990
  3,163
  3,343
  3,532
  3,728
  3,932
  4,147
  4,370
  4,603
  4,847
  5,102
  5,369
  5,648
  5,940
  6,246
  6,567
  6,902
  7,253
  7,621
  8,007
Operating income, $m
  69
  81
  94
  108
  122
  137
  152
  168
  185
  203
  229
  248
  268
  289
  310
  333
  357
  383
  409
  437
  466
  496
  528
  562
  597
  634
  674
  715
  758
  803
EBITDA, $m
  168
  187
  208
  229
  251
  274
  298
  323
  349
  376
  405
  435
  466
  498
  532
  567
  604
  643
  684
  726
  771
  818
  867
  918
  972
  1,029
  1,089
  1,151
  1,217
  1,286
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
  49
  59
  69
  79
  89
  101
  112
  125
  137
  151
  172
  187
  202
  218
  235
  252
  271
  290
  310
  332
  354
  378
  402
  428
  456
  484
  515
  546
  580
  615
Tax expense, $m
  13
  16
  19
  21
  24
  27
  30
  34
  37
  41
  46
  50
  55
  59
  63
  68
  73
  78
  84
  90
  96
  102
  109
  116
  123
  131
  139
  148
  157
  166
Net income, $m
  36
  43
  50
  58
  65
  73
  82
  91
  100
  110
  126
  136
  147
  159
  171
  184
  198
  212
  227
  242
  258
  276
  294
  313
  333
  354
  376
  399
  423
  449

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
  2,342
  2,491
  2,645
  2,806
  2,974
  3,149
  3,331
  3,521
  3,719
  3,927
  4,143
  4,370
  4,607
  4,854
  5,114
  5,385
  5,669
  5,966
  6,278
  6,604
  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
  2,342
  2,491
  2,645
  2,806
  2,974
  3,149
  3,331
  3,521
  3,719
  3,927
  4,143
  4,370
  4,607
  4,854
  5,114
  5,385
  5,669
  5,966
  6,278
  6,604
  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
  1,215
  1,307
  1,402
  1,502
  1,605
  1,714
  1,827
  1,946
  2,069
  2,199
  2,335
  2,476
  2,625
  2,781
  2,944
  3,114
  3,293
  3,481
  3,677
Total liabilities, $m
  759
  818
  880
  943
  1,010
  1,079
  1,151
  1,225
  1,303
  1,384
  1,468
  1,555
  1,647
  1,742
  1,841
  1,945
  2,054
  2,167
  2,285
  2,409
  2,539
  2,674
  2,816
  2,965
  3,120
  3,283
  3,454
  3,633
  3,821
  4,017
Total equity, $m
  692
  746
  802
  860
  921
  984
  1,049
  1,117
  1,188
  1,262
  1,339
  1,419
  1,502
  1,589
  1,679
  1,774
  1,873
  1,976
  2,084
  2,197
  2,316
  2,439
  2,569
  2,704
  2,846
  2,995
  3,150
  3,313
  3,485
  3,664
Total liabilities and equity, $m
  1,451
  1,564
  1,682
  1,803
  1,931
  2,063
  2,200
  2,342
  2,491
  2,646
  2,807
  2,974
  3,149
  3,331
  3,520
  3,719
  3,927
  4,143
  4,369
  4,606
  4,855
  5,113
  5,385
  5,669
  5,966
  6,278
  6,604
  6,946
  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
  36
  43
  50
  58
  65
  73
  82
  91
  100
  110
  126
  136
  147
  159
  171
  184
  198
  212
  227
  242
  258
  276
  294
  313
  333
  354
  376
  399
  423
  449
Depreciation, amort., depletion, $m
  99
  106
  113
  121
  129
  137
  146
  155
  164
  174
  176
  187
  198
  209
  221
  234
  247
  260
  275
  290
  305
  321
  338
  356
  375
  395
  415
  437
  459
  483
Funds from operations, $m
  135
  149
  163
  179
  194
  211
  228
  246
  264
  284
  302
  323
  345
  368
  393
  418
  444
  472
  501
  532
  564
  597
  632
  669
  708
  748
  791
  835
  882
  932
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
  122
  135
  149
  164
  179
  195
  211
  229
  247
  265
  283
  303
  324
  347
  370
  394
  419
  446
  474
  503
  534
  566
  599
  635
  672
  711
  751
  794
  839
  886
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
  4
  9
  14
  20
  26
  32
  39
  46
  53
  60
  66
  74
  82
  91
  101
  110
  121
  131
  142
  154
  166
  179
  193
  207
  222
  238
  254
  272
  290
  309
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
  15
  11
  6
  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  
  73
  70
  67
  65
  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
  77
  79
  81
  84
  92
  101
  110
  120
  130
  141
  150
  162
  174
  187
  200
  214
  229
  244
  261
  278
  296
  315
  335
  356
  378
  401
  425
  451
  477
  506
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
  25
  25
  25
  26
  32
  38
  45
  52
  60
  67
  73
  82
  91
  100
  109
  119
  130
  141
  153
  165
  178
  191
  205
  220
  236
  252
  269
  287
  306
  326
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
  23
  22
  22
  25
  28
  30
  33
  34
  35
  35
  35
  34
  33
  32
  30
  28
  26
  24
  21
  18
  16
  13
  11
  9
  7
  6
  4
  3
  2
Current shareholders' claim on cash, %
  98.5
  97.5
  97.0
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9
  96.9

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 17.8
Price to Sales 0.4
Price to Book 0.9
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow -17.8
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 $1539.9273031 million for the last fiscal year's total revenue generated by Internet Initiative Japan ADR. The default revenue input number comes from 0001 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 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 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 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 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 27.4%.

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 10.5%. 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 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 90.126 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 $1.0 billion.

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COMPANY NEWS

▶ Japan's Economy Rebounds in Q2: 5 Great Picks   [Aug-10-18 08:25AM  Zacks]
▶ Internet Initiative: Fiscal 1Q Earnings Snapshot   [Aug-08-18 05:05AM  Associated Press]
▶ Wired News - Ciena to Buy Packet Design, LLC   [Jun-04-18 07:20AM  ACCESSWIRE]
▶ IIJ Announces the Distribution of Retained Earnings   [May-24-18 02:04AM  GlobeNewswire]
▶ Internet Initiative: Fiscal 4Q Earnings Snapshot   [May-16-18 06:32AM  Associated Press]
▶ Internet Initiative posts 3Q profit   [Feb-08-18 05:01AM  Associated Press]
▶ Internet Initiative posts 2Q profit   [Nov-08-17 05:03AM  Associated Press]
▶ 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]

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