Intrinsic value of Ion Geophysical Corporation - IO

Previous Close

$7.69

  Intrinsic Value

$5.82

stock screener

  Rating & Target

sell

-24%

Previous close

$7.69

 
Intrinsic value

$5.82

 
Up/down potential

-24%

 
Rating

sell

We calculate the intrinsic value of IO 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 0.1

 

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, %
  28.80
  26.42
  24.28
  22.35
  20.62
  19.05
  17.65
  16.38
  15.25
  14.22
  13.30
  12.47
  11.72
  11.05
  10.44
  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
Revenue, $m
  232
  293
  364
  446
  538
  640
  753
  876
  1,010
  1,153
  1,307
  1,470
  1,642
  1,823
  2,014
  2,213
  2,422
  2,639
  2,865
  3,100
  3,345
  3,599
  3,864
  4,138
  4,424
  4,721
  5,029
  5,350
  5,685
  6,033
Variable operating expenses, $m
  239
  300
  370
  451
  542
  644
  755
  878
  1,010
  1,152
  1,295
  1,456
  1,627
  1,806
  1,995
  2,193
  2,399
  2,614
  2,838
  3,071
  3,314
  3,566
  3,828
  4,100
  4,383
  4,677
  4,982
  5,301
  5,632
  5,976
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
  239
  300
  370
  451
  542
  644
  755
  878
  1,010
  1,152
  1,295
  1,456
  1,627
  1,806
  1,995
  2,193
  2,399
  2,614
  2,838
  3,071
  3,314
  3,566
  3,828
  4,100
  4,383
  4,677
  4,982
  5,301
  5,632
  5,976
Operating income, $m
  -7
  -7
  -6
  -5
  -5
  -4
  -3
  -1
  0
  1
  12
  14
  15
  17
  19
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
EBITDA, $m
  9
  12
  14
  18
  21
  25
  30
  35
  40
  46
  52
  58
  65
  72
  79
  87
  96
  104
  113
  122
  132
  142
  152
  163
  175
  186
  198
  211
  224
  238
Interest expense (income), $m
  16
  11
  16
  23
  31
  40
  50
  62
  75
  89
  104
  120
  138
  157
  176
  197
  218
  241
  265
  290
  315
  342
  370
  399
  429
  460
  493
  527
  562
  598
  636
Earnings before tax, $m
  -19
  -22
  -29
  -36
  -44
  -54
  -65
  -76
  -89
  -103
  -108
  -124
  -141
  -159
  -178
  -198
  -219
  -240
  -263
  -286
  -311
  -336
  -363
  -391
  -419
  -449
  -480
  -512
  -545
  -580
Tax expense, $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
Net income, $m
  -19
  -22
  -29
  -36
  -44
  -54
  -65
  -76
  -89
  -103
  -108
  -124
  -141
  -159
  -178
  -198
  -219
  -240
  -263
  -286
  -311
  -336
  -363
  -391
  -419
  -449
  -480
  -512
  -545
  -580

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
  315
  399
  496
  606
  731
  871
  1,024
  1,192
  1,374
  1,569
  1,778
  2,000
  2,234
  2,481
  2,740
  3,011
  3,295
  3,590
  3,898
  4,218
  4,551
  4,897
  5,257
  5,631
  6,019
  6,423
  6,843
  7,280
  7,734
  8,208
Adjusted assets (=assets-cash), $m
  315
  399
  496
  606
  731
  871
  1,024
  1,192
  1,374
  1,569
  1,778
  2,000
  2,234
  2,481
  2,740
  3,011
  3,295
  3,590
  3,898
  4,218
  4,551
  4,897
  5,257
  5,631
  6,019
  6,423
  6,843
  7,280
  7,734
  8,208
Revenue / Adjusted assets
  0.737
  0.734
  0.734
  0.736
  0.736
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
  0.735
Average production assets, $m
  110
  139
  172
  211
  254
  303
  356
  414
  478
  546
  618
  695
  777
  863
  953
  1,047
  1,145
  1,248
  1,355
  1,466
  1,582
  1,703
  1,828
  1,958
  2,093
  2,233
  2,379
  2,531
  2,689
  2,853
Working capital, $m
  -14
  -18
  -23
  -28
  -33
  -40
  -47
  -54
  -63
  -72
  -81
  -91
  -102
  -113
  -125
  -137
  -150
  -164
  -178
  -192
  -207
  -223
  -240
  -257
  -274
  -293
  -312
  -332
  -352
  -374
Total debt, $m
  167
  242
  329
  429
  541
  667
  805
  956
  1,120
  1,296
  1,483
  1,683
  1,894
  2,116
  2,349
  2,593
  2,848
  3,114
  3,391
  3,680
  3,979
  4,291
  4,614
  4,951
  5,300
  5,664
  6,042
  6,435
  6,844
  7,270
Total liabilities, $m
  284
  359
  446
  546
  658
  784
  922
  1,073
  1,237
  1,412
  1,600
  1,800
  2,011
  2,233
  2,466
  2,710
  2,965
  3,231
  3,508
  3,796
  4,096
  4,408
  4,731
  5,068
  5,417
  5,781
  6,158
  6,552
  6,961
  7,387
Total equity, $m
  32
  40
  50
  61
  73
  87
  102
  119
  137
  157
  178
  200
  223
  248
  274
  301
  329
  359
  390
  422
  455
  490
  526
  563
  602
  642
  684
  728
  773
  821
Total liabilities and equity, $m
  316
  399
  496
  607
  731
  871
  1,024
  1,192
  1,374
  1,569
  1,778
  2,000
  2,234
  2,481
  2,740
  3,011
  3,294
  3,590
  3,898
  4,218
  4,551
  4,898
  5,257
  5,631
  6,019
  6,423
  6,842
  7,280
  7,734
  8,208
Debt-to-equity ratio
  5.300
  6.070
  6.640
  7.070
  7.400
  7.660
  7.860
  8.020
  8.150
  8.260
  8.340
  8.420
  8.480
  8.530
  8.570
  8.610
  8.650
  8.670
  8.700
  8.720
  8.740
  8.760
  8.780
  8.790
  8.810
  8.820
  8.830
  8.840
  8.850
  8.860
Adjusted equity ratio
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -19
  -22
  -29
  -36
  -44
  -54
  -65
  -76
  -89
  -103
  -108
  -124
  -141
  -159
  -178
  -198
  -219
  -240
  -263
  -286
  -311
  -336
  -363
  -391
  -419
  -449
  -480
  -512
  -545
  -580
Depreciation, amort., depletion, $m
  17
  18
  21
  23
  26
  29
  32
  36
  40
  44
  39
  44
  49
  55
  61
  67
  73
  80
  86
  93
  101
  108
  116
  125
  133
  142
  152
  161
  171
  182
Funds from operations, $m
  -2
  -4
  -8
  -13
  -19
  -25
  -32
  -40
  -49
  -59
  -69
  -80
  -92
  -104
  -117
  -131
  -146
  -161
  -177
  -193
  -210
  -228
  -247
  -266
  -286
  -307
  -328
  -351
  -374
  -398
Change in working capital, $m
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -22
Cash from operations, $m
  1
  0
  -4
  -8
  -13
  -19
  -25
  -33
  -41
  -50
  -59
  -70
  -81
  -93
  -106
  -119
  -133
  -147
  -163
  -178
  -195
  -212
  -230
  -249
  -268
  -288
  -309
  -331
  -353
  -377
Maintenance CAPEX, $m
  -5
  -7
  -9
  -11
  -13
  -16
  -19
  -23
  -26
  -30
  -35
  -39
  -44
  -49
  -55
  -61
  -67
  -73
  -80
  -86
  -93
  -101
  -108
  -116
  -125
  -133
  -142
  -152
  -161
  -171
New CAPEX, $m
  -25
  -29
  -34
  -39
  -43
  -48
  -53
  -58
  -63
  -68
  -73
  -77
  -81
  -86
  -90
  -94
  -99
  -103
  -107
  -111
  -116
  -120
  -125
  -130
  -135
  -140
  -146
  -152
  -158
  -165
Cash from investing activities, $m
  -30
  -36
  -43
  -50
  -56
  -64
  -72
  -81
  -89
  -98
  -108
  -116
  -125
  -135
  -145
  -155
  -166
  -176
  -187
  -197
  -209
  -221
  -233
  -246
  -260
  -273
  -288
  -304
  -319
  -336
Free cash flow, $m
  -29
  -36
  -46
  -57
  -70
  -83
  -98
  -114
  -130
  -148
  -167
  -186
  -207
  -228
  -251
  -274
  -298
  -323
  -349
  -376
  -404
  -433
  -464
  -495
  -528
  -562
  -597
  -634
  -673
  -713
Issuance/(repayment) of debt, $m
  45
  75
  87
  100
  112
  125
  138
  151
  164
  176
  188
  200
  211
  222
  233
  244
  255
  266
  277
  288
  300
  311
  324
  336
  350
  363
  378
  393
  409
  426
Issuance/(repurchase) of shares, $m
  44
  31
  38
  47
  57
  68
  80
  93
  107
  123
  129
  146
  165
  184
  204
  225
  247
  270
  294
  318
  344
  371
  399
  428
  458
  489
  522
  556
  591
  628
Cash from financing (excl. dividends), $m  
  89
  106
  125
  147
  169
  193
  218
  244
  271
  299
  317
  346
  376
  406
  437
  469
  502
  536
  571
  606
  644
  682
  723
  764
  808
  852
  900
  949
  1,000
  1,054
Total cash flow (excl. dividends), $m
  60
  70
  79
  89
  100
  110
  120
  130
  140
  150
  150
  160
  169
  178
  187
  195
  204
  213
  222
  231
  240
  249
  259
  269
  280
  291
  302
  315
  327
  341
Retained Cash Flow (-), $m
  -44
  -31
  -38
  -47
  -57
  -68
  -80
  -93
  -107
  -123
  -129
  -146
  -165
  -184
  -204
  -225
  -247
  -270
  -294
  -318
  -344
  -371
  -399
  -428
  -458
  -489
  -522
  -556
  -591
  -628
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
  16
  39
  41
  42
  43
  42
  40
  37
  33
  28
  21
  13
  4
  -6
  -17
  -30
  -43
  -57
  -72
  -88
  -105
  -122
  -140
  -159
  -178
  -198
  -219
  -241
  -263
  -287
Discount rate, %
  10.70
  11.24
  11.80
  12.39
  13.01
  13.66
  14.34
  15.06
  15.81
  16.60
  17.43
  18.30
  19.22
  20.18
  21.19
  22.24
  23.36
  24.52
  25.75
  27.04
  28.39
  29.81
  31.30
  32.87
  34.51
  36.23
  38.05
  39.95
  41.95
  44.04
PV of cash for distribution, $m
  15
  31
  29
  26
  23
  19
  16
  12
  9
  6
  4
  2
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  58.6
  53.4
  48.7
  44.5
  40.6
  37.2
  34.1
  31.2
  28.6
  26.3
  24.3
  22.5
  20.7
  19.2
  17.7
  16.4
  15.1
  14.0
  12.9
  11.9
  11.0
  10.2
  9.4
  8.7
  8.1
  7.5
  6.9
  6.4
  5.9
  5.5

ION Geophysical Corporation is a technology-focused company. It provides geophysical technology, services and solutions to the global oil and gas industry. Its offerings are designed to enable oil and gas exploration and production (E&P) companies to obtain images of the Earth's subsurface. It offers services and products through three segments: E&P Technology & Services, E&P Operations Optimization, and Ocean Bottom Services. E&P Technology & Services provides services and products for complex and hard-to-image geologies, such as deepwater subsalt formations in the Gulf of Mexico and offshore East and West Africa and Brazil; unconventional reservoirs, such as those found onshore in shale, tight gas and oil sands formations, and offshore basin-wide seismic data and imaging programs. E&P Operations Optimization combines its Optimization Software and Services and Devices offerings. Ocean Bottom Services consists of OceanGeo, an ocean bottom data acquisition services company.

FINANCIAL RATIOS  of  Ion Geophysical Corporation (IO)

Valuation Ratios
P/E Ratio -1.4
Price to Sales 0.5
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 45.3
Price to Free Cash Flow -6.5
Growth Rates
Sales Growth Rate -22.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -75.4%
Cap. Spend. - 3 Yr. Gr. Rate -34.4%
Financial Strength
Quick Ratio 4
Current Ratio 0
LT Debt to Equity 271.7%
Total Debt to Equity 300%
Interest Coverage -3
Management Effectiveness
Return On Assets -12.7%
Ret/ On Assets - 3 Yr. Avg. -9.5%
Return On Total Capital -25.6%
Ret/ On T. Cap. - 3 Yr. Avg. -21.8%
Return On Equity -78.8%
Return On Equity - 3 Yr. Avg. -54.6%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 20.8%
Gross Margin - 3 Yr. Avg. 18.7%
EBITDA Margin 6.4%
EBITDA Margin - 3 Yr. Avg. 10.8%
Operating Margin -25.4%
Oper. Margin - 3 Yr. Avg. -11.3%
Pre-Tax Margin -34.7%
Pre-Tax Margin - 3 Yr. Avg. -21.7%
Net Profit Margin -37.6%
Net Profit Margin - 3 Yr. Avg. -24.6%
Effective Tax Rate -8.3%
Eff/ Tax Rate - 3 Yr. Avg. -15.7%
Payout Ratio 0%

IO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the IO stock intrinsic value calculation we used $180 million for the last fiscal year's total revenue generated by Ion Geophysical Corporation. The default revenue input number comes from 0001 income statement of Ion Geophysical Corporation. 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 IO stock valuation model: a) initial revenue growth rate of 28.8% 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 10.7%, whose default value for IO is calculated based on our internal credit rating of Ion Geophysical Corporation, 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 Ion Geophysical Corporation.
    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 IO stock the variable cost ratio is equal to 104.4%.

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 IO 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 9.3% for Ion Geophysical Corporation.

Corporate tax rate of 27% is the nominal tax rate for Ion Geophysical Corporation. 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 IO 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 IO are equal to 47.3%.

Life of production assets of 15.7 years is the average useful life of capital assets used in Ion Geophysical Corporation 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 IO is equal to -6.2%. 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 - $6.232 million for Ion Geophysical Corporation - 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 14.015 million for Ion Geophysical Corporation 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 Ion Geophysical Corporation at the current share price and the inputted number of shares is $0.1 billion.

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