Intrinsic value of Ituran Location&Control - ITRN

Previous Close

$37.20

  Intrinsic Value

$44.48

stock screener

  Rating & Target

hold

+20%

  Value-price divergence*

-64%

Previous close

$37.20

 
Intrinsic value

$44.48

 
Up/down potential

+20%

 
Rating

hold

 
Value-price divergence*

-64%

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

We calculate the intrinsic value of ITRN 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 2016), $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
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  13.64
  13.60
  12.74
  11.97
  11.27
  10.64
  10.08
  9.57
  9.11
  8.70
  8.33
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.05
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
Revenue, $m
  200
  227
  256
  287
  319
  353
  389
  426
  465
  505
  547
  591
  636
  684
  733
  784
  837
  892
  950
  1,009
  1,072
  1,136
  1,204
  1,274
  1,348
  1,424
  1,504
  1,588
  1,675
  1,766
  1,862
Variable operating expenses, $m
 
  151
  170
  191
  212
  235
  258
  283
  309
  335
  363
  392
  422
  454
  486
  520
  555
  592
  630
  670
  711
  754
  799
  845
  894
  945
  998
  1,054
  1,111
  1,172
  1,235
Fixed operating expenses, $m
 
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
  28
  29
  29
  30
  31
  32
  33
  33
  34
  35
  36
  37
  38
Total operating expenses, $m
  151
  169
  189
  210
  232
  255
  279
  304
  331
  357
  386
  416
  446
  479
  511
  546
  582
  619
  658
  699
  740
  784
  830
  877
  927
  978
  1,032
  1,089
  1,147
  1,209
  1,273
Operating income, $m
  49
  58
  67
  77
  87
  98
  110
  122
  134
  147
  161
  175
  190
  205
  221
  238
  255
  273
  291
  311
  331
  352
  374
  397
  421
  446
  472
  499
  528
  558
  589
EBITDA, $m
  61
  66
  76
  87
  98
  110
  123
  136
  150
  165
  180
  195
  212
  229
  246
  264
  283
  303
  324
  345
  368
  391
  415
  440
  467
  494
  523
  553
  585
  618
  652
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  20
  21
Earnings before tax, $m
  50
  58
  67
  76
  86
  97
  108
  119
  131
  144
  157
  171
  185
  199
  215
  231
  247
  264
  282
  301
  320
  341
  362
  384
  407
  431
  456
  482
  509
  538
  568
Tax expense, $m
  15
  16
  18
  21
  23
  26
  29
  32
  35
  39
  42
  46
  50
  54
  58
  62
  67
  71
  76
  81
  86
  92
  98
  104
  110
  116
  123
  130
  138
  145
  153
Net income, $m
  32
  42
  49
  56
  63
  70
  79
  87
  96
  105
  114
  125
  135
  146
  157
  168
  180
  193
  206
  220
  234
  249
  264
  280
  297
  314
  333
  352
  372
  393
  415

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  31
  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
  178
  167
  188
  211
  234
  259
  286
  313
  341
  371
  402
  434
  468
  502
  538
  576
  615
  656
  698
  742
  787
  835
  885
  936
  990
  1,046
  1,105
  1,167
  1,231
  1,298
  1,368
Adjusted assets (=assets-cash), $m
  147
  167
  188
  211
  234
  259
  286
  313
  341
  371
  402
  434
  468
  502
  538
  576
  615
  656
  698
  742
  787
  835
  885
  936
  990
  1,046
  1,105
  1,167
  1,231
  1,298
  1,368
Revenue / Adjusted assets
  1.361
  1.359
  1.362
  1.360
  1.363
  1.363
  1.360
  1.361
  1.364
  1.361
  1.361
  1.362
  1.359
  1.363
  1.362
  1.361
  1.361
  1.360
  1.361
  1.360
  1.362
  1.360
  1.360
  1.361
  1.362
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
Average production assets, $m
  34
  39
  44
  49
  54
  60
  66
  72
  79
  86
  93
  100
  108
  116
  125
  133
  142
  152
  161
  172
  182
  193
  205
  217
  229
  242
  256
  270
  285
  300
  317
Working capital, $m
  59
  32
  36
  40
  45
  49
  54
  60
  65
  71
  77
  83
  89
  96
  103
  110
  117
  125
  133
  141
  150
  159
  169
  178
  189
  199
  211
  222
  235
  247
  261
Total debt, $m
  0
  10
  21
  33
  45
  58
  72
  86
  101
  116
  132
  148
  166
  184
  202
  222
  242
  263
  285
  307
  331
  356
  381
  408
  436
  465
  495
  527
  560
  595
  631
Total liabilities, $m
  76
  86
  97
  109
  121
  134
  148
  162
  177
  192
  208
  224
  242
  260
  278
  298
  318
  339
  361
  383
  407
  432
  457
  484
  512
  541
  571
  603
  636
  671
  707
Total equity, $m
  102
  81
  91
  102
  113
  125
  138
  151
  165
  179
  194
  210
  226
  243
  260
  278
  297
  317
  337
  358
  380
  403
  427
  452
  478
  505
  534
  563
  594
  627
  661
Total liabilities and equity, $m
  178
  167
  188
  211
  234
  259
  286
  313
  342
  371
  402
  434
  468
  503
  538
  576
  615
  656
  698
  741
  787
  835
  884
  936
  990
  1,046
  1,105
  1,166
  1,230
  1,298
  1,368
Debt-to-equity ratio
  0.000
  0.130
  0.230
  0.320
  0.400
  0.460
  0.520
  0.570
  0.610
  0.650
  0.680
  0.710
  0.730
  0.760
  0.780
  0.800
  0.810
  0.830
  0.840
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
  0.940
  0.950
  0.960
Adjusted equity ratio
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483
  0.483

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  32
  42
  49
  56
  63
  70
  79
  87
  96
  105
  114
  125
  135
  146
  157
  168
  180
  193
  206
  220
  234
  249
  264
  280
  297
  314
  333
  352
  372
  393
  415
Depreciation, amort., depletion, $m
  12
  8
  9
  10
  11
  12
  14
  15
  16
  17
  19
  20
  22
  23
  25
  27
  28
  30
  32
  34
  36
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
Funds from operations, $m
  36
  50
  58
  66
  74
  83
  92
  102
  112
  122
  133
  145
  157
  169
  182
  195
  209
  223
  238
  254
  270
  287
  305
  323
  343
  363
  384
  406
  429
  453
  478
Change in working capital, $m
  -5
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
Cash from operations, $m
  41
  46
  54
  61
  69
  78
  87
  97
  106
  117
  127
  139
  150
  162
  175
  188
  201
  216
  230
  246
  262
  278
  295
  314
  332
  352
  373
  394
  417
  440
  465
Maintenance CAPEX, $m
  0
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -39
  -41
  -43
  -46
  -48
  -51
  -54
  -57
  -60
New CAPEX, $m
  -14
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
Cash from investing activities, $m
  -20
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -21
  -23
  -24
  -26
  -28
  -30
  -31
  -34
  -36
  -37
  -40
  -42
  -45
  -47
  -50
  -53
  -55
  -59
  -62
  -65
  -69
  -73
  -76
Free cash flow, $m
  21
  35
  41
  47
  54
  61
  69
  77
  85
  94
  103
  112
  122
  133
  143
  154
  166
  178
  190
  203
  217
  231
  245
  261
  277
  293
  311
  329
  348
  368
  388
Issuance/(repayment) of debt, $m
  0
  10
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
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
  0
Cash from financing (excl. dividends), $m  
  -1
  10
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
Total cash flow (excl. dividends), $m
  21
  45
  52
  59
  66
  74
  83
  91
  100
  109
  119
  129
  140
  151
  162
  174
  186
  199
  212
  226
  240
  255
  271
  287
  304
  322
  341
  360
  381
  402
  425
Retained Cash Flow (-), $m
  -18
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
Prev. year cash balance distribution, $m
 
  31
  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
 
  67
  42
  48
  55
  62
  70
  78
  86
  95
  104
  114
  123
  134
  144
  156
  167
  179
  192
  205
  218
  232
  247
  262
  278
  295
  313
  331
  350
  370
  391
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
 
  64
  38
  42
  45
  48
  51
  53
  54
  55
  55
  54
  53
  51
  48
  46
  42
  39
  35
  32
  28
  24
  20
  17
  14
  11
  9
  7
  5
  4
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Ituran Location and Control Ltd. is a provider of location-based services, consisting of stolen vehicle recovery (SVR), fleet management services and other tracking services. The Company also provides wireless communication products used in connection with its location-based services and various other applications. Its operations consist of two segments: location-based services and wireless communications products. Its location-based services segment consists of its SVR and tracking services, fleet management and value-added services consisted of personal locater services and concierge services. Its wireless communications products segment consists of short and medium range two-way machine-to-machine wireless communications products that are used for various applications, including automatic vehicle location (AVL) and automatic vehicle identification. It primarily provides its services, as well as sells and leases its products in Israel, Brazil, Argentina and the United States.

FINANCIAL RATIOS  of  Ituran Location&Control (ITRN)

Valuation Ratios
P/E Ratio 27.3
Price to Sales 4.4
Price to Book 8.6
Price to Tangible Book
Price to Cash Flow 21.3
Price to Free Cash Flow 32.4
Growth Rates
Sales Growth Rate 13.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -26.3%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 20%
Ret/ On Assets - 3 Yr. Avg. 18.7%
Return On Total Capital 34.4%
Ret/ On T. Cap. - 3 Yr. Avg. 32%
Return On Equity 34.4%
Return On Equity - 3 Yr. Avg. 32%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 51%
Gross Margin - 3 Yr. Avg. 51.8%
EBITDA Margin 31%
EBITDA Margin - 3 Yr. Avg. 31.5%
Operating Margin 24.5%
Oper. Margin - 3 Yr. Avg. 24.4%
Pre-Tax Margin 25%
Pre-Tax Margin - 3 Yr. Avg. 25.1%
Net Profit Margin 16%
Net Profit Margin - 3 Yr. Avg. 15.6%
Effective Tax Rate 30%
Eff/ Tax Rate - 3 Yr. Avg. 30.7%
Payout Ratio 53.1%

ITRN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the ITRN stock intrinsic value calculation we used $200 million for the last fiscal year's total revenue generated by Ituran Location&Control. The default revenue input number comes from 2016 income statement of Ituran Location&Control. 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 ITRN stock valuation model: a) initial revenue growth rate of 13.6% 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 ITRN is calculated based on our internal credit rating of Ituran Location&Control, 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 Ituran Location&Control.
    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 ITRN stock the variable cost ratio is equal to 66.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $18 million in the base year in the intrinsic value calculation for ITRN 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 Ituran Location&Control.

Corporate tax rate of 27% is the nominal tax rate for Ituran Location&Control. 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 ITRN 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 ITRN are equal to 17%.

Life of production assets of 3.1 years is the average useful life of capital assets used in Ituran Location&Control 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 ITRN is equal to 14%. 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 - $102 million for Ituran Location&Control - 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 23.687 million for Ituran Location&Control 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 Ituran Location&Control at the current share price and the inputted number of shares is $0.9 billion.

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COMPANY NEWS

▶ Composite Rating For Ituran Location & Control Jumps To 96   [Sep-07-17 03:00AM  Investor's Business Daily]
▶ Ituran posts 2Q profit   [Aug-16-17 09:12PM  Associated Press]
▶ Ituran to Expand Into the Indian Market   [Aug-14-17 10:00AM  PR Newswire]
▶ 5 Top Stocks with Stellar Net Profit Margin   [Aug-02-17 10:23AM  Zacks]
▶ Can This Smart Home Technology IPO Secure A New Breakout?   [May-24-17 11:16AM  Investor's Business Daily]
▶ Ituran posts 1Q profit   [06:04AM  Associated Press]
▶ Ituran posts 4Q profit   [06:29AM  Associated Press]
▶ ITURAN LOCATION & CONTROL LTD. Financials   [01:04PM  EDGAR Online Financials]
▶ Ituran Announces TASE Delisting Date   [Mar-02-16 06:00AM  PR Newswire]
Financial statements of ITRN
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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