Intrinsic value of Ituran Location&Control - ITRN

Previous Close

$35.00

  Intrinsic Value

$74.91

stock screener

  Rating & Target

str. buy

+114%

Previous close

$35.00

 
Intrinsic value

$74.91

 
Up/down potential

+114%

 
Rating

str. buy

*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 0.7

 

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
  20.40
  18.86
  17.47
  16.23
  15.10
  14.09
  13.18
  12.37
  11.63
  10.97
  10.37
  9.83
  9.35
  8.91
  8.52
  8.17
  7.85
  7.57
  7.31
  7.08
  6.87
  6.69
  6.52
  6.36
  6.23
  6.11
  6.00
  5.90
  5.81
  5.73
Revenue, $m
  200
  241
  286
  336
  391
  450
  513
  581
  653
  729
  808
  892
  980
  1,072
  1,167
  1,267
  1,370
  1,478
  1,590
  1,706
  1,827
  1,952
  2,083
  2,218
  2,360
  2,507
  2,660
  2,819
  2,985
  3,159
  3,340
Variable operating expenses, $m
 
  160
  190
  223
  260
  299
  341
  386
  433
  484
  537
  592
  650
  711
  774
  840
  909
  981
  1,055
  1,132
  1,212
  1,295
  1,382
  1,472
  1,566
  1,663
  1,765
  1,871
  1,981
  2,096
  2,216
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
  178
  209
  242
  280
  319
  362
  407
  455
  506
  560
  616
  674
  736
  799
  866
  936
  1,008
  1,083
  1,161
  1,241
  1,325
  1,413
  1,504
  1,599
  1,696
  1,799
  1,906
  2,017
  2,133
  2,254
Operating income, $m
  49
  62
  77
  93
  111
  131
  152
  174
  197
  222
  249
  277
  306
  336
  367
  400
  434
  470
  507
  545
  585
  627
  670
  715
  761
  810
  861
  914
  969
  1,026
  1,086
EBITDA, $m
  61
  71
  87
  105
  125
  146
  169
  194
  220
  247
  277
  307
  339
  372
  407
  443
  481
  520
  561
  603
  647
  693
  741
  790
  842
  895
  951
  1,009
  1,070
  1,133
  1,200
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  18
  20
  22
  23
  25
  27
  29
  31
  33
  35
  37
  39
Earnings before tax, $m
  50
  62
  77
  92
  110
  128
  148
  170
  192
  216
  242
  269
  296
  325
  356
  387
  420
  454
  490
  527
  565
  605
  647
  690
  735
  781
  830
  881
  934
  989
  1,047
Tax expense, $m
  15
  17
  21
  25
  30
  35
  40
  46
  52
  58
  65
  73
  80
  88
  96
  105
  113
  123
  132
  142
  153
  163
  175
  186
  198
  211
  224
  238
  252
  267
  283
Net income, $m
  32
  45
  56
  67
  80
  94
  108
  124
  140
  158
  176
  196
  216
  238
  260
  283
  307
  332
  358
  385
  413
  442
  472
  503
  536
  570
  606
  643
  682
  722
  764

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
  177
  210
  247
  287
  331
  377
  427
  480
  535
  594
  656
  720
  787
  858
  931
  1,007
  1,086
  1,168
  1,253
  1,342
  1,434
  1,530
  1,630
  1,734
  1,842
  1,954
  2,071
  2,193
  2,321
  2,454
Adjusted assets (=assets-cash), $m
  147
  177
  210
  247
  287
  331
  377
  427
  480
  535
  594
  656
  720
  787
  858
  931
  1,007
  1,086
  1,168
  1,253
  1,342
  1,434
  1,530
  1,630
  1,734
  1,842
  1,954
  2,071
  2,193
  2,321
  2,454
Revenue / Adjusted assets
  1.361
  1.362
  1.362
  1.360
  1.362
  1.360
  1.361
  1.361
  1.360
  1.363
  1.360
  1.360
  1.361
  1.362
  1.360
  1.361
  1.360
  1.361
  1.361
  1.362
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
  1.361
Average production assets, $m
  34
  41
  49
  57
  66
  76
  87
  99
  111
  124
  137
  152
  167
  182
  198
  215
  233
  251
  270
  290
  311
  332
  354
  377
  401
  426
  452
  479
  508
  537
  568
Working capital, $m
  59
  34
  40
  47
  55
  63
  72
  81
  91
  102
  113
  125
  137
  150
  163
  177
  192
  207
  223
  239
  256
  273
  292
  311
  330
  351
  372
  395
  418
  442
  468
Total debt, $m
  0
  15
  33
  52
  72
  95
  119
  145
  172
  201
  231
  263
  296
  331
  367
  405
  445
  485
  528
  572
  618
  666
  715
  767
  820
  876
  934
  995
  1,058
  1,124
  1,193
Total liabilities, $m
  76
  91
  109
  128
  148
  171
  195
  221
  248
  277
  307
  339
  372
  407
  443
  481
  521
  561
  604
  648
  694
  742
  791
  843
  896
  952
  1,010
  1,071
  1,134
  1,200
  1,269
Total equity, $m
  102
  85
  102
  119
  139
  160
  182
  206
  232
  259
  287
  317
  348
  380
  414
  450
  486
  524
  564
  605
  648
  693
  739
  787
  837
  890
  944
  1,000
  1,059
  1,121
  1,185
Total liabilities and equity, $m
  178
  176
  211
  247
  287
  331
  377
  427
  480
  536
  594
  656
  720
  787
  857
  931
  1,007
  1,085
  1,168
  1,253
  1,342
  1,435
  1,530
  1,630
  1,733
  1,842
  1,954
  2,071
  2,193
  2,321
  2,454
Debt-to-equity ratio
  0.000
  0.180
  0.320
  0.430
  0.520
  0.590
  0.650
  0.700
  0.740
  0.780
  0.810
  0.830
  0.850
  0.870
  0.890
  0.900
  0.910
  0.930
  0.940
  0.940
  0.950
  0.960
  0.970
  0.970
  0.980
  0.980
  0.990
  0.990
  1.000
  1.000
  1.010
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
  45
  56
  67
  80
  94
  108
  124
  140
  158
  176
  196
  216
  238
  260
  283
  307
  332
  358
  385
  413
  442
  472
  503
  536
  570
  606
  643
  682
  722
  764
Depreciation, amort., depletion, $m
  12
  8
  10
  12
  14
  16
  18
  20
  22
  25
  28
  30
  33
  36
  40
  43
  47
  50
  54
  58
  62
  66
  71
  75
  80
  85
  90
  96
  102
  107
  114
Funds from operations, $m
  36
  54
  66
  79
  94
  109
  126
  144
  163
  183
  204
  226
  250
  274
  299
  326
  353
  382
  412
  443
  475
  508
  543
  579
  617
  656
  696
  739
  783
  829
  878
Change in working capital, $m
  -5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
Cash from operations, $m
  41
  48
  60
  72
  86
  101
  117
  134
  153
  172
  193
  215
  237
  261
  286
  312
  339
  367
  396
  426
  458
  491
  525
  560
  597
  635
  675
  717
  760
  805
  852
Maintenance CAPEX, $m
  0
  -7
  -8
  -10
  -11
  -13
  -15
  -17
  -20
  -22
  -25
  -27
  -30
  -33
  -36
  -40
  -43
  -47
  -50
  -54
  -58
  -62
  -66
  -71
  -75
  -80
  -85
  -90
  -96
  -102
  -107
New CAPEX, $m
  -14
  -7
  -8
  -9
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
Cash from investing activities, $m
  -20
  -14
  -16
  -19
  -20
  -23
  -26
  -29
  -32
  -35
  -39
  -41
  -45
  -49
  -52
  -57
  -61
  -65
  -69
  -74
  -79
  -83
  -88
  -94
  -99
  -105
  -111
  -117
  -124
  -131
  -138
Free cash flow, $m
  21
  35
  44
  54
  65
  78
  91
  105
  121
  137
  155
  173
  192
  212
  233
  255
  278
  302
  327
  352
  379
  407
  436
  466
  497
  530
  564
  599
  636
  674
  714
Issuance/(repayment) of debt, $m
  0
  15
  17
  19
  21
  22
  24
  26
  27
  29
  30
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
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
  15
  17
  19
  21
  22
  24
  26
  27
  29
  30
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
  58
  61
  63
  66
  69
Total cash flow (excl. dividends), $m
  21
  50
  61
  73
  86
  100
  115
  131
  148
  166
  185
  205
  225
  247
  270
  293
  317
  343
  369
  397
  425
  455
  486
  518
  551
  586
  622
  660
  699
  740
  783
Retained Cash Flow (-), $m
  -18
  -14
  -16
  -18
  -19
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -57
  -59
  -62
  -64
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
  45
  55
  67
  79
  93
  107
  123
  139
  157
  175
  194
  215
  236
  258
  281
  305
  330
  355
  382
  410
  439
  469
  501
  534
  568
  603
  640
  678
  719
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
  41
  48
  55
  61
  67
  72
  77
  80
  82
  83
  83
  82
  79
  76
  71
  66
  61
  55
  49
  42
  36
  31
  26
  21
  17
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  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
  100.0

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 25.7
Price to Sales 4.1
Price to Book 8.1
Price to Tangible Book
Price to Cash Flow 20
Price to Free Cash Flow 30.4
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 20.4% 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 20.968 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 $0.7 billion.

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COMPANY NEWS

▶ Why Pfizer And Four More GARP Stocks Look Good   [Nov-30-17 05:49PM  GuruFocus.com]
▶ Ituran posts 3Q profit   [06:09AM  Associated Press]
▶ 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]
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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