Intrinsic value of Magal Security Systems - MAGS

Previous Close

$4.49

  Intrinsic Value

$4.69

stock screener

  Rating & Target

hold

+4%

  Value-price divergence*

+85%

Previous close

$4.49

 
Intrinsic value

$4.69

 
Up/down potential

+4%

 
Rating

hold

 
Value-price divergence*

+85%

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

We calculate the intrinsic value of MAGS 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 0.1

 

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, %
  6.25
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
  5.09
  5.08
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
Revenue, $m
  68
  72
  75
  79
  83
  88
  92
  97
  102
  107
  113
  119
  125
  131
  138
  145
  152
  160
  168
  176
  185
  194
  204
  214
  225
  236
  248
  261
  274
  288
  302
Variable operating expenses, $m
 
  66
  70
  73
  77
  81
  85
  89
  94
  99
  104
  108
  113
  119
  125
  131
  138
  145
  152
  160
  168
  177
  185
  195
  205
  215
  226
  237
  249
  261
  274
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
  66
  66
  70
  73
  77
  81
  85
  89
  94
  99
  104
  108
  113
  119
  125
  131
  138
  145
  152
  160
  168
  177
  185
  195
  205
  215
  226
  237
  249
  261
  274
Operating income, $m
  2
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
EBITDA, $m
  4
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
Earnings before tax, $m
  1
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
Tax expense, $m
  0
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
Net income, $m
  1
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  51
  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
  106
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  136
  142
  150
  157
  165
  173
  182
  191
  201
  211
  222
  233
  244
Adjusted assets (=assets-cash), $m
  55
  58
  61
  64
  68
  71
  75
  79
  83
  87
  91
  96
  101
  106
  111
  117
  123
  129
  136
  142
  150
  157
  165
  173
  182
  191
  201
  211
  222
  233
  244
Revenue / Adjusted assets
  1.236
  1.241
  1.230
  1.234
  1.221
  1.239
  1.227
  1.228
  1.229
  1.230
  1.242
  1.240
  1.238
  1.236
  1.243
  1.239
  1.236
  1.240
  1.235
  1.239
  1.233
  1.236
  1.236
  1.237
  1.236
  1.236
  1.234
  1.237
  1.234
  1.236
  1.238
Average production assets, $m
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
Working capital, $m
  59
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
Total debt, $m
  0
  1
  3
  4
  5
  7
  9
  10
  12
  14
  16
  18
  20
  22
  25
  27
  30
  32
  35
  38
  41
  45
  48
  52
  55
  59
  64
  68
  73
  77
  83
Total liabilities, $m
  24
  25
  27
  28
  29
  31
  33
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  56
  59
  62
  65
  69
  72
  76
  79
  83
  88
  92
  97
  101
  107
Total equity, $m
  82
  33
  34
  36
  38
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
  69
  73
  77
  80
  84
  89
  93
  98
  103
  108
  113
  119
  125
  131
  138
Total liabilities and equity, $m
  106
  58
  61
  64
  67
  71
  75
  78
  83
  87
  91
  96
  101
  106
  112
  117
  123
  129
  136
  142
  149
  158
  165
  174
  182
  191
  201
  211
  222
  232
  245
Debt-to-equity ratio
  0.000
  0.040
  0.080
  0.110
  0.140
  0.170
  0.200
  0.230
  0.260
  0.280
  0.310
  0.330
  0.350
  0.370
  0.390
  0.410
  0.430
  0.440
  0.460
  0.470
  0.490
  0.500
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.600
Adjusted equity ratio
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
Depreciation, amort., depletion, $m
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
Funds from operations, $m
  17
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
Change in working capital, $m
  8
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
Cash from operations, $m
  9
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
New CAPEX, $m
  -1
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Cash from investing activities, $m
  -42
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -6
  -6
  -6
Free cash flow, $m
  -33
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
Issuance/(repayment) of debt, $m
  0
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Issuance/(repurchase) of shares, $m
  25
  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  
  25
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
Total cash flow (excl. dividends), $m
  -8
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
Retained Cash Flow (-), $m
  -26
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
Prev. year cash balance distribution, $m
 
  51
  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
 
  55
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
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
 
  53
  4
  4
  4
  4
  4
  3
  3
  3
  3
  3
  3
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
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

Magal Security Systems Ltd. is an international provider of products and solutions for security, safety and site management. The Company's solutions are integrated and managed by modular command and control software, supported by systems for real-time decision support. It operates through three segments: Perimeter Products, Turnkey Projects and Cyber Security. The Perimeter Products segment sells its products across the world and this segment includes the operations of Senstar Canada, Senstar Germany, Senstar UK, Senstar Inc. and Senstar U.S. The Turnkey Projects segment includes a range of reporting units operating in Israel, Mexico, Romania, Colombia, India, Spain and a division of Senstar Canada. The Cyber Security segment operates mainly in the United States and in Israel. The Cyber Security segment provides hardware and software products in the field of cyber security for monitoring, securing and the management of wired, wireless and fiber optic communication networks.

FINANCIAL RATIOS  of  Magal Security Systems (MAGS)

Valuation Ratios
P/E Ratio 102.8
Price to Sales 1.5
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 11.4
Price to Free Cash Flow 12.8
Growth Rates
Sales Growth Rate 6.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 1.1%
Ret/ On Assets - 3 Yr. Avg. 2.8%
Return On Total Capital 1.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.8%
Return On Equity 1.4%
Return On Equity - 3 Yr. Avg. 4%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 48.5%
Gross Margin - 3 Yr. Avg. 46.9%
EBITDA Margin 4.4%
EBITDA Margin - 3 Yr. Avg. 7.3%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 4.4%
Pre-Tax Margin 1.5%
Pre-Tax Margin - 3 Yr. Avg. 4.4%
Net Profit Margin 1.5%
Net Profit Margin - 3 Yr. Avg. 3.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 13.3%
Payout Ratio 0%

MAGS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MAGS stock intrinsic value calculation we used $68 million for the last fiscal year's total revenue generated by Magal Security Systems. The default revenue input number comes from 2016 income statement of Magal Security Systems. 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 MAGS stock valuation model: a) initial revenue growth rate of 5.3% 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 MAGS is calculated based on our internal credit rating of Magal Security Systems, 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 Magal Security Systems.
    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 MAGS stock the variable cost ratio is equal to 92.6%.

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 MAGS 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 Magal Security Systems.

Corporate tax rate of 27% is the nominal tax rate for Magal Security Systems. 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 MAGS 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 MAGS are equal to 11.8%.

Life of production assets of 8 years is the average useful life of capital assets used in Magal Security Systems 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 MAGS is equal to 11.8%. 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 - $82 million for Magal Security Systems - 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 22.857 million for Magal Security Systems 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 Magal Security Systems at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ Magal reports 2Q loss   [Aug-31-17 11:00PM  Associated Press]
▶ Magal reports 1Q loss   [May-30-17 07:34AM  Associated Press]
▶ Magal S3 to Release First Quarter 2017 Results   [May-09-17 06:32AM  PR Newswire]
▶ Magal posts 4Q profit   [07:44AM  Associated Press]
▶ Is Galena Biopharma Inc (GALE) a Good Stock to Buy?   [Dec-14-16 01:18PM  Insider Monkey]
▶ [$$] Israel's Magal sees Mexican wall as no barrier to business   [Nov-17-16 09:40AM  at Financial Times]
▶ Magal Announces Commencement of Rights Offering   [Sep-07-16 04:26PM  PR Newswire]
▶ Magal Wins $13 Million in Two Large Orders   [May-13  07:40AM  PR Newswire]
▶ Magal Wins $12 Million In New Orders More >>   [Mar-30  07:11AM  at noodls]
▶ Magal Wins $12 Million in New Orders   [07:00AM  PR Newswire]
▶ Magal Receives More >>   [Feb-19  09:02AM  at noodls]
▶ Magal Announces Appointment of Saar Koursh as CEO   [Feb-11  07:24AM  PR Newswire]
▶ Magal Receives $8.2 Million of New Orders   [Oct-07  07:00AM  PR Newswire]
Financial statements of MAGS
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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