Intrinsic value of Magic Software Enterprises - MGIC

Previous Close

$8.34

  Intrinsic Value

$11.80

stock screener

  Rating & Target

buy

+41%

Previous close

$8.34

 
Intrinsic value

$11.80

 
Up/down potential

+41%

 
Rating

buy

We calculate the intrinsic value of MGIC 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 0.4

 

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, %
  28.00
  25.70
  23.63
  21.77
  20.09
  18.58
  17.22
  16.00
  14.90
  13.91
  13.02
  12.22
  11.50
  10.85
  10.26
  9.74
  9.26
  8.84
  8.45
  8.11
  7.80
  7.52
  7.26
  7.04
  6.83
  6.65
  6.49
  6.34
  6.20
  6.08
Revenue, $m
  330
  415
  513
  625
  751
  890
  1,044
  1,211
  1,391
  1,585
  1,791
  2,010
  2,241
  2,484
  2,739
  3,005
  3,284
  3,574
  3,876
  4,190
  4,517
  4,856
  5,209
  5,576
  5,957
  6,353
  6,765
  7,194
  7,640
  8,105
Variable operating expenses, $m
  292
  363
  445
  538
  644
  760
  889
  1,029
  1,180
  1,342
  1,499
  1,683
  1,876
  2,080
  2,293
  2,516
  2,749
  2,992
  3,245
  3,508
  3,782
  4,066
  4,361
  4,668
  4,987
  5,319
  5,664
  6,023
  6,397
  6,786
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
  292
  363
  445
  538
  644
  760
  889
  1,029
  1,180
  1,342
  1,499
  1,683
  1,876
  2,080
  2,293
  2,516
  2,749
  2,992
  3,245
  3,508
  3,782
  4,066
  4,361
  4,668
  4,987
  5,319
  5,664
  6,023
  6,397
  6,786
Operating income, $m
  39
  53
  69
  87
  107
  130
  155
  182
  212
  243
  292
  327
  365
  404
  446
  489
  535
  582
  631
  682
  735
  791
  848
  908
  970
  1,034
  1,101
  1,171
  1,244
  1,319
EBITDA, $m
  63
  79
  97
  119
  143
  169
  198
  230
  264
  301
  340
  382
  425
  472
  520
  571
  623
  678
  736
  795
  857
  922
  989
  1,058
  1,131
  1,206
  1,284
  1,366
  1,450
  1,539
Interest expense (income), $m
  0
  2
  4
  6
  9
  11
  15
  18
  22
  26
  31
  36
  41
  47
  53
  59
  66
  72
  80
  87
  95
  103
  111
  120
  129
  138
  148
  158
  169
  180
  191
Earnings before tax, $m
  37
  49
  63
  78
  96
  115
  137
  160
  185
  212
  256
  286
  318
  351
  387
  424
  462
  502
  544
  587
  632
  679
  728
  779
  831
  886
  943
  1,002
  1,064
  1,128
Tax expense, $m
  10
  13
  17
  21
  26
  31
  37
  43
  50
  57
  69
  77
  86
  95
  104
  114
  125
  136
  147
  159
  171
  183
  197
  210
  224
  239
  255
  271
  287
  305
Net income, $m
  27
  36
  46
  57
  70
  84
  100
  117
  135
  155
  187
  209
  232
  257
  282
  309
  337
  367
  397
  429
  462
  496
  532
  568
  607
  647
  688
  732
  777
  824

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
  386
  485
  599
  730
  876
  1,039
  1,218
  1,413
  1,623
  1,849
  2,090
  2,345
  2,615
  2,898
  3,196
  3,507
  3,832
  4,170
  4,523
  4,889
  5,271
  5,667
  6,078
  6,506
  6,951
  7,413
  7,894
  8,394
  8,915
  9,458
Adjusted assets (=assets-cash), $m
  386
  485
  599
  730
  876
  1,039
  1,218
  1,413
  1,623
  1,849
  2,090
  2,345
  2,615
  2,898
  3,196
  3,507
  3,832
  4,170
  4,523
  4,889
  5,271
  5,667
  6,078
  6,506
  6,951
  7,413
  7,894
  8,394
  8,915
  9,458
Revenue / Adjusted assets
  0.855
  0.856
  0.856
  0.856
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
  0.857
Average production assets, $m
  99
  125
  154
  188
  225
  267
  313
  363
  417
  475
  537
  603
  672
  745
  822
  902
  985
  1,072
  1,163
  1,257
  1,355
  1,457
  1,563
  1,673
  1,787
  1,906
  2,030
  2,158
  2,292
  2,432
Working capital, $m
  53
  66
  82
  100
  120
  142
  167
  194
  223
  254
  287
  322
  359
  397
  438
  481
  525
  572
  620
  670
  723
  777
  833
  892
  953
  1,017
  1,082
  1,151
  1,222
  1,297
Total debt, $m
  72
  112
  159
  212
  272
  338
  411
  490
  576
  668
  766
  870
  979
  1,095
  1,216
  1,342
  1,475
  1,612
  1,756
  1,905
  2,060
  2,221
  2,389
  2,563
  2,744
  2,932
  3,128
  3,332
  3,544
  3,764
Total liabilities, $m
  157
  197
  244
  297
  357
  423
  496
  575
  661
  753
  851
  954
  1,064
  1,180
  1,301
  1,427
  1,560
  1,697
  1,841
  1,990
  2,145
  2,306
  2,474
  2,648
  2,829
  3,017
  3,213
  3,417
  3,628
  3,849
Total equity, $m
  229
  287
  355
  433
  520
  616
  722
  838
  963
  1,097
  1,239
  1,391
  1,551
  1,719
  1,895
  2,080
  2,272
  2,473
  2,682
  2,899
  3,125
  3,360
  3,605
  3,858
  4,122
  4,396
  4,681
  4,978
  5,287
  5,608
Total liabilities and equity, $m
  386
  484
  599
  730
  877
  1,039
  1,218
  1,413
  1,624
  1,850
  2,090
  2,345
  2,615
  2,899
  3,196
  3,507
  3,832
  4,170
  4,523
  4,889
  5,270
  5,666
  6,079
  6,506
  6,951
  7,413
  7,894
  8,395
  8,915
  9,457
Debt-to-equity ratio
  0.310
  0.390
  0.450
  0.490
  0.520
  0.550
  0.570
  0.580
  0.600
  0.610
  0.620
  0.630
  0.630
  0.640
  0.640
  0.650
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.660
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
Adjusted equity ratio
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593
  0.593

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  36
  46
  57
  70
  84
  100
  117
  135
  155
  187
  209
  232
  257
  282
  309
  337
  367
  397
  429
  462
  496
  532
  568
  607
  647
  688
  732
  777
  824
Depreciation, amort., depletion, $m
  24
  26
  29
  32
  35
  39
  43
  48
  53
  58
  48
  54
  61
  67
  74
  81
  89
  97
  105
  113
  122
  131
  141
  151
  161
  172
  183
  194
  206
  219
Funds from operations, $m
  51
  62
  75
  89
  105
  123
  143
  164
  188
  212
  235
  263
  293
  324
  356
  390
  426
  463
  502
  542
  584
  627
  672
  719
  768
  819
  871
  926
  983
  1,043
Change in working capital, $m
  12
  14
  16
  18
  20
  22
  25
  27
  29
  31
  33
  35
  37
  39
  41
  43
  45
  46
  48
  50
  52
  54
  56
  59
  61
  63
  66
  69
  71
  74
Cash from operations, $m
  39
  48
  59
  71
  85
  101
  118
  138
  159
  182
  202
  228
  256
  285
  316
  348
  382
  417
  453
  492
  532
  573
  616
  661
  707
  755
  805
  857
  912
  968
Maintenance CAPEX, $m
  -7
  -9
  -11
  -14
  -17
  -20
  -24
  -28
  -33
  -38
  -43
  -48
  -54
  -61
  -67
  -74
  -81
  -89
  -97
  -105
  -113
  -122
  -131
  -141
  -151
  -161
  -172
  -183
  -194
  -206
New CAPEX, $m
  -22
  -25
  -29
  -34
  -38
  -42
  -46
  -50
  -54
  -58
  -62
  -66
  -69
  -73
  -76
  -80
  -84
  -87
  -91
  -94
  -98
  -102
  -106
  -110
  -114
  -119
  -124
  -129
  -134
  -139
Cash from investing activities, $m
  -29
  -34
  -40
  -48
  -55
  -62
  -70
  -78
  -87
  -96
  -105
  -114
  -123
  -134
  -143
  -154
  -165
  -176
  -188
  -199
  -211
  -224
  -237
  -251
  -265
  -280
  -296
  -312
  -328
  -345
Free cash flow, $m
  10
  14
  18
  24
  31
  39
  48
  59
  72
  86
  97
  114
  132
  151
  172
  194
  217
  241
  266
  293
  320
  349
  379
  410
  442
  475
  510
  546
  583
  622
Issuance/(repayment) of debt, $m
  34
  40
  47
  53
  60
  66
  73
  79
  86
  92
  98
  104
  110
  115
  121
  127
  132
  138
  143
  149
  155
  161
  168
  174
  181
  188
  196
  204
  212
  221
Issuance/(repurchase) of shares, $m
  23
  23
  22
  20
  17
  12
  6
  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  
  57
  63
  69
  73
  77
  78
  79
  79
  86
  92
  98
  104
  110
  115
  121
  127
  132
  138
  143
  149
  155
  161
  168
  174
  181
  188
  196
  204
  212
  221
Total cash flow (excl. dividends), $m
  68
  77
  87
  97
  107
  117
  127
  139
  158
  178
  195
  218
  242
  267
  293
  320
  349
  379
  410
  442
  475
  510
  546
  584
  623
  663
  706
  750
  795
  843
Retained Cash Flow (-), $m
  -50
  -59
  -68
  -77
  -87
  -97
  -106
  -116
  -125
  -134
  -143
  -151
  -160
  -168
  -176
  -184
  -193
  -201
  -209
  -217
  -226
  -235
  -244
  -254
  -264
  -274
  -285
  -297
  -309
  -322
Prev. year cash balance distribution, $m
  32
  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
  50
  18
  19
  20
  20
  21
  21
  23
  33
  44
  52
  66
  82
  99
  117
  136
  156
  178
  201
  225
  249
  275
  302
  330
  359
  389
  421
  453
  487
  521
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
  48
  17
  17
  16
  16
  15
  14
  14
  19
  23
  25
  28
  31
  33
  34
  35
  34
  33
  31
  29
  26
  23
  20
  17
  14
  11
  9
  7
  5
  4
Current shareholders' claim on cash, %
  93.2
  88.1
  84.4
  81.8
  80.0
  78.9
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5
  78.5

Magic Software Enterprises Ltd. is a provider of application development, business process integration platforms, vertical software solutions and related professional services. The Company is a vendor of information technology (IT) outsourcing services. Its software technology is used by customers to develop, deploy and integrate on premise, mobile and cloud-based business. It operates through two segments: software solutions and IT professional services. The software services segment includes software technology and complementary services. The IT professional services segment offers IT services in the areas of infrastructure design and delivery, application development, technology planning and implementation services, and communications services and solutions. Its product portfolio includes Magic xpa Application Platform, AppBuilder Application Platform and Magic xpi Integration Platform. Its vertical software packages include Leap, Hermes Solution, HR Pulse and MBS Solution.

FINANCIAL RATIOS  of  Magic Software Enterprises (MGIC)

Valuation Ratios
P/E Ratio 30.8
Price to Sales 1.8
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 13.2
Price to Free Cash Flow 16.1
Growth Rates
Sales Growth Rate 14.8%
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 15
Current Ratio 0
LT Debt to Equity 14.8%
Total Debt to Equity 17.9%
Interest Coverage 0
Management Effectiveness
Return On Assets 4.3%
Ret/ On Assets - 3 Yr. Avg. 6.5%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. 8%
Return On Equity 6.2%
Return On Equity - 3 Yr. Avg. 8.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 33.7%
Gross Margin - 3 Yr. Avg. 36.4%
EBITDA Margin 16.3%
EBITDA Margin - 3 Yr. Avg. 17%
Operating Margin 10.4%
Oper. Margin - 3 Yr. Avg. 11.5%
Pre-Tax Margin 10.4%
Pre-Tax Margin - 3 Yr. Avg. 11.3%
Net Profit Margin 5.9%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 19%
Eff/ Tax Rate - 3 Yr. Avg. 16.2%
Payout Ratio 66.7%

MGIC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MGIC stock intrinsic value calculation we used $258.14 million for the last fiscal year's total revenue generated by Magic Software Enterprises. The default revenue input number comes from 0001 income statement of Magic Software Enterprises. 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 MGIC stock valuation model: a) initial revenue growth rate of 28% 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 MGIC is calculated based on our internal credit rating of Magic Software Enterprises, 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 Magic Software Enterprises.
    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 MGIC stock the variable cost ratio is equal to 89.5%.

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 MGIC 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 Magic Software Enterprises.

Corporate tax rate of 27% is the nominal tax rate for Magic Software Enterprises. 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 MGIC 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 MGIC are equal to 30%.

Life of production assets of 11.1 years is the average useful life of capital assets used in Magic Software Enterprises 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 MGIC is equal to 16%. 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 - $210.281 million for Magic Software Enterprises - 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 44.486 million for Magic Software Enterprises 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 Magic Software Enterprises at the current share price and the inputted number of shares is $0.4 billion.

RELATED COMPANIES Price Int.Val. Rating
IBM International 121.44 191.80  buy
SAP SAP ADR 105.48 4,712.61  str.buy
ORCL Oracle 50.63 34.20  sell
MSFT Microsoft 107.28 189.75  str.buy
HPE Hewlett Packar 15.32 72.67  str.buy
MNDO MIND C.T.I. 2.24 3.56  str.buy
CRM Salesforce.com 132.49 79.56  sell

COMPANY NEWS

▶ Magic Software: 3Q Earnings Snapshot   [07:48AM  Associated Press]
▶ 5 of the Best Stocks Under $10 for 2018   [Oct-03-18 02:51PM  Zacks]
▶ Top 10 Stocks Under $20   [Sep-26-18 04:36PM  Zacks]
▶ Who Owns Most Of Magic Software Enterprises Ltd (NASDAQ:MGIC)?   [Sep-24-18 07:42AM  Simply Wall St.]
▶ Top 10 Stocks Under $20   [Aug-27-18 05:23PM  Zacks]
▶ Magic Software Enterprises Ltd. to Host Earnings Call   [Aug-08-18 08:00AM  ACCESSWIRE]
▶ Magic Software: 2Q Earnings Snapshot   [05:06AM  Associated Press]
▶ Magic Software: 1Q Earnings Snapshot   [May-16-18 05:08AM  Associated Press]
▶ Magic Software Announces Filing of 2017 Annual Report   [May-01-18 06:10AM  PR Newswire]
▶ Magic Software posts 4Q profit   [Feb-28-18 10:04AM  Associated Press]
▶ Magic Software Enterprises Ltd. to Host Earnings Call   [Nov-14-17 07:10AM  ACCESSWIRE]
▶ Magic Software posts 3Q profit   [05:01AM  Associated Press]
▶ When Should You Buy Magic Software Enterprises Ltd (MGIC)?   [Sep-19-17 10:45AM  Simply Wall St.]
▶ 3 Dividend-Yielding Tech Stocks to Buy Now   [Sep-14-17 01:57PM  Zacks]
▶ Magic Software posts 2Q profit   [Aug-09-17 11:00PM  Associated Press]
▶ Magic Software posts 1Q profit   [05:48AM  Associated Press]

CONTACT US       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.