Intrinsic value of Mitel Networks - MITL

Previous Close

$10.98

  Intrinsic Value

$9.84

stock screener

  Rating & Target

hold

-10%

Previous close

$10.98

 
Intrinsic value

$9.84

 
Up/down potential

-10%

 
Rating

hold

We calculate the intrinsic value of MITL 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 2017), $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 1.3

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
Revenue, $m
  1,135
  1,214
  1,297
  1,382
  1,472
  1,564
  1,661
  1,761
  1,866
  1,975
  2,089
  2,208
  2,332
  2,462
  2,597
  2,739
  2,887
  3,042
  3,204
  3,374
  3,552
  3,738
  3,933
  4,137
  4,351
  4,576
  4,811
  5,057
  5,316
  5,587
Variable operating expenses, $m
  1,072
  1,140
  1,211
  1,284
  1,361
  1,440
  1,523
  1,610
  1,700
  1,794
  1,796
  1,898
  2,005
  2,116
  2,233
  2,354
  2,482
  2,615
  2,754
  2,900
  3,053
  3,213
  3,381
  3,556
  3,740
  3,933
  4,135
  4,348
  4,570
  4,803
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
  1,072
  1,140
  1,211
  1,284
  1,361
  1,440
  1,523
  1,610
  1,700
  1,794
  1,796
  1,898
  2,005
  2,116
  2,233
  2,354
  2,482
  2,615
  2,754
  2,900
  3,053
  3,213
  3,381
  3,556
  3,740
  3,933
  4,135
  4,348
  4,570
  4,803
Operating income, $m
  64
  75
  86
  98
  111
  124
  137
  152
  166
  182
  293
  310
  327
  346
  365
  384
  405
  427
  450
  474
  499
  525
  552
  581
  611
  642
  675
  710
  746
  784
EBITDA, $m
  240
  256
  274
  292
  310
  330
  350
  372
  394
  417
  441
  466
  492
  519
  548
  578
  609
  642
  676
  712
  749
  789
  830
  873
  918
  965
  1,015
  1,067
  1,122
  1,179
Interest expense (income), $m
  37
  34
  39
  44
  50
  55
  61
  67
  73
  80
  87
  94
  101
  109
  117
  126
  135
  144
  154
  164
  174
  185
  197
  209
  222
  235
  249
  264
  280
  296
  313
Earnings before tax, $m
  30
  36
  42
  49
  56
  63
  70
  78
  86
  95
  199
  209
  218
  228
  239
  250
  261
  273
  286
  299
  313
  328
  343
  359
  375
  393
  411
  430
  451
  472
Tax expense, $m
  8
  10
  11
  13
  15
  17
  19
  21
  23
  26
  54
  56
  59
  62
  64
  67
  71
  74
  77
  81
  85
  88
  93
  97
  101
  106
  111
  116
  122
  127
Net income, $m
  22
  26
  31
  36
  41
  46
  51
  57
  63
  69
  146
  152
  159
  167
  174
  182
  191
  200
  209
  218
  229
  239
  250
  262
  274
  287
  300
  314
  329
  344

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
  1,747
  1,868
  1,995
  2,127
  2,264
  2,407
  2,555
  2,710
  2,871
  3,039
  3,214
  3,397
  3,588
  3,787
  3,996
  4,214
  4,442
  4,680
  4,929
  5,191
  5,464
  5,750
  6,050
  6,365
  6,694
  7,039
  7,401
  7,781
  8,179
  8,596
Adjusted assets (=assets-cash), $m
  1,747
  1,868
  1,995
  2,127
  2,264
  2,407
  2,555
  2,710
  2,871
  3,039
  3,214
  3,397
  3,588
  3,787
  3,996
  4,214
  4,442
  4,680
  4,929
  5,191
  5,464
  5,750
  6,050
  6,365
  6,694
  7,039
  7,401
  7,781
  8,179
  8,596
Revenue / Adjusted assets
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
  0.650
Average production assets, $m
  801
  857
  916
  976
  1,039
  1,104
  1,173
  1,243
  1,317
  1,395
  1,475
  1,559
  1,647
  1,738
  1,834
  1,934
  2,038
  2,148
  2,262
  2,382
  2,507
  2,639
  2,776
  2,921
  3,072
  3,230
  3,396
  3,571
  3,753
  3,945
Working capital, $m
  -190
  -203
  -217
  -231
  -246
  -261
  -277
  -294
  -312
  -330
  -349
  -369
  -389
  -411
  -434
  -457
  -482
  -508
  -535
  -563
  -593
  -624
  -657
  -691
  -727
  -764
  -803
  -845
  -888
  -933
Total debt, $m
  721
  817
  917
  1,021
  1,129
  1,241
  1,358
  1,480
  1,607
  1,739
  1,877
  2,021
  2,172
  2,329
  2,493
  2,665
  2,845
  3,032
  3,229
  3,435
  3,650
  3,876
  4,112
  4,360
  4,619
  4,892
  5,177
  5,476
  5,789
  6,118
Total liabilities, $m
  1,376
  1,472
  1,572
  1,676
  1,784
  1,896
  2,013
  2,135
  2,262
  2,395
  2,533
  2,677
  2,827
  2,984
  3,149
  3,320
  3,500
  3,688
  3,884
  4,090
  4,306
  4,531
  4,768
  5,015
  5,275
  5,547
  5,832
  6,131
  6,445
  6,774
Total equity, $m
  370
  396
  423
  451
  480
  510
  542
  574
  609
  644
  681
  720
  761
  803
  847
  893
  942
  992
  1,045
  1,100
  1,158
  1,219
  1,283
  1,349
  1,419
  1,492
  1,569
  1,650
  1,734
  1,822
Total liabilities and equity, $m
  1,746
  1,868
  1,995
  2,127
  2,264
  2,406
  2,555
  2,709
  2,871
  3,039
  3,214
  3,397
  3,588
  3,787
  3,996
  4,213
  4,442
  4,680
  4,929
  5,190
  5,464
  5,750
  6,051
  6,364
  6,694
  7,039
  7,401
  7,781
  8,179
  8,596
Debt-to-equity ratio
  1.950
  2.060
  2.170
  2.260
  2.350
  2.430
  2.510
  2.580
  2.640
  2.700
  2.760
  2.810
  2.860
  2.900
  2.940
  2.980
  3.020
  3.060
  3.090
  3.120
  3.150
  3.180
  3.210
  3.230
  3.260
  3.280
  3.300
  3.320
  3.340
  3.360
Adjusted equity ratio
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212
  0.212

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  22
  26
  31
  36
  41
  46
  51
  57
  63
  69
  146
  152
  159
  167
  174
  182
  191
  200
  209
  218
  229
  239
  250
  262
  274
  287
  300
  314
  329
  344
Depreciation, amort., depletion, $m
  176
  181
  187
  193
  200
  206
  213
  220
  227
  235
  147
  156
  165
  174
  183
  193
  204
  215
  226
  238
  251
  264
  278
  292
  307
  323
  340
  357
  375
  394
Funds from operations, $m
  198
  208
  218
  229
  240
  252
  264
  277
  290
  304
  293
  308
  324
  340
  358
  376
  395
  414
  435
  457
  479
  503
  528
  554
  581
  610
  640
  671
  704
  739
Change in working capital, $m
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -41
  -43
  -45
Cash from operations, $m
  210
  221
  232
  243
  255
  268
  280
  294
  308
  323
  312
  328
  345
  362
  380
  399
  419
  440
  462
  485
  509
  534
  560
  588
  617
  647
  679
  712
  747
  784
Maintenance CAPEX, $m
  -75
  -80
  -86
  -92
  -98
  -104
  -110
  -117
  -124
  -132
  -139
  -147
  -156
  -165
  -174
  -183
  -193
  -204
  -215
  -226
  -238
  -251
  -264
  -278
  -292
  -307
  -323
  -340
  -357
  -375
New CAPEX, $m
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
  -80
  -84
  -88
  -92
  -96
  -100
  -105
  -109
  -114
  -120
  -125
  -131
  -138
  -144
  -151
  -158
  -166
  -174
  -183
  -192
Cash from investing activities, $m
  -129
  -136
  -144
  -152
  -161
  -169
  -178
  -188
  -198
  -209
  -219
  -231
  -244
  -257
  -270
  -283
  -298
  -313
  -329
  -346
  -363
  -382
  -402
  -422
  -443
  -465
  -489
  -514
  -540
  -567
Free cash flow, $m
  82
  85
  88
  91
  95
  98
  102
  106
  110
  114
  92
  97
  101
  106
  111
  116
  121
  127
  133
  139
  145
  152
  159
  166
  174
  182
  190
  199
  208
  217
Issuance/(repayment) of debt, $m
  92
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
  144
  150
  157
  164
  172
  180
  188
  197
  206
  215
  226
  236
  248
  260
  272
  285
  299
  314
  329
Issuance/(repurchase) of shares, $m
  3
  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  
  95
  96
  100
  104
  108
  112
  117
  122
  127
  132
  138
  144
  150
  157
  164
  172
  180
  188
  197
  206
  215
  226
  236
  248
  260
  272
  285
  299
  314
  329
Total cash flow (excl. dividends), $m
  176
  181
  188
  195
  203
  211
  219
  228
  237
  246
  230
  241
  252
  263
  275
  288
  301
  315
  329
  345
  361
  378
  395
  414
  433
  454
  475
  498
  521
  546
Retained Cash Flow (-), $m
  -24
  -26
  -27
  -28
  -29
  -30
  -31
  -33
  -34
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
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
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  29
  31
  33
  34
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  74
Cash available for distribution, $m
  152
  155
  161
  167
  174
  180
  187
  195
  202
  211
  193
  202
  211
  221
  231
  242
  253
  264
  277
  289
  303
  317
  332
  347
  363
  381
  398
  417
  437
  458
Discount rate, %
  9.00
  9.45
  9.92
  10.42
  10.94
  11.49
  12.06
  12.66
  13.30
  13.96
  14.66
  15.39
  16.16
  16.97
  17.82
  18.71
  19.65
  20.63
  21.66
  22.74
  23.88
  25.07
  26.33
  27.64
  29.03
  30.48
  32.00
  33.60
  35.28
  37.05
PV of cash for distribution, $m
  139
  129
  121
  112
  103
  94
  84
  75
  66
  57
  43
  36
  30
  25
  20
  16
  12
  9
  7
  5
  3
  2
  2
  1
  1
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8
  99.8

Mitel Networks Corporation is a provider of business communications and collaboration software, services and solutions. The Company's segments include Cloud and Enterprise. The Enterprise segment sells and supports products and services for premise-based customers. The Cloud segment sells and supports products that are deployed in a cloud environment. The Company's product portfolio includes premises and cloud-based enterprise communications infrastructure products and solutions, unified communications and collaboration (UCC) and contact center applications and a range of service offerings. The Company's Cloud Division offers a range of private, public, hybrid and mobile Software as a Service (SaaS) solutions for businesses of all sizes. This includes Unified Communications as a Service (UCaaS) solutions. Its Enterprise Division portfolio integrates voice, UCC applications, and contact center applications on fixed and mobile networks across a range of end user devices.

FINANCIAL RATIOS  of  Mitel Networks (MITL)

Valuation Ratios
P/E Ratio -6.2
Price to Sales 1.4
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 13.4
Price to Free Cash Flow 16.1
Growth Rates
Sales Growth Rate -3.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 6.3%
Cap. Spend. - 3 Yr. Gr. Rate 41.5%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 142.8%
Total Debt to Equity 153%
Interest Coverage 2
Management Effectiveness
Return On Assets -10.5%
Ret/ On Assets - 3 Yr. Avg. -3.6%
Return On Total Capital -19.6%
Ret/ On T. Cap. - 3 Yr. Avg. -7.6%
Return On Equity -43.9%
Return On Equity - 3 Yr. Avg. -16.8%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 53.8%
Gross Margin - 3 Yr. Avg. 53.5%
EBITDA Margin 17.4%
EBITDA Margin - 3 Yr. Avg. 12.1%
Operating Margin 4.9%
Oper. Margin - 3 Yr. Avg. 1.4%
Pre-Tax Margin 3.4%
Pre-Tax Margin - 3 Yr. Avg. 0.6%
Net Profit Margin -22%
Net Profit Margin - 3 Yr. Avg. -8.2%
Effective Tax Rate -2.9%
Eff/ Tax Rate - 3 Yr. Avg. 34.6%
Payout Ratio 0%

MITL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MITL stock intrinsic value calculation we used $1059 million for the last fiscal year's total revenue generated by Mitel Networks. The default revenue input number comes from 2017 income statement of Mitel Networks. 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 MITL stock valuation model: a) initial revenue growth rate of 7.2% 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 9%, whose default value for MITL is calculated based on our internal credit rating of Mitel Networks, 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 Mitel Networks.
    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 MITL stock the variable cost ratio is equal to 95%.

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 MITL 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 Mitel Networks.

Corporate tax rate of 27% is the nominal tax rate for Mitel Networks. 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 MITL stock is equal to 1.4%.

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 MITL are equal to 70.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Mitel Networks 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 MITL is equal to -16.7%. 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 - $346 million for Mitel Networks - 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 121 million for Mitel Networks 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 Mitel Networks at the current share price and the inputted number of shares is $1.3 billion.

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COMPANY NEWS

▶ [$$] Mitel 'Go-Shop' Period Ends With No New Bids   [Jun-08-18 11:19AM  The Wall Street Journal]
▶ Mitel Networks: 1Q Earnings Snapshot   [08:41AM  Associated Press]
▶ Mitel Reports First Quarter Results   [08:28AM  GlobeNewswire]
▶ Mitel Buyout Latest in Web Calling Mania: Who's Next?   [Apr-24-18 02:00PM  Barrons.com]
▶ Why Mitel Networks Shares Popped Today   [01:41PM  Motley Fool]
▶ [$$] Searchlight to Acquire Mitel for $2 Billion   [12:25PM  The Wall Street Journal]
▶ Mitel Announces New Go-to-Market Strategy   [06:00AM  GlobeNewswire]
▶ Mitel Networks reports 4Q loss   [09:31AM  Associated Press]
▶ Mitel Reports Fourth Quarter Results   [06:30AM  GlobeNewswire]
▶ 9 Global Stocks to Heat Up Your Portfolio   [Feb-20-18 03:22PM  InvestorPlace]
▶ Mitel Outlines Integrated Portfolio for North America   [Jan-29-18 10:00AM  PR Newswire]
▶ 5 Tech Companies Gurus Are Buying   [Dec-28-17 10:45AM  GuruFocus.com]
▶ Why Mitel Networks Stock Surged Today   [12:57PM  Motley Fool]
▶ Mitel to Present at Two Investor Conferences in November   [Nov-09-17 01:09PM  PR Newswire]
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