Intrinsic value of ModusLink Global Solutions - MLNK

Previous Close

$1.89

  Intrinsic Value

$0.28

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  Rating & Target

str. sell

-85%

Previous close

$1.89

 
Intrinsic value

$0.28

 
Up/down potential

-85%

 
Rating

str. sell

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

We calculate the intrinsic value of MLNK 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 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  -4.79
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  437
  446
  456
  468
  481
  495
  511
  529
  548
  568
  590
  613
  638
  665
  693
  723
  754
  788
  823
  861
  900
  942
  986
  1,032
  1,081
  1,133
  1,187
  1,244
  1,304
  1,367
  1,433
Variable operating expenses, $m
 
  485
  497
  509
  524
  540
  557
  576
  596
  619
  642
  668
  695
  724
  754
  787
  821
  858
  896
  937
  980
  1,026
  1,074
  1,124
  1,177
  1,233
  1,292
  1,355
  1,420
  1,489
  1,561
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
  456
  485
  497
  509
  524
  540
  557
  576
  596
  619
  642
  668
  695
  724
  754
  787
  821
  858
  896
  937
  980
  1,026
  1,074
  1,124
  1,177
  1,233
  1,292
  1,355
  1,420
  1,489
  1,561
Operating income, $m
  -20
  -40
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -52
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -96
  -101
  -106
  -111
  -116
  -122
  -128
EBITDA, $m
  -12
  -40
  -41
  -42
  -43
  -44
  -46
  -47
  -49
  -51
  -52
  -55
  -57
  -59
  -62
  -64
  -67
  -70
  -73
  -77
  -80
  -84
  -88
  -92
  -96
  -101
  -106
  -111
  -116
  -122
  -128
Interest expense (income), $m
  6
  6
  -1
  -1
  -1
  0
  0
  1
  1
  2
  3
  3
  4
  5
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  20
  22
  24
  25
  27
  30
Earnings before tax, $m
  -24
  -46
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
  -149
  -157
Tax expense, $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
  0
Net income, $m
  -26
  -46
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
  -149
  -157

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  123
  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
  281
  161
  165
  169
  174
  179
  185
  191
  198
  205
  213
  222
  231
  240
  250
  261
  273
  285
  298
  311
  325
  341
  356
  373
  391
  409
  429
  450
  471
  494
  518
Adjusted assets (=assets-cash), $m
  158
  161
  165
  169
  174
  179
  185
  191
  198
  205
  213
  222
  231
  240
  250
  261
  273
  285
  298
  311
  325
  341
  356
  373
  391
  409
  429
  450
  471
  494
  518
Revenue / Adjusted assets
  2.766
  2.770
  2.764
  2.769
  2.764
  2.765
  2.762
  2.770
  2.768
  2.771
  2.770
  2.761
  2.762
  2.771
  2.772
  2.770
  2.762
  2.765
  2.762
  2.768
  2.769
  2.762
  2.770
  2.767
  2.765
  2.770
  2.767
  2.764
  2.769
  2.767
  2.766
Average production assets, $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
Working capital, $m
  109
  -14
  -15
  -15
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -32
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
Total debt, $m
  60
  -13
  -10
  -6
  -2
  3
  8
  14
  20
  27
  34
  42
  50
  58
  67
  77
  87
  98
  110
  122
  135
  148
  163
  178
  194
  211
  228
  247
  266
  287
  308
Total liabilities, $m
  218
  145
  148
  152
  156
  161
  166
  172
  178
  185
  192
  200
  208
  216
  225
  235
  245
  256
  268
  280
  293
  306
  321
  336
  352
  369
  386
  405
  424
  445
  466
Total equity, $m
  63
  16
  16
  17
  17
  18
  18
  19
  20
  21
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
  49
  52
Total liabilities and equity, $m
  281
  161
  164
  169
  173
  179
  184
  191
  198
  206
  213
  222
  231
  240
  250
  261
  272
  284
  298
  311
  326
  340
  357
  373
  391
  410
  429
  450
  471
  494
  518
Debt-to-equity ratio
  0.952
  -0.800
  -0.580
  -0.340
  -0.090
  0.180
  0.450
  0.740
  1.020
  1.310
  1.590
  1.870
  2.150
  2.420
  2.690
  2.950
  3.210
  3.450
  3.690
  3.920
  4.150
  4.360
  4.570
  4.770
  4.960
  5.140
  5.320
  5.490
  5.650
  5.800
  5.950
Adjusted equity ratio
  -0.380
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -26
  -46
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
  -149
  -157
Depreciation, amort., depletion, $m
  8
  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
Funds from operations, $m
  2
  -46
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -68
  -71
  -75
  -79
  -83
  -88
  -93
  -98
  -103
  -109
  -115
  -121
  -127
  -134
  -141
  -149
  -157
Change in working capital, $m
  22
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
Cash from operations, $m
  -20
  -46
  -39
  -40
  -42
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -102
  -107
  -113
  -119
  -126
  -132
  -140
  -147
  -155
Maintenance CAPEX, $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
New CAPEX, $m
  -8
  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 investing activities, $m
  52
  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
Free cash flow, $m
  32
  -46
  -39
  -40
  -42
  -43
  -45
  -47
  -50
  -52
  -55
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -102
  -107
  -113
  -119
  -126
  -132
  -140
  -147
  -155
Issuance/(repayment) of debt, $m
  -20
  -73
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
Issuance/(repurchase) of shares, $m
  0
  122
  40
  41
  43
  44
  46
  49
  51
  53
  56
  59
  62
  65
  69
  72
  76
  80
  85
  89
  94
  99
  105
  110
  116
  123
  129
  136
  144
  151
  160
Cash from financing (excl. dividends), $m  
  -21
  49
  43
  45
  47
  49
  51
  55
  57
  60
  63
  67
  70
  74
  78
  82
  86
  91
  97
  101
  107
  113
  119
  125
  132
  140
  147
  155
  164
  172
  182
Total cash flow (excl. dividends), $m
  11
  3
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
Retained Cash Flow (-), $m
  23
  -122
  -40
  -41
  -43
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -69
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -105
  -110
  -116
  -123
  -129
  -136
  -144
  -151
  -160
Prev. year cash balance distribution, $m
 
  123
  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
 
  4
  -36
  -36
  -37
  -39
  -40
  -42
  -43
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -64
  -67
  -71
  -75
  -79
  -83
  -87
  -92
  -97
  -102
  -108
  -114
  -120
  -127
  -133
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
 
  4
  -33
  -32
  -31
  -30
  -29
  -28
  -27
  -26
  -25
  -24
  -22
  -21
  -19
  -18
  -16
  -15
  -13
  -11
  -10
  -9
  -7
  -6
  -5
  -4
  -3
  -2
  -2
  -1
  -1
Current shareholders' claim on cash, %
  100
  50.0
  20.2
  8.1
  3.2
  1.3
  0.5
  0.2
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

ModusLink Global Solutions, Inc. is a provider of supply chain and logistics services through its subsidiaries, ModusLink Corporation and ModusLink PTS, Inc. The Company provides services to companies in the consumer electronics, communications, computing, software, storage and retail industries. The Company operates through four segments: Americas, Asia, Europe and e-business. As of July 31, 2016, the Company operated in over 20 sites across North America, Europe and the Asia Pacific region. The Company's Supply Chain Business operation's solutions include material planning and factory supply; value-added warehousing and distribution; aftermarket services, including product returns management and product repair and recovery, and e-business, including e-commerce, contact center, entitlement management and financial management.

FINANCIAL RATIOS  of  ModusLink Global Solutions (MLNK)

Valuation Ratios
P/E Ratio -4
Price to Sales 0.2
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow -5.2
Price to Free Cash Flow -3.7
Growth Rates
Sales Growth Rate -4.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.1%
Cap. Spend. - 3 Yr. Gr. Rate 2.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.1
LT Debt to Equity 95.2%
Total Debt to Equity 95.2%
Interest Coverage -3
Management Effectiveness
Return On Assets -6.1%
Ret/ On Assets - 3 Yr. Avg. -8%
Return On Total Capital -19.5%
Ret/ On T. Cap. - 3 Yr. Avg. -20.2%
Return On Equity -34.9%
Return On Equity - 3 Yr. Avg. -33%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 8.2%
Gross Margin - 3 Yr. Avg. 7.8%
EBITDA Margin -2.3%
EBITDA Margin - 3 Yr. Avg. -3.9%
Operating Margin -4.3%
Oper. Margin - 3 Yr. Avg. -5.7%
Pre-Tax Margin -5.5%
Pre-Tax Margin - 3 Yr. Avg. -6.9%
Net Profit Margin -5.9%
Net Profit Margin - 3 Yr. Avg. -7.5%
Effective Tax Rate -12.5%
Eff/ Tax Rate - 3 Yr. Avg. -13.3%
Payout Ratio 0%

MLNK stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the MLNK stock intrinsic value calculation we used $437 million for the last fiscal year's total revenue generated by ModusLink Global Solutions. The default revenue input number comes from 2017 income statement of ModusLink Global Solutions. 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 MLNK stock valuation model: a) initial revenue growth rate of 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 4.3%, whose default value for MLNK is calculated based on our internal credit rating of ModusLink Global Solutions, 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 ModusLink Global Solutions.
    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 MLNK stock the variable cost ratio is equal to 108.9%.

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 MLNK 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 10.3% for ModusLink Global Solutions.

Corporate tax rate of 27% is the nominal tax rate for ModusLink Global Solutions. 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 MLNK 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 MLNK are equal to 0%.

Life of production assets of 0 years is the average useful life of capital assets used in ModusLink Global Solutions 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 MLNK is equal to -3.2%. 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 - $63 million for ModusLink Global Solutions - 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 55.556 million for ModusLink Global Solutions 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 ModusLink Global Solutions at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ ModusLink reports 4Q loss   [Oct-16-17 04:54PM  Associated Press]
▶ Millennials Repeating Parents' Dumb Behavior   [Jul-11-17 02:58PM  Barrons.com]
▶ ModusLink reports 3Q loss   [Jun-05-17 04:26PM  Associated Press]
▶ Value Is Always in the Eye of the Beholder   [Mar-27-17 10:00AM  TheStreet.com]
▶ ModusLink reports 2Q loss   [05:17PM  Associated Press]
▶ ModusLink To Help Tile Expand Global Business Operations   [Sep-06-16 09:00AM  Business Wire]
▶ ModusLink Named a Top 100 3PL Provider by Inbound Logistics   [Aug-23-16 09:00AM  Business Wire]
▶ ModusLink Reduces Cost of Customer Packaging by $350,000   [May-17-16 09:00AM  Business Wire]
▶ Remember CMGI? Its Remnants Might Rate a Buy   [Apr-25-16 01:00PM  at TheStreet]
Financial statements of MLNK
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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