Intrinsic value of Open Text Corporation - OTEX

Previous Close

$37.44

  Intrinsic Value

$29.11

stock screener

  Rating & Target

sell

-22%

Previous close

$37.44

 
Intrinsic value

$29.11

 
Up/down potential

-22%

 
Rating

sell

We calculate the intrinsic value of OTEX 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 10.1

 

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, %
  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
  2,871
  2,937
  3,013
  3,098
  3,191
  3,295
  3,407
  3,528
  3,659
  3,799
  3,950
  4,110
  4,281
  4,462
  4,655
  4,859
  5,074
  5,303
  5,544
  5,799
  6,068
  6,351
  6,650
  6,965
  7,296
  7,645
  8,013
  8,399
  8,806
  9,234
Variable operating expenses, $m
  2,026
  2,061
  2,102
  2,147
  2,198
  2,253
  2,313
  2,378
  2,448
  2,523
  2,116
  2,202
  2,293
  2,391
  2,494
  2,603
  2,719
  2,841
  2,970
  3,107
  3,251
  3,403
  3,563
  3,731
  3,909
  4,096
  4,293
  4,500
  4,718
  4,947
Fixed operating expenses, $m
  327
  334
  342
  349
  357
  365
  373
  381
  389
  398
  407
  415
  425
  434
  444
  453
  463
  473
  484
  495
  505
  516
  528
  539
  551
  563
  576
  589
  601
  615
Total operating expenses, $m
  2,353
  2,395
  2,444
  2,496
  2,555
  2,618
  2,686
  2,759
  2,837
  2,921
  2,523
  2,617
  2,718
  2,825
  2,938
  3,056
  3,182
  3,314
  3,454
  3,602
  3,756
  3,919
  4,091
  4,270
  4,460
  4,659
  4,869
  5,089
  5,319
  5,562
Operating income, $m
  518
  542
  569
  601
  637
  677
  721
  769
  822
  878
  1,427
  1,493
  1,563
  1,638
  1,717
  1,802
  1,893
  1,988
  2,090
  2,198
  2,311
  2,432
  2,559
  2,694
  2,836
  2,986
  3,144
  3,311
  3,487
  3,672
EBITDA, $m
  1,251
  1,280
  1,314
  1,353
  1,397
  1,446
  1,499
  1,558
  1,621
  1,690
  1,764
  1,843
  1,928
  2,018
  2,114
  2,217
  2,325
  2,441
  2,563
  2,692
  2,829
  2,973
  3,126
  3,288
  3,458
  3,638
  3,827
  4,027
  4,238
  4,460
Interest expense (income), $m
  115
  142
  145
  151
  156
  163
  170
  178
  187
  196
  206
  217
  229
  241
  255
  269
  284
  299
  316
  334
  353
  372
  393
  415
  438
  463
  488
  515
  544
  574
  605
Earnings before tax, $m
  377
  396
  419
  445
  474
  507
  543
  582
  625
  672
  1,210
  1,264
  1,321
  1,383
  1,449
  1,519
  1,593
  1,672
  1,756
  1,845
  1,939
  2,039
  2,144
  2,256
  2,373
  2,497
  2,629
  2,767
  2,913
  3,067
Tax expense, $m
  102
  107
  113
  120
  128
  137
  147
  157
  169
  181
  327
  341
  357
  373
  391
  410
  430
  451
  474
  498
  524
  550
  579
  609
  641
  674
  710
  747
  786
  828
Net income, $m
  275
  289
  306
  325
  346
  370
  396
  425
  457
  491
  883
  922
  965
  1,010
  1,058
  1,109
  1,163
  1,221
  1,282
  1,347
  1,416
  1,488
  1,565
  1,647
  1,732
  1,823
  1,919
  2,020
  2,126
  2,239

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
  7,910
  8,092
  8,300
  8,533
  8,792
  9,076
  9,385
  9,720
  10,080
  10,467
  10,881
  11,322
  11,792
  12,292
  12,822
  13,384
  13,979
  14,608
  15,273
  15,975
  16,715
  17,496
  18,319
  19,186
  20,100
  21,061
  22,074
  23,139
  24,259
  25,438
Adjusted assets (=assets-cash), $m
  7,910
  8,092
  8,300
  8,533
  8,792
  9,076
  9,385
  9,720
  10,080
  10,467
  10,881
  11,322
  11,792
  12,292
  12,822
  13,384
  13,979
  14,608
  15,273
  15,975
  16,715
  17,496
  18,319
  19,186
  20,100
  21,061
  22,074
  23,139
  24,259
  25,438
Revenue / Adjusted assets
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
  0.363
Average production assets, $m
  2,742
  2,805
  2,877
  2,958
  3,048
  3,146
  3,253
  3,369
  3,494
  3,628
  3,772
  3,925
  4,088
  4,261
  4,445
  4,640
  4,846
  5,064
  5,295
  5,538
  5,794
  6,065
  6,351
  6,651
  6,968
  7,301
  7,652
  8,021
  8,410
  8,818
Working capital, $m
  -347
  -355
  -365
  -375
  -386
  -399
  -412
  -427
  -443
  -460
  -478
  -497
  -518
  -540
  -563
  -588
  -614
  -642
  -671
  -702
  -734
  -768
  -805
  -843
  -883
  -925
  -970
  -1,016
  -1,066
  -1,117
Total debt, $m
  2,693
  2,788
  2,896
  3,018
  3,152
  3,300
  3,461
  3,636
  3,823
  4,025
  4,241
  4,471
  4,716
  4,976
  5,252
  5,545
  5,855
  6,183
  6,529
  6,894
  7,280
  7,687
  8,116
  8,568
  9,044
  9,545
  10,072
  10,627
  11,211
  11,825
Total liabilities, $m
  4,121
  4,216
  4,324
  4,446
  4,581
  4,729
  4,890
  5,064
  5,252
  5,453
  5,669
  5,899
  6,144
  6,404
  6,680
  6,973
  7,283
  7,611
  7,957
  8,323
  8,708
  9,115
  9,544
  9,996
  10,472
  10,973
  11,500
  12,055
  12,639
  13,253
Total equity, $m
  3,789
  3,876
  3,976
  4,087
  4,211
  4,347
  4,495
  4,656
  4,828
  5,014
  5,212
  5,423
  5,649
  5,888
  6,142
  6,411
  6,696
  6,997
  7,316
  7,652
  8,006
  8,381
  8,775
  9,190
  9,628
  10,088
  10,573
  11,083
  11,620
  12,185
Total liabilities and equity, $m
  7,910
  8,092
  8,300
  8,533
  8,792
  9,076
  9,385
  9,720
  10,080
  10,467
  10,881
  11,322
  11,793
  12,292
  12,822
  13,384
  13,979
  14,608
  15,273
  15,975
  16,714
  17,496
  18,319
  19,186
  20,100
  21,061
  22,073
  23,138
  24,259
  25,438
Debt-to-equity ratio
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.850
  0.860
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.920
  0.930
  0.940
  0.950
  0.950
  0.960
  0.960
  0.970
Adjusted equity ratio
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479
  0.479

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  275
  289
  306
  325
  346
  370
  396
  425
  457
  491
  883
  922
  965
  1,010
  1,058
  1,109
  1,163
  1,221
  1,282
  1,347
  1,416
  1,488
  1,565
  1,647
  1,732
  1,823
  1,919
  2,020
  2,126
  2,239
Depreciation, amort., depletion, $m
  733
  738
  745
  752
  760
  769
  778
  789
  800
  812
  337
  350
  365
  380
  397
  414
  433
  452
  473
  494
  517
  542
  567
  594
  622
  652
  683
  716
  751
  787
Funds from operations, $m
  1,008
  1,027
  1,050
  1,077
  1,106
  1,139
  1,175
  1,214
  1,256
  1,302
  1,220
  1,273
  1,330
  1,390
  1,454
  1,523
  1,596
  1,673
  1,755
  1,841
  1,933
  2,030
  2,132
  2,240
  2,355
  2,475
  2,602
  2,736
  2,877
  3,026
Change in working capital, $m
  -7
  -8
  -9
  -10
  -11
  -12
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -25
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
Cash from operations, $m
  1,014
  1,035
  1,060
  1,087
  1,117
  1,151
  1,188
  1,228
  1,272
  1,319
  1,238
  1,292
  1,350
  1,412
  1,478
  1,548
  1,622
  1,700
  1,784
  1,872
  1,965
  2,064
  2,168
  2,279
  2,395
  2,517
  2,647
  2,783
  2,927
  3,078
Maintenance CAPEX, $m
  -240
  -245
  -250
  -257
  -264
  -272
  -281
  -290
  -301
  -312
  -324
  -337
  -350
  -365
  -380
  -397
  -414
  -433
  -452
  -473
  -494
  -517
  -542
  -567
  -594
  -622
  -652
  -683
  -716
  -751
New CAPEX, $m
  -55
  -63
  -72
  -81
  -90
  -98
  -107
  -116
  -125
  -134
  -143
  -153
  -163
  -173
  -184
  -195
  -206
  -218
  -230
  -243
  -257
  -271
  -285
  -301
  -317
  -333
  -351
  -369
  -388
  -409
Cash from investing activities, $m
  -295
  -308
  -322
  -338
  -354
  -370
  -388
  -406
  -426
  -446
  -467
  -490
  -513
  -538
  -564
  -592
  -620
  -651
  -682
  -716
  -751
  -788
  -827
  -868
  -911
  -955
  -1,003
  -1,052
  -1,104
  -1,160
Free cash flow, $m
  720
  728
  737
  749
  764
  781
  800
  822
  846
  873
  771
  802
  837
  874
  913
  956
  1,001
  1,050
  1,101
  1,156
  1,214
  1,276
  1,342
  1,411
  1,484
  1,562
  1,644
  1,730
  1,822
  1,918
Issuance/(repayment) of debt, $m
  72
  95
  108
  122
  135
  148
  161
  174
  188
  202
  216
  230
  245
  260
  276
  293
  310
  328
  346
  366
  386
  407
  429
  452
  476
  501
  527
  555
  584
  614
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
Cash from financing (excl. dividends), $m  
  72
  95
  108
  122
  135
  148
  161
  174
  188
  202
  216
  230
  245
  260
  276
  293
  310
  328
  346
  366
  386
  407
  429
  452
  476
  501
  527
  555
  584
  614
Total cash flow (excl. dividends), $m
  792
  822
  845
  871
  898
  928
  961
  996
  1,034
  1,075
  986
  1,032
  1,082
  1,134
  1,190
  1,249
  1,311
  1,377
  1,448
  1,522
  1,600
  1,683
  1,770
  1,863
  1,960
  2,063
  2,171
  2,285
  2,406
  2,532
Retained Cash Flow (-), $m
  -73
  -87
  -100
  -112
  -124
  -136
  -148
  -160
  -173
  -185
  -198
  -212
  -225
  -239
  -254
  -269
  -285
  -301
  -318
  -336
  -355
  -374
  -394
  -415
  -438
  -461
  -485
  -510
  -537
  -565
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
  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
  719
  735
  746
  759
  774
  793
  813
  836
  861
  889
  788
  821
  856
  895
  936
  980
  1,026
  1,076
  1,129
  1,186
  1,245
  1,309
  1,376
  1,447
  1,523
  1,602
  1,686
  1,775
  1,869
  1,968
Discount rate, %
  5.30
  5.57
  5.84
  6.14
  6.44
  6.76
  7.10
  7.46
  7.83
  8.22
  8.63
  9.06
  9.52
  9.99
  10.49
  11.02
  11.57
  12.15
  12.76
  13.39
  14.06
  14.77
  15.50
  16.28
  17.09
  17.95
  18.85
  19.79
  20.78
  21.82
PV of cash for distribution, $m
  683
  660
  629
  598
  567
  535
  503
  470
  437
  404
  317
  290
  263
  236
  209
  184
  160
  137
  115
  96
  79
  63
  50
  39
  29
  22
  16
  11
  8
  5
Current shareholders' claim on cash, %
  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

Open Text Corporation provides a platform and suite of software products and services that assist organizations in finding, utilizing, and sharing business information from any device. The Company designs, develops, markets and sells Enterprise Information Management (EIM) software and solutions. Its EIM offerings include Enterprise Content Management (ECM), Business Process Management (BPM), Customer Experience Management (CEM), Business Network, Discovery and Analytics. Its software and services allow organizations to manage the information that flows into, out of, and throughout the enterprise as part of daily operations. Its solutions incorporate collaborative and mobile technologies and are delivered for on-premises deployment, as well as through cloud, hybrid and managed hosted services models. In addition, the Company provides solutions that facilitate the exchange of information and transactions that occur between supply chain participants.

FINANCIAL RATIOS  of  Open Text Corporation (OTEX)

Valuation Ratios
P/E Ratio 9.6
Price to Sales 4.3
Price to Book 2.8
Price to Tangible Book
Price to Cash Flow 22.5
Price to Free Cash Flow 27.5
Growth Rates
Sales Growth Rate 25.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 14.3%
Cap. Spend. - 3 Yr. Gr. Rate 13.8%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 67.6%
Total Debt to Equity 72.8%
Interest Coverage 11
Management Effectiveness
Return On Assets 17.9%
Ret/ On Assets - 3 Yr. Avg. 10.6%
Return On Total Capital 20.1%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 37.2%
Return On Equity - 3 Yr. Avg. 21.9%
Asset Turnover 0.4
Profitability Ratios
Gross Margin 66.7%
Gross Margin - 3 Yr. Avg. 67.7%
EBITDA Margin 69.3%
EBITDA Margin - 3 Yr. Avg. 43.9%
Operating Margin 53.6%
Oper. Margin - 3 Yr. Avg. 30.9%
Pre-Tax Margin 49.1%
Pre-Tax Margin - 3 Yr. Avg. 26.5%
Net Profit Margin 44.8%
Net Profit Margin - 3 Yr. Avg. 24.3%
Effective Tax Rate 8.9%
Eff/ Tax Rate - 3 Yr. Avg. 7.7%
Payout Ratio 11.8%

OTEX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the OTEX stock intrinsic value calculation we used $2815 million for the last fiscal year's total revenue generated by Open Text Corporation. The default revenue input number comes from 0001 income statement of Open Text Corporation. 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 OTEX 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 5.3%, whose default value for OTEX is calculated based on our internal credit rating of Open Text Corporation, 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 Open Text Corporation.
    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 OTEX stock the variable cost ratio is equal to 70.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $320 million in the base year in the intrinsic value calculation for OTEX 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 Open Text Corporation.

Corporate tax rate of 27% is the nominal tax rate for Open Text Corporation. 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 OTEX 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 OTEX are equal to 95.5%.

Life of production assets of 11.2 years is the average useful life of capital assets used in Open Text Corporation 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 OTEX is equal to -12.1%. 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 - $3716.221 million for Open Text Corporation - 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 268.766 million for Open Text Corporation 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 Open Text Corporation at the current share price and the inputted number of shares is $10.1 billion.

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