Intrinsic value of Silicom Ltd - SILC

Previous Close

$37.68

  Intrinsic Value

$84.47

stock screener

  Rating & Target

str. buy

+124%

Previous close

$37.68

 
Intrinsic value

$84.47

 
Up/down potential

+124%

 
Rating

str. buy

We calculate the intrinsic value of SILC 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 0.3

 

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, %
  25.30
  23.27
  21.44
  19.80
  18.32
  16.99
  15.79
  14.71
  13.74
  12.86
  12.08
  11.37
  10.73
  10.16
  9.64
  9.18
  8.76
  8.39
  8.05
  7.74
  7.47
  7.22
  7.00
  6.80
  6.62
  6.46
  6.31
  6.18
  6.06
  5.96
Revenue, $m
  158
  195
  236
  283
  335
  392
  454
  521
  592
  668
  749
  834
  924
  1,017
  1,116
  1,218
  1,325
  1,436
  1,551
  1,671
  1,796
  1,926
  2,061
  2,201
  2,347
  2,498
  2,656
  2,820
  2,991
  3,169
Variable operating expenses, $m
  96
  117
  142
  170
  200
  234
  270
  310
  352
  397
  442
  492
  545
  600
  658
  718
  781
  846
  915
  985
  1,059
  1,135
  1,215
  1,298
  1,383
  1,473
  1,566
  1,663
  1,763
  1,868
Fixed operating expenses, $m
  25
  25
  26
  26
  27
  27
  28
  29
  29
  30
  30
  31
  32
  33
  33
  34
  35
  36
  36
  37
  38
  39
  40
  40
  41
  42
  43
  44
  45
  46
Total operating expenses, $m
  121
  142
  168
  196
  227
  261
  298
  339
  381
  427
  472
  523
  577
  633
  691
  752
  816
  882
  951
  1,022
  1,097
  1,174
  1,255
  1,338
  1,424
  1,515
  1,609
  1,707
  1,808
  1,914
Operating income, $m
  38
  52
  69
  87
  108
  131
  156
  182
  211
  242
  277
  311
  347
  385
  425
  466
  509
  554
  600
  649
  699
  752
  806
  863
  922
  983
  1,047
  1,113
  1,182
  1,255
EBITDA, $m
  43
  58
  75
  95
  116
  140
  166
  194
  224
  256
  290
  325
  363
  402
  444
  487
  531
  578
  627
  677
  730
  784
  841
  900
  962
  1,025
  1,092
  1,161
  1,233
  1,308
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  25
  27
Earnings before tax, $m
  38
  52
  68
  86
  107
  129
  153
  179
  207
  237
  272
  305
  341
  378
  416
  457
  499
  543
  588
  636
  685
  736
  789
  845
  902
  962
  1,025
  1,090
  1,157
  1,228
Tax expense, $m
  10
  14
  18
  23
  29
  35
  41
  48
  56
  64
  73
  82
  92
  102
  112
  123
  135
  146
  159
  172
  185
  199
  213
  228
  244
  260
  277
  294
  312
  331
Net income, $m
  27
  38
  50
  63
  78
  94
  112
  131
  151
  173
  198
  223
  249
  276
  304
  333
  364
  396
  429
  464
  500
  537
  576
  617
  659
  702
  748
  795
  845
  896

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
  197
  242
  294
  353
  417
  488
  565
  648
  737
  832
  933
  1,039
  1,150
  1,267
  1,389
  1,517
  1,650
  1,788
  1,932
  2,081
  2,237
  2,398
  2,566
  2,741
  2,922
  3,111
  3,307
  3,512
  3,725
  3,946
Adjusted assets (=assets-cash), $m
  197
  242
  294
  353
  417
  488
  565
  648
  737
  832
  933
  1,039
  1,150
  1,267
  1,389
  1,517
  1,650
  1,788
  1,932
  2,081
  2,237
  2,398
  2,566
  2,741
  2,922
  3,111
  3,307
  3,512
  3,725
  3,946
Revenue / Adjusted assets
  0.802
  0.806
  0.803
  0.802
  0.803
  0.803
  0.804
  0.804
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
  0.803
Average production assets, $m
  22
  27
  33
  40
  47
  55
  64
  73
  83
  94
  106
  118
  130
  143
  157
  172
  187
  202
  219
  236
  253
  272
  291
  310
  331
  352
  374
  398
  422
  447
Working capital, $m
  79
  97
  118
  142
  168
  196
  227
  260
  296
  334
  374
  417
  462
  509
  558
  609
  662
  718
  776
  836
  898
  963
  1,030
  1,100
  1,173
  1,249
  1,328
  1,410
  1,495
  1,584
Total debt, $m
  6
  12
  19
  27
  36
  46
  57
  68
  81
  94
  108
  123
  138
  154
  171
  189
  207
  227
  247
  268
  289
  312
  335
  359
  384
  411
  438
  466
  496
  527
Total liabilities, $m
  27
  34
  41
  49
  58
  68
  79
  90
  102
  116
  130
  144
  160
  176
  193
  211
  229
  249
  269
  289
  311
  333
  357
  381
  406
  432
  460
  488
  518
  549
Total equity, $m
  169
  209
  253
  304
  359
  420
  487
  558
  635
  716
  803
  894
  990
  1,091
  1,196
  1,306
  1,420
  1,539
  1,663
  1,792
  1,926
  2,065
  2,210
  2,360
  2,516
  2,679
  2,848
  3,024
  3,207
  3,398
Total liabilities and equity, $m
  196
  243
  294
  353
  417
  488
  566
  648
  737
  832
  933
  1,038
  1,150
  1,267
  1,389
  1,517
  1,649
  1,788
  1,932
  2,081
  2,237
  2,398
  2,567
  2,741
  2,922
  3,111
  3,308
  3,512
  3,725
  3,947
Debt-to-equity ratio
  0.030
  0.060
  0.080
  0.090
  0.100
  0.110
  0.120
  0.120
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.150
  0.160
Adjusted equity ratio
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861
  0.861

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  27
  38
  50
  63
  78
  94
  112
  131
  151
  173
  198
  223
  249
  276
  304
  333
  364
  396
  429
  464
  500
  537
  576
  617
  659
  702
  748
  795
  845
  896
Depreciation, amort., depletion, $m
  5
  6
  7
  8
  8
  9
  10
  12
  13
  14
  13
  14
  16
  17
  19
  21
  23
  24
  26
  28
  31
  33
  35
  37
  40
  42
  45
  48
  51
  54
Funds from operations, $m
  33
  44
  56
  71
  86
  103
  122
  142
  164
  187
  211
  237
  264
  293
  323
  354
  387
  420
  456
  492
  530
  570
  611
  654
  699
  745
  793
  843
  896
  950
Change in working capital, $m
  16
  18
  21
  23
  26
  28
  31
  33
  36
  38
  40
  43
  45
  47
  49
  51
  53
  56
  58
  60
  62
  65
  67
  70
  73
  76
  79
  82
  85
  89
Cash from operations, $m
  17
  25
  36
  47
  60
  75
  91
  109
  128
  149
  171
  194
  220
  246
  274
  303
  333
  365
  398
  432
  468
  505
  544
  584
  626
  669
  714
  761
  810
  861
Maintenance CAPEX, $m
  -2
  -3
  -3
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -13
  -14
  -16
  -17
  -19
  -21
  -23
  -24
  -26
  -28
  -31
  -33
  -35
  -37
  -40
  -42
  -45
  -48
  -51
New CAPEX, $m
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
Cash from investing activities, $m
  -6
  -8
  -9
  -11
  -12
  -14
  -16
  -17
  -19
  -21
  -22
  -25
  -27
  -29
  -31
  -33
  -36
  -39
  -40
  -43
  -46
  -49
  -52
  -55
  -58
  -61
  -64
  -68
  -72
  -76
Free cash flow, $m
  10
  18
  26
  36
  48
  61
  76
  92
  109
  128
  148
  170
  193
  217
  243
  269
  297
  327
  357
  389
  422
  456
  492
  529
  568
  608
  650
  693
  738
  785
Issuance/(repayment) of debt, $m
  6
  6
  7
  8
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
Issuance/(repurchase) of shares, $m
  7
  2
  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  
  13
  8
  7
  8
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  22
  23
  24
  25
  26
  27
  28
  30
  31
Total cash flow (excl. dividends), $m
  22
  26
  34
  45
  57
  71
  87
  104
  122
  142
  162
  185
  208
  233
  260
  287
  316
  346
  377
  410
  444
  479
  515
  553
  593
  634
  677
  721
  768
  816
Retained Cash Flow (-), $m
  -34
  -39
  -45
  -50
  -56
  -61
  -66
  -72
  -77
  -82
  -87
  -91
  -96
  -101
  -105
  -110
  -114
  -119
  -124
  -129
  -134
  -139
  -145
  -150
  -156
  -162
  -169
  -176
  -183
  -191
Prev. year cash balance distribution, $m
  6
  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
  -6
  -14
  -11
  -6
  1
  10
  20
  32
  45
  60
  76
  93
  112
  133
  154
  177
  202
  227
  253
  281
  310
  340
  371
  403
  437
  472
  508
  545
  584
  625
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
  -6
  -13
  -10
  -5
  1
  7
  14
  20
  26
  31
  36
  40
  43
  45
  45
  45
  44
  42
  39
  36
  32
  28
  24
  21
  17
  14
  11
  8
  6
  5
Current shareholders' claim on cash, %
  97.6
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
  97.1
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Silicom Ltd. (Silicom) is engaged in the design, manufacture, marketing and support of networking and data infrastructure solutions for a range of servers, server-based systems and communications devices. The Company's products include server network interface cards with and without bypass (Server Adapters); Intelligent and programmable cards, with features, such as encryption, acceleration, data compression, redirection, time stamping, network capture solutions, field programmable gate array (FPGA) based ultra-low latency solutions, and/or other offload features and/or compute blades (Smart Cards), and standalone Products. The Company's market segments for its products include network appliances; servers; data storage, including Big Data; The Cloud, virtualized data centers, with and without software-defined networking (SDN), and Internet of Things (IOT).

FINANCIAL RATIOS  of  Silicom Ltd (SILC)

Valuation Ratios
P/E Ratio 21.4
Price to Sales 2.8
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow -92.7
Price to Free Cash Flow -69.5
Growth Rates
Sales Growth Rate 20.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 9.1%
Ret/ On Assets - 3 Yr. Avg. 11.8%
Return On Total Capital 11.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.2%
Return On Equity 11.1%
Return On Equity - 3 Yr. Avg. 14.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 39%
Gross Margin - 3 Yr. Avg. 40.3%
EBITDA Margin 20%
EBITDA Margin - 3 Yr. Avg. 23%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 19.7%
Pre-Tax Margin 16%
Pre-Tax Margin - 3 Yr. Avg. 20%
Net Profit Margin 13%
Net Profit Margin - 3 Yr. Avg. 17.7%
Effective Tax Rate 18.8%
Eff/ Tax Rate - 3 Yr. Avg. 12%
Payout Ratio 53.8%

SILC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SILC stock intrinsic value calculation we used $126 million for the last fiscal year's total revenue generated by Silicom Ltd. The default revenue input number comes from 0001 income statement of Silicom Ltd. 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 SILC stock valuation model: a) initial revenue growth rate of 25.3% 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 SILC is calculated based on our internal credit rating of Silicom Ltd, 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 Silicom Ltd.
    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 SILC stock the variable cost ratio is equal to 61.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $24 million in the base year in the intrinsic value calculation for SILC 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 Silicom Ltd.

Corporate tax rate of 27% is the nominal tax rate for Silicom Ltd. 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 SILC 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 SILC are equal to 14.1%.

Life of production assets of 8.3 years is the average useful life of capital assets used in Silicom Ltd 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 SILC is equal to 50%. 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 - $140.8 million for Silicom Ltd - 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 7.552 million for Silicom Ltd 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 Silicom Ltd at the current share price and the inputted number of shares is $0.3 billion.

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