Intrinsic value of Tucows Inc. - TCX

Previous Close

$60.29

  Intrinsic Value

$46.30

stock screener

  Rating & Target

sell

-23%

Previous close

$60.29

 
Intrinsic value

$46.30

 
Up/down potential

-23%

 
Rating

sell

We calculate the intrinsic value of TCX 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 0.6

 

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
  353
  361
  370
  381
  392
  405
  419
  434
  450
  467
  485
  505
  526
  548
  572
  597
  624
  652
  681
  713
  746
  781
  817
  856
  897
  940
  985
  1,032
  1,082
  1,135
Variable operating expenses, $m
  298
  304
  312
  320
  329
  339
  350
  362
  375
  389
  390
  406
  423
  441
  460
  480
  501
  524
  548
  573
  599
  627
  657
  688
  721
  755
  792
  830
  870
  912
Fixed operating expenses, $m
  26
  26
  27
  27
  28
  28
  29
  30
  30
  31
  32
  32
  33
  34
  35
  35
  36
  37
  38
  39
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
Total operating expenses, $m
  324
  330
  339
  347
  357
  367
  379
  392
  405
  420
  422
  438
  456
  475
  495
  515
  537
  561
  586
  612
  638
  667
  698
  730
  764
  799
  837
  876
  917
  960
Operating income, $m
  30
  31
  32
  34
  35
  37
  39
  41
  44
  47
  63
  67
  70
  74
  78
  82
  86
  91
  96
  101
  107
  113
  119
  126
  133
  140
  148
  157
  165
  175
EBITDA, $m
  53
  54
  56
  57
  59
  62
  64
  67
  70
  73
  76
  80
  84
  88
  93
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  165
  174
  183
  194
  204
Interest expense (income), $m
  0
  3
  4
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  28
  29
  31
  33
Earnings before tax, $m
  26
  27
  28
  29
  30
  32
  33
  35
  37
  39
  55
  58
  60
  63
  66
  69
  72
  76
  80
  84
  88
  93
  98
  103
  109
  115
  121
  127
  134
  141
Tax expense, $m
  7
  7
  8
  8
  8
  9
  9
  9
  10
  11
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  33
  34
  36
  38
Net income, $m
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  40
  42
  44
  46
  48
  50
  53
  56
  58
  61
  65
  68
  72
  75
  79
  84
  88
  93
  98
  103

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
  346
  354
  363
  374
  385
  397
  411
  426
  441
  458
  476
  496
  516
  538
  561
  586
  612
  640
  669
  699
  732
  766
  802
  840
  880
  922
  966
  1,013
  1,062
  1,114
Adjusted assets (=assets-cash), $m
  346
  354
  363
  374
  385
  397
  411
  426
  441
  458
  476
  496
  516
  538
  561
  586
  612
  640
  669
  699
  732
  766
  802
  840
  880
  922
  966
  1,013
  1,062
  1,114
Revenue / Adjusted assets
  1.020
  1.020
  1.019
  1.019
  1.018
  1.020
  1.019
  1.019
  1.020
  1.020
  1.019
  1.018
  1.019
  1.019
  1.020
  1.019
  1.020
  1.019
  1.018
  1.020
  1.019
  1.020
  1.019
  1.019
  1.019
  1.020
  1.020
  1.019
  1.019
  1.019
Average production assets, $m
  110
  113
  116
  119
  123
  127
  131
  136
  141
  146
  152
  158
  165
  172
  179
  187
  195
  204
  213
  223
  233
  244
  256
  268
  281
  294
  308
  323
  339
  355
Working capital, $m
  -28
  -29
  -30
  -30
  -31
  -32
  -33
  -35
  -36
  -37
  -39
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
  -62
  -65
  -68
  -72
  -75
  -79
  -83
  -87
  -91
Total debt, $m
  70
  76
  83
  91
  99
  109
  119
  130
  142
  155
  169
  184
  200
  217
  234
  253
  273
  294
  316
  340
  365
  391
  418
  447
  478
  510
  544
  580
  617
  657
Total liabilities, $m
  265
  271
  278
  286
  294
  304
  314
  326
  338
  351
  364
  379
  395
  412
  429
  448
  468
  489
  512
  535
  560
  586
  614
  643
  673
  705
  739
  775
  813
  852
Total equity, $m
  81
  83
  85
  88
  90
  93
  97
  100
  104
  108
  112
  117
  121
  126
  132
  138
  144
  150
  157
  164
  172
  180
  188
  197
  207
  217
  227
  238
  250
  262
Total liabilities and equity, $m
  346
  354
  363
  374
  384
  397
  411
  426
  442
  459
  476
  496
  516
  538
  561
  586
  612
  639
  669
  699
  732
  766
  802
  840
  880
  922
  966
  1,013
  1,063
  1,114
Debt-to-equity ratio
  0.860
  0.910
  0.970
  1.030
  1.100
  1.170
  1.230
  1.300
  1.370
  1.440
  1.510
  1.580
  1.650
  1.710
  1.780
  1.840
  1.900
  1.960
  2.010
  2.070
  2.120
  2.170
  2.220
  2.270
  2.310
  2.350
  2.400
  2.440
  2.470
  2.510
Adjusted equity ratio
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235
  0.235

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  20
  20
  21
  22
  23
  24
  26
  27
  28
  40
  42
  44
  46
  48
  50
  53
  56
  58
  61
  65
  68
  72
  75
  79
  84
  88
  93
  98
  103
Depreciation, amort., depletion, $m
  23
  23
  24
  24
  24
  24
  25
  25
  26
  26
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
  26
  27
  28
  30
Funds from operations, $m
  42
  43
  44
  45
  46
  48
  49
  51
  53
  55
  53
  55
  58
  60
  63
  66
  69
  73
  76
  80
  84
  88
  93
  98
  103
  108
  114
  120
  126
  133
Change in working capital, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
Cash from operations, $m
  43
  44
  45
  46
  47
  49
  50
  52
  54
  56
  54
  57
  59
  62
  65
  68
  71
  75
  79
  82
  87
  91
  96
  101
  106
  112
  117
  124
  130
  137
Maintenance CAPEX, $m
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
New CAPEX, $m
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
Cash from investing activities, $m
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -35
  -36
  -39
  -41
  -43
  -44
Free cash flow, $m
  32
  32
  32
  33
  34
  34
  35
  36
  37
  39
  36
  38
  40
  41
  43
  45
  47
  50
  52
  55
  58
  61
  64
  67
  71
  75
  79
  83
  87
  92
Issuance/(repayment) of debt, $m
  5
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
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  
  5
  6
  7
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  29
  31
  32
  34
  36
  38
  39
Total cash flow (excl. dividends), $m
  37
  38
  39
  41
  42
  44
  46
  48
  50
  52
  50
  53
  55
  58
  61
  64
  67
  71
  75
  78
  83
  87
  92
  96
  102
  107
  113
  119
  125
  132
Retained Cash Flow (-), $m
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
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
  35
  36
  37
  38
  40
  41
  42
  44
  46
  48
  46
  48
  50
  53
  56
  58
  61
  64
  68
  71
  75
  79
  83
  87
  92
  97
  102
  108
  114
  120
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
  34
  33
  32
  32
  31
  30
  29
  28
  26
  25
  22
  21
  19
  18
  16
  15
  13
  12
  10
  9
  8
  7
  5
  4
  4
  3
  2
  2
  1
  1
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

Tucows Inc. is engaged in providing Internet services. The Company's segments include Network Access Services and Domain Services. The Network Access Services segment includes mobile, fixed high-speed Internet access services, Internet hosting and network consulting services. The Domain Services segment wholesale and retail domain name registration services, value added services and portfolio services. The Company focuses on serving the needs of this network of resellers by providing services, interfaces, proactive and attentive customer service, reseller-oriented technology and agile design and development processes. The Company focuses its service offerings under brands, including OpenSRS, YummyNames, Platypus, Hover and Ting. As of December 31, 2016, the OpenSRS Domain Service managed 15 million domain names under the Tucows ICANN registrar accreditation and for other registrars. As of December 31, 2016, Ting managed mobile telephony services for approximately 151,000 subscribers.

FINANCIAL RATIOS  of  Tucows Inc. (TCX)

Valuation Ratios
P/E Ratio 39.4
Price to Sales 3.3
Price to Book 16.6
Price to Tangible Book
Price to Cash Flow 28.7
Price to Free Cash Flow 45
Growth Rates
Sales Growth Rate 9.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 166.7%
Cap. Spend. - 3 Yr. Gr. Rate 51.6%
Financial Strength
Quick Ratio 8
Current Ratio 0
LT Debt to Equity 21.1%
Total Debt to Equity 26.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 11.3%
Ret/ On Assets - 3 Yr. Avg. 8.3%
Return On Total Capital 41%
Ret/ On T. Cap. - 3 Yr. Avg. 30.6%
Return On Equity 50%
Return On Equity - 3 Yr. Avg. 34.8%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 33.2%
Gross Margin - 3 Yr. Avg. 30.5%
EBITDA Margin 14.7%
EBITDA Margin - 3 Yr. Avg. 11.1%
Operating Margin 13.2%
Oper. Margin - 3 Yr. Avg. 10.1%
Pre-Tax Margin 13.2%
Pre-Tax Margin - 3 Yr. Avg. 9.9%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 6.3%
Effective Tax Rate 36%
Eff/ Tax Rate - 3 Yr. Avg. 36.1%
Payout Ratio 0%

TCX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TCX stock intrinsic value calculation we used $346 million for the last fiscal year's total revenue generated by Tucows Inc.. The default revenue input number comes from 0001 income statement of Tucows Inc.. 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 TCX 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 TCX is calculated based on our internal credit rating of Tucows Inc., 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 Tucows Inc..
    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 TCX stock the variable cost ratio is equal to 84.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $25 million in the base year in the intrinsic value calculation for TCX 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 Tucows Inc..

Corporate tax rate of 27% is the nominal tax rate for Tucows Inc.. 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 TCX 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 TCX are equal to 31.3%.

Life of production assets of 12 years is the average useful life of capital assets used in Tucows Inc. 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 TCX is equal to -8%. 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 - $79.776 million for Tucows Inc. - 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 10.639 million for Tucows Inc. 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 Tucows Inc. at the current share price and the inputted number of shares is $0.6 billion.

RELATED COMPANIES Price Int.Val. Rating
CTL CenturyLink, I 11.34 38.99  str.buy
VRSN VeriSign, Inc. 210.75 27.11  str.sell
GDDY GoDaddy Inc. 72.14 122.94  str.buy
T AT&T Inc. 32.45 141.37  str.buy
GOOGL Alphabet Inc. 1,125.37 985.65  hold
MSFT Microsoft Corp 136.97 135.87  hold

CONTACT US      

About X-FIN       Privacy policy       Terms of use      

Copyright © X-FIN.com 2005-2019. All rigths reserved.