Intrinsic value of Versum Materials - VSM

Previous Close

$39.95

  Intrinsic Value

$19.56

stock screener

  Rating & Target

str. sell

-51%

Previous close

$39.95

 
Intrinsic value

$19.56

 
Up/down potential

-51%

 
Rating

str. sell

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

We calculate the intrinsic value of VSM 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  16.19
  19.00
  17.60
  16.34
  15.21
  14.19
  13.27
  12.44
  11.70
  11.03
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.01
  5.90
  5.81
  5.73
  5.66
Revenue, $m
  1,127
  1,341
  1,577
  1,835
  2,114
  2,414
  2,734
  3,074
  3,434
  3,812
  4,210
  4,626
  5,060
  5,513
  5,985
  6,476
  6,986
  7,517
  8,068
  8,641
  9,237
  9,856
  10,500
  11,169
  11,866
  12,592
  13,349
  14,137
  14,959
  15,816
  16,711
Variable operating expenses, $m
 
  953
  1,117
  1,297
  1,491
  1,700
  1,923
  2,160
  2,411
  2,675
  2,951
  3,223
  3,526
  3,841
  4,170
  4,512
  4,868
  5,238
  5,622
  6,021
  6,436
  6,867
  7,316
  7,782
  8,268
  8,774
  9,301
  9,850
  10,423
  11,020
  11,644
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
  827
  953
  1,117
  1,297
  1,491
  1,700
  1,923
  2,160
  2,411
  2,675
  2,951
  3,223
  3,526
  3,841
  4,170
  4,512
  4,868
  5,238
  5,622
  6,021
  6,436
  6,867
  7,316
  7,782
  8,268
  8,774
  9,301
  9,850
  10,423
  11,020
  11,644
Operating income, $m
  300
  388
  460
  538
  623
  714
  811
  914
  1,023
  1,138
  1,258
  1,403
  1,534
  1,672
  1,815
  1,964
  2,119
  2,279
  2,447
  2,620
  2,801
  2,989
  3,184
  3,387
  3,598
  3,818
  4,048
  4,287
  4,536
  4,796
  5,067
EBITDA, $m
  346
  444
  522
  608
  700
  799
  905
  1,018
  1,137
  1,262
  1,394
  1,532
  1,676
  1,826
  1,982
  2,144
  2,313
  2,489
  2,672
  2,861
  3,059
  3,264
  3,477
  3,698
  3,929
  4,170
  4,420
  4,681
  4,953
  5,237
  5,533
Interest expense (income), $m
  0
  34
  27
  33
  40
  48
  56
  65
  74
  84
  94
  105
  117
  128
  141
  154
  167
  181
  195
  210
  226
  242
  259
  277
  295
  314
  334
  354
  376
  398
  422
Earnings before tax, $m
  253
  354
  433
  505
  582
  666
  755
  849
  949
  1,054
  1,164
  1,297
  1,418
  1,543
  1,674
  1,810
  1,952
  2,098
  2,251
  2,410
  2,575
  2,746
  2,925
  3,110
  3,303
  3,504
  3,714
  3,932
  4,160
  4,398
  4,646
Tax expense, $m
  53
  96
  117
  136
  157
  180
  204
  229
  256
  284
  314
  350
  383
  417
  452
  489
  527
  567
  608
  651
  695
  742
  790
  840
  892
  946
  1,003
  1,062
  1,123
  1,187
  1,254
Net income, $m
  193
  259
  316
  368
  425
  486
  551
  620
  693
  769
  850
  947
  1,035
  1,127
  1,222
  1,321
  1,425
  1,532
  1,643
  1,759
  1,880
  2,005
  2,135
  2,270
  2,411
  2,558
  2,711
  2,871
  3,037
  3,210
  3,391

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  271
  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
  1,247
  1,161
  1,366
  1,589
  1,830
  2,090
  2,367
  2,662
  2,973
  3,301
  3,645
  4,005
  4,381
  4,773
  5,182
  5,607
  6,049
  6,508
  6,986
  7,482
  7,997
  8,533
  9,091
  9,670
  10,274
  10,902
  11,557
  12,240
  12,951
  13,694
  14,469
Adjusted assets (=assets-cash), $m
  976
  1,161
  1,366
  1,589
  1,830
  2,090
  2,367
  2,662
  2,973
  3,301
  3,645
  4,005
  4,381
  4,773
  5,182
  5,607
  6,049
  6,508
  6,986
  7,482
  7,997
  8,533
  9,091
  9,670
  10,274
  10,902
  11,557
  12,240
  12,951
  13,694
  14,469
Revenue / Adjusted assets
  1.155
  1.155
  1.154
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
  1.155
Average production assets, $m
  387
  460
  541
  629
  725
  828
  938
  1,054
  1,178
  1,308
  1,444
  1,587
  1,736
  1,891
  2,053
  2,221
  2,396
  2,578
  2,767
  2,964
  3,168
  3,381
  3,601
  3,831
  4,070
  4,319
  4,579
  4,849
  5,131
  5,425
  5,732
Working capital, $m
  449
  219
  257
  299
  345
  393
  446
  501
  560
  621
  686
  754
  825
  899
  976
  1,056
  1,139
  1,225
  1,315
  1,409
  1,506
  1,607
  1,711
  1,821
  1,934
  2,053
  2,176
  2,304
  2,438
  2,578
  2,724
Total debt, $m
  983
  771
  955
  1,156
  1,373
  1,607
  1,856
  2,121
  2,402
  2,697
  3,006
  3,330
  3,669
  4,022
  4,390
  4,772
  5,170
  5,583
  6,013
  6,460
  6,924
  7,406
  7,908
  8,429
  8,973
  9,538
  10,127
  10,742
  11,382
  12,050
  12,748
Total liabilities, $m
  1,257
  1,045
  1,229
  1,430
  1,647
  1,881
  2,130
  2,395
  2,676
  2,971
  3,280
  3,604
  3,943
  4,296
  4,664
  5,046
  5,444
  5,857
  6,287
  6,734
  7,198
  7,680
  8,182
  8,703
  9,247
  9,812
  10,401
  11,016
  11,656
  12,324
  13,022
Total equity, $m
  -10
  116
  137
  159
  183
  209
  237
  266
  297
  330
  364
  400
  438
  477
  518
  561
  605
  651
  699
  748
  800
  853
  909
  967
  1,027
  1,090
  1,156
  1,224
  1,295
  1,369
  1,447
Total liabilities and equity, $m
  1,247
  1,161
  1,366
  1,589
  1,830
  2,090
  2,367
  2,661
  2,973
  3,301
  3,644
  4,004
  4,381
  4,773
  5,182
  5,607
  6,049
  6,508
  6,986
  7,482
  7,998
  8,533
  9,091
  9,670
  10,274
  10,902
  11,557
  12,240
  12,951
  13,693
  14,469
Debt-to-equity ratio
  -98.300
  6.640
  6.990
  7.280
  7.500
  7.690
  7.840
  7.970
  8.080
  8.170
  8.250
  8.320
  8.370
  8.430
  8.470
  8.510
  8.550
  8.580
  8.610
  8.630
  8.660
  8.680
  8.700
  8.720
  8.730
  8.750
  8.760
  8.780
  8.790
  8.800
  8.810
Adjusted equity ratio
  -0.288
  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
  193
  259
  316
  368
  425
  486
  551
  620
  693
  769
  850
  947
  1,035
  1,127
  1,222
  1,321
  1,425
  1,532
  1,643
  1,759
  1,880
  2,005
  2,135
  2,270
  2,411
  2,558
  2,711
  2,871
  3,037
  3,210
  3,391
Depreciation, amort., depletion, $m
  46
  56
  62
  69
  77
  86
  95
  104
  114
  125
  136
  129
  141
  154
  167
  181
  195
  210
  225
  241
  258
  275
  293
  311
  331
  351
  372
  394
  417
  441
  466
Funds from operations, $m
  272
  314
  378
  438
  502
  571
  645
  724
  807
  894
  985
  1,076
  1,176
  1,280
  1,389
  1,502
  1,619
  1,742
  1,868
  2,000
  2,137
  2,280
  2,428
  2,582
  2,742
  2,909
  3,083
  3,265
  3,454
  3,651
  3,857
Change in working capital, $m
  9
  35
  38
  42
  45
  49
  52
  55
  59
  62
  65
  68
  71
  74
  77
  80
  83
  86
  90
  93
  97
  101
  105
  109
  114
  118
  123
  128
  134
  140
  146
Cash from operations, $m
  263
  279
  340
  396
  457
  523
  593
  668
  748
  832
  921
  1,008
  1,105
  1,207
  1,312
  1,422
  1,536
  1,655
  1,779
  1,907
  2,040
  2,179
  2,323
  2,473
  2,629
  2,791
  2,960
  3,136
  3,320
  3,512
  3,711
Maintenance CAPEX, $m
  0
  -31
  -37
  -44
  -51
  -59
  -67
  -76
  -86
  -96
  -106
  -117
  -129
  -141
  -154
  -167
  -181
  -195
  -210
  -225
  -241
  -258
  -275
  -293
  -311
  -331
  -351
  -372
  -394
  -417
  -441
New CAPEX, $m
  -64
  -74
  -81
  -88
  -96
  -103
  -110
  -117
  -123
  -130
  -136
  -143
  -149
  -155
  -162
  -168
  -175
  -182
  -189
  -197
  -204
  -212
  -221
  -230
  -239
  -249
  -259
  -270
  -282
  -294
  -307
Cash from investing activities, $m
  -74
  -105
  -118
  -132
  -147
  -162
  -177
  -193
  -209
  -226
  -242
  -260
  -278
  -296
  -316
  -335
  -356
  -377
  -399
  -422
  -445
  -470
  -496
  -523
  -550
  -580
  -610
  -642
  -676
  -711
  -748
Free cash flow, $m
  189
  174
  222
  264
  310
  361
  416
  475
  539
  606
  678
  748
  827
  910
  997
  1,087
  1,181
  1,278
  1,380
  1,485
  1,595
  1,709
  1,827
  1,950
  2,078
  2,211
  2,350
  2,494
  2,644
  2,800
  2,963
Issuance/(repayment) of debt, $m
  -6
  -206
  184
  201
  217
  234
  250
  265
  280
  295
  310
  324
  339
  353
  368
  383
  398
  413
  430
  446
  464
  482
  502
  522
  543
  566
  589
  614
  640
  668
  697
Issuance/(repurchase) of shares, $m
  0
  133
  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  
  -14
  -73
  184
  201
  217
  234
  250
  265
  280
  295
  310
  324
  339
  353
  368
  383
  398
  413
  430
  446
  464
  482
  502
  522
  543
  566
  589
  614
  640
  668
  697
Total cash flow (excl. dividends), $m
  177
  101
  405
  464
  527
  594
  666
  740
  819
  901
  988
  1,072
  1,166
  1,263
  1,364
  1,469
  1,578
  1,692
  1,809
  1,932
  2,059
  2,191
  2,329
  2,472
  2,621
  2,777
  2,939
  3,108
  3,284
  3,469
  3,661
Retained Cash Flow (-), $m
  -127
  -391
  -20
  -22
  -24
  -26
  -28
  -29
  -31
  -33
  -34
  -36
  -38
  -39
  -41
  -43
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -74
  -77
Prev. year cash balance distribution, $m
 
  265
  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
 
  -25
  385
  442
  503
  569
  638
  711
  788
  869
  953
  1,036
  1,128
  1,224
  1,323
  1,427
  1,534
  1,646
  1,762
  1,882
  2,007
  2,138
  2,273
  2,414
  2,561
  2,714
  2,873
  3,040
  3,213
  3,394
  3,583
Discount rate, %
 
  8.60
  9.03
  9.48
  9.96
  10.45
  10.98
  11.52
  12.10
  12.71
  13.34
  14.01
  14.71
  15.44
  16.22
  17.03
  17.88
  18.77
  19.71
  20.70
  21.73
  22.82
  23.96
  25.16
  26.42
  27.74
  29.12
  30.58
  32.11
  33.71
  35.40
PV of cash for distribution, $m
 
  -23
  324
  337
  344
  346
  341
  331
  316
  296
  272
  245
  217
  189
  161
  135
  110
  88
  69
  53
  39
  29
  20
  14
  9
  6
  4
  2
  1
  1
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0
  50.0

Versum Materials, Inc. is a provider of solutions to the semiconductor and display industries. The Company is engaged in the development, manufacturing, transportation and handling of specialty materials. Its segments include Materials; Delivery Systems and Services (DS&S), and Corporate. The Materials segment is an integrated provider of specialty materials for the electronics industry, focusing on the integrated circuit and flat-panel display markets. The DS&S segment designs, manufactures, installs, operates, and maintains chemical and gas delivery and distribution systems for specialty gases and chemicals delivered directly to its customers' manufacturing tools. The Company is engaged in molecular design and synthesis, purification, advanced analytics, formulation development and containers and delivery systems for the handling of high purity materials.

FINANCIAL RATIOS  of  Versum Materials (VSM)

Valuation Ratios
P/E Ratio 22.5
Price to Sales 3.9
Price to Book -434.7
Price to Tangible Book
Price to Cash Flow 16.5
Price to Free Cash Flow 21.8
Growth Rates
Sales Growth Rate 16.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 77.8%
Cap. Spend. - 3 Yr. Gr. Rate 21.7%
Financial Strength
Quick Ratio 45
Current Ratio 0.2
LT Debt to Equity -9770%
Total Debt to Equity -9830%
Interest Coverage 0
Management Effectiveness
Return On Assets 16.8%
Ret/ On Assets - 3 Yr. Avg. 19.3%
Return On Total Capital 21.2%
Ret/ On T. Cap. - 3 Yr. Avg. 24%
Return On Equity -262.6%
Return On Equity - 3 Yr. Avg. -54.9%
Asset Turnover 1
Profitability Ratios
Gross Margin 43.5%
Gross Margin - 3 Yr. Avg. 42.3%
EBITDA Margin 26.5%
EBITDA Margin - 3 Yr. Avg. 29.3%
Operating Margin 26.6%
Oper. Margin - 3 Yr. Avg. 25.8%
Pre-Tax Margin 22.4%
Pre-Tax Margin - 3 Yr. Avg. 24.4%
Net Profit Margin 17.1%
Net Profit Margin - 3 Yr. Avg. 19.1%
Effective Tax Rate 20.9%
Eff/ Tax Rate - 3 Yr. Avg. 18.8%
Payout Ratio 5.7%

VSM stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VSM stock intrinsic value calculation we used $1127 million for the last fiscal year's total revenue generated by Versum Materials. The default revenue input number comes from 2017 income statement of Versum Materials. 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 VSM stock valuation model: a) initial revenue growth rate of 19% 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 8.6%, whose default value for VSM is calculated based on our internal credit rating of Versum Materials, 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 Versum Materials.
    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 VSM stock the variable cost ratio is equal to 71.3%.

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 VSM 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 3.5% for Versum Materials.

Corporate tax rate of 27% is the nominal tax rate for Versum Materials. 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 VSM 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 VSM are equal to 34.3%.

Life of production assets of 12.3 years is the average useful life of capital assets used in Versum Materials 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 VSM is equal to 16.3%. 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 - $-10 million for Versum Materials - 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 109.379 million for Versum Materials 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 Versum Materials at the current share price and the inputted number of shares is $4.4 billion.

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COMPANY NEWS

▶ Versum Materials Completes Repricing of Term Loan   [Oct-10-17 04:30PM  Business Wire]
▶ Versum Materials Declares Quarterly Cash Dividend   [Jul-27-17 06:30AM  Business Wire]
▶ Versum Materials: Cramer's Top Takeaways   [May-20-17 06:34AM  TheStreet.com]
▶ Versum Materials meets 2Q profit forecasts   [06:41AM  Associated Press]
Financial statements of VSM
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