Intrinsic value of Versum Materials - VSM

Previous Close

$36.91

  Intrinsic Value

$18.24

stock screener

  Rating & Target

str. sell

-51%

Previous close

$36.91

 
Intrinsic value

$18.24

 
Up/down potential

-51%

 
Rating

str. sell

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

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 4.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  16.20
  15.08
  14.07
  13.16
  12.35
  11.61
  10.95
  10.36
  9.82
  9.34
  8.91
  8.51
  8.16
  7.85
  7.56
  7.31
  7.08
  6.87
  6.68
  6.51
  6.36
  6.23
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.59
  5.53
Revenue, $m
  1,310
  1,507
  1,719
  1,945
  2,186
  2,440
  2,707
  2,987
  3,280
  3,587
  3,906
  4,239
  4,585
  4,945
  5,318
  5,707
  6,111
  6,530
  6,967
  7,421
  7,893
  8,384
  8,896
  9,429
  9,984
  10,564
  11,169
  11,800
  12,459
  13,147
Variable operating expenses, $m
  932
  1,069
  1,216
  1,373
  1,539
  1,715
  1,900
  2,094
  2,297
  2,509
  2,705
  2,936
  3,175
  3,424
  3,683
  3,952
  4,232
  4,523
  4,825
  5,139
  5,466
  5,806
  6,161
  6,530
  6,915
  7,316
  7,735
  8,172
  8,628
  9,105
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
  932
  1,069
  1,216
  1,373
  1,539
  1,715
  1,900
  2,094
  2,297
  2,509
  2,705
  2,936
  3,175
  3,424
  3,683
  3,952
  4,232
  4,523
  4,825
  5,139
  5,466
  5,806
  6,161
  6,530
  6,915
  7,316
  7,735
  8,172
  8,628
  9,105
Operating income, $m
  377
  438
  503
  573
  647
  725
  807
  893
  983
  1,077
  1,201
  1,303
  1,410
  1,520
  1,635
  1,755
  1,879
  2,008
  2,142
  2,281
  2,427
  2,578
  2,735
  2,899
  3,070
  3,248
  3,434
  3,628
  3,830
  4,042
EBITDA, $m
  469
  539
  615
  696
  782
  873
  969
  1,069
  1,174
  1,284
  1,398
  1,517
  1,641
  1,769
  1,903
  2,042
  2,187
  2,337
  2,493
  2,655
  2,824
  3,000
  3,183
  3,374
  3,573
  3,780
  3,997
  4,223
  4,458
  4,705
Interest expense (income), $m
  0
  53
  49
  59
  69
  80
  92
  104
  118
  131
  146
  161
  176
  192
  209
  227
  245
  264
  284
  305
  326
  348
  371
  395
  420
  446
  473
  502
  531
  562
  594
Earnings before tax, $m
  325
  389
  444
  504
  566
  633
  702
  776
  852
  932
  1,040
  1,127
  1,217
  1,311
  1,408
  1,509
  1,615
  1,724
  1,837
  1,956
  2,079
  2,207
  2,340
  2,479
  2,623
  2,774
  2,932
  3,097
  3,268
  3,448
Tax expense, $m
  88
  105
  120
  136
  153
  171
  190
  209
  230
  252
  281
  304
  329
  354
  380
  408
  436
  465
  496
  528
  561
  596
  632
  669
  708
  749
  792
  836
  882
  931
Net income, $m
  237
  284
  324
  368
  413
  462
  513
  566
  622
  680
  759
  823
  889
  957
  1,028
  1,102
  1,179
  1,258
  1,341
  1,428
  1,517
  1,611
  1,708
  1,809
  1,915
  2,025
  2,140
  2,260
  2,386
  2,517

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
  1,317
  1,516
  1,730
  1,957
  2,199
  2,454
  2,723
  3,005
  3,300
  3,608
  3,930
  4,264
  4,612
  4,974
  5,351
  5,741
  6,148
  6,570
  7,009
  7,465
  7,940
  8,435
  8,949
  9,486
  10,045
  10,628
  11,236
  11,871
  12,534
  13,227
Adjusted assets (=assets-cash), $m
  1,317
  1,516
  1,730
  1,957
  2,199
  2,454
  2,723
  3,005
  3,300
  3,608
  3,930
  4,264
  4,612
  4,974
  5,351
  5,741
  6,148
  6,570
  7,009
  7,465
  7,940
  8,435
  8,949
  9,486
  10,045
  10,628
  11,236
  11,871
  12,534
  13,227
Revenue / Adjusted assets
  0.995
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
  0.994
Average production assets, $m
  660
  760
  866
  981
  1,102
  1,230
  1,364
  1,505
  1,653
  1,808
  1,969
  2,136
  2,311
  2,492
  2,680
  2,876
  3,080
  3,291
  3,511
  3,740
  3,978
  4,226
  4,483
  4,752
  5,032
  5,324
  5,629
  5,947
  6,279
  6,626
Working capital, $m
  35
  41
  46
  53
  59
  66
  73
  81
  89
  97
  105
  114
  124
  134
  144
  154
  165
  176
  188
  200
  213
  226
  240
  255
  270
  285
  302
  319
  336
  355
Total debt, $m
  912
  1,091
  1,283
  1,487
  1,705
  1,935
  2,177
  2,431
  2,696
  2,974
  3,263
  3,564
  3,877
  4,203
  4,541
  4,893
  5,259
  5,639
  6,034
  6,445
  6,872
  7,317
  7,780
  8,263
  8,766
  9,291
  9,838
  10,410
  11,007
  11,630
Total liabilities, $m
  1,186
  1,365
  1,557
  1,761
  1,979
  2,209
  2,451
  2,705
  2,970
  3,248
  3,537
  3,838
  4,151
  4,477
  4,815
  5,167
  5,533
  5,913
  6,308
  6,719
  7,146
  7,591
  8,054
  8,537
  9,040
  9,565
  10,112
  10,684
  11,281
  11,904
Total equity, $m
  132
  152
  173
  196
  220
  245
  272
  301
  330
  361
  393
  426
  461
  497
  535
  574
  615
  657
  701
  747
  794
  843
  895
  949
  1,004
  1,063
  1,124
  1,187
  1,253
  1,323
Total liabilities and equity, $m
  1,318
  1,517
  1,730
  1,957
  2,199
  2,454
  2,723
  3,006
  3,300
  3,609
  3,930
  4,264
  4,612
  4,974
  5,350
  5,741
  6,148
  6,570
  7,009
  7,466
  7,940
  8,434
  8,949
  9,486
  10,044
  10,628
  11,236
  11,871
  12,534
  13,227
Debt-to-equity ratio
  6.920
  7.190
  7.420
  7.600
  7.750
  7.880
  7.990
  8.090
  8.170
  8.240
  8.300
  8.360
  8.410
  8.450
  8.490
  8.520
  8.550
  8.580
  8.610
  8.630
  8.650
  8.680
  8.690
  8.710
  8.730
  8.740
  8.760
  8.770
  8.780
  8.790
Adjusted equity ratio
  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
  237
  284
  324
  368
  413
  462
  513
  566
  622
  680
  759
  823
  889
  957
  1,028
  1,102
  1,179
  1,258
  1,341
  1,428
  1,517
  1,611
  1,708
  1,809
  1,915
  2,025
  2,140
  2,260
  2,386
  2,517
Depreciation, amort., depletion, $m
  91
  101
  112
  123
  135
  148
  162
  176
  191
  206
  197
  214
  231
  249
  268
  288
  308
  329
  351
  374
  398
  423
  448
  475
  503
  532
  563
  595
  628
  663
Funds from operations, $m
  328
  385
  436
  491
  549
  610
  674
  742
  813
  886
  956
  1,036
  1,120
  1,206
  1,296
  1,389
  1,487
  1,588
  1,692
  1,802
  1,915
  2,033
  2,156
  2,285
  2,418
  2,558
  2,703
  2,855
  3,014
  3,180
Change in working capital, $m
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
Cash from operations, $m
  323
  380
  431
  485
  542
  603
  667
  734
  805
  878
  948
  1,027
  1,110
  1,196
  1,286
  1,379
  1,476
  1,576
  1,681
  1,789
  1,902
  2,020
  2,143
  2,270
  2,403
  2,542
  2,687
  2,838
  2,996
  3,161
Maintenance CAPEX, $m
  -57
  -66
  -76
  -87
  -98
  -110
  -123
  -136
  -151
  -165
  -181
  -197
  -214
  -231
  -249
  -268
  -288
  -308
  -329
  -351
  -374
  -398
  -423
  -448
  -475
  -503
  -532
  -563
  -595
  -628
New CAPEX, $m
  -92
  -100
  -107
  -114
  -121
  -128
  -135
  -141
  -148
  -154
  -161
  -168
  -174
  -181
  -188
  -196
  -204
  -212
  -220
  -229
  -238
  -248
  -258
  -269
  -280
  -292
  -305
  -318
  -332
  -347
Cash from investing activities, $m
  -149
  -166
  -183
  -201
  -219
  -238
  -258
  -277
  -299
  -319
  -342
  -365
  -388
  -412
  -437
  -464
  -492
  -520
  -549
  -580
  -612
  -646
  -681
  -717
  -755
  -795
  -837
  -881
  -927
  -975
Free cash flow, $m
  174
  214
  248
  284
  323
  365
  410
  457
  506
  558
  606
  663
  722
  784
  848
  915
  985
  1,057
  1,132
  1,210
  1,290
  1,375
  1,462
  1,553
  1,648
  1,747
  1,850
  1,957
  2,069
  2,186
Issuance/(repayment) of debt, $m
  -65
  179
  192
  205
  218
  230
  242
  254
  266
  277
  289
  301
  313
  326
  339
  352
  366
  380
  395
  411
  427
  445
  463
  483
  503
  525
  547
  571
  597
  624
Issuance/(repurchase) of shares, $m
  12
  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  
  -53
  179
  192
  205
  218
  230
  242
  254
  266
  277
  289
  301
  313
  326
  339
  352
  366
  380
  395
  411
  427
  445
  463
  483
  503
  525
  547
  571
  597
  624
Total cash flow (excl. dividends), $m
  121
  393
  440
  489
  541
  595
  652
  711
  772
  836
  895
  964
  1,036
  1,110
  1,187
  1,267
  1,350
  1,437
  1,527
  1,620
  1,718
  1,820
  1,925
  2,036
  2,151
  2,272
  2,397
  2,529
  2,666
  2,809
Retained Cash Flow (-), $m
  -249
  -20
  -21
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -47
  -49
  -51
  -54
  -56
  -58
  -61
  -63
  -66
  -69
Prev. year cash balance distribution, $m
  108
  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
  8
  9
  11
  12
  14
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  49
  52
  55
  59
  62
  66
  70
  74
  78
  83
  87
Cash available for distribution, $m
  -21
  373
  418
  466
  517
  569
  625
  682
  742
  805
  863
  931
  1,001
  1,074
  1,149
  1,228
  1,310
  1,394
  1,483
  1,575
  1,670
  1,770
  1,874
  1,982
  2,095
  2,213
  2,336
  2,465
  2,600
  2,740
Discount rate, %
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.85
  11.40
  11.97
  12.57
  13.19
  13.85
  14.55
  15.27
  16.04
  16.84
  17.68
  18.57
  19.49
  20.47
  21.49
  22.57
  23.69
  24.88
  26.12
  27.43
  28.80
  30.24
  31.75
  33.34
PV of cash for distribution, $m
  -19
  317
  324
  326
  323
  316
  304
  288
  268
  246
  221
  196
  171
  147
  123
  102
  82
  65
  50
  38
  28
  20
  14
  10
  6
  4
  3
  2
  1
  0
Current shareholders' claim on cash, %
  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 20.8
Price to Sales 3.6
Price to Book -401.7
Price to Tangible Book
Price to Cash Flow 15.3
Price to Free Cash Flow 20.2
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 16.2% 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 8.1%, 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 71.5%.

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 5.4% 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 0.7%.

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 50.4%.

Life of production assets of 10 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 2.7%. 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 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 $4.0 billion.

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COMPANY NEWS

▶ Versum Materials, Inc. to Host Earnings Call   [Aug-07-18 09:00AM  ACCESSWIRE]
▶ Versum Materials Declares Quarterly Cash Dividend   [Jul-31-18 08:56PM  Business Wire]
▶ Versum Materials Declares 20% Dividend Increase   [May-02-18 04:30PM  Business Wire]
▶ Versum Materials, Inc. to Host Earnings Call   [Feb-06-18 08:45AM  ACCESSWIRE]
▶ Versum Materials Declares Quarterly Cash Dividend   [Jan-30-18 06:00AM  Business Wire]
▶ 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]
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