Intrinsic value of Covalon Technologies Ltd - COV

Previous Close

$3.75

  Intrinsic Value

$0.05

stock screener

  Rating & Target

str. sell

-99%

  Value-price divergence*

0%

Previous close

$3.75

 
Intrinsic value

$0.05

 
Up/down potential

-99%

 
Rating

str. sell

 
Value-price divergence*

0%

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

We calculate the intrinsic value of COV 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 2016), $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 0.1

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  -12.50
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  7
  11
  17
  26
  38
  53
  73
  98
  128
  165
  209
  259
  317
  382
  454
  534
  621
  716
  817
  925
  1,040
  1,162
  1,290
  1,424
  1,565
  1,712
  1,865
  2,025
  2,191
  2,363
  2,543
Variable operating expenses, $m
 
  11
  17
  26
  38
  53
  73
  98
  128
  165
  209
  259
  317
  382
  454
  534
  621
  716
  817
  925
  1,040
  1,162
  1,290
  1,424
  1,565
  1,712
  1,865
  2,025
  2,191
  2,363
  2,543
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
  10
  11
  17
  26
  38
  53
  73
  98
  128
  165
  209
  259
  317
  382
  454
  534
  621
  716
  817
  925
  1,040
  1,162
  1,290
  1,424
  1,565
  1,712
  1,865
  2,025
  2,191
  2,363
  2,543
Operating income, $m
  -3
  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
EBITDA, $m
  -3
  0
  0
  1
  1
  2
  2
  3
  4
  5
  6
  7
  9
  11
  13
  15
  18
  20
  23
  26
  30
  33
  37
  41
  45
  49
  53
  58
  63
  68
  73
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  4
  5
  6
  7
  8
  9
  10
  12
  13
  14
  16
  17
  19
  20
  22
  24
Earnings before tax, $m
  -3
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
Tax expense, $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
  0
Net income, $m
  -3
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1
  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
  6
  8
  12
  18
  27
  38
  52
  70
  92
  118
  149
  185
  226
  273
  324
  381
  444
  511
  584
  661
  743
  830
  921
  1,017
  1,118
  1,223
  1,332
  1,446
  1,565
  1,688
  1,816
Adjusted assets (=assets-cash), $m
  5
  8
  12
  18
  27
  38
  52
  70
  92
  118
  149
  185
  226
  273
  324
  381
  444
  511
  584
  661
  743
  830
  921
  1,017
  1,118
  1,223
  1,332
  1,446
  1,565
  1,688
  1,816
Revenue / Adjusted assets
  1.400
  1.375
  1.417
  1.444
  1.407
  1.395
  1.404
  1.400
  1.391
  1.398
  1.403
  1.400
  1.403
  1.399
  1.401
  1.402
  1.399
  1.401
  1.399
  1.399
  1.400
  1.400
  1.401
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
  1.400
Average production assets, $m
  2
  3
  5
  7
  11
  15
  21
  28
  37
  47
  60
  74
  91
  109
  130
  153
  178
  205
  234
  265
  298
  332
  369
  407
  448
  490
  533
  579
  627
  676
  727
Working capital, $m
  2
  2
  2
  4
  5
  8
  10
  14
  18
  24
  30
  37
  45
  55
  65
  76
  89
  102
  117
  132
  149
  166
  184
  204
  224
  245
  267
  290
  313
  338
  364
Total debt, $m
  0
  1
  3
  5
  9
  13
  19
  26
  35
  45
  58
  72
  88
  107
  128
  151
  176
  202
  231
  262
  295
  330
  367
  405
  445
  487
  531
  576
  624
  673
  724
Total liabilities, $m
  3
  3
  5
  7
  11
  15
  21
  28
  37
  47
  60
  74
  90
  109
  130
  153
  178
  204
  233
  264
  297
  332
  369
  407
  447
  489
  533
  578
  626
  675
  726
Total equity, $m
  4
  5
  7
  11
  16
  23
  31
  42
  55
  71
  89
  111
  136
  164
  195
  229
  266
  307
  350
  397
  446
  498
  553
  610
  671
  734
  799
  868
  939
  1,013
  1,090
Total liabilities and equity, $m
  7
  8
  12
  18
  27
  38
  52
  70
  92
  118
  149
  185
  226
  273
  325
  382
  444
  511
  583
  661
  743
  830
  922
  1,017
  1,118
  1,223
  1,332
  1,446
  1,565
  1,688
  1,816
Debt-to-equity ratio
  0.000
  0.250
  0.400
  0.490
  0.540
  0.580
  0.600
  0.620
  0.630
  0.640
  0.640
  0.650
  0.650
  0.650
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
  0.660
Adjusted equity ratio
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600
  0.600

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -3
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -24
Depreciation, amort., depletion, $m
  0
  0
  0
  1
  1
  2
  2
  3
  4
  5
  6
  7
  9
  11
  13
  15
  18
  20
  23
  26
  30
  33
  37
  41
  45
  49
  53
  58
  63
  68
  73
Funds from operations, $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  7
  8
  9
  11
  12
  14
  16
  18
  21
  23
  25
  28
  31
  33
  36
  39
  42
  46
  49
Change in working capital, $m
  1
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Cash from operations, $m
  -1
  0
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  -1
  0
  1
  2
  3
  4
  6
  7
  9
  10
  12
  14
  17
  19
  21
  24
Maintenance CAPEX, $m
  0
  0
  0
  0
  -1
  -1
  -2
  -2
  -3
  -4
  -5
  -6
  -7
  -9
  -11
  -13
  -15
  -18
  -20
  -23
  -26
  -30
  -33
  -37
  -41
  -45
  -49
  -53
  -58
  -63
  -68
New CAPEX, $m
  0
  -1
  -2
  -2
  -3
  -4
  -6
  -7
  -9
  -11
  -12
  -14
  -16
  -19
  -21
  -23
  -25
  -27
  -29
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -47
  -49
  -51
Cash from investing activities, $m
  0
  -1
  -2
  -2
  -4
  -5
  -8
  -9
  -12
  -15
  -17
  -20
  -23
  -28
  -32
  -36
  -40
  -45
  -49
  -54
  -59
  -65
  -70
  -75
  -81
  -87
  -93
  -99
  -105
  -112
  -119
Free cash flow, $m
  -1
  -2
  -2
  -4
  -5
  -6
  -8
  -11
  -13
  -16
  -19
  -22
  -26
  -29
  -33
  -36
  -40
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -95
Issuance/(repayment) of debt, $m
  0
  1
  2
  2
  3
  4
  6
  7
  9
  11
  12
  14
  16
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  38
  40
  42
  44
  46
  47
  49
  51
Issuance/(repurchase) of shares, $m
  1
  2
  3
  4
  5
  7
  9
  11
  14
  17
  20
  24
  27
  31
  35
  39
  43
  47
  51
  55
  58
  62
  66
  70
  74
  79
  83
  87
  91
  96
  100
Cash from financing (excl. dividends), $m  
  1
  3
  5
  6
  8
  11
  15
  18
  23
  28
  32
  38
  43
  50
  56
  62
  68
  74
  80
  86
  91
  97
  103
  108
  114
  121
  127
  133
  138
  145
  151
Total cash flow (excl. dividends), $m
  0
  1
  2
  3
  4
  5
  6
  8
  10
  12
  14
  16
  18
  20
  23
  25
  27
  30
  32
  34
  36
  38
  40
  42
  44
  46
  48
  50
  52
  54
  56
Retained Cash Flow (-), $m
  1
  -2
  -3
  -4
  -5
  -7
  -9
  -11
  -14
  -17
  -20
  -24
  -27
  -31
  -35
  -39
  -43
  -47
  -51
  -55
  -58
  -62
  -66
  -70
  -74
  -79
  -83
  -87
  -91
  -96
  -100
Prev. year cash balance distribution, $m
 
  1
  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
 
  1
  -1
  -1
  -2
  -2
  -3
  -4
  -4
  -5
  -7
  -8
  -9
  -11
  -12
  -14
  -15
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -35
  -37
  -39
  -42
  -44
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
 
  0
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -3
  -3
  -3
  -3
  -2
  -2
  -2
  -1
  -1
  -1
  -1
  0
  0
Current shareholders' claim on cash, %
  100
  94.3
  89.4
  85.1
  81.3
  77.9
  74.9
  72.3
  70.0
  67.9
  66.0
  64.3
  62.8
  61.4
  60.1
  58.9
  57.8
  56.8
  55.9
  55.1
  54.3
  53.5
  52.8
  52.1
  51.5
  50.9
  50.3
  49.8
  49.3
  48.8
  48.3

Covalon Technologies Ltd. is a researcher, developer, manufacturer and marketer of medical products that manage patient outcomes and save lives in the areas of wound care, infection management and surgical procedures. The Company offers platform technologies: Collagen matrix; Antimicrobial silicone adhesive and Medical coating technology. The collagen matrix platform is used to manufacture products that treat chronic and infected wounds, including diabetic ulcers, pressure ulcers, venous ulcers, donor and graft sites, traumatic wounds healing by secondary intention, dehisced surgical wounds, and first and second degree burns. The antimicrobial silicone adhesive platform is the basis for a range of pre-surgical, post surgical and vascular access products that are designed to kill any bacteria or yeast that comes into contact with the antimicrobial silicone. The coating technology is a grafting from process, which utilizes photo-polymerization to create active grafting sites.

FINANCIAL RATIOS  of  Covalon Technologies Ltd (COV)

Valuation Ratios
P/E Ratio -24.2
Price to Sales 10.4
Price to Book 18.2
Price to Tangible Book
Price to Cash Flow -72.6
Price to Free Cash Flow -72.6
Growth Rates
Sales Growth Rate -12.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
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 -42.9%
Ret/ On Assets - 3 Yr. Avg. -8.9%
Return On Total Capital -60%
Ret/ On T. Cap. - 3 Yr. Avg. -13%
Return On Equity -66.7%
Return On Equity - 3 Yr. Avg. -13.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 57.1%
Gross Margin - 3 Yr. Avg. 65.8%
EBITDA Margin -42.9%
EBITDA Margin - 3 Yr. Avg. -11%
Operating Margin -42.9%
Oper. Margin - 3 Yr. Avg. -6.9%
Pre-Tax Margin -42.9%
Pre-Tax Margin - 3 Yr. Avg. -11%
Net Profit Margin -42.9%
Net Profit Margin - 3 Yr. Avg. -11%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

COV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the COV stock intrinsic value calculation we used $7 million for the last fiscal year's total revenue generated by Covalon Technologies Ltd. The default revenue input number comes from 2016 income statement of Covalon Technologies 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 COV stock valuation model: a) initial revenue growth rate of 60% 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 COV is calculated based on our internal credit rating of Covalon Technologies 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 Covalon Technologies 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 COV stock the variable cost ratio is equal to 100%.

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 COV 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 Covalon Technologies Ltd.

Corporate tax rate of 27% is the nominal tax rate for Covalon Technologies 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 COV 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 COV are equal to 28.6%.

Life of production assets of 10 years is the average useful life of capital assets used in Covalon Technologies 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 COV is equal to 14.3%. 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 - $4 million for Covalon Technologies 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 21.342 million for Covalon Technologies 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 Covalon Technologies Ltd at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
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Financial statements of COV
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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