Intrinsic value of American Vanguard - AVD

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$16.75

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$16.75

 
Intrinsic value

$2.69

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of AVD 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 0.5

 

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, %
  7.96
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  312
  323
  335
  348
  362
  377
  393
  409
  427
  446
  466
  487
  509
  532
  557
  583
  611
  640
  670
  702
  736
  772
  809
  848
  890
  933
  979
  1,027
  1,077
  1,130
  1,186
Variable operating expenses, $m
 
  197
  204
  212
  221
  230
  239
  249
  260
  272
  284
  296
  310
  324
  339
  355
  372
  390
  408
  428
  448
  470
  493
  517
  542
  568
  596
  625
  656
  688
  722
Fixed operating expenses, $m
 
  108
  110
  113
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  176
  181
  185
  190
  195
  200
  205
  210
  215
  220
Total operating expenses, $m
  292
  305
  314
  325
  337
  349
  361
  374
  388
  403
  418
  434
  451
  469
  487
  507
  528
  550
  572
  596
  620
  646
  674
  702
  732
  763
  796
  830
  866
  903
  942
Operating income, $m
  21
  19
  21
  23
  26
  29
  32
  35
  39
  43
  48
  53
  58
  63
  69
  76
  83
  90
  98
  107
  116
  125
  136
  146
  158
  170
  183
  197
  212
  227
  244
EBITDA, $m
  37
  35
  38
  41
  44
  48
  52
  56
  61
  66
  72
  78
  84
  91
  98
  106
  114
  123
  133
  143
  153
  165
  177
  190
  204
  218
  233
  250
  267
  285
  304
Interest expense (income), $m
  2
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
Earnings before tax, $m
  19
  17
  19
  21
  24
  26
  29
  32
  36
  40
  44
  48
  53
  58
  64
  70
  77
  84
  91
  99
  107
  116
  126
  136
  147
  159
  171
  184
  198
  212
  228
Tax expense, $m
  6
  5
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  19
  21
  23
  25
  27
  29
  31
  34
  37
  40
  43
  46
  50
  53
  57
  61
Net income, $m
  13
  13
  14
  15
  17
  19
  21
  24
  26
  29
  32
  35
  39
  43
  47
  51
  56
  61
  66
  72
  78
  85
  92
  99
  107
  116
  125
  134
  144
  155
  166

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  430
  437
  454
  471
  490
  510
  531
  554
  578
  603
  630
  659
  689
  720
  754
  789
  826
  866
  907
  950
  996
  1,044
  1,095
  1,148
  1,204
  1,263
  1,325
  1,390
  1,458
  1,530
  1,605
Adjusted assets (=assets-cash), $m
  422
  437
  454
  471
  490
  510
  531
  554
  578
  603
  630
  659
  689
  720
  754
  789
  826
  866
  907
  950
  996
  1,044
  1,095
  1,148
  1,204
  1,263
  1,325
  1,390
  1,458
  1,530
  1,605
Revenue / Adjusted assets
  0.739
  0.739
  0.738
  0.739
  0.739
  0.739
  0.740
  0.738
  0.739
  0.740
  0.740
  0.739
  0.739
  0.739
  0.739
  0.739
  0.740
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
  0.739
Average production assets, $m
  175
  181
  187
  195
  202
  211
  219
  229
  239
  249
  260
  272
  285
  298
  311
  326
  341
  358
  375
  393
  411
  431
  452
  474
  497
  522
  547
  574
  602
  632
  663
Working capital, $m
  130
  126
  131
  136
  142
  147
  154
  160
  167
  174
  182
  190
  199
  208
  218
  228
  239
  250
  262
  275
  288
  302
  316
  332
  348
  365
  383
  402
  421
  442
  464
Total debt, $m
  41
  47
  52
  58
  65
  72
  79
  87
  96
  105
  114
  124
  135
  146
  158
  170
  183
  197
  211
  227
  243
  259
  277
  296
  316
  336
  358
  381
  405
  430
  456
Total liabilities, $m
  148
  154
  159
  165
  172
  179
  186
  194
  203
  212
  221
  231
  242
  253
  265
  277
  290
  304
  318
  334
  350
  366
  384
  403
  423
  443
  465
  488
  512
  537
  563
Total equity, $m
  282
  284
  294
  306
  318
  331
  345
  360
  375
  392
  409
  427
  447
  468
  489
  512
  536
  562
  589
  617
  646
  678
  710
  745
  781
  819
  860
  902
  946
  993
  1,042
Total liabilities and equity, $m
  430
  438
  453
  471
  490
  510
  531
  554
  578
  604
  630
  658
  689
  721
  754
  789
  826
  866
  907
  951
  996
  1,044
  1,094
  1,148
  1,204
  1,262
  1,325
  1,390
  1,458
  1,530
  1,605
Debt-to-equity ratio
  0.145
  0.160
  0.180
  0.190
  0.200
  0.220
  0.230
  0.240
  0.260
  0.270
  0.280
  0.290
  0.300
  0.310
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
  0.420
  0.430
  0.430
  0.440
Adjusted equity ratio
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649
  0.649

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  13
  13
  14
  15
  17
  19
  21
  24
  26
  29
  32
  35
  39
  43
  47
  51
  56
  61
  66
  72
  78
  85
  92
  99
  107
  116
  125
  134
  144
  155
  166
Depreciation, amort., depletion, $m
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  40
  41
  44
  46
  48
  50
  53
  55
  58
  61
Funds from operations, $m
  55
  29
  31
  33
  36
  38
  41
  45
  48
  52
  56
  60
  65
  70
  75
  81
  87
  94
  101
  108
  116
  124
  133
  143
  153
  164
  175
  187
  199
  213
  227
Change in working capital, $m
  9
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  46
  22
  26
  28
  30
  33
  35
  38
  41
  44
  48
  52
  56
  61
  66
  71
  76
  82
  89
  96
  103
  111
  119
  127
  137
  147
  157
  168
  180
  192
  205
Maintenance CAPEX, $m
  0
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -41
  -44
  -46
  -48
  -50
  -53
  -55
  -58
New CAPEX, $m
  -11
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
Cash from investing activities, $m
  -14
  -22
  -24
  -24
  -26
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -37
  -39
  -41
  -44
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -63
  -67
  -70
  -74
  -77
  -81
  -85
  -89
Free cash flow, $m
  32
  0
  3
  4
  5
  6
  7
  9
  10
  12
  14
  16
  19
  22
  25
  28
  31
  35
  39
  43
  48
  53
  58
  64
  70
  77
  84
  91
  99
  107
  116
Issuance/(repayment) of debt, $m
  -28
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Issuance/(repurchase) of shares, $m
  0
  0
  2
  1
  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
Cash from financing (excl. dividends), $m  
  -28
  6
  8
  7
  8
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Total cash flow (excl. dividends), $m
  3
  6
  9
  10
  11
  13
  15
  17
  19
  21
  24
  26
  29
  33
  36
  40
  44
  49
  53
  59
  64
  70
  76
  83
  90
  97
  105
  114
  123
  132
  143
Retained Cash Flow (-), $m
  -14
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -47
  -49
Prev. year cash balance distribution, $m
 
  8
  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
 
  4
  0
  0
  0
  0
  1
  2
  3
  4
  6
  8
  10
  12
  15
  17
  20
  23
  27
  30
  34
  39
  43
  48
  53
  59
  65
  72
  78
  86
  94
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
 
  4
  0
  0
  0
  0
  1
  1
  2
  3
  3
  4
  4
  5
  5
  5
  5
  5
  5
  5
  4
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  100
  100.0
  99.7
  99.4
  99.2
  99.2
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American Vanguard Corporation, through its subsidiaries, develops, manufactures, and markets specialty chemicals for agricultural, commercial, and consumer uses in the United States and internationally. The company manufactures and formulates chemicals, including insecticides, fungicides, herbicides, molluscicides, growth regulators, and soil fumigants in liquid, powder, and granular forms for crops, turf and ornamental plants, and human and animal health protection. American Vanguard Corporation distributes its products through national distribution companies and buying groups or co-operatives in the United States; and through sales offices and sales force executives internationally. The company was founded in 1969 and is headquartered in Newport Beach, California.

FINANCIAL RATIOS  of  American Vanguard (AVD)

Valuation Ratios
P/E Ratio 37.8
Price to Sales 1.6
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 10.7
Price to Free Cash Flow 14.1
Growth Rates
Sales Growth Rate 8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -75%
Cap. Spend. - 3 Yr. Gr. Rate -6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 14.5%
Total Debt to Equity 14.5%
Interest Coverage 11
Management Effectiveness
Return On Assets 3.3%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 3.9%
Ret/ On T. Cap. - 3 Yr. Avg. 2.5%
Return On Equity 4.7%
Return On Equity - 3 Yr. Avg. 3.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 41%
Gross Margin - 3 Yr. Avg. 39.4%
EBITDA Margin 11.9%
EBITDA Margin - 3 Yr. Avg. 9.6%
Operating Margin 6.4%
Oper. Margin - 3 Yr. Avg. 4.2%
Pre-Tax Margin 6.1%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 4.2%
Net Profit Margin - 3 Yr. Avg. 2.8%
Effective Tax Rate 31.6%
Eff/ Tax Rate - 3 Yr. Avg. 17.9%
Payout Ratio 7.7%

AVD stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AVD stock intrinsic value calculation we used $312 million for the last fiscal year's total revenue generated by American Vanguard. The default revenue input number comes from 2016 income statement of American Vanguard. 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 AVD stock valuation model: a) initial revenue growth rate of 3.6% 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 AVD is calculated based on our internal credit rating of American Vanguard, 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 American Vanguard.
    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 AVD stock the variable cost ratio is equal to 60.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $105 million in the base year in the intrinsic value calculation for AVD 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 3.7% for American Vanguard.

Corporate tax rate of 27% is the nominal tax rate for American Vanguard. 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 AVD 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 AVD are equal to 55.9%.

Life of production assets of 10.9 years is the average useful life of capital assets used in American Vanguard 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 AVD is equal to 39.1%. 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 - $282 million for American Vanguard - 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 30.78 million for American Vanguard 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 American Vanguard at the current share price and the inputted number of shares is $0.5 billion.


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COMPANY NEWS

▶ US, EU clear Chinese takeover of Syngenta   [06:00AM  Associated Press]
▶ American Vanguard Announces New Head of Regulatory Affairs   [Mar-21-17 04:05PM  Business Wire]
▶ American Vanguard meets 4Q profit forecasts   [Mar-06-17 04:33PM  Associated Press]
▶ Deere: A Bummer of an Upgrade   [Nov-28-16 11:55AM  at Barrons.com]
▶ [$$] American Vanguard Plants a Comeback   [Nov-12-16 12:01AM  at Barrons.com]
▶ American Vanguard Declares Quarterly Dividend   [Oct-11-16 04:05PM  Business Wire]
▶ Zika, Miami And Innovative Alternatives To Pesticides   [Aug-11-16 06:30AM  at Forbes]
▶ American Vanguard Declares Quarterly Dividend   [Jun-13-16 09:00AM  Business Wire]
▶ American Vanguard Reports First Quarter 2016 Results   [May-03-16 04:05PM  Business Wire]
Stock chart of AVD Financial statements of AVD
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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