Intrinsic value of China Green Agriculture - CGA

Previous Close

$1.24

  Intrinsic Value

$5.88

stock screener

  Rating & Target

str. buy

+374%

Previous close

$1.24

 
Intrinsic value

$5.88

 
Up/down potential

+374%

 
Rating

str. buy

We calculate the intrinsic value of CGA 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 0.0

 

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, %
  5.95
  5.10
  5.09
  5.08
  5.07
  5.07
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
  5.03
  5.03
  5.03
  5.02
  5.02
  5.02
  5.02
  5.02
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.01
  5.00
Revenue, $m
  285
  300
  315
  331
  348
  365
  384
  403
  423
  445
  467
  491
  515
  541
  568
  597
  627
  658
  691
  726
  763
  801
  841
  883
  927
  974
  1,022
  1,074
  1,127
  1,184
  1,243
Variable operating expenses, $m
 
  263
  276
  290
  305
  320
  336
  353
  371
  390
  409
  429
  450
  473
  497
  522
  548
  575
  604
  635
  666
  700
  735
  772
  810
  851
  893
  938
  985
  1,034
  1,086
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
  253
  263
  276
  290
  305
  320
  336
  353
  371
  390
  409
  429
  450
  473
  497
  522
  548
  575
  604
  635
  666
  700
  735
  772
  810
  851
  893
  938
  985
  1,034
  1,086
Operating income, $m
  32
  37
  39
  41
  43
  45
  47
  50
  53
  55
  58
  62
  65
  68
  72
  75
  79
  83
  87
  92
  96
  101
  106
  111
  117
  123
  129
  135
  142
  149
  157
EBITDA, $m
  49
  43
  45
  47
  50
  52
  55
  57
  60
  63
  67
  70
  73
  77
  81
  85
  89
  94
  99
  104
  109
  114
  120
  126
  132
  139
  146
  153
  161
  169
  177
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
  6
Earnings before tax, $m
  32
  37
  38
  40
  42
  45
  47
  49
  52
  54
  57
  61
  63
  67
  70
  73
  77
  81
  85
  89
  93
  98
  103
  108
  113
  119
  124
  131
  137
  144
  151
Tax expense, $m
  7
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
Net income, $m
  25
  27
  28
  29
  31
  32
  34
  36
  38
  39
  41
  44
  46
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  79
  83
  87
  91
  95
  100
  105
  110

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  123
  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
  456
  350
  368
  386
  406
  427
  448
  471
  495
  520
  546
  573
  602
  632
  664
  697
  732
  769
  808
  848
  891
  935
  982
  1,032
  1,083
  1,137
  1,194
  1,254
  1,317
  1,383
  1,452
Adjusted assets (=assets-cash), $m
  333
  350
  368
  386
  406
  427
  448
  471
  495
  520
  546
  573
  602
  632
  664
  697
  732
  769
  808
  848
  891
  935
  982
  1,032
  1,083
  1,137
  1,194
  1,254
  1,317
  1,383
  1,452
Revenue / Adjusted assets
  0.856
  0.857
  0.856
  0.858
  0.857
  0.855
  0.857
  0.856
  0.855
  0.856
  0.855
  0.857
  0.855
  0.856
  0.855
  0.857
  0.857
  0.856
  0.855
  0.856
  0.856
  0.857
  0.856
  0.856
  0.856
  0.857
  0.856
  0.856
  0.856
  0.856
  0.856
Average production assets, $m
  24
  25
  26
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  44
  47
  49
  51
  54
  57
  60
  63
  66
  69
  72
  76
  80
  84
  88
  92
  97
  102
Working capital, $m
  321
  150
  157
  165
  174
  183
  192
  202
  212
  222
  234
  245
  258
  271
  284
  298
  313
  329
  346
  363
  381
  400
  420
  442
  464
  487
  511
  537
  564
  592
  622
Total debt, $m
  16
  10
  13
  16
  19
  22
  25
  29
  32
  36
  40
  44
  48
  53
  58
  63
  68
  73
  79
  85
  92
  98
  105
  113
  120
  129
  137
  146
  156
  165
  176
Total liabilities, $m
  58
  52
  55
  58
  61
  64
  67
  71
  74
  78
  82
  86
  90
  95
  100
  105
  110
  115
  121
  127
  134
  140
  147
  155
  162
  171
  179
  188
  198
  207
  218
Total equity, $m
  398
  297
  313
  328
  345
  363
  381
  400
  420
  442
  464
  487
  512
  537
  564
  593
  623
  654
  687
  721
  757
  795
  835
  877
  921
  967
  1,015
  1,066
  1,119
  1,175
  1,234
Total liabilities and equity, $m
  456
  349
  368
  386
  406
  427
  448
  471
  494
  520
  546
  573
  602
  632
  664
  698
  733
  769
  808
  848
  891
  935
  982
  1,032
  1,083
  1,138
  1,194
  1,254
  1,317
  1,382
  1,452
Debt-to-equity ratio
  0.040
  0.040
  0.040
  0.050
  0.050
  0.060
  0.070
  0.070
  0.080
  0.080
  0.090
  0.090
  0.090
  0.100
  0.100
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
  0.130
  0.130
  0.130
  0.130
  0.140
  0.140
  0.140
  0.140
  0.140
Adjusted equity ratio
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850
  0.850

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  25
  27
  28
  29
  31
  32
  34
  36
  38
  39
  41
  44
  46
  49
  51
  54
  56
  59
  62
  65
  68
  71
  75
  79
  83
  87
  91
  95
  100
  105
  110
Depreciation, amort., depletion, $m
  17
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  17
  18
  18
  19
  20
Funds from operations, $m
  -12
  33
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  57
  60
  63
  66
  70
  73
  77
  81
  85
  89
  93
  98
  103
  108
  113
  119
  124
  131
Change in working capital, $m
  -28
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
Cash from operations, $m
  16
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  40
  42
  45
  47
  49
  51
  54
  57
  59
  62
  65
  69
  72
  76
  79
  83
  87
  92
  96
  101
Maintenance CAPEX, $m
  0
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -18
  -19
New CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Cash from investing activities, $m
  0
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
Free cash flow, $m
  16
  20
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
  32
  34
  36
  37
  39
  41
  43
  45
  47
  50
  52
  55
  57
  60
  63
  66
  70
  73
  77
Issuance/(repayment) of debt, $m
  3
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
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
  0
Cash from financing (excl. dividends), $m  
  3
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
Total cash flow (excl. dividends), $m
  20
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  38
  40
  42
  44
  47
  49
  51
  54
  56
  59
  62
  65
  68
  72
  75
  79
  83
  87
Retained Cash Flow (-), $m
  -28
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -51
  -53
  -56
  -59
Prev. year cash balance distribution, $m
 
  115
  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
 
  123
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
  26
  27
  28
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
 
  118
  7
  7
  7
  7
  7
  7
  6
  6
  6
  6
  5
  5
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  0
  0
  0
Current shareholders' claim on cash, %
  100
  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
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China Green Agriculture, Inc. is engaged in the research, development, production and sale of various types of fertilizers and agricultural products in the People's Republic of China (PRC) through its Chinese subsidiaries, Shaanxi TechTeam Jinong Humic Acid Product Co., Ltd. (Jinong) and Beijing Gufeng Chemical Products Co., Ltd. (Gufeng), and its variable interest entity (VIE), Xi'an Hu County Yuxing Agriculture Technology Development Co., Ltd. (Yuxing). The Company's segments include Jinong (fertilizer production), Gufeng (fertilizer production) and Yuxing (agricultural products production). The Company's primary business is of fertilizer products, specifically humic acid-based compound fertilizer produced through Jinong, and compound fertilizer, blended fertilizer, organic compound fertilizer, slow-release fertilizers, water-soluble fertilizers and mixed organic-inorganic compound fertilizer produced through Gufeng.

FINANCIAL RATIOS  of  China Green Agriculture (CGA)

Valuation Ratios
P/E Ratio 1.9
Price to Sales 0.2
Price to Book 0.1
Price to Tangible Book
Price to Cash Flow 3
Price to Free Cash Flow 3
Growth Rates
Sales Growth Rate 5.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio 15
Current Ratio 0
LT Debt to Equity 2%
Total Debt to Equity 4%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.7%
Ret/ On Assets - 3 Yr. Avg. 6.6%
Return On Total Capital 6.3%
Ret/ On T. Cap. - 3 Yr. Avg. 7%
Return On Equity 6.5%
Return On Equity - 3 Yr. Avg. 7.3%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 29.5%
Gross Margin - 3 Yr. Avg. 34.5%
EBITDA Margin 17.2%
EBITDA Margin - 3 Yr. Avg. 26.2%
Operating Margin 11.2%
Oper. Margin - 3 Yr. Avg. 13%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 12.8%
Net Profit Margin 8.8%
Net Profit Margin - 3 Yr. Avg. 10%
Effective Tax Rate 21.9%
Eff/ Tax Rate - 3 Yr. Avg. 22.1%
Payout Ratio 0%

CGA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CGA stock intrinsic value calculation we used $285 million for the last fiscal year's total revenue generated by China Green Agriculture. The default revenue input number comes from 2017 income statement of China Green Agriculture. 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 CGA stock valuation model: a) initial revenue growth rate of 5.1% 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 CGA is calculated based on our internal credit rating of China Green Agriculture, 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 China Green Agriculture.
    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 CGA stock the variable cost ratio is equal to 87.7%.

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 CGA 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 China Green Agriculture.

Corporate tax rate of 27% is the nominal tax rate for China Green Agriculture. 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 CGA 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 CGA are equal to 8.2%.

Life of production assets of 1.9 years is the average useful life of capital assets used in China Green Agriculture 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 CGA is equal to 50%. 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 - $398 million for China Green Agriculture - 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 38.551 million for China Green Agriculture 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 China Green Agriculture at the current share price and the inputted number of shares is $0.0 billion.

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Financial statements of CGA
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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