Intrinsic value of China Distance Education Holdings ADR - DL

Previous Close

$7.01

  Intrinsic Value

$19.10

stock screener

  Rating & Target

str. buy

+172%

  Value-price divergence*

+91%

Previous close

$7.01

 
Intrinsic value

$19.10

 
Up/down potential

+172%

 
Rating

str. buy

 
Value-price divergence*

+91%

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

We calculate the intrinsic value of DL 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 0.2

 

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, %
  9.26
  9.30
  8.87
  8.48
  8.13
  7.82
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
Revenue, $m
  118
  129
  140
  152
  165
  178
  191
  205
  219
  234
  250
  266
  283
  301
  319
  338
  358
  379
  401
  423
  447
  471
  497
  524
  552
  582
  613
  645
  679
  714
  752
Variable operating expenses, $m
 
  90
  98
  106
  115
  123
  132
  142
  152
  162
  173
  181
  192
  204
  216
  229
  243
  257
  272
  287
  303
  320
  337
  356
  375
  395
  416
  438
  461
  485
  510
Fixed operating expenses, $m
 
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
Total operating expenses, $m
  89
  96
  104
  112
  122
  130
  139
  149
  159
  169
  181
  189
  200
  212
  224
  238
  252
  266
  281
  297
  313
  330
  347
  367
  386
  406
  427
  450
  473
  497
  523
Operating income, $m
  29
  32
  36
  40
  43
  47
  52
  56
  60
  65
  70
  78
  83
  88
  94
  100
  106
  113
  119
  126
  134
  142
  150
  158
  167
  176
  186
  196
  206
  217
  229
EBITDA, $m
  33
  38
  41
  45
  49
  53
  58
  62
  67
  72
  77
  82
  88
  94
  100
  106
  112
  119
  126
  134
  141
  149
  158
  167
  176
  186
  196
  207
  218
  230
  242
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
Earnings before tax, $m
  33
  32
  36
  39
  43
  46
  50
  54
  58
  62
  67
  74
  79
  84
  89
  95
  101
  106
  113
  119
  126
  133
  140
  148
  156
  165
  174
  183
  193
  203
  214
Tax expense, $m
  6
  9
  10
  11
  11
  12
  14
  15
  16
  17
  18
  20
  21
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
Net income, $m
  26
  24
  26
  28
  31
  34
  37
  39
  42
  46
  49
  54
  58
  61
  65
  69
  73
  78
  82
  87
  92
  97
  102
  108
  114
  120
  127
  133
  141
  148
  156

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  55
  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
  149
  118
  128
  139
  151
  162
  175
  187
  201
  214
  229
  244
  259
  275
  292
  309
  328
  347
  366
  387
  409
  431
  455
  480
  505
  532
  561
  590
  621
  654
  688
Adjusted assets (=assets-cash), $m
  94
  118
  128
  139
  151
  162
  175
  187
  201
  214
  229
  244
  259
  275
  292
  309
  328
  347
  366
  387
  409
  431
  455
  480
  505
  532
  561
  590
  621
  654
  688
Revenue / Adjusted assets
  1.255
  1.093
  1.094
  1.094
  1.093
  1.099
  1.091
  1.096
  1.090
  1.093
  1.092
  1.090
  1.093
  1.095
  1.092
  1.094
  1.091
  1.092
  1.096
  1.093
  1.093
  1.093
  1.092
  1.092
  1.093
  1.094
  1.093
  1.093
  1.093
  1.092
  1.093
Average production assets, $m
  20
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  75
  80
  84
  89
  93
  98
  104
  109
  115
  121
  127
Working capital, $m
  -3
  -13
  -14
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -65
  -68
  -71
  -75
Total debt, $m
  16
  8
  17
  26
  35
  44
  54
  65
  76
  87
  98
  111
  123
  136
  150
  164
  179
  194
  211
  227
  245
  264
  283
  303
  324
  346
  369
  393
  418
  445
  472
Total liabilities, $m
  104
  96
  105
  114
  123
  132
  142
  153
  164
  175
  186
  199
  211
  224
  238
  252
  267
  282
  299
  315
  333
  352
  371
  391
  412
  434
  457
  481
  506
  533
  560
Total equity, $m
  45
  22
  24
  26
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
  57
  61
  64
  68
  72
  76
  80
  84
  89
  93
  98
  104
  109
  115
  121
  127
Total liabilities and equity, $m
  149
  118
  129
  140
  151
  162
  174
  188
  201
  215
  228
  244
  259
  275
  292
  309
  328
  346
  367
  387
  409
  432
  455
  480
  505
  532
  561
  590
  621
  654
  687
Debt-to-equity ratio
  0.356
  0.370
  0.700
  0.990
  1.250
  1.480
  1.680
  1.870
  2.040
  2.190
  2.330
  2.450
  2.570
  2.680
  2.780
  2.870
  2.950
  3.030
  3.110
  3.180
  3.240
  3.300
  3.360
  3.410
  3.460
  3.510
  3.560
  3.600
  3.640
  3.680
  3.710
Adjusted equity ratio
  0.064
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185
  0.185

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  26
  24
  26
  28
  31
  34
  37
  39
  42
  46
  49
  54
  58
  61
  65
  69
  73
  78
  82
  87
  92
  97
  102
  108
  114
  120
  127
  133
  141
  148
  156
Depreciation, amort., depletion, $m
  4
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
Funds from operations, $m
  46
  29
  31
  34
  37
  40
  43
  46
  49
  52
  56
  59
  63
  67
  71
  75
  79
  84
  89
  94
  99
  105
  111
  117
  123
  130
  137
  144
  152
  160
  169
Change in working capital, $m
  7
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
Cash from operations, $m
  39
  30
  32
  35
  38
  41
  44
  47
  50
  54
  57
  60
  64
  68
  72
  77
  81
  86
  91
  96
  102
  107
  113
  120
  126
  133
  140
  148
  155
  164
  172
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
New CAPEX, $m
  -3
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  -34
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -17
  -18
Free cash flow, $m
  5
  26
  28
  31
  33
  36
  39
  42
  45
  48
  51
  53
  57
  61
  64
  68
  72
  77
  81
  86
  91
  96
  101
  107
  113
  119
  125
  132
  139
  146
  154
Issuance/(repayment) of debt, $m
  0
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Issuance/(repurchase) of shares, $m
  -35
  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  
  -32
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
Total cash flow (excl. dividends), $m
  -33
  34
  37
  40
  43
  46
  49
  52
  55
  59
  62
  66
  69
  74
  78
  82
  87
  92
  97
  103
  108
  114
  120
  127
  134
  141
  148
  156
  164
  173
  182
Retained Cash Flow (-), $m
  46
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Prev. year cash balance distribution, $m
 
  25
  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
 
  57
  35
  38
  40
  43
  46
  50
  53
  56
  60
  63
  67
  71
  75
  79
  84
  89
  94
  99
  104
  110
  116
  122
  129
  136
  143
  150
  158
  167
  175
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
 
  55
  32
  33
  33
  34
  34
  33
  33
  32
  31
  30
  28
  27
  25
  23
  21
  19
  17
  15
  13
  11
  10
  8
  7
  5
  4
  3
  2
  2
  1
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
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China Distance Education Holdings Limited provides online and offline education services, and sells related products in the People’s Republic of China. It operates through three segments: Online Education Services, Business Start-Up Training Services, and The Sale of Learning Simulation Software. The company offers online professional education services in accounting, healthcare, and engineering and construction industries; and other professional education courses, such as the national judicial examination, online test-preparation courses for self-taught learners pursuing higher education diplomas or degrees, test preparation courses for university students, and online language courses. Its online courses features pre-recorded audio-video lectures taught by experts; and other content, such as course outlines, exercise questions, mock exams, and frequently asked questions and answers. The company’s online lectures are supplemented by its proprietary Learning Management System, which tracks individual study progress, records course notes, and collects incorrectly answered questions. As of September 30, 2016, it operated 25 Websites, including its primary Website cdeledu.com. In addition, the company operates an Open Learning Platform, a proprietary education platform, which allows people to share their educational content and deliver live courses online; and sells proprietary books and reference materials. Further, it provides business start-up training courses to university students, job seekers, and individuals; offline accounting and healthcare professional training, courseware production, and online platform development services; and mobile accounting, engineering and construction, healthcare, and legal courses through an app on Android and Apple iOS tablets and smart phones, as well as engages in selling learning simulation software to the college market. The company was founded in 2000 and is based in Beijing, the People’s Republic of China.

FINANCIAL RATIOS  of  China Distance Education Holdings ADR (DL)

Valuation Ratios
P/E Ratio 35.5
Price to Sales 7.8
Price to Book 20.5
Price to Tangible Book
Price to Cash Flow 23.7
Price to Free Cash Flow 25.7
Growth Rates
Sales Growth Rate 9.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 3
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 35.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 16.1%
Ret/ On Assets - 3 Yr. Avg. 15.7%
Return On Total Capital 31%
Ret/ On T. Cap. - 3 Yr. Avg. 26.3%
Return On Equity 38.2%
Return On Equity - 3 Yr. Avg. 31%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 58.5%
Gross Margin - 3 Yr. Avg. 58.8%
EBITDA Margin 31.4%
EBITDA Margin - 3 Yr. Avg. 30.6%
Operating Margin 24.6%
Oper. Margin - 3 Yr. Avg. 24.5%
Pre-Tax Margin 28%
Pre-Tax Margin - 3 Yr. Avg. 27.9%
Net Profit Margin 22%
Net Profit Margin - 3 Yr. Avg. 23%
Effective Tax Rate 18.2%
Eff/ Tax Rate - 3 Yr. Avg. 16.6%
Payout Ratio 119.2%

DL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DL stock intrinsic value calculation we used $118 million for the last fiscal year's total revenue generated by China Distance Education Holdings ADR. The default revenue input number comes from 2016 income statement of China Distance Education Holdings ADR. 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 DL stock valuation model: a) initial revenue growth rate of 9.3% 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 DL is calculated based on our internal credit rating of China Distance Education Holdings ADR, 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 Distance Education Holdings ADR.
    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 DL stock the variable cost ratio is equal to 70.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6 million in the base year in the intrinsic value calculation for DL 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 Distance Education Holdings ADR.

Corporate tax rate of 27% is the nominal tax rate for China Distance Education Holdings ADR. 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 DL 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 DL are equal to 16.9%.

Life of production assets of 10 years is the average useful life of capital assets used in China Distance Education Holdings ADR 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 DL is equal to -10%. 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 - $45 million for China Distance Education Holdings ADR - 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 32.834 million for China Distance Education Holdings ADR 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 Distance Education Holdings ADR at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ China Distance reports 2Q loss   [May-17-17 05:08PM  Associated Press]
▶ CDEL to Hold Annual General Meeting on May 19, 2017   [Apr-27-17 07:00AM  PR Newswire]
▶ China Distance posts 1Q profit   [Feb-21-17 06:18PM  Associated Press]
▶ 8 High-Yield Stocks With Falling Prices   [05:51PM  GuruFocus.com]
▶ Is Zoes Kitchen Inc (ZOES) A Good Stock To Buy?   [Dec-20-16 02:00PM  at Insider Monkey]
▶ Hedge Funds Are Betting On World Acceptance Corp. (WRLD)   [Dec-12-16 01:03PM  at Insider Monkey]
▶ Is Park Sterling Corp (PSTB) A Good Stock To Buy?   [Dec-08-16 03:11PM  at Insider Monkey]
▶ CDEL to Hold Annual General Meeting on May 26, 2016   [May-05-16 07:00AM  PR Newswire]
▶ A China Fund that Invests in Change   [Oct-29  12:01AM  at Barrons.com]
▶ Tarena, Nord Anglia Among China's Resilient Educators   [Aug-10  06:04PM  at Investor's Business Daily]
Stock chart of DL Financial statements of DL
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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