Intrinsic value of Gencor Industries - GENC

Previous Close

$15.55

  Intrinsic Value

$14.63

stock screener

  Rating & Target

hold

-6%

  Value-price divergence*

-151%

Previous close

$15.55

 
Intrinsic value

$14.63

 
Up/down potential

-6%

 
Rating

hold

 
Value-price divergence*

-151%

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

We calculate the intrinsic value of GENC 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, %
  79.49
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
  4.87
  4.89
  4.90
  4.91
  4.92
  4.92
  4.93
  4.94
  4.95
  4.95
  4.96
  4.96
  4.96
  4.97
  4.97
  4.97
  4.98
Revenue, $m
  70
  73
  76
  80
  84
  88
  92
  96
  101
  105
  111
  116
  121
  127
  134
  140
  147
  154
  162
  170
  178
  187
  196
  206
  216
  227
  238
  250
  262
  275
  289
Variable operating expenses, $m
 
  52
  55
  57
  60
  63
  65
  69
  72
  75
  79
  83
  87
  91
  95
  100
  105
  110
  116
  121
  127
  133
  140
  147
  154
  162
  170
  178
  187
  197
  206
Fixed operating expenses, $m
 
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
Total operating expenses, $m
  62
  64
  68
  70
  73
  77
  79
  83
  87
  90
  94
  99
  103
  108
  112
  117
  123
  128
  135
  140
  147
  153
  161
  168
  176
  184
  193
  201
  211
  222
  231
Operating income, $m
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  28
  29
  31
  33
  35
  38
  40
  43
  45
  48
  51
  54
  57
EBITDA, $m
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
  56
  60
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
Earnings before tax, $m
  9
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
  39
  42
  45
  47
  50
  53
  57
Tax expense, $m
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
Net income, $m
  7
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  104
  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
  129
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
  94
  98
  103
Adjusted assets (=assets-cash), $m
  25
  26
  27
  29
  30
  31
  33
  34
  36
  38
  39
  41
  43
  45
  48
  50
  52
  55
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
  94
  98
  103
Revenue / Adjusted assets
  2.800
  2.808
  2.815
  2.759
  2.800
  2.839
  2.788
  2.824
  2.806
  2.763
  2.846
  2.829
  2.814
  2.822
  2.792
  2.800
  2.827
  2.800
  2.793
  2.787
  2.781
  2.791
  2.800
  2.784
  2.805
  2.802
  2.800
  2.809
  2.787
  2.806
  2.806
Average production assets, $m
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
Working capital, $m
  115
  11
  12
  13
  13
  14
  14
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
  45
Total debt, $m
  0
  0
  1
  1
  2
  2
  3
  3
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
Total liabilities, $m
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
Total equity, $m
  120
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
  52
  54
  57
  60
  63
  66
Total liabilities and equity, $m
  129
  26
  27
  28
  30
  31
  33
  34
  36
  38
  39
  41
  44
  45
  48
  50
  53
  55
  58
  61
  64
  67
  70
  73
  77
  81
  85
  89
  94
  98
  103
Debt-to-equity ratio
  0.000
  0.020
  0.050
  0.070
  0.090
  0.110
  0.130
  0.150
  0.170
  0.190
  0.210
  0.220
  0.240
  0.250
  0.270
  0.280
  0.290
  0.310
  0.320
  0.330
  0.340
  0.350
  0.360
  0.370
  0.380
  0.390
  0.400
  0.400
  0.410
  0.420
  0.430
Adjusted equity ratio
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640
  0.640

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  7
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  25
  27
  29
  31
  33
  35
  37
  39
  41
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  5
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  29
  31
  32
  34
  37
  39
  41
  44
Change in working capital, $m
  -2
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
Cash from operations, $m
  7
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  14
  15
  16
  18
  19
  20
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  41
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Free cash flow, $m
  7
  6
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
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  
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
Total cash flow (excl. dividends), $m
  7
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
  23
  25
  26
  28
  30
  31
  33
  35
  38
  40
Retained Cash Flow (-), $m
  -7
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Prev. year cash balance distribution, $m
 
  104
  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
 
  109
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  12
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  29
  31
  33
  35
  37
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
 
  105
  5
  5
  5
  5
  6
  6
  5
  5
  5
  5
  5
  5
  4
  4
  4
  4
  3
  3
  3
  2
  2
  2
  1
  1
  1
  1
  1
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Gencor Industries, Inc., together with its subsidiaries, designs, manufactures, and sells heavy machinery used in the production of highway construction materials, synthetic fuels, and environmental control equipment. The company offers hot-mix asphalt plants to produce asphalt paving materials; related asphalt plant equipment, including hot mix storage silos, fabric filtration systems, cold feed bins, and other plant components; and a range of mobile batch plants. It also provides combustion systems that transform solid, liquid, or gaseous fuels into usable energy, or burn multiple fuels in asphalt and aggregate drying industries; soil remediation machines; and combustion systems for rotary dryers, kilns, fume and liquid incinerators, and fuel heaters, as well as industrial incinerators. In addition, the company offers thermal fluid heat transfer systems that transfer heat for storage, heating, and pumping viscous materials, such as asphalt, chemicals, heavy oils, etc. in various industrial and petrochemical applications; and specialty storage tanks for various industrial uses. Gencor Industries, Inc. sells its products primarily to the highway construction industry through its sales representatives, and independent dealers and agents worldwide. The company was formerly known as Mechtron International Corporation and changed its name to Gencor Industries, Inc. in 1987. Gencor Industries, Inc. was founded in 1968 and is based in Orlando, Florida.

FINANCIAL RATIOS  of  Gencor Industries (GENC)

Valuation Ratios
P/E Ratio 31.9
Price to Sales 3.2
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 31.9
Price to Free Cash Flow 31.9
Growth Rates
Sales Growth Rate 79.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -100%
Cap. Spend. - 3 Yr. Gr. Rate -100%
Financial Strength
Quick Ratio NaN
Current Ratio 0.6
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 2.2%
Return On Total Capital 6%
Ret/ On T. Cap. - 3 Yr. Avg. 2.3%
Return On Equity 6%
Return On Equity - 3 Yr. Avg. 2.3%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 25.7%
Gross Margin - 3 Yr. Avg. 22.1%
EBITDA Margin 14.3%
EBITDA Margin - 3 Yr. Avg. 6.4%
Operating Margin 11.4%
Oper. Margin - 3 Yr. Avg. 3%
Pre-Tax Margin 12.9%
Pre-Tax Margin - 3 Yr. Avg. 4.2%
Net Profit Margin 10%
Net Profit Margin - 3 Yr. Avg. 4.1%
Effective Tax Rate 22.2%
Eff/ Tax Rate - 3 Yr. Avg. 32.4%
Payout Ratio 0%

GENC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GENC stock intrinsic value calculation we used $70 million for the last fiscal year's total revenue generated by Gencor Industries. The default revenue input number comes from 2016 income statement of Gencor Industries. 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 GENC stock valuation model: a) initial revenue growth rate of 4.5% 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 GENC is calculated based on our internal credit rating of Gencor Industries, 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 Gencor Industries.
    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 GENC stock the variable cost ratio is equal to 71.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12 million in the base year in the intrinsic value calculation for GENC 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 Gencor Industries.

Corporate tax rate of 27% is the nominal tax rate for Gencor Industries. 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 GENC 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 GENC are equal to 7.9%.

Life of production assets of 10 years is the average useful life of capital assets used in Gencor Industries 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 GENC is equal to 15.7%. 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 - $120 million for Gencor Industries - 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 13.937 million for Gencor Industries 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 Gencor Industries at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Gencor posts 3Q profit   [Aug-04-17 03:17AM  Associated Press]
▶ Gencor Releases Third Quarter Fiscal 2017 Results   [Aug-03-17 08:35AM  GlobeNewswire]
▶ Gencor posts 2Q profit   [May-05-17 08:16AM  Associated Press]
▶ Another Play on Trump Infrastructure Spending   [Feb-27-17 04:03PM  GuruFocus.com]
▶ Gencor posts 1Q profit   [08:04AM  Associated Press]
▶ Is Osiris Therapeutics, Inc. (OSIR) A Good Stock To Buy?   [Dec-18-16 09:53PM  Insider Monkey]
▶ Is Autobytel Inc. (ABTL) Going to Burn These Hedge Funds?   [Dec-05-16 05:10PM  Insider Monkey]
▶ Gencor Announces 50% Stock Dividend   [10:14AM  GlobeNewswire]
▶ 10-Q for Gencor Industries, Inc.   [Aug-07  08:12PM  at Company Spotlight]
▶ 10-Q for Gencor Industries, Inc.   [May-10  08:11PM  at Company Spotlight]
▶ Articles of Association for Genmab A/S   [Apr-01  11:40AM  at noodls]
▶ Genmab Acquires Antibody Assets from iDD Biotech   [Mar-18  10:11AM  at noodls]
▶ Articles of Association for Genmab A/S   [Mar-13  07:16AM  at noodls]
▶ Genmab A/S Summons Annual General Meeting   [Mar-03  01:40AM  at noodls]
▶ 10-Q for Gencor Industries, Inc.   [Feb-08  07:07PM  at Company Spotlight]
▶ Gencor Releases First Quarter Fiscal 2015 Results   [Feb-06  05:09PM  GlobeNewswire]
▶ 10-K for Gencor Industries, Inc.   [Dec-11  07:07PM  Company Spotlight]
Stock chart of GENC Financial statements of GENC
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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