Intrinsic value of Kewaunee Scientific - KEQU

Previous Close

$30.00

  Intrinsic Value

$26.06

stock screener

  Rating & Target

hold

-13%

  Value-price divergence*

-47%

Previous close

$30.00

 
Intrinsic value

$26.06

 
Up/down potential

-13%

 
Rating

hold

 
Value-price divergence*

-47%

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

We calculate the intrinsic value of KEQU 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 0.1

 

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, %
  7.75
  2.90
  3.11
  3.30
  3.47
  3.62
  3.76
  3.88
  4.00
  4.10
  4.19
  4.27
  4.34
  4.41
  4.47
  4.52
  4.57
  4.61
  4.65
  4.68
  4.72
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
Revenue, $m
  139
  143
  147
  152
  158
  163
  169
  176
  183
  191
  199
  207
  216
  226
  236
  246
  258
  269
  282
  295
  309
  324
  339
  355
  373
  391
  409
  429
  450
  472
  496
Variable operating expenses, $m
 
  129
  133
  137
  142
  147
  152
  158
  165
  171
  179
  186
  194
  203
  212
  221
  232
  242
  253
  265
  278
  291
  305
  320
  335
  351
  368
  386
  405
  425
  445
Fixed operating expenses, $m
 
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
Total operating expenses, $m
  132
  136
  140
  145
  150
  155
  160
  166
  174
  180
  188
  195
  203
  213
  222
  231
  242
  253
  264
  276
  289
  303
  317
  332
  348
  364
  381
  400
  419
  439
  460
Operating income, $m
  7
  7
  8
  8
  8
  9
  9
  9
  10
  11
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  28
  30
  32
  33
  35
EBITDA, $m
  10
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
Earnings before tax, $m
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  31
  33
Tax expense, $m
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
Net income, $m
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  13
  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
  81
  70
  72
  75
  77
  80
  83
  86
  90
  93
  97
  101
  106
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
  231
  242
Adjusted assets (=assets-cash), $m
  68
  70
  72
  75
  77
  80
  83
  86
  90
  93
  97
  101
  106
  110
  115
  120
  126
  132
  138
  144
  151
  158
  166
  174
  182
  191
  200
  210
  220
  231
  242
Revenue / Adjusted assets
  2.044
  2.043
  2.042
  2.027
  2.052
  2.038
  2.036
  2.047
  2.033
  2.054
  2.052
  2.050
  2.038
  2.055
  2.052
  2.050
  2.048
  2.038
  2.043
  2.049
  2.046
  2.051
  2.042
  2.040
  2.049
  2.047
  2.045
  2.043
  2.045
  2.043
  2.050
Average production assets, $m
  7
  7
  7
  8
  8
  8
  8
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  20
  21
  23
  24
  25
Working capital, $m
  33
  26
  27
  27
  28
  29
  31
  32
  33
  34
  36
  37
  39
  41
  42
  44
  46
  48
  51
  53
  56
  58
  61
  64
  67
  70
  74
  77
  81
  85
  89
Total debt, $m
  7
  3
  4
  5
  6
  8
  9
  11
  12
  14
  16
  18
  20
  23
  25
  27
  30
  33
  36
  39
  42
  46
  49
  53
  57
  62
  66
  71
  76
  81
  87
Total liabilities, $m
  38
  34
  35
  36
  37
  39
  40
  42
  43
  45
  47
  49
  51
  54
  56
  58
  61
  64
  67
  70
  73
  77
  80
  84
  88
  93
  97
  102
  107
  112
  118
Total equity, $m
  43
  36
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
  57
  59
  62
  65
  68
  71
  74
  78
  82
  85
  90
  94
  98
  103
  108
  113
  119
  125
Total liabilities and equity, $m
  81
  70
  72
  74
  77
  80
  83
  86
  89
  93
  97
  101
  105
  111
  115
  120
  126
  132
  138
  144
  151
  159
  165
  174
  182
  191
  200
  210
  220
  231
  243
Debt-to-equity ratio
  0.163
  0.080
  0.110
  0.130
  0.160
  0.190
  0.220
  0.240
  0.270
  0.300
  0.320
  0.350
  0.370
  0.400
  0.420
  0.440
  0.460
  0.490
  0.510
  0.520
  0.540
  0.560
  0.580
  0.600
  0.610
  0.630
  0.640
  0.660
  0.670
  0.680
  0.690
Adjusted equity ratio
  0.500
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515
  0.515

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
Depreciation, amort., depletion, $m
  3
  1
  1
  2
  2
  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
  5
Funds from operations, $m
  16
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
Change in working capital, $m
  4
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
Cash from operations, $m
  12
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  25
Maintenance CAPEX, $m
  0
  -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
  -4
  -4
  -4
  -5
  -5
New CAPEX, $m
  -3
  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
  -1
Cash from investing activities, $m
  -2
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
Free cash flow, $m
  10
  4
  4
  5
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
Issuance/(repayment) of debt, $m
  -1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
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
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
Total cash flow (excl. dividends), $m
  9
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  22
  23
  24
Retained Cash Flow (-), $m
  -5
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
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
 
  12
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
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
 
  12
  4
  4
  4
  4
  4
  3
  3
  3
  3
  3
  3
  3
  2
  2
  2
  2
  2
  1
  1
  1
  1
  1
  1
  1
  0
  0
  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
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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Kewaunee Scientific Corporation is engaged in the design, manufacture and installation of laboratory, healthcare and technical furniture products. The Company's products include steel, wood and laminate furniture, fume hoods, biological safety cabinets, laminar flow and ductless hoods, adaptable modular and column systems, moveable workstations and carts, epoxy resin worksurfaces, sinks, and accessories and related design services. It operates through two segments: Domestic and International. The Domestic business segment designs, manufactures, and installs scientific and technical furniture, including steel and wood laboratory cabinetry, fume hoods, laminate casework, flexible systems, worksurfaces, workstations, workbenches, and computer enclosures. The International business segment provides facility design, engineering, construction and project management from the planning stage through testing and commissioning of laboratories.

FINANCIAL RATIOS  of  Kewaunee Scientific (KEQU)

Valuation Ratios
P/E Ratio 16.3
Price to Sales 0.6
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow 9
Growth Rates
Sales Growth Rate 7.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 50%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 3
Current Ratio 0
LT Debt to Equity 4.7%
Total Debt to Equity 16.3%
Interest Coverage 0
Management Effectiveness
Return On Assets 6.5%
Ret/ On Assets - 3 Yr. Avg. 6.1%
Return On Total Capital 10.4%
Ret/ On T. Cap. - 3 Yr. Avg. 9.5%
Return On Equity 12.3%
Return On Equity - 3 Yr. Avg. 11.6%
Asset Turnover 1.8
Profitability Ratios
Gross Margin 19.4%
Gross Margin - 3 Yr. Avg. 18.8%
EBITDA Margin 7.2%
EBITDA Margin - 3 Yr. Avg. 7%
Operating Margin 5%
Oper. Margin - 3 Yr. Avg. 4.6%
Pre-Tax Margin 5%
Pre-Tax Margin - 3 Yr. Avg. 4.6%
Net Profit Margin 3.6%
Net Profit Margin - 3 Yr. Avg. 3.4%
Effective Tax Rate 28.6%
Eff/ Tax Rate - 3 Yr. Avg. 27.3%
Payout Ratio 40%

KEQU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KEQU stock intrinsic value calculation we used $139 million for the last fiscal year's total revenue generated by Kewaunee Scientific. The default revenue input number comes from 2017 income statement of Kewaunee Scientific. 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 KEQU stock valuation model: a) initial revenue growth rate of 2.9% 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 KEQU is calculated based on our internal credit rating of Kewaunee Scientific, 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 Kewaunee Scientific.
    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 KEQU stock the variable cost ratio is equal to 89.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $7 million in the base year in the intrinsic value calculation for KEQU 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 Kewaunee Scientific.

Corporate tax rate of 27% is the nominal tax rate for Kewaunee Scientific. 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 KEQU 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 KEQU are equal to 5%.

Life of production assets of 2.3 years is the average useful life of capital assets used in Kewaunee Scientific 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 KEQU is equal to 18%. 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 - $43 million for Kewaunee Scientific - 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 2.718 million for Kewaunee Scientific 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 Kewaunee Scientific at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ Kewaunee Scientific Reports Board of Directors Join NACD   [Oct-11-17 04:03PM  PR Newswire]
▶ Kewaunee Scientific Reports Results for First Quarter   [Aug-29-17 08:11PM  PR Newswire]
▶ Kewaunee Scientific Reports Results for Third Quarter   [Feb-28-17 05:32PM  PR Newswire]
▶ Kewaunee Scientific Reports Results for Second Quarter   [Dec-06-16 04:03PM  PR Newswire]
▶ Kewaunee Scientific Reports Results for First Quarter   [Aug-30-16 05:56PM  PR Newswire]
▶ Kewaunee Scientific Reports Results for Third Quarter   [Mar-01-16 06:05PM  PR Newswire]
▶ Kewaunee Scientific Reports Results for Second Quarter   [Dec-08  05:25PM  PR Newswire]
▶ Kewaunee Scientific Corporation Raises Dividend 8%   [Aug-26  10:17AM  PR Newswire]
▶ Kewaunee Scientific Reports Results for First Quarter   [Aug-25  06:42PM  PR Newswire]
▶ 10-K for Kewaunee Scientific Corp.   [Jul-22  08:09PM  at Company Spotlight]
▶ Kewaunee Scientific Announces CFO Retirement   [Jul-16  03:15PM  PR Newswire]
▶ Keith M Gehl Elected to Kewaunee Board   [May-06  02:04PM  at noodls]
▶ 10-Q for Kewaunee Scientific Corp.   [May-05  08:12PM  at Company Spotlight]
Financial statements of KEQU
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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