Intrinsic value of Key Technology - KTEC

Previous Close

$20.15

  Intrinsic Value

$149.64

stock screener

  Rating & Target

str. buy

+643%

Previous close

$20.15

 
Intrinsic value

$149.64

 
Up/down potential

+643%

 
Rating

str. buy

We calculate the intrinsic value of KTEC 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 0.1

 

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, %
  16.50
  25.00
  23.00
  21.20
  19.58
  18.12
  16.81
  15.63
  14.57
  13.61
  12.75
  11.97
  11.28
  10.65
  10.08
  9.58
  9.12
  8.71
  8.34
  8.00
  7.70
  7.43
  7.19
  6.97
  6.77
  6.60
  6.44
  6.29
  6.16
  6.05
  5.94
Revenue, $m
  120
  150
  185
  224
  267
  316
  369
  427
  489
  555
  626
  701
  780
  863
  950
  1,041
  1,136
  1,235
  1,338
  1,445
  1,556
  1,672
  1,792
  1,917
  2,047
  2,182
  2,322
  2,468
  2,621
  2,779
  2,944
Variable operating expenses, $m
 
  89
  109
  132
  157
  185
  216
  250
  286
  325
  366
  409
  455
  504
  555
  608
  663
  721
  781
  843
  908
  976
  1,046
  1,119
  1,195
  1,273
  1,355
  1,441
  1,530
  1,622
  1,718
Fixed operating expenses, $m
 
  51
  53
  54
  55
  57
  58
  59
  61
  62
  64
  66
  67
  69
  71
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
  93
  95
  97
  100
  102
  105
Total operating expenses, $m
  120
  140
  162
  186
  212
  242
  274
  309
  347
  387
  430
  475
  522
  573
  626
  680
  737
  797
  859
  923
  990
  1,060
  1,132
  1,207
  1,285
  1,366
  1,450
  1,538
  1,630
  1,724
  1,823
Operating income, $m
  0
  10
  23
  38
  55
  74
  95
  117
  142
  168
  196
  226
  258
  290
  325
  361
  399
  438
  479
  522
  566
  612
  660
  710
  762
  816
  872
  930
  991
  1,055
  1,121
EBITDA, $m
  5
  15
  29
  45
  64
  84
  106
  130
  156
  184
  214
  246
  279
  314
  351
  390
  430
  472
  516
  562
  609
  659
  710
  763
  819
  876
  936
  999
  1,064
  1,132
  1,203
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  2
  3
  4
  4
  5
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  25
Earnings before tax, $m
  -1
  10
  23
  38
  54
  72
  93
  115
  139
  164
  191
  221
  252
  284
  318
  353
  390
  428
  468
  510
  553
  599
  645
  694
  745
  798
  852
  910
  969
  1,031
  1,096
Tax expense, $m
  0
  3
  6
  10
  15
  20
  25
  31
  37
  44
  52
  60
  68
  77
  86
  95
  105
  116
  126
  138
  149
  162
  174
  187
  201
  215
  230
  246
  262
  278
  296
Net income, $m
  -1
  7
  17
  27
  39
  53
  68
  84
  101
  120
  140
  162
  184
  207
  232
  258
  285
  313
  342
  372
  404
  437
  471
  507
  544
  582
  622
  664
  707
  753
  800

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  10
  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
  96
  108
  132
  160
  192
  226
  264
  306
  350
  398
  449
  503
  559
  619
  681
  746
  814
  885
  959
  1,036
  1,116
  1,199
  1,285
  1,374
  1,467
  1,564
  1,665
  1,769
  1,879
  1,992
  2,110
Adjusted assets (=assets-cash), $m
  86
  108
  132
  160
  192
  226
  264
  306
  350
  398
  449
  503
  559
  619
  681
  746
  814
  885
  959
  1,036
  1,116
  1,199
  1,285
  1,374
  1,467
  1,564
  1,665
  1,769
  1,879
  1,992
  2,110
Revenue / Adjusted assets
  1.395
  1.389
  1.402
  1.400
  1.391
  1.398
  1.398
  1.395
  1.397
  1.394
  1.394
  1.394
  1.395
  1.394
  1.395
  1.395
  1.396
  1.395
  1.395
  1.395
  1.394
  1.394
  1.395
  1.395
  1.395
  1.395
  1.395
  1.395
  1.395
  1.395
  1.395
Average production assets, $m
  20
  25
  31
  37
  45
  53
  62
  71
  82
  93
  105
  117
  130
  144
  159
  174
  190
  206
  223
  241
  260
  279
  299
  320
  342
  364
  388
  412
  438
  464
  492
Working capital, $m
  36
  34
  42
  50
  60
  71
  83
  96
  110
  125
  141
  158
  176
  194
  214
  234
  256
  278
  301
  325
  350
  376
  403
  431
  461
  491
  523
  555
  590
  625
  662
Total debt, $m
  5
  12
  21
  32
  43
  56
  70
  86
  102
  120
  139
  159
  180
  202
  225
  250
  275
  301
  329
  357
  387
  418
  450
  483
  518
  554
  591
  630
  671
  713
  757
Total liabilities, $m
  33
  40
  49
  60
  71
  84
  98
  114
  130
  148
  167
  187
  208
  230
  253
  278
  303
  329
  357
  385
  415
  446
  478
  511
  546
  582
  619
  658
  699
  741
  785
Total equity, $m
  63
  68
  83
  101
  120
  142
  166
  192
  220
  250
  282
  316
  351
  389
  428
  469
  511
  556
  602
  651
  701
  753
  807
  863
  921
  982
  1,045
  1,111
  1,180
  1,251
  1,325
Total liabilities and equity, $m
  96
  108
  132
  161
  191
  226
  264
  306
  350
  398
  449
  503
  559
  619
  681
  747
  814
  885
  959
  1,036
  1,116
  1,199
  1,285
  1,374
  1,467
  1,564
  1,664
  1,769
  1,879
  1,992
  2,110
Debt-to-equity ratio
  0.079
  0.180
  0.260
  0.310
  0.360
  0.400
  0.420
  0.450
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.530
  0.530
  0.540
  0.540
  0.550
  0.550
  0.550
  0.560
  0.560
  0.560
  0.560
  0.560
  0.570
  0.570
  0.570
  0.570
  0.570
Adjusted equity ratio
  0.616
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628
  0.628

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -1
  7
  17
  27
  39
  53
  68
  84
  101
  120
  140
  162
  184
  207
  232
  258
  285
  313
  342
  372
  404
  437
  471
  507
  544
  582
  622
  664
  707
  753
  800
Depreciation, amort., depletion, $m
  5
  5
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  22
  24
  26
  29
  32
  34
  37
  40
  43
  47
  50
  53
  57
  61
  65
  69
  73
  77
  82
Funds from operations, $m
  7
  13
  23
  35
  48
  63
  79
  97
  116
  136
  158
  181
  206
  231
  258
  287
  316
  347
  379
  413
  447
  483
  521
  560
  601
  643
  687
  733
  780
  830
  882
Change in working capital, $m
  1
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
Cash from operations, $m
  6
  6
  15
  26
  38
  52
  67
  84
  102
  121
  142
  164
  188
  213
  239
  266
  295
  325
  356
  389
  422
  457
  494
  532
  571
  613
  655
  700
  746
  794
  845
Maintenance CAPEX, $m
  0
  -3
  -4
  -5
  -6
  -7
  -9
  -10
  -12
  -14
  -15
  -17
  -20
  -22
  -24
  -26
  -29
  -32
  -34
  -37
  -40
  -43
  -47
  -50
  -53
  -57
  -61
  -65
  -69
  -73
  -77
New CAPEX, $m
  -2
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -28
Cash from investing activities, $m
  -2
  -8
  -10
  -12
  -13
  -15
  -18
  -20
  -22
  -25
  -27
  -30
  -33
  -36
  -39
  -41
  -45
  -49
  -51
  -55
  -59
  -62
  -67
  -71
  -75
  -80
  -84
  -89
  -94
  -99
  -105
Free cash flow, $m
  4
  -3
  5
  14
  24
  36
  49
  64
  80
  97
  115
  134
  155
  177
  200
  225
  250
  277
  305
  333
  364
  395
  427
  461
  496
  533
  571
  611
  652
  695
  740
Issuance/(repayment) of debt, $m
  -1
  8
  9
  10
  12
  13
  14
  15
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  37
  39
  41
  42
  44
Issuance/(repurchase) of shares, $m
  0
  6
  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  
  -1
  14
  9
  10
  12
  13
  14
  15
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  29
  30
  31
  32
  33
  35
  36
  37
  39
  41
  42
  44
Total cash flow (excl. dividends), $m
  3
  12
  14
  25
  36
  49
  63
  79
  96
  114
  134
  154
  176
  199
  224
  249
  275
  303
  332
  362
  393
  426
  459
  495
  531
  569
  609
  650
  693
  737
  784
Retained Cash Flow (-), $m
  0
  -14
  -16
  -18
  -20
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -37
  -39
  -41
  -43
  -45
  -46
  -48
  -50
  -52
  -54
  -56
  -58
  -61
  -63
  -66
  -68
  -71
  -74
Prev. year cash balance distribution, $m
 
  9
  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
 
  7
  -1
  7
  16
  27
  40
  53
  68
  84
  102
  121
  141
  162
  184
  208
  233
  259
  286
  314
  343
  374
  405
  438
  473
  508
  545
  584
  624
  666
  710
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
 
  7
  -1
  6
  14
  21
  29
  36
  43
  48
  53
  57
  60
  62
  62
  61
  59
  56
  53
  48
  44
  39
  34
  29
  24
  20
  16
  13
  10
  7
  5
Current shareholders' claim on cash, %
  100
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8
  94.8

Key Technology, Inc. is a supplier of process automation solutions to the food processing industry and other industries, such as tobacco and pharmaceuticals. The Company designs, manufactures, sells and services automation equipment that processes product streams of discrete pieces. These systems integrate electro-optical automated inspection and digital sorting systems with other processing systems that include specialized conveying and preparation equipment. The Company provides parts and service for each of its product lines to customers around the world. Its automated inspection systems are used in various applications to detect and remove defects and foreign material from the product stream. It offers conveying and processing equipment, which are utilized throughout various industries to move and process product within a production plant. Its Integrated Solutions Group (ISG) provides integrated whole-line solutions. It has an installed base of inspection and processing systems.

FINANCIAL RATIOS  of  Key Technology (KTEC)

Valuation Ratios
P/E Ratio -129
Price to Sales 1.1
Price to Book 2
Price to Tangible Book
Price to Cash Flow 21.5
Price to Free Cash Flow 32.2
Growth Rates
Sales Growth Rate 16.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 10
Current Ratio 0.2
LT Debt to Equity 6.3%
Total Debt to Equity 7.9%
Interest Coverage 0
Management Effectiveness
Return On Assets -1%
Ret/ On Assets - 3 Yr. Avg. -3.6%
Return On Total Capital -1.5%
Ret/ On T. Cap. - 3 Yr. Avg. -5%
Return On Equity -1.6%
Return On Equity - 3 Yr. Avg. -5.4%
Asset Turnover 1.2
Profitability Ratios
Gross Margin 30%
Gross Margin - 3 Yr. Avg. 29%
EBITDA Margin 3.3%
EBITDA Margin - 3 Yr. Avg. -0.7%
Operating Margin 0%
Oper. Margin - 3 Yr. Avg. -4.5%
Pre-Tax Margin -0.8%
Pre-Tax Margin - 3 Yr. Avg. -5.1%
Net Profit Margin -0.8%
Net Profit Margin - 3 Yr. Avg. -3.3%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 25%
Payout Ratio 0%

KTEC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the KTEC stock intrinsic value calculation we used $120 million for the last fiscal year's total revenue generated by Key Technology. The default revenue input number comes from 2016 income statement of Key Technology. 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 KTEC stock valuation model: a) initial revenue growth rate of 25% 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 KTEC is calculated based on our internal credit rating of Key Technology, 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 Key Technology.
    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 KTEC stock the variable cost ratio is equal to 59.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $50 million in the base year in the intrinsic value calculation for KTEC 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 Key Technology.

Corporate tax rate of 27% is the nominal tax rate for Key Technology. 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 KTEC 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 KTEC are equal to 16.7%.

Life of production assets of 6 years is the average useful life of capital assets used in Key Technology 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 KTEC is equal to 22.5%. 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 - $63 million for Key Technology - 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 6.487 million for Key Technology 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 Key Technology at the current share price and the inputted number of shares is $0.1 billion.

RELATED COMPANIES Price Int.Val. Rating
JBT John Bean Tech 110.05 63.86  sell
SXI Standex Intern 100.70 107.95  hold
ITW Illinois Tool 163.88 96.84  sell

COMPANY NEWS

▶ Key Technology posts 4Q profit   [Nov-16-17 05:11PM  Associated Press]
▶ Key Technology posts 3Q profit   [Jul-28-17 08:05PM  Associated Press]
▶ Key Technology reports 2Q loss   [Apr-27-17 07:06PM  Associated Press]
▶ Key Technology posts 1Q profit   [06:03PM  Associated Press]
▶ How Key Technology, Inc. (KTEC) Stacks Up Against Its Peers   [Dec-16-16 01:42PM  Insider Monkey]
▶ Is Key Technology, Inc. (KTEC) A Good Stock To Buy?   [Nov-26  08:40AM  at Insider Monkey]
Financial statements of KTEC
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.

FREE DOWNLOAD
Follow us on:   twitter   twitter   twitter   twitter

VALUATION THEORY       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2017. All rigths reserved.