Intrinsic value of Key Technology - KTEC

Previous Close

$26.68

  Intrinsic Value

$235.78

stock screener

  Rating & Target

str. buy

+784%

Previous close

$26.68

 
Intrinsic value

$235.78

 
Up/down potential

+784%

 
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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  16.67
  32.30
  29.57
  27.11
  24.90
  22.91
  21.12
  19.51
  18.06
  16.75
  15.58
  14.52
  13.57
  12.71
  11.94
  11.25
  10.62
  10.06
  9.55
  9.10
  8.69
  8.32
  7.99
  7.69
  7.42
  7.18
  6.96
  6.76
  6.59
  6.43
  6.29
Revenue, $m
  140
  185
  240
  305
  381
  468
  567
  678
  800
  934
  1,080
  1,237
  1,404
  1,583
  1,772
  1,971
  2,181
  2,400
  2,629
  2,868
  3,118
  3,377
  3,647
  3,927
  4,218
  4,521
  4,836
  5,163
  5,503
  5,857
  6,225
Variable operating expenses, $m
 
  120
  155
  197
  246
  302
  365
  436
  515
  601
  695
  794
  902
  1,017
  1,138
  1,266
  1,400
  1,541
  1,688
  1,842
  2,002
  2,169
  2,342
  2,522
  2,709
  2,903
  3,105
  3,315
  3,534
  3,761
  3,997
Fixed operating expenses, $m
 
  44
  45
  46
  47
  49
  50
  51
  52
  54
  55
  56
  58
  59
  61
  62
  64
  65
  67
  69
  70
  72
  74
  76
  78
  80
  82
  84
  86
  88
  90
Total operating expenses, $m
  133
  164
  200
  243
  293
  351
  415
  487
  567
  655
  750
  850
  960
  1,076
  1,199
  1,328
  1,464
  1,606
  1,755
  1,911
  2,072
  2,241
  2,416
  2,598
  2,787
  2,983
  3,187
  3,399
  3,620
  3,849
  4,087
Operating income, $m
  7
  21
  40
  62
  88
  118
  152
  190
  233
  280
  330
  386
  445
  507
  573
  643
  717
  793
  874
  958
  1,045
  1,136
  1,231
  1,329
  1,432
  1,538
  1,649
  1,764
  1,883
  2,008
  2,137
EBITDA, $m
  11
  26
  45
  68
  96
  127
  163
  204
  249
  298
  351
  409
  470
  536
  606
  679
  756
  837
  922
  1,010
  1,102
  1,198
  1,297
  1,401
  1,508
  1,620
  1,737
  1,858
  1,983
  2,114
  2,251
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  17
  19
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  49
Earnings before tax, $m
  6
  21
  39
  61
  86
  116
  149
  187
  228
  274
  324
  378
  435
  496
  561
  629
  701
  776
  855
  937
  1,022
  1,111
  1,203
  1,300
  1,400
  1,504
  1,612
  1,724
  1,841
  1,962
  2,089
Tax expense, $m
  2
  6
  11
  16
  23
  31
  40
  50
  62
  74
  87
  102
  118
  134
  152
  170
  189
  210
  231
  253
  276
  300
  325
  351
  378
  406
  435
  465
  497
  530
  564
Net income, $m
  4
  15
  29
  44
  63
  85
  109
  136
  167
  200
  236
  276
  318
  362
  410
  459
  512
  567
  624
  684
  746
  811
  879
  949
  1,022
  1,098
  1,177
  1,259
  1,344
  1,433
  1,525

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
  0
Total assets, $m
  108
  131
  170
  216
  269
  331
  401
  479
  566
  661
  764
  875
  993
  1,120
  1,253
  1,394
  1,542
  1,697
  1,859
  2,029
  2,205
  2,388
  2,579
  2,777
  2,983
  3,197
  3,420
  3,651
  3,892
  4,142
  4,402
Adjusted assets (=assets-cash), $m
  99
  131
  170
  216
  269
  331
  401
  479
  566
  661
  764
  875
  993
  1,120
  1,253
  1,394
  1,542
  1,697
  1,859
  2,029
  2,205
  2,388
  2,579
  2,777
  2,983
  3,197
  3,420
  3,651
  3,892
  4,142
  4,402
Revenue / Adjusted assets
  1.414
  1.412
  1.412
  1.412
  1.416
  1.414
  1.414
  1.415
  1.413
  1.413
  1.414
  1.414
  1.414
  1.413
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
  1.414
Average production assets, $m
  18
  24
  31
  39
  49
  60
  73
  87
  103
  121
  139
  160
  181
  204
  229
  254
  281
  310
  339
  370
  402
  436
  470
  507
  544
  583
  624
  666
  710
  756
  803
Working capital, $m
  40
  48
  62
  78
  98
  120
  146
  174
  206
  240
  278
  318
  361
  407
  455
  507
  560
  617
  676
  737
  801
  868
  937
  1,009
  1,084
  1,162
  1,243
  1,327
  1,414
  1,505
  1,600
Total debt, $m
  5
  11
  24
  40
  58
  80
  104
  130
  160
  193
  228
  266
  307
  350
  396
  444
  495
  548
  604
  662
  722
  785
  851
  919
  989
  1,063
  1,139
  1,218
  1,301
  1,387
  1,476
Total liabilities, $m
  39
  45
  58
  74
  92
  114
  138
  164
  194
  227
  262
  300
  341
  384
  430
  478
  529
  582
  638
  696
  756
  819
  885
  953
  1,023
  1,097
  1,173
  1,252
  1,335
  1,421
  1,510
Total equity, $m
  69
  86
  112
  142
  177
  218
  264
  315
  372
  434
  502
  575
  653
  736
  823
  916
  1,013
  1,115
  1,222
  1,333
  1,449
  1,569
  1,694
  1,825
  1,960
  2,101
  2,247
  2,399
  2,557
  2,721
  2,892
Total liabilities and equity, $m
  108
  131
  170
  216
  269
  332
  402
  479
  566
  661
  764
  875
  994
  1,120
  1,253
  1,394
  1,542
  1,697
  1,860
  2,029
  2,205
  2,388
  2,579
  2,778
  2,983
  3,198
  3,420
  3,651
  3,892
  4,142
  4,402
Debt-to-equity ratio
  0.072
  0.130
  0.220
  0.280
  0.330
  0.370
  0.390
  0.410
  0.430
  0.440
  0.450
  0.460
  0.470
  0.480
  0.480
  0.480
  0.490
  0.490
  0.490
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.510
  0.510
  0.510
  0.510
  0.510
  0.510
Adjusted equity ratio
  0.606
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657
  0.657

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  15
  29
  44
  63
  85
  109
  136
  167
  200
  236
  276
  318
  362
  410
  459
  512
  567
  624
  684
  746
  811
  879
  949
  1,022
  1,098
  1,177
  1,259
  1,344
  1,433
  1,525
Depreciation, amort., depletion, $m
  4
  4
  5
  7
  8
  10
  11
  13
  16
  18
  21
  22
  26
  29
  32
  36
  40
  44
  48
  52
  57
  61
  66
  71
  77
  82
  88
  94
  100
  106
  113
Funds from operations, $m
  -7
  20
  34
  51
  71
  94
  120
  150
  182
  218
  257
  299
  343
  391
  442
  495
  551
  610
  672
  736
  803
  872
  945
  1,020
  1,098
  1,180
  1,264
  1,352
  1,444
  1,539
  1,638
Change in working capital, $m
  -8
  12
  14
  17
  20
  22
  25
  28
  31
  34
  37
  40
  43
  46
  49
  51
  54
  56
  59
  61
  64
  67
  69
  72
  75
  78
  81
  84
  87
  91
  95
Cash from operations, $m
  1
  8
  20
  34
  52
  72
  95
  121
  151
  184
  220
  258
  300
  345
  393
  444
  498
  554
  613
  674
  739
  806
  875
  948
  1,024
  1,102
  1,184
  1,268
  1,356
  1,448
  1,543
Maintenance CAPEX, $m
  0
  -3
  -3
  -4
  -6
  -7
  -9
  -10
  -12
  -15
  -17
  -20
  -22
  -26
  -29
  -32
  -36
  -40
  -44
  -48
  -52
  -57
  -61
  -66
  -71
  -77
  -82
  -88
  -94
  -100
  -106
New CAPEX, $m
  -2
  -6
  -7
  -8
  -10
  -11
  -13
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -28
  -30
  -31
  -32
  -33
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -47
Cash from investing activities, $m
  -2
  -9
  -10
  -12
  -16
  -18
  -22
  -24
  -28
  -32
  -36
  -40
  -44
  -49
  -53
  -58
  -63
  -68
  -74
  -79
  -84
  -90
  -96
  -102
  -109
  -116
  -123
  -130
  -138
  -146
  -153
Free cash flow, $m
  -1
  0
  10
  22
  36
  54
  74
  97
  123
  152
  184
  218
  256
  297
  340
  386
  435
  486
  540
  596
  654
  716
  779
  846
  915
  986
  1,061
  1,138
  1,219
  1,302
  1,390
Issuance/(repayment) of debt, $m
  -1
  11
  13
  16
  18
  21
  24
  27
  30
  33
  35
  38
  41
  43
  46
  48
  51
  53
  56
  58
  60
  63
  65
  68
  71
  73
  76
  79
  83
  86
  89
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
  17
  13
  16
  18
  21
  24
  27
  30
  33
  35
  38
  41
  43
  46
  48
  51
  53
  56
  58
  60
  63
  65
  68
  71
  73
  76
  79
  83
  86
  89
Total cash flow (excl. dividends), $m
  -1
  16
  23
  37
  55
  75
  98
  124
  152
  184
  219
  256
  297
  340
  386
  434
  485
  539
  595
  654
  715
  779
  845
  914
  985
  1,060
  1,137
  1,218
  1,301
  1,388
  1,479
Retained Cash Flow (-), $m
  -6
  -21
  -25
  -30
  -35
  -41
  -46
  -51
  -57
  -62
  -68
  -73
  -78
  -83
  -88
  -93
  -97
  -102
  -107
  -111
  -116
  -121
  -125
  -130
  -135
  -141
  -146
  -152
  -158
  -164
  -171
Prev. year cash balance distribution, $m
 
  4
  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
 
  -1
  -3
  7
  19
  34
  52
  72
  96
  122
  151
  184
  219
  257
  298
  342
  388
  437
  489
  543
  599
  658
  719
  783
  850
  919
  991
  1,066
  1,143
  1,224
  1,308
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
 
  -1
  -2
  6
  16
  26
  38
  49
  60
  70
  79
  87
  93
  98
  100
  100
  99
  95
  90
  84
  76
  68
  60
  51
  43
  36
  29
  23
  18
  13
  10
Current shareholders' claim on cash, %
  100
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8
  96.8

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 43.3
Price to Sales 1.2
Price to Book 2.5
Price to Tangible Book
Price to Cash Flow 173.2
Price to Free Cash Flow -173.2
Growth Rates
Sales Growth Rate 16.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate -7.8%
Financial Strength
Quick Ratio 2
Current Ratio 0.1
LT Debt to Equity 0%
Total Debt to Equity 7.2%
Interest Coverage 0
Management Effectiveness
Return On Assets 3.9%
Ret/ On Assets - 3 Yr. Avg. -0.7%
Return On Total Capital 5.6%
Ret/ On T. Cap. - 3 Yr. Avg. -0.9%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. -1.1%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 33.6%
Gross Margin - 3 Yr. Avg. 30.6%
EBITDA Margin 7.1%
EBITDA Margin - 3 Yr. Avg. 2.5%
Operating Margin 5%
Oper. Margin - 3 Yr. Avg. -0.6%
Pre-Tax Margin 4.3%
Pre-Tax Margin - 3 Yr. Avg. -1.4%
Net Profit Margin 2.9%
Net Profit Margin - 3 Yr. Avg. -0.9%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 23.6%
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 $140 million for the last fiscal year's total revenue generated by Key Technology. The default revenue input number comes from 2017 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 32.3% 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 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 65%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $43 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 12.9%.

Life of production assets of 7.1 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 25.7%. 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 - $69 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 6.711 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 $0.2 billion.

RELATED COMPANIES Price Int.Val. Rating
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COMPANY NEWS

▶ RM LAW Announces Investigation of Key Technology, Inc.   [Feb-02-18 10:41AM  PR Newswire]
▶ Duravant To Acquire Key Technology   [09:10AM  GlobeNewswire]
▶ 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]
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.

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