Intrinsic value of Recon Technology - RCON

Previous Close

$1.70

  Intrinsic Value

$41.22

stock screener

  Rating & Target

str. buy

+999%

Previous close

$1.70

 
Intrinsic value

$41.22

 
Up/down potential

+999%

 
Rating

str. buy

We calculate the intrinsic value of RCON 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 0.0

 

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, %
  50.00
  50.00
  45.50
  41.45
  37.81
  34.52
  31.57
  28.91
  26.52
  24.37
  22.43
  20.69
  19.12
  17.71
  16.44
  15.29
  14.27
  13.34
  12.50
  11.75
  11.08
  10.47
  9.92
  9.43
  8.99
  8.59
  8.23
  7.91
  7.62
  7.36
  7.12
Revenue, $m
  9
  14
  20
  28
  38
  52
  68
  87
  111
  137
  168
  203
  242
  285
  332
  382
  437
  495
  557
  623
  692
  764
  840
  919
  1,002
  1,088
  1,177
  1,270
  1,367
  1,468
  1,572
Variable operating expenses, $m
 
  6
  9
  12
  17
  23
  30
  39
  49
  61
  75
  90
  107
  126
  147
  170
  194
  220
  247
  276
  307
  339
  373
  408
  445
  483
  523
  564
  607
  652
  698
Fixed operating expenses, $m
 
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  15
  15
  16
  16
  16
  17
  17
  18
  18
  19
  19
  19
  20
  20
  21
Total operating expenses, $m
  13
  16
  20
  23
  28
  34
  42
  51
  61
  73
  88
  103
  120
  140
  161
  184
  209
  235
  263
  292
  323
  356
  390
  426
  463
  502
  542
  583
  627
  672
  719
Operating income, $m
  -4
  -3
  0
  5
  10
  17
  26
  37
  49
  64
  81
  100
  121
  145
  170
  198
  228
  260
  294
  330
  368
  408
  450
  493
  539
  586
  636
  687
  740
  796
  853
EBITDA, $m
  -4
  -3
  0
  5
  10
  17
  26
  37
  49
  64
  81
  100
  121
  145
  170
  198
  228
  260
  294
  330
  368
  408
  450
  493
  539
  586
  636
  687
  740
  796
  853
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  23
Earnings before tax, $m
  -4
  -3
  0
  5
  10
  17
  25
  36
  48
  62
  79
  97
  118
  141
  166
  193
  222
  253
  287
  322
  359
  397
  438
  480
  525
  571
  619
  669
  721
  774
  830
Tax expense, $m
  1
  0
  0
  1
  3
  5
  7
  10
  13
  17
  21
  26
  32
  38
  45
  52
  60
  68
  77
  87
  97
  107
  118
  130
  142
  154
  167
  181
  195
  209
  224
Net income, $m
  -5
  -3
  0
  3
  7
  12
  19
  26
  35
  46
  58
  71
  86
  103
  121
  141
  162
  185
  209
  235
  262
  290
  320
  351
  383
  417
  452
  488
  526
  565
  606

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1
  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
  10
  14
  20
  28
  38
  52
  68
  87
  111
  137
  168
  203
  242
  285
  332
  382
  437
  495
  557
  623
  692
  764
  840
  919
  1,002
  1,088
  1,177
  1,270
  1,367
  1,468
  1,572
Adjusted assets (=assets-cash), $m
  9
  14
  20
  28
  38
  52
  68
  87
  111
  137
  168
  203
  242
  285
  332
  382
  437
  495
  557
  623
  692
  764
  840
  919
  1,002
  1,088
  1,177
  1,270
  1,367
  1,468
  1,572
Revenue / Adjusted assets
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
  1.000
Average production assets, $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
Working capital, $m
  6
  7
  10
  14
  19
  26
  34
  44
  55
  69
  84
  102
  121
  142
  166
  191
  218
  248
  279
  311
  346
  382
  420
  460
  501
  544
  589
  635
  684
  734
  786
Total debt, $m
  1
  2
  5
  8
  13
  19
  26
  35
  45
  57
  71
  86
  103
  122
  143
  166
  190
  216
  243
  272
  303
  335
  369
  404
  441
  479
  519
  560
  603
  648
  694
Total liabilities, $m
  5
  6
  9
  12
  17
  23
  30
  39
  49
  61
  75
  90
  107
  126
  147
  170
  194
  220
  247
  276
  307
  339
  373
  408
  445
  483
  523
  564
  607
  652
  698
Total equity, $m
  5
  8
  11
  15
  21
  29
  38
  49
  61
  76
  94
  113
  135
  158
  184
  213
  243
  275
  310
  346
  385
  425
  467
  511
  557
  605
  655
  706
  760
  816
  874
Total liabilities and equity, $m
  10
  14
  20
  27
  38
  52
  68
  88
  110
  137
  169
  203
  242
  284
  331
  383
  437
  495
  557
  622
  692
  764
  840
  919
  1,002
  1,088
  1,178
  1,270
  1,367
  1,468
  1,572
Debt-to-equity ratio
  0.200
  0.270
  0.430
  0.540
  0.610
  0.660
  0.690
  0.720
  0.730
  0.750
  0.760
  0.760
  0.770
  0.770
  0.780
  0.780
  0.780
  0.780
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
  0.790
Adjusted equity ratio
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -5
  -3
  0
  3
  7
  12
  19
  26
  35
  46
  58
  71
  86
  103
  121
  141
  162
  185
  209
  235
  262
  290
  320
  351
  383
  417
  452
  488
  526
  565
  606
Depreciation, amort., depletion, $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
Funds from operations, $m
  3
  -3
  0
  3
  7
  12
  19
  26
  35
  46
  58
  71
  86
  103
  121
  141
  162
  185
  209
  235
  262
  290
  320
  351
  383
  417
  452
  488
  526
  565
  606
Change in working capital, $m
  2
  2
  3
  4
  5
  7
  8
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  29
  31
  33
  34
  36
  38
  40
  41
  43
  45
  47
  48
  50
  52
Cash from operations, $m
  1
  -5
  -3
  -1
  2
  6
  10
  16
  23
  32
  42
  54
  67
  81
  98
  116
  135
  156
  178
  202
  227
  254
  282
  311
  342
  374
  407
  442
  478
  515
  554
Maintenance CAPEX, $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
New CAPEX, $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 investing activities, $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
Free cash flow, $m
  1
  -5
  -3
  -1
  2
  6
  10
  16
  23
  32
  42
  54
  67
  81
  98
  116
  135
  156
  178
  202
  227
  254
  282
  311
  342
  374
  407
  442
  478
  515
  554
Issuance/(repayment) of debt, $m
  0
  2
  3
  4
  5
  6
  7
  9
  10
  12
  14
  15
  17
  19
  21
  23
  24
  26
  27
  29
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  46
Issuance/(repurchase) of shares, $m
  0
  5
  3
  1
  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
  7
  6
  5
  5
  6
  7
  9
  10
  12
  14
  15
  17
  19
  21
  23
  24
  26
  27
  29
  31
  32
  34
  35
  37
  38
  40
  41
  43
  45
  46
Total cash flow (excl. dividends), $m
  0
  2
  3
  4
  7
  12
  18
  25
  34
  44
  56
  69
  84
  101
  119
  138
  159
  182
  206
  231
  258
  286
  315
  346
  378
  412
  447
  483
  521
  560
  600
Retained Cash Flow (-), $m
  1
  -5
  -3
  -5
  -6
  -7
  -9
  -11
  -13
  -15
  -17
  -19
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -54
  -56
  -58
Prev. year cash balance distribution, $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 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
 
  -3
  0
  0
  1
  4
  9
  14
  21
  29
  39
  50
  62
  77
  93
  110
  129
  149
  171
  195
  220
  246
  273
  302
  332
  364
  397
  431
  467
  504
  542
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
 
  -3
  0
  0
  1
  3
  6
  10
  13
  17
  20
  24
  27
  29
  31
  32
  33
  33
  32
  30
  28
  25
  23
  20
  17
  14
  12
  9
  7
  5
  4
Current shareholders' claim on cash, %
  100
  69.0
  58.5
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8
  55.8

Recon Technology, Ltd. is a provider of hardware, software and on-site services to companies in the petroleum mining and extraction industry in China, the People's Republic of China. The Company provides services designed to automate and enhance the extraction of petroleum. The Company controls by contract the People's Republic of China companies of Beijing BHD Petroleum Technology Co., Ltd. (BHD) and Nanjing Recon Technology Co., Ltd. It serves as the center of strategic management, financial control and human resources allocation for the Domestic Companies. Through its contractual relationships with the Domestic Companies, it provides equipment, tools and other hardware related to oilfield production and management, and develops and sells its specialized industrial automation control and information solutions. Its products and services include Equipment for Oil and Gas Production and Transportation, Oil and Gas Production Improvement Techniques, and Automation System and Service.

FINANCIAL RATIOS  of  Recon Technology (RCON)

Valuation Ratios
P/E Ratio -3.4
Price to Sales 1.9
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 16.8
Price to Free Cash Flow 16.8
Growth Rates
Sales Growth Rate 50%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 20%
Interest Coverage 0
Management Effectiveness
Return On Assets -47.6%
Ret/ On Assets - 3 Yr. Avg. -37.3%
Return On Total Capital -71.4%
Ret/ On T. Cap. - 3 Yr. Avg. -53.1%
Return On Equity -90.9%
Return On Equity - 3 Yr. Avg. -67.2%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 22.2%
Gross Margin - 3 Yr. Avg. 17.7%
EBITDA Margin -44.4%
EBITDA Margin - 3 Yr. Avg. -72%
Operating Margin -44.4%
Oper. Margin - 3 Yr. Avg. -76.7%
Pre-Tax Margin -44.4%
Pre-Tax Margin - 3 Yr. Avg. -72%
Net Profit Margin -55.6%
Net Profit Margin - 3 Yr. Avg. -75.7%
Effective Tax Rate -25%
Eff/ Tax Rate - 3 Yr. Avg. -8.3%
Payout Ratio 0%

RCON stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RCON stock intrinsic value calculation we used $9 million for the last fiscal year's total revenue generated by Recon Technology. The default revenue input number comes from 2017 income statement of Recon 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 RCON stock valuation model: a) initial revenue growth rate of 50% 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 RCON is calculated based on our internal credit rating of Recon 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 Recon 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 RCON stock the variable cost ratio is equal to 44.4%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $10 million in the base year in the intrinsic value calculation for RCON 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 Recon Technology.

Corporate tax rate of 27% is the nominal tax rate for Recon 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 RCON 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 RCON are equal to 0%.

Life of production assets of 10 years is the average useful life of capital assets used in Recon 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 RCON is equal to 50%. 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 - $5 million for Recon 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 6.886 million for Recon 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 Recon Technology at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Intel Continues Its Wearables Push   [Jun-17  03:47PM  at The Wall Street Journal]
▶ Recon Released 3D Video Introducing Its Major Business   [Mar-03  07:30AM  PR Newswire]
▶ Recon Reports FY 2015 Second Quarter Results   [Feb-13  05:00PM  PR Newswire]
▶ Recon Technology (RCON) Downgraded From Hold to Sell   [Dec-05  07:20AM  at TheStreet]
▶ Annual Report for Bohai Pharmaceuticals Group, Inc.   [Nov-19  03:00AM  Company Spotlight]
▶ 5 Stocks Poised for Big Breakouts   [Sep-02  10:48AM  at TheStreet]
▶ Recon Technology Strengthens Communications Team   [Jul-22  07:30AM  PR Newswire]
▶ Recon Technology Announces Updated Website   [Apr-07  07:15AM  Marketwired]
▶ Why Recon Technology (RCON) Hit a One-Year High Today   [Feb-13  03:40PM  at TheStreet]
▶ 5 Stocks Under $10 Set to Soar   [Feb-06  03:15PM  at TheStreet]
Financial statements of RCON
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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