Intrinsic value of Recon Technology - RCON

Previous Close

$2.61

  Intrinsic Value

$71.19

stock screener

  Rating & Target

str. buy

+999%

Previous close

$2.61

 
Intrinsic value

$71.19

 
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

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, %
  50.00
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  9
  14
  22
  33
  48
  68
  94
  126
  165
  212
  268
  333
  407
  491
  584
  687
  799
  920
  1,051
  1,190
  1,338
  1,494
  1,659
  1,831
  2,012
  2,201
  2,398
  2,603
  2,817
  3,038
  3,269
Variable operating expenses, $m
 
  6
  10
  15
  21
  30
  42
  56
  73
  94
  119
  148
  181
  218
  259
  305
  355
  409
  466
  528
  594
  663
  736
  813
  893
  977
  1,065
  1,156
  1,251
  1,349
  1,451
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
  21
  26
  32
  41
  54
  68
  85
  106
  132
  161
  194
  232
  273
  319
  370
  424
  482
  544
  610
  680
  753
  831
  911
  996
  1,084
  1,175
  1,271
  1,369
  1,472
Operating income, $m
  -4
  -2
  2
  8
  16
  27
  40
  58
  80
  106
  136
  172
  213
  259
  311
  367
  429
  496
  568
  646
  727
  814
  905
  1,001
  1,101
  1,205
  1,314
  1,428
  1,546
  1,669
  1,797
EBITDA, $m
  -4
  -2
  2
  8
  16
  27
  40
  58
  80
  106
  136
  172
  213
  259
  311
  367
  429
  496
  568
  646
  727
  814
  905
  1,001
  1,101
  1,205
  1,314
  1,428
  1,546
  1,669
  1,797
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  4
  5
  6
  7
  9
  11
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  40
  44
  47
Earnings before tax, $m
  -4
  -2
  2
  8
  15
  26
  40
  57
  78
  103
  133
  168
  208
  253
  303
  358
  419
  484
  554
  629
  709
  793
  882
  975
  1,072
  1,174
  1,280
  1,391
  1,506
  1,625
  1,750
Tax expense, $m
  1
  0
  0
  2
  4
  7
  11
  15
  21
  28
  36
  45
  56
  68
  82
  97
  113
  131
  150
  170
  191
  214
  238
  263
  290
  317
  346
  376
  407
  439
  472
Net income, $m
  -5
  -2
  1
  5
  11
  19
  29
  41
  57
  75
  97
  123
  152
  185
  221
  262
  306
  353
  405
  459
  518
  579
  644
  712
  783
  857
  935
  1,015
  1,099
  1,186
  1,277

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
  22
  33
  48
  68
  94
  126
  165
  212
  268
  333
  407
  491
  584
  687
  799
  920
  1,051
  1,190
  1,338
  1,494
  1,659
  1,831
  2,012
  2,201
  2,398
  2,603
  2,817
  3,038
  3,269
Adjusted assets (=assets-cash), $m
  9
  14
  22
  33
  48
  68
  94
  126
  165
  212
  268
  333
  407
  491
  584
  687
  799
  920
  1,051
  1,190
  1,338
  1,494
  1,659
  1,831
  2,012
  2,201
  2,398
  2,603
  2,817
  3,038
  3,269
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
  11
  17
  24
  34
  47
  63
  83
  106
  134
  167
  204
  245
  292
  343
  399
  460
  525
  595
  669
  747
  829
  916
  1,006
  1,101
  1,199
  1,302
  1,408
  1,519
  1,635
Total debt, $m
  1
  2
  6
  11
  17
  26
  38
  52
  69
  90
  115
  144
  177
  214
  255
  301
  351
  405
  462
  524
  590
  659
  732
  809
  889
  973
  1,061
  1,152
  1,247
  1,345
  1,447
Total liabilities, $m
  5
  6
  10
  15
  21
  30
  42
  56
  73
  94
  119
  148
  181
  218
  259
  305
  355
  409
  466
  528
  594
  663
  736
  813
  893
  977
  1,065
  1,156
  1,251
  1,349
  1,451
Total equity, $m
  5
  8
  12
  18
  27
  38
  52
  70
  92
  118
  149
  185
  226
  273
  325
  382
  444
  512
  584
  662
  744
  831
  922
  1,018
  1,119
  1,224
  1,333
  1,447
  1,566
  1,689
  1,818
Total liabilities and equity, $m
  10
  14
  22
  33
  48
  68
  94
  126
  165
  212
  268
  333
  407
  491
  584
  687
  799
  921
  1,050
  1,190
  1,338
  1,494
  1,658
  1,831
  2,012
  2,201
  2,398
  2,603
  2,817
  3,038
  3,269
Debt-to-equity ratio
  0.200
  0.300
  0.480
  0.580
  0.650
  0.690
  0.720
  0.740
  0.750
  0.760
  0.770
  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
  0.800
  0.800
  0.800
  0.800
  0.800
  0.800
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
  -2
  1
  5
  11
  19
  29
  41
  57
  75
  97
  123
  152
  185
  221
  262
  306
  353
  405
  459
  518
  579
  644
  712
  783
  857
  935
  1,015
  1,099
  1,186
  1,277
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
  -2
  1
  5
  11
  19
  29
  41
  57
  75
  97
  123
  152
  185
  221
  262
  306
  353
  405
  459
  518
  579
  644
  712
  783
  857
  935
  1,015
  1,099
  1,186
  1,277
Change in working capital, $m
  2
  3
  4
  6
  8
  10
  13
  16
  20
  24
  28
  32
  37
  42
  47
  51
  56
  61
  65
  70
  74
  78
  82
  86
  90
  94
  98
  103
  107
  111
  115
Cash from operations, $m
  1
  -5
  -3
  0
  4
  9
  16
  25
  37
  52
  69
  90
  115
  143
  175
  210
  250
  293
  339
  390
  444
  501
  561
  625
  692
  763
  836
  913
  992
  1,076
  1,162
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
  0
  4
  9
  16
  25
  37
  52
  69
  90
  115
  143
  175
  210
  250
  293
  339
  390
  444
  501
  561
  625
  692
  763
  836
  913
  992
  1,076
  1,162
Issuance/(repayment) of debt, $m
  0
  2
  3
  5
  7
  9
  11
  14
  17
  21
  25
  29
  33
  37
  41
  46
  50
  54
  58
  62
  66
  69
  73
  77
  80
  84
  87
  91
  95
  99
  102
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
  6
  7
  9
  11
  14
  17
  21
  25
  29
  33
  37
  41
  46
  50
  54
  58
  62
  66
  69
  73
  77
  80
  84
  87
  91
  95
  99
  102
Total cash flow (excl. dividends), $m
  0
  3
  4
  6
  10
  18
  27
  40
  55
  73
  94
  119
  148
  180
  216
  256
  299
  347
  397
  452
  509
  570
  635
  702
  773
  847
  924
  1,004
  1,087
  1,174
  1,264
Retained Cash Flow (-), $m
  1
  -5
  -4
  -6
  -8
  -11
  -14
  -18
  -22
  -26
  -31
  -36
  -41
  -46
  -52
  -57
  -62
  -67
  -73
  -77
  -82
  -87
  -92
  -96
  -101
  -105
  -110
  -114
  -119
  -123
  -128
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
  -1
  2
  7
  13
  22
  33
  46
  63
  83
  106
  133
  164
  199
  237
  279
  325
  374
  427
  483
  543
  606
  672
  742
  814
  890
  969
  1,051
  1,136
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
 
  -2
  0
  -1
  2
  5
  10
  15
  20
  27
  33
  39
  45
  51
  55
  58
  60
  61
  60
  58
  54
  50
  45
  40
  34
  29
  24
  19
  15
  11
  9
Current shareholders' claim on cash, %
  100
  83.6
  78.0
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
  77.3
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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.


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FINANCIAL RATIOS  of  Recon Technology (RCON)

Valuation Ratios
P/E Ratio -5.2
Price to Sales 2.9
Price to Book 5.2
Price to Tangible Book
Price to Cash Flow 25.8
Price to Free Cash Flow 25.8
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 60% 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 10.246 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.

RELATED COMPANIES Price Int.Val. Rating

COMPANY NEWS

▶ Recon Announces Strategic Investment   [Nov-20-17 09:33AM  PR Newswire]
▶ 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]
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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