Intrinsic value of Sevcon - SEV

Previous Close

$21.87

  Intrinsic Value

$20.92

stock screener

  Rating & Target

hold

-4%

  Value-price divergence*

-51%

Previous close

$21.87

 
Intrinsic value

$20.92

 
Up/down potential

-4%

 
Rating

hold

 
Value-price divergence*

-51%

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

We calculate the intrinsic value of SEV 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, %
  21.95
  23.10
  21.29
  19.66
  18.19
  16.88
  15.69
  14.62
  13.66
  12.79
  12.01
  11.31
  10.68
  10.11
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.45
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
Revenue, $m
  50
  62
  75
  89
  106
  123
  143
  164
  186
  210
  235
  262
  289
  319
  349
  381
  415
  449
  485
  523
  562
  602
  644
  688
  733
  780
  830
  881
  934
  990
  1,047
Variable operating expenses, $m
 
  59
  71
  85
  100
  117
  136
  155
  176
  199
  223
  247
  273
  301
  330
  360
  391
  424
  458
  493
  530
  568
  608
  649
  692
  737
  783
  831
  882
  934
  989
Fixed operating expenses, $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
Total operating expenses, $m
  55
  59
  71
  85
  100
  117
  136
  155
  176
  199
  223
  247
  273
  301
  330
  360
  391
  424
  458
  493
  530
  568
  608
  649
  692
  737
  783
  831
  882
  934
  989
Operating income, $m
  -5
  3
  3
  4
  5
  6
  7
  8
  10
  11
  12
  15
  16
  18
  20
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  46
  49
  52
  55
  59
EBITDA, $m
  -3
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  29
  32
  34
  37
  40
  43
  46
  49
  52
  55
  59
  63
  66
  70
  74
Interest expense (income), $m
  0
  1
  1
  1
  2
  2
  3
  4
  4
  5
  6
  7
  8
  8
  9
  10
  12
  13
  14
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
Earnings before tax, $m
  -6
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  8
  9
  9
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
Tax expense, $m
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  7
Net income, $m
  -6
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  14
  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
  69
  68
  82
  98
  116
  136
  157
  180
  205
  231
  258
  288
  318
  351
  384
  419
  456
  494
  534
  575
  618
  662
  708
  757
  807
  858
  913
  969
  1,028
  1,089
  1,152
Adjusted assets (=assets-cash), $m
  55
  68
  82
  98
  116
  136
  157
  180
  205
  231
  258
  288
  318
  351
  384
  419
  456
  494
  534
  575
  618
  662
  708
  757
  807
  858
  913
  969
  1,028
  1,089
  1,152
Revenue / Adjusted assets
  0.909
  0.912
  0.915
  0.908
  0.914
  0.904
  0.911
  0.911
  0.907
  0.909
  0.911
  0.910
  0.909
  0.909
  0.909
  0.909
  0.910
  0.909
  0.908
  0.910
  0.909
  0.909
  0.910
  0.909
  0.908
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
Average production assets, $m
  8
  9
  11
  13
  16
  19
  21
  25
  28
  31
  35
  39
  43
  48
  52
  57
  62
  67
  73
  78
  84
  90
  97
  103
  110
  117
  124
  132
  140
  148
  157
Working capital, $m
  28
  17
  21
  25
  30
  35
  40
  46
  52
  59
  66
  73
  81
  89
  98
  107
  116
  126
  136
  146
  157
  169
  180
  193
  205
  219
  232
  247
  262
  277
  293
Total debt, $m
  17
  28
  40
  54
  69
  86
  104
  124
  145
  167
  191
  216
  242
  270
  299
  329
  360
  393
  426
  462
  498
  536
  576
  617
  660
  704
  750
  798
  849
  901
  955
Total liabilities, $m
  47
  58
  70
  84
  99
  116
  134
  154
  175
  197
  221
  246
  272
  300
  329
  359
  390
  423
  456
  492
  528
  566
  606
  647
  690
  734
  780
  828
  879
  931
  985
Total equity, $m
  22
  10
  12
  14
  17
  20
  23
  26
  30
  33
  37
  42
  46
  51
  56
  61
  66
  72
  77
  83
  90
  96
  103
  110
  117
  124
  132
  140
  149
  158
  167
Total liabilities and equity, $m
  69
  68
  82
  98
  116
  136
  157
  180
  205
  230
  258
  288
  318
  351
  385
  420
  456
  495
  533
  575
  618
  662
  709
  757
  807
  858
  912
  968
  1,028
  1,089
  1,152
Debt-to-equity ratio
  0.773
  2.840
  3.380
  3.790
  4.120
  4.370
  4.580
  4.750
  4.890
  5.000
  5.100
  5.180
  5.250
  5.310
  5.360
  5.400
  5.440
  5.480
  5.510
  5.540
  5.560
  5.580
  5.600
  5.620
  5.640
  5.660
  5.670
  5.680
  5.700
  5.710
  5.720
Adjusted equity ratio
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145
  0.145

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -6
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
Depreciation, amort., depletion, $m
  2
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
Funds from operations, $m
  -9
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  20
  21
  22
  24
  25
  27
  28
  30
  32
  34
  36
Change in working capital, $m
  -3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
Cash from operations, $m
  -6
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  11
  12
  14
  15
  16
  17
  18
  19
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -12
  -13
  -14
  -15
New CAPEX, $m
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Cash from investing activities, $m
  -11
  -3
  -3
  -3
  -3
  -5
  -5
  -5
  -5
  -7
  -7
  -8
  -8
  -8
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -24
Free cash flow, $m
  -17
  -2
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -5
  -4
  -4
  -4
  -4
  -4
Issuance/(repayment) of debt, $m
  15
  11
  12
  14
  15
  17
  18
  20
  21
  22
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
Issuance/(repurchase) of shares, $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
Cash from financing (excl. dividends), $m  
  24
  11
  12
  14
  15
  17
  18
  20
  21
  22
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  54
Total cash flow (excl. dividends), $m
  6
  9
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  33
  35
  36
  38
  40
  42
  44
  46
  48
  50
Retained Cash Flow (-), $m
  -6
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
Prev. year cash balance distribution, $m
 
  14
  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
 
  21
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  36
  37
  39
  41
Discount rate, %
 
  6.40
  6.72
  7.06
  7.41
  7.78
  8.17
  8.58
  9.01
  9.46
  9.93
  10.42
  10.95
  11.49
  12.07
  12.67
  13.31
  13.97
  14.67
  15.40
  16.17
  16.98
  17.83
  18.72
  19.66
  20.64
  21.67
  22.76
  23.89
  25.09
  26.34
PV of cash for distribution, $m
 
  20
  7
  7
  7
  7
  7
  7
  6
  6
  6
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  99.3
  98.6
  98.2
  97.8
  97.7
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
  97.6
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  97.6

Sevcon, Inc., through its subsidiaries, designs and sells motor controllers under the Sevcon name in the United States, the United Kingdom, France, South Korea, Japan, and China. It operates in three segments: Electronic Controls, Capacitors, and Battery Chargers. The Electronic Controls segment produces and sells microprocessor based control systems for use in on and off-road vehicles, including cars, trucks, buses, motorcycles, fork lift trucks, aerial lifts, mining vehicles, airport tractors, sweepers, and other electrically powered vehicles. The Capacitor segment produces and sells special metalized film capacitors to electronic equipment manufacturers for use as components in the power electronics, signaling, and audio equipment markets. The Battery Chargers segment designs, manufactures, and sells battery chargers to electric vehicles, power management, and uninterrupted power source systems for industrial, medical, and telecom applications, as well as electronic instrumentation for battery laboratories. Sevcon, Inc. was founded in 1987 and is based in Southborough, Massachusetts.

FINANCIAL RATIOS  of  Sevcon (SEV)

Valuation Ratios
P/E Ratio -19.5
Price to Sales 2.3
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow -19.5
Price to Free Cash Flow -16.7
Growth Rates
Sales Growth Rate 22%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 77.3%
Total Debt to Equity 77.3%
Interest Coverage 0
Management Effectiveness
Return On Assets -11.4%
Ret/ On Assets - 3 Yr. Avg. -0.7%
Return On Total Capital -21.4%
Ret/ On T. Cap. - 3 Yr. Avg. -0.9%
Return On Equity -31.6%
Return On Equity - 3 Yr. Avg. -3.5%
Asset Turnover 1
Profitability Ratios
Gross Margin 32%
Gross Margin - 3 Yr. Avg. 36.8%
EBITDA Margin -8%
EBITDA Margin - 3 Yr. Avg. 1.5%
Operating Margin -10%
Oper. Margin - 3 Yr. Avg. -0.8%
Pre-Tax Margin -12%
Pre-Tax Margin - 3 Yr. Avg. -1.5%
Net Profit Margin -12%
Net Profit Margin - 3 Yr. Avg. -1.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

SEV stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the SEV stock intrinsic value calculation we used $50 million for the last fiscal year's total revenue generated by Sevcon. The default revenue input number comes from 2016 income statement of Sevcon. 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 SEV stock valuation model: a) initial revenue growth rate of 23.1% 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 6.4%, whose default value for SEV is calculated based on our internal credit rating of Sevcon, 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 Sevcon.
    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 SEV stock the variable cost ratio is equal to 96%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for SEV 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 Sevcon.

Corporate tax rate of 27% is the nominal tax rate for Sevcon. 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 SEV 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 SEV are equal to 15%.

Life of production assets of 10 years is the average useful life of capital assets used in Sevcon 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 SEV is equal to 28%. 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 - $22 million for Sevcon - 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 5.345 million for Sevcon 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 Sevcon at the current share price and the inputted number of shares is $0.1 billion.

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COMPANY NEWS

▶ ETFs with exposure to Sevcon, Inc. : August 1, 2017   [Aug-01-17 05:18PM  Capital Cube]
▶ ETFs with exposure to Sevcon, Inc. : June 26, 2017   [Jun-26-17 04:53PM  Capital Cube]
▶ ETFs with exposure to Sevcon, Inc. : June 16, 2017   [Jun-16-17 04:18PM  Capital Cube]
▶ Investor Network: Sevcon, Inc. to Host Earnings Call   [May-16-17 08:20AM  Accesswire]
▶ Sevcon to Present at The MicroCap Conference   [Mar-30-17 04:01PM  GlobeNewswire]
▶ Sevcon to Present at 29th Annual ROTH Conference   [Mar-11-17 04:00PM  GlobeNewswire]
▶ Sevcon Wins Substantial Contract for Automotive Drivetrain   [Feb-02-17 05:00PM  GlobeNewswire]
▶ GAMCO Comments on Sevcon Proxy Contest   [Jan-30-17 04:00PM  Business Wire]
▶ Sevcon Announces $10.15 Million Private Placement of Units   [Jul-07-16 09:00AM  GlobeNewswire]
Stock chart of SEV Financial statements of SEV
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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