Intrinsic value of Sevcon - SEV

Previous Close

$22.00

  Intrinsic Value

$38.43

stock screener

  Rating & Target

str. buy

+75%

  Value-price divergence*

-112%

Previous close

$22.00

 
Intrinsic value

$38.43

 
Up/down potential

+75%

 
Rating

str. buy

 
Value-price divergence*

-112%

*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
  35.70
  32.63
  29.87
  27.38
  25.14
  23.13
  21.32
  19.68
  18.22
  16.89
  15.70
  14.63
  13.67
  12.80
  12.02
  11.32
  10.69
  10.12
  9.61
  9.15
  8.73
  8.36
  8.02
  7.72
  7.45
  7.20
  6.98
  6.79
  6.61
  6.45
Revenue, $m
  50
  68
  90
  117
  149
  186
  229
  278
  333
  394
  460
  532
  610
  694
  783
  877
  976
  1,080
  1,190
  1,304
  1,423
  1,548
  1,677
  1,812
  1,951
  2,097
  2,248
  2,405
  2,568
  2,738
  2,914
Variable operating expenses, $m
 
  65
  86
  111
  141
  177
  217
  263
  315
  372
  435
  503
  576
  655
  739
  828
  921
  1,020
  1,123
  1,231
  1,344
  1,461
  1,583
  1,710
  1,842
  1,979
  2,122
  2,270
  2,424
  2,584
  2,751
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
  65
  86
  111
  141
  177
  217
  263
  315
  372
  435
  503
  576
  655
  739
  828
  921
  1,020
  1,123
  1,231
  1,344
  1,461
  1,583
  1,710
  1,842
  1,979
  2,122
  2,270
  2,424
  2,584
  2,751
Operating income, $m
  -5
  3
  4
  6
  8
  10
  12
  15
  18
  21
  25
  30
  34
  39
  44
  49
  55
  61
  67
  73
  80
  87
  94
  101
  109
  117
  126
  135
  144
  153
  163
EBITDA, $m
  -3
  5
  7
  9
  12
  15
  19
  23
  27
  32
  37
  43
  49
  56
  63
  71
  79
  88
  96
  106
  115
  125
  136
  147
  158
  170
  182
  195
  208
  222
  236
Interest expense (income), $m
  0
  1
  1
  2
  3
  4
  5
  7
  8
  10
  12
  14
  16
  19
  22
  25
  28
  31
  35
  38
  42
  46
  50
  54
  59
  63
  68
  73
  78
  83
  89
Earnings before tax, $m
  -6
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  16
  18
  20
  22
  24
  27
  29
  32
  35
  38
  41
  44
  47
  51
  54
  58
  62
  66
  70
  74
Tax expense, $m
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
Net income, $m
  -6
  2
  2
  3
  3
  4
  5
  6
  7
  8
  10
  11
  13
  14
  16
  18
  20
  21
  23
  25
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54

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
  75
  99
  129
  164
  205
  252
  306
  366
  433
  506
  586
  672
  763
  861
  965
  1,074
  1,189
  1,309
  1,435
  1,566
  1,703
  1,845
  1,993
  2,147
  2,307
  2,473
  2,646
  2,825
  3,012
  3,206
Adjusted assets (=assets-cash), $m
  55
  75
  99
  129
  164
  205
  252
  306
  366
  433
  506
  586
  672
  763
  861
  965
  1,074
  1,189
  1,309
  1,435
  1,566
  1,703
  1,845
  1,993
  2,147
  2,307
  2,473
  2,646
  2,825
  3,012
  3,206
Revenue / Adjusted assets
  0.909
  0.907
  0.909
  0.907
  0.909
  0.907
  0.909
  0.908
  0.910
  0.910
  0.909
  0.908
  0.908
  0.910
  0.909
  0.909
  0.909
  0.908
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
  0.909
Average production assets, $m
  8
  10
  13
  18
  22
  28
  34
  42
  50
  59
  69
  80
  92
  104
  117
  132
  146
  162
  178
  196
  214
  232
  252
  272
  293
  315
  337
  361
  385
  411
  437
Working capital, $m
  28
  19
  25
  33
  42
  52
  64
  78
  93
  110
  129
  149
  171
  194
  219
  246
  273
  303
  333
  365
  399
  433
  470
  507
  546
  587
  629
  673
  719
  767
  816
Total debt, $m
  17
  34
  55
  80
  110
  145
  186
  232
  283
  340
  403
  471
  544
  623
  706
  795
  888
  986
  1,089
  1,197
  1,309
  1,426
  1,547
  1,674
  1,806
  1,942
  2,084
  2,232
  2,385
  2,545
  2,711
Total liabilities, $m
  47
  64
  85
  110
  140
  175
  216
  262
  313
  370
  433
  501
  574
  653
  736
  825
  918
  1,016
  1,119
  1,227
  1,339
  1,456
  1,577
  1,704
  1,836
  1,972
  2,114
  2,262
  2,415
  2,575
  2,741
Total equity, $m
  22
  11
  14
  19
  24
  30
  37
  44
  53
  63
  73
  85
  97
  111
  125
  140
  156
  172
  190
  208
  227
  247
  268
  289
  311
  334
  359
  384
  410
  437
  465
Total liabilities and equity, $m
  69
  75
  99
  129
  164
  205
  253
  306
  366
  433
  506
  586
  671
  764
  861
  965
  1,074
  1,188
  1,309
  1,435
  1,566
  1,703
  1,845
  1,993
  2,147
  2,306
  2,473
  2,646
  2,825
  3,012
  3,206
Debt-to-equity ratio
  0.773
  3.120
  3.810
  4.290
  4.630
  4.890
  5.080
  5.220
  5.330
  5.420
  5.490
  5.540
  5.590
  5.630
  5.660
  5.680
  5.700
  5.720
  5.740
  5.750
  5.760
  5.780
  5.780
  5.790
  5.800
  5.810
  5.810
  5.820
  5.820
  5.830
  5.830
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
  2
  2
  3
  3
  4
  5
  6
  7
  8
  10
  11
  13
  14
  16
  18
  20
  21
  23
  25
  28
  30
  32
  35
  37
  40
  42
  45
  48
  51
  54
Depreciation, amort., depletion, $m
  2
  2
  3
  4
  5
  5
  7
  8
  9
  11
  12
  13
  15
  17
  20
  22
  24
  27
  30
  33
  36
  39
  42
  45
  49
  52
  56
  60
  64
  68
  73
Funds from operations, $m
  -9
  4
  5
  7
  8
  10
  12
  14
  16
  19
  22
  25
  28
  32
  36
  40
  44
  48
  53
  58
  63
  69
  74
  80
  86
  92
  98
  105
  112
  119
  127
Change in working capital, $m
  -3
  5
  6
  8
  9
  10
  12
  14
  15
  17
  19
  20
  22
  23
  25
  26
  28
  29
  31
  32
  33
  35
  36
  38
  39
  41
  42
  44
  46
  48
  49
Cash from operations, $m
  -6
  -1
  -1
  -1
  -1
  -1
  0
  0
  1
  2
  3
  5
  6
  8
  11
  13
  16
  19
  23
  26
  30
  34
  38
  42
  47
  51
  56
  61
  66
  72
  78
Maintenance CAPEX, $m
  0
  -1
  -2
  -2
  -3
  -4
  -5
  -6
  -7
  -8
  -10
  -12
  -13
  -15
  -17
  -20
  -22
  -24
  -27
  -30
  -33
  -36
  -39
  -42
  -45
  -49
  -52
  -56
  -60
  -64
  -68
New CAPEX, $m
  -1
  -3
  -3
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -24
  -25
  -26
Cash from investing activities, $m
  -11
  -4
  -5
  -6
  -8
  -10
  -11
  -13
  -15
  -17
  -20
  -23
  -25
  -28
  -30
  -34
  -37
  -40
  -43
  -47
  -51
  -55
  -58
  -62
  -66
  -71
  -75
  -80
  -84
  -89
  -94
Free cash flow, $m
  -17
  -5
  -6
  -7
  -9
  -10
  -12
  -13
  -14
  -15
  -17
  -18
  -19
  -19
  -20
  -20
  -21
  -21
  -21
  -21
  -21
  -21
  -20
  -20
  -20
  -19
  -19
  -19
  -18
  -18
  -17
Issuance/(repayment) of debt, $m
  15
  17
  21
  25
  30
  35
  41
  46
  52
  57
  63
  68
  73
  78
  84
  89
  93
  98
  103
  108
  112
  117
  122
  127
  132
  137
  142
  148
  153
  160
  166
Issuance/(repurchase) of shares, $m
  9
  1
  1
  1
  2
  2
  2
  2
  2
  1
  1
  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
  18
  22
  26
  32
  37
  43
  48
  54
  58
  64
  68
  73
  78
  84
  89
  93
  98
  103
  108
  112
  117
  122
  127
  132
  137
  142
  148
  153
  160
  166
Total cash flow (excl. dividends), $m
  6
  13
  16
  19
  23
  27
  31
  35
  39
  43
  47
  50
  55
  59
  64
  68
  73
  77
  82
  87
  92
  96
  101
  107
  112
  117
  123
  129
  135
  142
  149
Retained Cash Flow (-), $m
  -6
  -3
  -4
  -4
  -5
  -6
  -7
  -8
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
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
 
  24
  13
  15
  18
  21
  24
  27
  30
  33
  36
  39
  42
  46
  49
  53
  57
  61
  65
  68
  72
  77
  81
  85
  90
  94
  99
  104
  109
  115
  120
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
 
  23
  11
  12
  13
  14
  15
  15
  15
  15
  14
  13
  12
  11
  10
  9
  8
  7
  5
  5
  4
  3
  2
  2
  1
  1
  1
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  97.7
  95.7
  94.0
  92.6
  91.4
  90.4
  89.7
  89.1
  88.7
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4
  88.4

Sevcon, Inc. designs and sells motor controllers for zero emission electric and hybrid vehicles (EVs), under the Sevcon name. The Company's controls are used to vary the speed and movement of vehicles to integrate specialized functions and to optimize the energy consumption of the vehicle's power source. The Company operates through three segments: electronic controls, capacitors and battery chargers. The electronic controls segment produces microprocessor-based control systems for zero emission and hybrid electric vehicles. The electronic controls segment produces special-metalized film capacitors for sale to electronic equipment manufacturers. The capacitor segment produces special-metalized film capacitors for sale to electronic equipment manufacturers. The capacitor segment has a plant, which is located at Wales. The battery chargers segment designs and manufactures battery chargers for electric vehicles. The battery chargers segment has a plant, which is located at Italy.

FINANCIAL RATIOS  of  Sevcon (SEV)

Valuation Ratios
P/E Ratio -19.6
Price to Sales 2.3
Price to Book 5.3
Price to Tangible Book
Price to Cash Flow -19.6
Price to Free Cash Flow -16.8
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 35.7% 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 6 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 5.701 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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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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