Intrinsic value of Tarena International ADR - TEDU

Previous Close

$14.56

  Intrinsic Value

$31.81

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  Rating & Target

str. buy

+118%

Previous close

$14.56

 
Intrinsic value

$31.81

 
Up/down potential

+118%

 
Rating

str. buy

We calculate the intrinsic value of TEDU 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 0.8

 

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, %
  34.71
  24.50
  22.55
  20.80
  19.22
  17.79
  16.51
  15.36
  14.33
  13.39
  12.55
  11.80
  11.12
  10.51
  9.96
  9.46
  9.01
  8.61
  8.25
  7.93
  7.63
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
Revenue, $m
  229
  285
  349
  422
  503
  593
  691
  797
  911
  1,033
  1,162
  1,300
  1,444
  1,596
  1,755
  1,921
  2,094
  2,274
  2,462
  2,657
  2,860
  3,071
  3,290
  3,517
  3,754
  4,000
  4,256
  4,523
  4,800
  5,089
  5,390
Variable operating expenses, $m
 
  227
  278
  336
  400
  471
  549
  633
  724
  821
  924
  1,033
  1,148
  1,269
  1,395
  1,527
  1,665
  1,808
  1,957
  2,112
  2,274
  2,441
  2,615
  2,796
  2,985
  3,180
  3,384
  3,596
  3,816
  4,046
  4,285
Fixed operating expenses, $m
 
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  24
  24
  25
  25
  26
  27
  27
Total operating expenses, $m
  195
  240
  292
  350
  414
  486
  564
  648
  740
  837
  941
  1,050
  1,165
  1,287
  1,413
  1,546
  1,684
  1,828
  1,977
  2,133
  2,295
  2,463
  2,637
  2,819
  3,009
  3,204
  3,409
  3,621
  3,842
  4,073
  4,312
Operating income, $m
  33
  45
  58
  73
  89
  107
  126
  148
  171
  195
  222
  249
  279
  309
  341
  375
  410
  446
  484
  524
  565
  608
  652
  698
  746
  796
  848
  902
  958
  1,017
  1,078
EBITDA, $m
  44
  55
  70
  88
  107
  128
  151
  176
  203
  232
  263
  296
  330
  366
  404
  444
  485
  528
  573
  619
  667
  718
  770
  824
  880
  939
  1,000
  1,064
  1,130
  1,199
  1,271
Interest expense (income), $m
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  18
  20
  22
  24
  26
  29
  31
  33
  36
  38
  41
  44
  47
  50
  53
Earnings before tax, $m
  38
  45
  57
  71
  87
  104
  123
  143
  165
  188
  213
  239
  267
  296
  327
  358
  392
  426
  462
  500
  539
  579
  621
  665
  710
  758
  807
  858
  911
  967
  1,025
Tax expense, $m
  3
  12
  15
  19
  23
  28
  33
  39
  44
  51
  57
  65
  72
  80
  88
  97
  106
  115
  125
  135
  145
  156
  168
  180
  192
  205
  218
  232
  246
  261
  277
Net income, $m
  35
  33
  42
  52
  63
  76
  89
  104
  120
  137
  155
  175
  195
  216
  238
  262
  286
  311
  337
  365
  393
  423
  453
  485
  519
  553
  589
  626
  665
  706
  748

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  178
  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
  302
  154
  189
  229
  272
  321
  374
  431
  493
  559
  629
  704
  782
  864
  950
  1,040
  1,134
  1,231
  1,333
  1,439
  1,548
  1,663
  1,781
  1,904
  2,033
  2,166
  2,304
  2,449
  2,599
  2,755
  2,918
Adjusted assets (=assets-cash), $m
  124
  154
  189
  229
  272
  321
  374
  431
  493
  559
  629
  704
  782
  864
  950
  1,040
  1,134
  1,231
  1,333
  1,439
  1,548
  1,663
  1,781
  1,904
  2,033
  2,166
  2,304
  2,449
  2,599
  2,755
  2,918
Revenue / Adjusted assets
  1.847
  1.851
  1.847
  1.843
  1.849
  1.847
  1.848
  1.849
  1.848
  1.848
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.846
  1.848
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
  1.847
Average production assets, $m
  41
  51
  63
  76
  90
  106
  124
  143
  163
  185
  208
  233
  258
  286
  314
  344
  375
  407
  441
  476
  512
  550
  589
  630
  672
  716
  762
  810
  859
  911
  965
Working capital, $m
  141
  -46
  -57
  -68
  -82
  -96
  -112
  -129
  -148
  -167
  -188
  -211
  -234
  -259
  -284
  -311
  -339
  -368
  -399
  -430
  -463
  -497
  -533
  -570
  -608
  -648
  -690
  -733
  -778
  -824
  -873
Total debt, $m
  0
  17
  37
  60
  85
  113
  143
  176
  212
  249
  290
  332
  377
  424
  473
  525
  579
  635
  693
  753
  816
  882
  950
  1,020
  1,094
  1,170
  1,249
  1,332
  1,418
  1,508
  1,601
Total liabilities, $m
  70
  88
  108
  131
  156
  184
  214
  247
  283
  320
  361
  403
  448
  495
  544
  596
  650
  706
  764
  824
  887
  953
  1,021
  1,091
  1,165
  1,241
  1,320
  1,403
  1,489
  1,579
  1,672
Total equity, $m
  231
  66
  81
  98
  116
  137
  160
  184
  211
  239
  269
  300
  334
  369
  406
  444
  484
  526
  569
  614
  661
  710
  761
  813
  868
  925
  984
  1,046
  1,110
  1,177
  1,246
Total liabilities and equity, $m
  301
  154
  189
  229
  272
  321
  374
  431
  494
  559
  630
  703
  782
  864
  950
  1,040
  1,134
  1,232
  1,333
  1,438
  1,548
  1,663
  1,782
  1,904
  2,033
  2,166
  2,304
  2,449
  2,599
  2,756
  2,918
Debt-to-equity ratio
  0.000
  0.260
  0.460
  0.610
  0.730
  0.820
  0.900
  0.960
  1.000
  1.040
  1.080
  1.110
  1.130
  1.150
  1.170
  1.180
  1.200
  1.210
  1.220
  1.230
  1.230
  1.240
  1.250
  1.250
  1.260
  1.270
  1.270
  1.270
  1.280
  1.280
  1.280
Adjusted equity ratio
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427
  0.427

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  35
  33
  42
  52
  63
  76
  89
  104
  120
  137
  155
  175
  195
  216
  238
  262
  286
  311
  337
  365
  393
  423
  453
  485
  519
  553
  589
  626
  665
  706
  748
Depreciation, amort., depletion, $m
  11
  10
  13
  15
  18
  21
  25
  29
  33
  37
  42
  47
  52
  57
  63
  69
  75
  81
  88
  95
  102
  110
  118
  126
  134
  143
  152
  162
  172
  182
  193
Funds from operations, $m
  95
  43
  54
  67
  81
  97
  114
  133
  153
  174
  197
  221
  247
  273
  301
  330
  361
  393
  426
  460
  496
  533
  571
  611
  653
  696
  741
  788
  837
  888
  941
Change in working capital, $m
  19
  -9
  -10
  -12
  -13
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -30
  -32
  -33
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -45
  -47
  -49
Cash from operations, $m
  76
  52
  65
  79
  94
  112
  130
  150
  171
  194
  218
  243
  270
  298
  327
  357
  389
  422
  456
  492
  528
  567
  607
  648
  691
  736
  783
  831
  882
  935
  990
Maintenance CAPEX, $m
  0
  -8
  -10
  -13
  -15
  -18
  -21
  -25
  -29
  -33
  -37
  -42
  -47
  -52
  -57
  -63
  -69
  -75
  -81
  -88
  -95
  -102
  -110
  -118
  -126
  -134
  -143
  -152
  -162
  -172
  -182
New CAPEX, $m
  -55
  -10
  -12
  -13
  -15
  -16
  -18
  -19
  -20
  -22
  -23
  -25
  -26
  -27
  -28
  -30
  -31
  -32
  -34
  -35
  -36
  -38
  -39
  -41
  -42
  -44
  -46
  -48
  -50
  -52
  -54
Cash from investing activities, $m
  -23
  -18
  -22
  -26
  -30
  -34
  -39
  -44
  -49
  -55
  -60
  -67
  -73
  -79
  -85
  -93
  -100
  -107
  -115
  -123
  -131
  -140
  -149
  -159
  -168
  -178
  -189
  -200
  -212
  -224
  -236
Free cash flow, $m
  53
  34
  43
  53
  65
  77
  91
  106
  122
  140
  158
  177
  198
  219
  241
  265
  289
  315
  341
  368
  397
  427
  458
  490
  523
  558
  594
  631
  671
  711
  754
Issuance/(repayment) of debt, $m
  0
  17
  20
  23
  25
  28
  30
  33
  35
  38
  40
  43
  45
  47
  49
  52
  54
  56
  58
  61
  63
  65
  68
  71
  73
  76
  79
  83
  86
  90
  93
Issuance/(repurchase) of shares, $m
  3
  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  
  -3
  17
  20
  23
  25
  28
  30
  33
  35
  38
  40
  43
  45
  47
  49
  52
  54
  56
  58
  61
  63
  65
  68
  71
  73
  76
  79
  83
  86
  90
  93
Total cash flow (excl. dividends), $m
  51
  51
  63
  76
  90
  105
  122
  139
  158
  177
  198
  220
  242
  266
  291
  316
  343
  370
  399
  429
  460
  492
  526
  560
  596
  634
  673
  714
  757
  801
  847
Retained Cash Flow (-), $m
  -37
  -13
  -15
  -17
  -19
  -21
  -23
  -25
  -26
  -28
  -30
  -32
  -33
  -35
  -37
  -38
  -40
  -42
  -43
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -59
  -62
  -64
  -67
  -70
Prev. year cash balance distribution, $m
 
  178
  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
 
  217
  48
  59
  71
  85
  99
  115
  131
  149
  168
  188
  209
  231
  254
  278
  303
  329
  356
  384
  413
  443
  475
  508
  542
  577
  614
  652
  692
  734
  778
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
 
  208
  44
  51
  59
  66
  72
  77
  82
  86
  88
  89
  89
  88
  85
  82
  77
  72
  66
  59
  52
  46
  39
  33
  28
  22
  18
  14
  11
  8
  6
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Tarena International, Inc. (Tarena International) is a holding company. The Company, through its subsidiaries, provides professional education services, including professional information technology (IT) training courses and non-IT training courses across the People's Republic of China (PRC). It operates through training segment. It offers courses in over 10 IT subjects and approximately three non-IT subjects, and over two kid education programs. It offers an education platform that combines live distance instruction, classroom-based tutoring and online learning modules. It complements the live instruction and tutoring with its learning management system, Tarena Teaching System (TTS). TTS has over five core functions, featuring course content, self-assessment exams, student and teaching staff interaction tools, student management tools and an online student community. In addition, the Company offers Tongcheng and Tongmei featuring IT training courses and non-IT training courses.

FINANCIAL RATIOS  of  Tarena International ADR (TEDU)

Valuation Ratios
P/E Ratio 23.3
Price to Sales 3.6
Price to Book 3.5
Price to Tangible Book
Price to Cash Flow 10.7
Price to Free Cash Flow 38.9
Growth Rates
Sales Growth Rate 34.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 292.9%
Cap. Spend. - 3 Yr. Gr. Rate 43.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 12.9%
Ret/ On Assets - 3 Yr. Avg. 13.5%
Return On Total Capital 16.5%
Ret/ On T. Cap. - 3 Yr. Avg. 16.9%
Return On Equity 16.5%
Return On Equity - 3 Yr. Avg. 16.9%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 71.6%
Gross Margin - 3 Yr. Avg. 71.5%
EBITDA Margin 21.4%
EBITDA Margin - 3 Yr. Avg. 22.1%
Operating Margin 14.8%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 16.6%
Pre-Tax Margin - 3 Yr. Avg. 17.2%
Net Profit Margin 15.3%
Net Profit Margin - 3 Yr. Avg. 16.3%
Effective Tax Rate 7.9%
Eff/ Tax Rate - 3 Yr. Avg. 5.4%
Payout Ratio 22.9%

TEDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TEDU stock intrinsic value calculation we used $229 million for the last fiscal year's total revenue generated by Tarena International ADR. The default revenue input number comes from 2016 income statement of Tarena International ADR. 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 TEDU stock valuation model: a) initial revenue growth rate of 24.5% 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 TEDU is calculated based on our internal credit rating of Tarena International ADR, 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 Tarena International ADR.
    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 TEDU stock the variable cost ratio is equal to 79.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $13 million in the base year in the intrinsic value calculation for TEDU 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 Tarena International ADR.

Corporate tax rate of 27% is the nominal tax rate for Tarena International ADR. 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 TEDU 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 TEDU are equal to 17.9%.

Life of production assets of 3.7 years is the average useful life of capital assets used in Tarena International ADR 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 TEDU is equal to -16.2%. 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 - $231 million for Tarena International ADR - 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 57.488 million for Tarena International ADR 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 Tarena International ADR at the current share price and the inputted number of shares is $0.8 billion.

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COMPANY NEWS

▶ 5 Chinese Education Stocks to Make the Grade   [Sep-20-17 10:23PM  Barrons.com]
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▶ Top Chinese Stock Slips On Weak Bottom Line, Guidance   [May-22-17 05:24PM  Investor's Business Daily]
▶ Tarena Filed 2016 Annual Report on Form 20-F   [Apr-25-17 06:00PM  PR Newswire]
▶ TAL Education Breaks Out From Late-Stage Base On Strong Q3   [Jan-19-17 04:09PM  Investor's Business Daily]
▶ TARENA INTERNATIONAL, INC. Financials   [01:04PM  EDGAR Online Financials]
▶ Do Hedge Funds Love Getty Realty Corp. (GTY)?   [Dec-10  04:00AM  at Insider Monkey]
▶ Is Tarena International Inc(ADR) (TEDU) A Good Stock To Buy?   [Nov-28  11:15AM  at Insider Monkey]
Financial statements of TEDU
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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