Intrinsic value of Tesco - TESO

Previous Close

$4.35

  Intrinsic Value

$1.71

stock screener

  Rating & Target

str. sell

-61%

  Value-price divergence*

-14%

Previous close

$4.35

 
Intrinsic value

$1.71

 
Up/down potential

-61%

 
Rating

str. sell

 
Value-price divergence*

-14%

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

We calculate the intrinsic value of TESO 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 0.2

 

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, %
  -51.79
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.11
  5.09
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
Revenue, $m
  135
  143
  151
  159
  168
  177
  187
  197
  207
  218
  230
  242
  254
  268
  281
  296
  311
  327
  344
  361
  380
  399
  419
  441
  463
  486
  511
  537
  564
  592
  622
Variable operating expenses, $m
 
  130
  137
  145
  153
  161
  170
  179
  189
  199
  209
  220
  232
  244
  256
  270
  283
  298
  313
  329
  346
  364
  382
  401
  422
  443
  465
  489
  513
  539
  567
Fixed operating expenses, $m
 
  133
  137
  140
  143
  147
  151
  155
  158
  162
  166
  171
  175
  179
  184
  188
  193
  198
  203
  208
  213
  218
  224
  229
  235
  241
  247
  253
  260
  266
  273
Total operating expenses, $m
  250
  263
  274
  285
  296
  308
  321
  334
  347
  361
  375
  391
  407
  423
  440
  458
  476
  496
  516
  537
  559
  582
  606
  630
  657
  684
  712
  742
  773
  805
  840
Operating income, $m
  -115
  -121
  -123
  -126
  -129
  -131
  -134
  -137
  -140
  -143
  -146
  -149
  -152
  -155
  -159
  -162
  -165
  -169
  -172
  -176
  -179
  -183
  -186
  -190
  -194
  -198
  -202
  -205
  -209
  -213
  -217
EBITDA, $m
  -86
  -104
  -106
  -108
  -109
  -111
  -113
  -115
  -116
  -118
  -120
  -122
  -123
  -125
  -127
  -128
  -130
  -132
  -133
  -135
  -136
  -137
  -139
  -140
  -141
  -142
  -143
  -144
  -145
  -146
  -147
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
Earnings before tax, $m
  -118
  -121
  -123
  -126
  -129
  -132
  -135
  -137
  -140
  -144
  -147
  -150
  -153
  -156
  -160
  -163
  -167
  -170
  -174
  -177
  -181
  -185
  -189
  -193
  -197
  -201
  -205
  -209
  -213
  -217
  -221
Tax expense, $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
Net income, $m
  -118
  -121
  -123
  -126
  -129
  -132
  -135
  -137
  -140
  -144
  -147
  -150
  -153
  -156
  -160
  -163
  -167
  -170
  -174
  -177
  -181
  -185
  -189
  -193
  -197
  -201
  -205
  -209
  -213
  -217
  -221

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  91
  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
  344
  267
  282
  298
  314
  332
  350
  368
  388
  408
  430
  453
  476
  501
  527
  554
  583
  612
  644
  677
  711
  747
  785
  825
  867
  911
  957
  1,005
  1,056
  1,109
  1,165
Adjusted assets (=assets-cash), $m
  253
  267
  282
  298
  314
  332
  350
  368
  388
  408
  430
  453
  476
  501
  527
  554
  583
  612
  644
  677
  711
  747
  785
  825
  867
  911
  957
  1,005
  1,056
  1,109
  1,165
Revenue / Adjusted assets
  0.534
  0.536
  0.535
  0.534
  0.535
  0.533
  0.534
  0.535
  0.534
  0.534
  0.535
  0.534
  0.534
  0.535
  0.533
  0.534
  0.533
  0.534
  0.534
  0.533
  0.534
  0.534
  0.534
  0.535
  0.534
  0.533
  0.534
  0.534
  0.534
  0.534
  0.534
Average production assets, $m
  154
  162
  171
  181
  191
  201
  212
  224
  236
  248
  261
  275
  289
  304
  320
  336
  354
  372
  391
  411
  432
  454
  477
  501
  526
  553
  581
  610
  641
  673
  707
Working capital, $m
  188
  71
  75
  80
  84
  89
  93
  98
  104
  109
  115
  121
  127
  134
  141
  148
  156
  164
  172
  181
  190
  200
  210
  220
  231
  243
  255
  268
  282
  296
  311
Total debt, $m
  0
  2
  4
  6
  8
  10
  13
  15
  18
  21
  24
  27
  30
  33
  37
  40
  44
  48
  52
  57
  61
  66
  71
  77
  82
  88
  94
  101
  107
  115
  122
Total liabilities, $m
  35
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  67
  71
  74
  78
  82
  86
  91
  95
  100
  105
  111
  116
  122
  128
  135
  141
  149
  156
Total equity, $m
  310
  231
  244
  258
  272
  287
  303
  319
  336
  354
  372
  392
  412
  434
  456
  480
  505
  530
  558
  586
  616
  647
  680
  714
  751
  789
  828
  870
  914
  960
  1,008
Total liabilities and equity, $m
  345
  267
  282
  298
  314
  331
  350
  368
  388
  409
  430
  453
  476
  501
  527
  554
  583
  612
  644
  677
  711
  747
  785
  825
  867
  911
  956
  1,005
  1,055
  1,109
  1,164
Debt-to-equity ratio
  0.000
  0.010
  0.020
  0.020
  0.030
  0.040
  0.040
  0.050
  0.050
  0.060
  0.060
  0.070
  0.070
  0.080
  0.080
  0.080
  0.090
  0.090
  0.090
  0.100
  0.100
  0.100
  0.100
  0.110
  0.110
  0.110
  0.110
  0.120
  0.120
  0.120
  0.120
Adjusted equity ratio
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866
  0.866

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -118
  -121
  -123
  -126
  -129
  -132
  -135
  -137
  -140
  -144
  -147
  -150
  -153
  -156
  -160
  -163
  -167
  -170
  -174
  -177
  -181
  -185
  -189
  -193
  -197
  -201
  -205
  -209
  -213
  -217
  -221
Depreciation, amort., depletion, $m
  29
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  45
  48
  50
  53
  55
  58
  61
  64
  67
  71
Funds from operations, $m
  41
  -104
  -106
  -108
  -110
  -111
  -113
  -115
  -117
  -119
  -121
  -122
  -124
  -126
  -128
  -130
  -131
  -133
  -135
  -136
  -138
  -140
  -141
  -143
  -144
  -145
  -147
  -148
  -149
  -150
  -151
Change in working capital, $m
  43
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
  14
  15
Cash from operations, $m
  -2
  -108
  -110
  -112
  -114
  -116
  -118
  -120
  -122
  -124
  -126
  -128
  -131
  -133
  -135
  -137
  -139
  -141
  -143
  -145
  -147
  -149
  -151
  -153
  -155
  -157
  -159
  -161
  -162
  -164
  -166
Maintenance CAPEX, $m
  0
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
New CAPEX, $m
  -7
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
Cash from investing activities, $m
  -3
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -36
  -38
  -40
  -41
  -44
  -46
  -49
  -51
  -53
  -56
  -59
  -62
  -65
  -68
  -72
  -75
  -80
  -83
  -87
  -92
  -96
  -101
Free cash flow, $m
  -5
  -132
  -135
  -139
  -142
  -146
  -149
  -153
  -156
  -160
  -164
  -168
  -172
  -177
  -181
  -185
  -190
  -195
  -199
  -204
  -209
  -214
  -220
  -225
  -231
  -236
  -242
  -248
  -254
  -260
  -267
Issuance/(repayment) of debt, $m
  0
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
Issuance/(repurchase) of shares, $m
  48
  133
  136
  140
  143
  146
  150
  154
  158
  161
  165
  169
  174
  178
  182
  187
  191
  196
  201
  206
  211
  216
  222
  227
  233
  239
  244
  251
  257
  263
  270
Cash from financing (excl. dividends), $m  
  45
  135
  138
  142
  145
  148
  152
  157
  161
  164
  168
  172
  177
  181
  185
  191
  195
  200
  205
  210
  216
  221
  227
  232
  239
  245
  250
  257
  264
  270
  277
Total cash flow (excl. dividends), $m
  40
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
Retained Cash Flow (-), $m
  65
  -133
  -136
  -140
  -143
  -146
  -150
  -154
  -158
  -161
  -165
  -169
  -174
  -178
  -182
  -187
  -191
  -196
  -201
  -206
  -211
  -216
  -222
  -227
  -233
  -239
  -244
  -251
  -257
  -263
  -270
Prev. year cash balance distribution, $m
 
  91
  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
 
  -39
  -133
  -137
  -140
  -143
  -147
  -150
  -154
  -158
  -161
  -165
  -169
  -173
  -177
  -182
  -186
  -191
  -195
  -200
  -205
  -210
  -215
  -220
  -225
  -230
  -236
  -242
  -247
  -253
  -259
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
 
  -38
  -122
  -119
  -115
  -111
  -106
  -101
  -96
  -90
  -85
  -78
  -72
  -66
  -60
  -53
  -47
  -41
  -36
  -31
  -26
  -22
  -18
  -14
  -11
  -9
  -7
  -5
  -4
  -3
  -2
Current shareholders' claim on cash, %
  100
  53.6
  29.1
  16.0
  8.9
  5.1
  2.9
  1.7
  1.0
  0.6
  0.3
  0.2
  0.1
  0.1
  0.1
  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
  0.0

Tesco Corporation engages in the design, assembly, and service delivery of technology-based solutions for the upstream energy industry in the United States and internationally. It operates through Top Drives, Tubular Services, Research and Engineering, and Corporate and Other segments. The Top Drive segment assembles and sells top drives that are used in drilling operations to rotate the drill string and/or casing while suspended from the derrick above the rig floor for drilling contractors, rig builders, equipment brokers, and exploration and production companies, as well as offers various portable and permanently installed top drive products that include hydraulically and electrically powered machines. This segment also provides top drive rental services on a day-rate basis for land and offshore drilling rigs; and after-market sales and services, rig up and training, top drive supervision, and ongoing maintenance and fleet management contracts services. The Tubular Services segment offers various automated offerings; and conventional casing and tubing running services for oil and natural gas operating companies, including independent companies, national oil companies, and other service companies. This segment also provides installation service of deep water completion equipment; and equipment and personnel for the installation of tubing and casing, including power tongs, pick-up/lay-down units, torque monitoring services, and connection testing services for new well construction, and in work-over and re-entry operations. Tesco Corporation was founded in 1966 and is headquartered in Houston, Texas.

FINANCIAL RATIOS  of  Tesco (TESO)

Valuation Ratios
P/E Ratio -1.7
Price to Sales 1.5
Price to Book 0.7
Price to Tangible Book
Price to Cash Flow -101.6
Price to Free Cash Flow -22.6
Growth Rates
Sales Growth Rate -51.8%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -53.3%
Cap. Spend. - 3 Yr. Gr. Rate -28.7%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -30.8%
Ret/ On Assets - 3 Yr. Avg. -17.7%
Return On Total Capital -34.5%
Ret/ On T. Cap. - 3 Yr. Avg. -20.2%
Return On Equity -34.5%
Return On Equity - 3 Yr. Avg. -20.2%
Asset Turnover 0.4
Profitability Ratios
Gross Margin -31.9%
Gross Margin - 3 Yr. Avg. -5.9%
EBITDA Margin -65.9%
EBITDA Margin - 3 Yr. Avg. -26.5%
Operating Margin -85.2%
Oper. Margin - 3 Yr. Avg. -37.7%
Pre-Tax Margin -87.4%
Pre-Tax Margin - 3 Yr. Avg. -40.9%
Net Profit Margin -87.4%
Net Profit Margin - 3 Yr. Avg. -43.8%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 10.4%
Payout Ratio 0%

TESO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TESO stock intrinsic value calculation we used $135 million for the last fiscal year's total revenue generated by Tesco. The default revenue input number comes from 2016 income statement of Tesco. 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 TESO stock valuation model: a) initial revenue growth rate of 5.7% 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 4.3%, whose default value for TESO is calculated based on our internal credit rating of Tesco, 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 Tesco.
    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 TESO stock the variable cost ratio is equal to 91.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $130 million in the base year in the intrinsic value calculation for TESO 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 Tesco.

Corporate tax rate of 27% is the nominal tax rate for Tesco. 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 TESO 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 TESO are equal to 113.7%.

Life of production assets of 10 years is the average useful life of capital assets used in Tesco 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 TESO 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 - $310 million for Tesco - 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 45.318 million for Tesco 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 Tesco at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ ETFs with exposure to Tesco Corp. : June 26, 2017   [Jun-26-17 05:03PM  Capital Cube]
▶ ETFs with exposure to Tesco Corp. : June 16, 2017   [Jun-16-17 04:22PM  Capital Cube]
▶ Tesco reports 1Q loss   [06:22AM  Associated Press]
▶ ETFs with exposure to Tesco Corp. : April 5, 2017   [Apr-05-17 05:34PM  Capital Cube]
▶ Tesco reports 4Q loss   [06:25AM  Associated Press]
▶ Spinning My Small-Cap Value Wheels Out of the Gate   [Feb-08-17 11:00AM  TheStreet.com]
▶ Tesco's Booker Prize at Risk   [Jan-30-17 07:18AM  at Bloomberg]
▶ Is Tesco Corporation (USA) (TESO) A Good Stock To Buy?   [Dec-20-16 04:18PM  at Insider Monkey]
▶ PRESS DIGEST- British Business - Sept 7   [Sep-06-16 08:18PM  Reuters]
▶ Red Alert: Five Stocks That Are Getting Bloodied Today   [Jun-09-16 12:27PM  at Insider Monkey]
Stock chart of TESO Financial statements of TESO Annual reports of TESO
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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