Intrinsic value of Trecora Resources - TREC

Previous Close

$12.60

  Intrinsic Value

$5.50

stock screener

  Rating & Target

str. sell

-56%

  Value-price divergence*

-41%

Previous close

$12.60

 
Intrinsic value

$5.50

 
Up/down potential

-56%

 
Rating

str. sell

 
Value-price divergence*

-41%

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

We calculate the intrinsic value of TREC 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 0.3

 

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, %
  -12.40
  26.50
  24.35
  22.42
  20.67
  19.11
  17.70
  16.43
  15.28
  14.26
  13.33
  12.50
  11.75
  11.07
  10.47
  9.92
  9.43
  8.98
  8.59
  8.23
  7.90
  7.61
  7.35
  7.12
  6.91
  6.71
  6.54
  6.39
  6.25
  6.13
  6.01
Revenue, $m
  212
  268
  333
  408
  493
  587
  691
  804
  927
  1,059
  1,200
  1,350
  1,509
  1,676
  1,851
  2,035
  2,227
  2,427
  2,635
  2,852
  3,077
  3,312
  3,555
  3,808
  4,071
  4,344
  4,629
  4,924
  5,232
  5,553
  5,886
Variable operating expenses, $m
 
  214
  266
  325
  392
  467
  549
  639
  736
  841
  952
  1,069
  1,194
  1,327
  1,465
  1,611
  1,763
  1,921
  2,086
  2,258
  2,436
  2,621
  2,814
  3,014
  3,223
  3,439
  3,664
  3,898
  4,142
  4,396
  4,660
Fixed operating expenses, $m
 
  12
  13
  13
  13
  14
  14
  14
  15
  15
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
Total operating expenses, $m
  182
  226
  279
  338
  405
  481
  563
  653
  751
  856
  967
  1,085
  1,210
  1,344
  1,482
  1,628
  1,781
  1,939
  2,105
  2,277
  2,456
  2,641
  2,835
  3,035
  3,245
  3,461
  3,687
  3,921
  4,166
  4,421
  4,685
Operating income, $m
  30
  41
  55
  70
  87
  106
  128
  151
  176
  203
  233
  266
  298
  333
  369
  407
  446
  487
  530
  575
  622
  670
  720
  772
  827
  883
  942
  1,003
  1,066
  1,132
  1,201
EBITDA, $m
  40
  55
  71
  89
  110
  133
  158
  186
  216
  249
  284
  321
  360
  401
  444
  490
  537
  587
  638
  692
  747
  805
  865
  928
  993
  1,060
  1,131
  1,204
  1,280
  1,359
  1,442
Interest expense (income), $m
  3
  3
  4
  5
  7
  9
  10
  13
  15
  17
  20
  23
  26
  29
  33
  36
  40
  44
  48
  53
  57
  62
  67
  72
  77
  82
  88
  94
  100
  106
  113
Earnings before tax, $m
  30
  39
  51
  65
  80
  98
  117
  138
  161
  186
  212
  243
  272
  303
  336
  370
  406
  443
  482
  522
  564
  608
  654
  701
  750
  801
  854
  909
  967
  1,026
  1,089
Tax expense, $m
  11
  10
  14
  17
  22
  26
  32
  37
  44
  50
  57
  65
  73
  82
  91
  100
  110
  120
  130
  141
  152
  164
  176
  189
  202
  216
  231
  245
  261
  277
  294
Net income, $m
  19
  28
  37
  47
  59
  72
  86
  101
  118
  136
  155
  177
  199
  221
  245
  270
  296
  324
  352
  381
  412
  444
  477
  512
  547
  585
  623
  664
  706
  749
  795

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  8
  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
  290
  357
  443
  543
  655
  780
  918
  1,069
  1,233
  1,408
  1,596
  1,795
  2,006
  2,228
  2,462
  2,706
  2,961
  3,227
  3,504
  3,792
  4,092
  4,404
  4,727
  5,064
  5,414
  5,777
  6,155
  6,548
  6,958
  7,384
  7,828
Adjusted assets (=assets-cash), $m
  282
  357
  443
  543
  655
  780
  918
  1,069
  1,233
  1,408
  1,596
  1,795
  2,006
  2,228
  2,462
  2,706
  2,961
  3,227
  3,504
  3,792
  4,092
  4,404
  4,727
  5,064
  5,414
  5,777
  6,155
  6,548
  6,958
  7,384
  7,828
Revenue / Adjusted assets
  0.752
  0.751
  0.752
  0.751
  0.753
  0.753
  0.753
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
  0.752
Average production assets, $m
  142
  180
  223
  274
  330
  393
  463
  539
  621
  710
  804
  905
  1,011
  1,123
  1,240
  1,363
  1,492
  1,626
  1,765
  1,911
  2,062
  2,219
  2,382
  2,551
  2,728
  2,911
  3,101
  3,299
  3,506
  3,720
  3,944
Working capital, $m
  29
  39
  49
  60
  72
  86
  101
  117
  135
  155
  175
  197
  220
  245
  270
  297
  325
  354
  385
  416
  449
  483
  519
  556
  594
  634
  676
  719
  764
  811
  859
Total debt, $m
  83
  106
  142
  184
  231
  283
  341
  404
  472
  546
  624
  707
  796
  889
  986
  1,088
  1,195
  1,306
  1,422
  1,542
  1,667
  1,798
  1,933
  2,074
  2,220
  2,372
  2,530
  2,694
  2,865
  3,043
  3,229
Total liabilities, $m
  126
  149
  185
  227
  274
  326
  384
  447
  515
  589
  667
  750
  839
  932
  1,029
  1,131
  1,238
  1,349
  1,465
  1,585
  1,710
  1,841
  1,976
  2,117
  2,263
  2,415
  2,573
  2,737
  2,908
  3,086
  3,272
Total equity, $m
  164
  208
  258
  316
  381
  454
  534
  622
  717
  820
  929
  1,045
  1,168
  1,297
  1,433
  1,575
  1,723
  1,878
  2,039
  2,207
  2,382
  2,563
  2,751
  2,947
  3,151
  3,362
  3,582
  3,811
  4,049
  4,297
  4,556
Total liabilities and equity, $m
  290
  357
  443
  543
  655
  780
  918
  1,069
  1,232
  1,409
  1,596
  1,795
  2,007
  2,229
  2,462
  2,706
  2,961
  3,227
  3,504
  3,792
  4,092
  4,404
  4,727
  5,064
  5,414
  5,777
  6,155
  6,548
  6,957
  7,383
  7,828
Debt-to-equity ratio
  0.506
  0.510
  0.550
  0.580
  0.610
  0.620
  0.640
  0.650
  0.660
  0.670
  0.670
  0.680
  0.680
  0.690
  0.690
  0.690
  0.690
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.700
  0.710
  0.710
  0.710
  0.710
  0.710
  0.710
Adjusted equity ratio
  0.553
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582
  0.582

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  19
  28
  37
  47
  59
  72
  86
  101
  118
  136
  155
  177
  199
  221
  245
  270
  296
  324
  352
  381
  412
  444
  477
  512
  547
  585
  623
  664
  706
  749
  795
Depreciation, amort., depletion, $m
  10
  13
  16
  19
  22
  26
  30
  35
  40
  45
  51
  55
  62
  68
  76
  83
  91
  99
  108
  117
  126
  135
  145
  156
  166
  177
  189
  201
  214
  227
  240
Funds from operations, $m
  30
  41
  53
  66
  81
  98
  116
  136
  158
  181
  206
  232
  260
  290
  321
  353
  387
  423
  460
  498
  538
  579
  622
  667
  714
  762
  812
  865
  919
  976
  1,035
Change in working capital, $m
  1
  8
  10
  11
  12
  14
  15
  17
  18
  19
  21
  22
  23
  24
  26
  27
  28
  29
  30
  32
  33
  34
  36
  37
  38
  40
  42
  43
  45
  47
  49
Cash from operations, $m
  29
  33
  43
  55
  69
  84
  101
  120
  140
  162
  186
  210
  237
  265
  295
  327
  359
  393
  429
  466
  505
  545
  587
  630
  675
  722
  771
  822
  874
  929
  987
Maintenance CAPEX, $m
  0
  -9
  -11
  -14
  -17
  -20
  -24
  -28
  -33
  -38
  -43
  -49
  -55
  -62
  -68
  -76
  -83
  -91
  -99
  -108
  -117
  -126
  -135
  -145
  -156
  -166
  -177
  -189
  -201
  -214
  -227
New CAPEX, $m
  -40
  -38
  -44
  -50
  -57
  -63
  -70
  -76
  -82
  -89
  -95
  -100
  -106
  -112
  -118
  -123
  -129
  -134
  -140
  -145
  -151
  -157
  -163
  -170
  -176
  -183
  -190
  -198
  -206
  -215
  -224
Cash from investing activities, $m
  -41
  -47
  -55
  -64
  -74
  -83
  -94
  -104
  -115
  -127
  -138
  -149
  -161
  -174
  -186
  -199
  -212
  -225
  -239
  -253
  -268
  -283
  -298
  -315
  -332
  -349
  -367
  -387
  -407
  -429
  -451
Free cash flow, $m
  -12
  -13
  -11
  -9
  -5
  1
  7
  15
  25
  36
  48
  61
  76
  92
  109
  128
  148
  168
  190
  213
  237
  262
  288
  315
  344
  373
  403
  434
  467
  501
  536
Issuance/(repayment) of debt, $m
  2
  31
  36
  42
  47
  52
  58
  63
  68
  73
  78
  83
  88
  93
  97
  102
  107
  111
  116
  120
  125
  130
  135
  141
  146
  152
  158
  164
  171
  178
  186
Issuance/(repurchase) of shares, $m
  0
  15
  13
  11
  7
  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
Cash from financing (excl. dividends), $m  
  2
  46
  49
  53
  54
  53
  58
  63
  68
  73
  78
  83
  88
  93
  97
  102
  107
  111
  116
  120
  125
  130
  135
  141
  146
  152
  158
  164
  171
  178
  186
Total cash flow (excl. dividends), $m
  -10
  33
  38
  44
  49
  54
  65
  78
  93
  109
  126
  144
  164
  185
  207
  230
  254
  280
  306
  334
  363
  393
  424
  456
  490
  525
  561
  599
  638
  679
  722
Retained Cash Flow (-), $m
  -22
  -44
  -51
  -58
  -65
  -73
  -80
  -88
  -95
  -102
  -109
  -116
  -123
  -129
  -136
  -142
  -148
  -155
  -161
  -168
  -174
  -181
  -188
  -196
  -204
  -212
  -220
  -229
  -238
  -248
  -258
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
 
  -10
  -12
  -14
  -16
  -18
  -15
  -9
  -2
  7
  17
  28
  41
  55
  71
  88
  106
  125
  145
  166
  188
  211
  235
  260
  286
  313
  341
  370
  400
  431
  463
Discount rate, %
 
  5.50
  5.78
  6.06
  6.37
  6.69
  7.02
  7.37
  7.74
  8.13
  8.53
  8.96
  9.41
  9.88
  10.37
  10.89
  11.43
  12.01
  12.61
  13.24
  13.90
  14.59
  15.32
  16.09
  16.89
  17.74
  18.62
  19.56
  20.53
  21.56
  22.64
PV of cash for distribution, $m
 
  -10
  -11
  -12
  -13
  -13
  -10
  -6
  -1
  3
  7
  11
  14
  16
  18
  19
  19
  18
  17
  16
  14
  12
  10
  8
  7
  5
  4
  3
  2
  1
  1
Current shareholders' claim on cash, %
  100
  95.3
  92.1
  90.1
  89.1
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9
  88.9

Trecora Resources (TREC) is a provider of high-purity specialty hydrocarbons and waxes. TREC owns and operates a facility located in southeast Texas, just north of Beaumont, which specializes in high-purity hydrocarbons and other petrochemical manufacturing. The Company operates through two segments: specialty petrochemical products and specialty synthetic waxes. The specialty petrochemical products segment operates through South Hampton Resources, Inc. (SHR). The specialty synthetic wax segment operates through Trecora Chemical, Inc. (TC). SHR owns and operates a specialty petrochemical facility that produces hydrocarbons and other petroleum-based products, including isopentane, normal pentane, isohexane and hexane. TC produces specialty polyethylene and poly alpha olefin waxes, and provides custom processing services. In addition, the Company is the 33.4% owner of Al Masane Al Kobra Mining Co., a Saudi Arabian joint stock company.

FINANCIAL RATIOS  of  Trecora Resources (TREC)

Valuation Ratios
P/E Ratio 16
Price to Sales 1.4
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 10.5
Price to Free Cash Flow -27.7
Growth Rates
Sales Growth Rate -12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29%
Cap. Spend. - 3 Yr. Gr. Rate 41.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 44.5%
Total Debt to Equity 50.6%
Interest Coverage 11
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 8.3%
Return On Total Capital 8.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9%
Return On Equity 12.4%
Return On Equity - 3 Yr. Avg. 13.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 18.9%
Gross Margin - 3 Yr. Avg. 19.7%
EBITDA Margin 20.3%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 14.2%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 7.4%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 33.1%
Payout Ratio 0%

TREC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TREC stock intrinsic value calculation we used $212 million for the last fiscal year's total revenue generated by Trecora Resources. The default revenue input number comes from 2016 income statement of Trecora Resources. 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 TREC stock valuation model: a) initial revenue growth rate of 26.5% 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 5.5%, whose default value for TREC is calculated based on our internal credit rating of Trecora Resources, 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 Trecora Resources.
    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 TREC stock the variable cost ratio is equal to 80.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $12 million in the base year in the intrinsic value calculation for TREC 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 3.7% for Trecora Resources.

Corporate tax rate of 27% is the nominal tax rate for Trecora Resources. 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 TREC 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 TREC are equal to 67%.

Life of production assets of 16.4 years is the average useful life of capital assets used in Trecora Resources 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 TREC is equal to 14.6%. 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 - $164 million for Trecora Resources - 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 24.494 million for Trecora Resources 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 Trecora Resources at the current share price and the inputted number of shares is $0.3 billion.

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COMPANY NEWS

▶ Trecora Resources Provides Update on Operations   [Sep-06-17 04:05PM  PR Newswire]
▶ Trecora Resources Reports Second Quarter 2017 Results   [Aug-03-17 04:05PM  PR Newswire]
▶ LD Micro Index Reconstitution as of August 1, 2017   [Aug-01-17 09:40AM  ACCESSWIRE]
▶ Trecora posts 1Q profit   [May-04-17 06:36PM  Associated Press]
▶ Trecora Resources Announces Re-start of AMAK Operations   [Jan-05-17 04:15PM  PR Newswire]
▶ Is LSI Industries, Inc. (LYTS) A Good Stock To Buy?   [Dec-12-16 05:09PM  at Insider Monkey]
▶ Trecora Resources Announces AMAK Share Issuance   [Jul-20-16 07:00AM  PR Newswire]
▶ Exxon Mobil Stock: Analyzing 5 Key Suppliers (XOM, PKD)   [Apr-30-16 08:40PM  at Investopedia]
Financial statements of TREC
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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