Intrinsic value of Twin Disc - TWIN

Previous Close

$16.78

  Intrinsic Value

$2.69

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

-101%

Previous close

$16.78

 
Intrinsic value

$2.69

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

-101%

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

We calculate the intrinsic value of TWIN 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, %
  -37.59
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
Revenue, $m
  166
  182
  199
  217
  235
  255
  275
  295
  317
  339
  362
  387
  412
  438
  465
  494
  523
  554
  586
  620
  655
  691
  729
  769
  811
  855
  900
  948
  998
  1,051
  1,106
Variable operating expenses, $m
 
  107
  117
  128
  139
  150
  162
  174
  186
  200
  213
  227
  242
  257
  273
  290
  307
  325
  344
  364
  384
  406
  428
  452
  476
  502
  528
  557
  586
  617
  649
Fixed operating expenses, $m
 
  97
  100
  102
  105
  107
  110
  113
  116
  119
  122
  125
  128
  131
  134
  138
  141
  145
  148
  152
  156
  160
  164
  168
  172
  176
  181
  185
  190
  194
  199
Total operating expenses, $m
  191
  204
  217
  230
  244
  257
  272
  287
  302
  319
  335
  352
  370
  388
  407
  428
  448
  470
  492
  516
  540
  566
  592
  620
  648
  678
  709
  742
  776
  811
  848
Operating income, $m
  -25
  -23
  -18
  -13
  -8
  -3
  3
  9
  15
  21
  28
  35
  42
  50
  58
  66
  75
  84
  94
  104
  115
  126
  138
  150
  163
  177
  191
  207
  223
  240
  257
EBITDA, $m
  -16
  -16
  -11
  -5
  0
  6
  12
  19
  26
  33
  40
  48
  56
  65
  73
  83
  93
  103
  113
  125
  137
  149
  162
  176
  190
  205
  221
  238
  256
  275
  294
Interest expense (income), $m
  0
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  15
  16
  18
  19
Earnings before tax, $m
  -25
  -23
  -19
  -14
  -10
  -5
  1
  6
  12
  18
  24
  31
  37
  45
  52
  60
  68
  77
  86
  95
  105
  115
  127
  138
  150
  163
  177
  191
  206
  222
  239
Tax expense, $m
  -12
  0
  0
  0
  0
  0
  0
  2
  3
  5
  6
  8
  10
  12
  14
  16
  18
  21
  23
  26
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  64
Net income, $m
  -13
  -23
  -19
  -14
  -10
  -5
  0
  4
  8
  13
  17
  22
  27
  33
  38
  44
  50
  56
  62
  69
  77
  84
  92
  101
  110
  119
  129
  139
  150
  162
  174

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  18
  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
  214
  215
  235
  256
  278
  301
  324
  349
  374
  400
  428
  456
  486
  517
  549
  583
  618
  654
  692
  732
  773
  816
  861
  908
  958
  1,009
  1,063
  1,119
  1,179
  1,240
  1,305
Adjusted assets (=assets-cash), $m
  196
  215
  235
  256
  278
  301
  324
  349
  374
  400
  428
  456
  486
  517
  549
  583
  618
  654
  692
  732
  773
  816
  861
  908
  958
  1,009
  1,063
  1,119
  1,179
  1,240
  1,305
Revenue / Adjusted assets
  0.847
  0.847
  0.847
  0.848
  0.845
  0.847
  0.849
  0.845
  0.848
  0.848
  0.846
  0.849
  0.848
  0.847
  0.847
  0.847
  0.846
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.847
  0.846
  0.848
  0.848
Average production assets, $m
  56
  61
  67
  72
  79
  85
  92
  99
  106
  113
  121
  129
  138
  146
  155
  165
  175
  185
  196
  207
  219
  231
  244
  257
  271
  285
  301
  317
  333
  351
  369
Working capital, $m
  89
  78
  85
  93
  101
  109
  118
  126
  136
  145
  155
  165
  176
  187
  199
  211
  224
  237
  251
  265
  280
  296
  312
  329
  347
  366
  385
  406
  427
  450
  473
Total debt, $m
  9
  19
  29
  39
  50
  61
  73
  85
  98
  111
  125
  139
  154
  170
  186
  202
  220
  238
  257
  277
  297
  319
  342
  365
  390
  416
  442
  471
  500
  531
  564
Total liabilities, $m
  97
  108
  118
  128
  139
  150
  162
  174
  187
  200
  214
  228
  243
  259
  275
  291
  309
  327
  346
  366
  386
  408
  431
  454
  479
  505
  531
  560
  589
  620
  653
Total equity, $m
  116
  108
  118
  128
  139
  150
  162
  174
  187
  200
  214
  228
  243
  259
  275
  291
  309
  327
  346
  366
  386
  408
  431
  454
  479
  505
  531
  560
  589
  620
  653
Total liabilities and equity, $m
  213
  216
  236
  256
  278
  300
  324
  348
  374
  400
  428
  456
  486
  518
  550
  582
  618
  654
  692
  732
  772
  816
  862
  908
  958
  1,010
  1,062
  1,120
  1,178
  1,240
  1,306
Debt-to-equity ratio
  0.078
  0.170
  0.240
  0.310
  0.360
  0.410
  0.450
  0.490
  0.520
  0.560
  0.580
  0.610
  0.630
  0.660
  0.680
  0.690
  0.710
  0.730
  0.740
  0.760
  0.770
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.860
  0.860
Adjusted equity ratio
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500
  0.500

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -13
  -23
  -19
  -14
  -10
  -5
  0
  4
  8
  13
  17
  22
  27
  33
  38
  44
  50
  56
  62
  69
  77
  84
  92
  101
  110
  119
  129
  139
  150
  162
  174
Depreciation, amort., depletion, $m
  9
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  16
  17
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
Funds from operations, $m
  13
  -16
  -12
  -6
  -1
  4
  10
  15
  20
  25
  30
  35
  41
  47
  53
  60
  67
  74
  82
  90
  99
  107
  117
  127
  137
  148
  159
  171
  184
  197
  211
Change in working capital, $m
  10
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  20
  21
  22
  24
Cash from operations, $m
  3
  -23
  -19
  -14
  -9
  -4
  2
  6
  10
  15
  20
  25
  30
  36
  42
  48
  54
  61
  68
  76
  84
  92
  100
  109
  119
  129
  140
  151
  162
  175
  188
Maintenance CAPEX, $m
  0
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -15
  -16
  -16
  -17
  -19
  -20
  -21
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -32
  -33
  -35
New CAPEX, $m
  -4
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -18
Cash from investing activities, $m
  1
  -11
  -12
  -13
  -13
  -14
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -23
  -24
  -25
  -26
  -27
  -30
  -31
  -33
  -34
  -36
  -37
  -40
  -42
  -44
  -46
  -49
  -51
  -53
Free cash flow, $m
  4
  -34
  -31
  -27
  -22
  -18
  -14
  -10
  -7
  -3
  1
  5
  9
  13
  18
  23
  28
  33
  39
  45
  51
  58
  65
  72
  79
  87
  96
  105
  114
  124
  134
Issuance/(repayment) of debt, $m
  -5
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
Issuance/(repurchase) of shares, $m
  0
  33
  29
  25
  20
  16
  11
  8
  4
  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  
  -6
  43
  39
  35
  31
  27
  23
  20
  17
  13
  14
  14
  15
  15
  16
  17
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
Total cash flow (excl. dividends), $m
  -3
  8
  8
  9
  9
  9
  10
  10
  10
  11
  15
  19
  24
  29
  34
  40
  46
  52
  58
  65
  72
  79
  87
  95
  104
  113
  123
  133
  144
  155
  167
Retained Cash Flow (-), $m
  24
  -33
  -29
  -25
  -20
  -16
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -32
Prev. year cash balance distribution, $m
 
  18
  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
 
  -7
  -21
  -16
  -12
  -7
  -2
  -2
  -2
  -3
  1
  5
  9
  13
  18
  23
  28
  33
  39
  45
  51
  58
  65
  72
  79
  87
  96
  105
  114
  124
  134
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
 
  -6
  -19
  -14
  -10
  -5
  -2
  -2
  -2
  -1
  0
  2
  4
  5
  6
  7
  7
  7
  7
  7
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  100
  81.8
  69.4
  60.9
  55.0
  51.1
  48.7
  47.1
  46.4
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3
  46.3

Twin Disc, Incorporated designs, manufactures, and sells marine and heavy duty off-highway power transmission equipment worldwide. The company operates through two segments, Manufacturing and Distribution. It offers marine transmissions, surface drives, propellers, and boat management systems; and power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, and controls systems. The company also provides non-twin disc manufactured products. It serves customers primarily in the commercial, pleasure craft, and military marine markets, as well as in the energy and natural resources, government, and industrial markets through a direct sales force and distributor network. Twin Disc, Incorporated was founded in 1918 and is headquartered in Racine, Wisconsin.

FINANCIAL RATIOS  of  Twin Disc (TWIN)

Valuation Ratios
P/E Ratio -14.7
Price to Sales 1.1
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 63.5
Price to Free Cash Flow -190.5
Growth Rates
Sales Growth Rate -37.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -55.6%
Cap. Spend. - 3 Yr. Gr. Rate -10.6%
Financial Strength
Quick Ratio NaN
Current Ratio 0.2
LT Debt to Equity 7.8%
Total Debt to Equity 7.8%
Interest Coverage 0
Management Effectiveness
Return On Assets -5.6%
Ret/ On Assets - 3 Yr. Avg. 0.2%
Return On Total Capital -9.3%
Ret/ On T. Cap. - 3 Yr. Avg. -0.1%
Return On Equity -10.2%
Return On Equity - 3 Yr. Avg. 0%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 24.7%
Gross Margin - 3 Yr. Avg. 28.4%
EBITDA Margin -9.6%
EBITDA Margin - 3 Yr. Avg. 2.7%
Operating Margin -15.1%
Oper. Margin - 3 Yr. Avg. -1.9%
Pre-Tax Margin -15.1%
Pre-Tax Margin - 3 Yr. Avg. -2%
Net Profit Margin -7.8%
Net Profit Margin - 3 Yr. Avg. -0.7%
Effective Tax Rate 48%
Eff/ Tax Rate - 3 Yr. Avg. 43.1%
Payout Ratio -15.4%

TWIN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TWIN stock intrinsic value calculation we used $166 million for the last fiscal year's total revenue generated by Twin Disc. The default revenue input number comes from 2016 income statement of Twin Disc. 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 TWIN stock valuation model: a) initial revenue growth rate of 9.8% 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 TWIN is calculated based on our internal credit rating of Twin Disc, 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 Twin Disc.
    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 TWIN stock the variable cost ratio is equal to 59%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $95 million in the base year in the intrinsic value calculation for TWIN 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 Twin Disc.

Corporate tax rate of 27% is the nominal tax rate for Twin Disc. 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 TWIN 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 TWIN are equal to 33.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Twin Disc 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 TWIN is equal to 42.8%. 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 - $116 million for Twin Disc - 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 10.333 million for Twin Disc 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 Twin Disc at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Twin Disc posts 4Q profit   [Aug-04-17 08:28PM  Associated Press]
▶ Twin Disc, Inc. Joins Russell 3000® Index   [Jun-26-17 08:00AM  GlobeNewswire]
▶ ETFs with exposure to Twin Disc, Inc. : May 15, 2017   [May-15-17 04:48PM  Capital Cube]
▶ Twin Disc reports 3Q loss   [08:18AM  Associated Press]
▶ ETFs with exposure to Twin Disc, Inc. : April 7, 2017   [Apr-07-17 05:39PM  Capital Cube]
▶ Twin Disc reports 2Q loss   [08:14AM  Associated Press]
▶ Is Madrigal Pharmaceuticals Inc (MDGL) A Good Stock to Buy?   [Dec-15-16 06:49PM  Insider Monkey]
▶ ETFs with exposure to Twin Disc, Inc. : December 13, 2016   [Dec-13-16 01:36PM  Capital Cube]
▶ 13D Filing: GAMCO Investors Trims Stake in Twin Disc Inc (TWIN)   [Feb-12-16 11:06AM  at Insider Monkey]
▶ Twin Disc swings to loss, suspends dividends   [12:23PM  at bizjournals.com]
▶ Is QLT Inc. (QLTI) A Good Stock To Buy?   [Dec-03  03:21PM  at Insider Monkey]
▶ Is Twin Disc, Incorporated (TWIN) A Good Stock To Buy?   [Nov-23  02:20PM  at Insider Monkey]
Financial statements of TWIN
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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