Intrinsic value of ADDvantage Technologies Group - AEY

Previous Close

$1.54

  Intrinsic Value

$11.85

stock screener

  Rating & Target

str. buy

+670%

Previous close

$1.54

 
Intrinsic value

$11.85

 
Up/down potential

+670%

 
Rating

str. buy

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

We calculate the intrinsic value of AEY 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 0.0

 

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, %
  -11.36
  30.00
  27.50
  25.25
  23.23
  21.40
  19.76
  18.29
  16.96
  15.76
  14.69
  13.72
  12.85
  12.06
  11.35
  10.72
  10.15
  9.63
  9.17
  8.75
  8.38
  8.04
  7.74
  7.46
  7.22
  6.99
  6.79
  6.62
  6.45
  6.31
  6.18
Revenue, $m
  39
  51
  65
  81
  100
  121
  145
  172
  201
  232
  266
  303
  342
  383
  427
  472
  520
  570
  623
  677
  734
  793
  854
  918
  984
  1,053
  1,125
  1,199
  1,276
  1,357
  1,441
Variable operating expenses, $m
 
  30
  38
  47
  58
  71
  84
  100
  117
  135
  155
  176
  198
  222
  247
  274
  302
  331
  361
  393
  425
  460
  495
  532
  571
  611
  652
  695
  740
  787
  835
Fixed operating expenses, $m
 
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
  26
  26
  27
  28
  29
  29
  30
  31
  31
Total operating expenses, $m
  38
  45
  54
  63
  75
  88
  101
  118
  135
  154
  174
  196
  218
  243
  268
  296
  324
  354
  384
  417
  450
  485
  521
  558
  598
  639
  681
  724
  770
  818
  866
Operating income, $m
  0
  6
  11
  17
  25
  34
  43
  54
  66
  78
  92
  108
  124
  140
  158
  177
  196
  217
  238
  261
  284
  308
  333
  359
  387
  415
  444
  475
  506
  540
  574
EBITDA, $m
  1
  7
  13
  19
  27
  36
  46
  58
  70
  83
  98
  113
  130
  148
  166
  186
  206
  228
  250
  274
  298
  323
  349
  377
  405
  435
  466
  498
  531
  565
  601
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  5
  5
  6
  6
  6
  7
  7
  8
  8
Earnings before tax, $m
  0
  5
  11
  17
  25
  33
  43
  53
  65
  77
  91
  106
  122
  138
  156
  174
  194
  214
  235
  257
  280
  304
  328
  354
  381
  409
  438
  468
  499
  532
  566
Tax expense, $m
  0
  1
  3
  5
  7
  9
  11
  14
  17
  21
  25
  29
  33
  37
  42
  47
  52
  58
  63
  69
  76
  82
  89
  96
  103
  110
  118
  126
  135
  144
  153
Net income, $m
  0
  4
  8
  13
  18
  24
  31
  39
  47
  56
  66
  77
  89
  101
  114
  127
  141
  156
  171
  187
  204
  222
  240
  258
  278
  298
  319
  341
  364
  388
  413

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  5
  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
  50
  58
  75
  93
  115
  140
  167
  198
  231
  268
  307
  349
  394
  442
  492
  545
  600
  658
  718
  781
  847
  915
  985
  1,059
  1,135
  1,215
  1,297
  1,383
  1,472
  1,565
  1,662
Adjusted assets (=assets-cash), $m
  45
  58
  75
  93
  115
  140
  167
  198
  231
  268
  307
  349
  394
  442
  492
  545
  600
  658
  718
  781
  847
  915
  985
  1,059
  1,135
  1,215
  1,297
  1,383
  1,472
  1,565
  1,662
Revenue / Adjusted assets
  0.867
  0.879
  0.867
  0.871
  0.870
  0.864
  0.868
  0.869
  0.870
  0.866
  0.866
  0.868
  0.868
  0.867
  0.868
  0.866
  0.867
  0.866
  0.868
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
  0.867
Average production assets, $m
  12
  15
  19
  24
  29
  36
  43
  51
  59
  69
  79
  89
  101
  113
  126
  139
  153
  168
  184
  200
  217
  234
  252
  271
  290
  311
  332
  354
  377
  400
  425
Working capital, $m
  26
  25
  32
  40
  50
  61
  73
  86
  100
  116
  133
  151
  171
  192
  213
  236
  260
  285
  311
  339
  367
  396
  427
  459
  492
  527
  562
  600
  638
  678
  720
Total debt, $m
  4
  5
  8
  11
  14
  18
  22
  27
  32
  38
  44
  51
  58
  65
  73
  81
  90
  99
  108
  118
  128
  139
  150
  161
  173
  185
  198
  212
  226
  240
  255
Total liabilities, $m
  9
  9
  12
  15
  18
  22
  26
  31
  36
  42
  48
  55
  62
  69
  77
  85
  94
  103
  112
  122
  132
  143
  154
  165
  177
  189
  202
  216
  230
  244
  259
Total equity, $m
  42
  49
  63
  79
  97
  118
  141
  167
  195
  226
  259
  295
  333
  373
  415
  460
  506
  555
  606
  659
  714
  772
  832
  894
  958
  1,025
  1,095
  1,167
  1,243
  1,321
  1,403
Total liabilities and equity, $m
  51
  58
  75
  94
  115
  140
  167
  198
  231
  268
  307
  350
  395
  442
  492
  545
  600
  658
  718
  781
  846
  915
  986
  1,059
  1,135
  1,214
  1,297
  1,383
  1,473
  1,565
  1,662
Debt-to-equity ratio
  0.095
  0.100
  0.120
  0.130
  0.140
  0.150
  0.160
  0.160
  0.160
  0.170
  0.170
  0.170
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
Adjusted equity ratio
  0.822
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844
  0.844

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  0
  4
  8
  13
  18
  24
  31
  39
  47
  56
  66
  77
  89
  101
  114
  127
  141
  156
  171
  187
  204
  222
  240
  258
  278
  298
  319
  341
  364
  388
  413
Depreciation, amort., depletion, $m
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  23
  24
  26
  27
Funds from operations, $m
  5
  5
  10
  15
  20
  27
  34
  42
  51
  61
  72
  83
  95
  108
  122
  136
  151
  167
  183
  200
  218
  237
  256
  276
  297
  318
  341
  364
  389
  414
  440
Change in working capital, $m
  1
  6
  7
  8
  9
  11
  12
  13
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  33
  34
  36
  37
  39
  40
  42
Cash from operations, $m
  4
  -1
  3
  6
  11
  16
  22
  29
  37
  45
  55
  65
  76
  88
  100
  113
  127
  142
  157
  173
  190
  207
  225
  244
  264
  284
  305
  327
  350
  374
  398
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -7
  -7
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -19
  -20
  -21
  -23
  -24
  -26
New CAPEX, $m
  0
  -3
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -20
  -21
  -22
  -23
  -24
  -25
Cash from investing activities, $m
  -4
  -4
  -5
  -6
  -8
  -8
  -9
  -11
  -12
  -13
  -14
  -16
  -17
  -19
  -20
  -21
  -23
  -25
  -26
  -28
  -30
  -31
  -33
  -35
  -37
  -39
  -41
  -43
  -46
  -48
  -51
Free cash flow, $m
  0
  -5
  -3
  0
  4
  8
  13
  19
  25
  32
  40
  49
  59
  69
  80
  92
  104
  117
  131
  145
  160
  176
  192
  209
  227
  245
  264
  284
  304
  326
  348
Issuance/(repayment) of debt, $m
  -1
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
Issuance/(repurchase) of shares, $m
  0
  7
  6
  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
Cash from financing (excl. dividends), $m  
  -1
  9
  9
  6
  3
  4
  4
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  14
  15
Total cash flow (excl. dividends), $m
  -2
  5
  6
  7
  7
  12
  17
  23
  30
  38
  47
  56
  66
  76
  88
  100
  113
  126
  140
  155
  170
  186
  203
  220
  239
  257
  277
  297
  318
  340
  363
Retained Cash Flow (-), $m
  -1
  -11
  -14
  -16
  -18
  -21
  -23
  -26
  -28
  -31
  -33
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -51
  -53
  -55
  -57
  -60
  -62
  -64
  -67
  -70
  -72
  -75
  -78
  -82
Prev. year cash balance distribution, $m
 
  4
  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
 
  -3
  -8
  -9
  -11
  -9
  -6
  -2
  2
  7
  13
  20
  28
  36
  45
  55
  66
  77
  89
  102
  115
  129
  143
  158
  174
  190
  207
  225
  243
  262
  281
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
 
  -2
  -7
  -8
  -9
  -7
  -4
  -2
  1
  4
  7
  10
  12
  14
  15
  16
  17
  17
  16
  16
  15
  13
  12
  10
  9
  7
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  78.3
  67.2
  62.5
  62.1
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ADDvantage Technologies Group, Inc., through its subsidiaries, distributes and services a range of electronics and hardware for the cable television (Cable TV) and telecommunications (Telco) industries. The Company provides equipment repair services to cable operators. The Company has two segments: Cable Television (Cable TV) and Telecommunications (Telco). The Company's Cable TV segment sells new, surplus and refurbished cable television equipment to cable television operators or multiple system operators (MSOs) or other resellers that sell to these customers throughout North America, Central America, South America and to other international regions. The Company's Telco segment offers its customers a range of used telecommunication equipment across various manufacturers consisting of component parts to expand capacity, provides spares or replaces non-working components. The Telco segment's switching equipment products originate, terminate and route voice traffic.

FINANCIAL RATIOS  of  ADDvantage Technologies Group (AEY)

Valuation Ratios
P/E Ratio 0
Price to Sales 0.4
Price to Book 0.4
Price to Tangible Book
Price to Cash Flow 3.9
Price to Free Cash Flow 3.9
Growth Rates
Sales Growth Rate -11.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio 5
Current Ratio 0
LT Debt to Equity 7.1%
Total Debt to Equity 9.5%
Interest Coverage 0
Management Effectiveness
Return On Assets 0%
Ret/ On Assets - 3 Yr. Avg. 1.3%
Return On Total Capital 0%
Ret/ On T. Cap. - 3 Yr. Avg. 1.5%
Return On Equity 0%
Return On Equity - 3 Yr. Avg. 1.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 30.8%
Gross Margin - 3 Yr. Avg. 32.7%
EBITDA Margin 2.6%
EBITDA Margin - 3 Yr. Avg. 4.1%
Operating Margin 2.6%
Oper. Margin - 3 Yr. Avg. 4.1%
Pre-Tax Margin 0%
Pre-Tax Margin - 3 Yr. Avg. 2.4%
Net Profit Margin 0%
Net Profit Margin - 3 Yr. Avg. 1.5%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

AEY stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AEY stock intrinsic value calculation we used $39 million for the last fiscal year's total revenue generated by ADDvantage Technologies Group. The default revenue input number comes from 2016 income statement of ADDvantage Technologies Group. 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 AEY stock valuation model: a) initial revenue growth rate of 30% 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 AEY is calculated based on our internal credit rating of ADDvantage Technologies Group, 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 ADDvantage Technologies Group.
    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 AEY 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 $15 million in the base year in the intrinsic value calculation for AEY 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 ADDvantage Technologies Group.

Corporate tax rate of 27% is the nominal tax rate for ADDvantage Technologies Group. 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 AEY 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 AEY are equal to 29.5%.

Life of production assets of 15.5 years is the average useful life of capital assets used in ADDvantage Technologies Group 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 AEY 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 - $42 million for ADDvantage Technologies Group - 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 10.193 million for ADDvantage Technologies Group 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 ADDvantage Technologies Group at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ ADDvantage Technologies Group, Inc. Earnings Q3, 2015   [Aug-27  09:56AM  Capital Cube]
▶ 10-Q for ADDvantage Technologies Group, Inc.   [Aug-13  08:10PM  at Company Spotlight]
▶ 10-Q for ADDvantage Technologies Group, Inc.   [May-14  08:11PM  at Company Spotlight]
▶ 10-Q for ADDvantage Technologies Group, Inc.   [Feb-12  07:07PM  at Company Spotlight]
Financial statements of AEY
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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