Intrinsic value of Bright Scholar Education Holdings Limite - BEDU

Previous Close

$10.08

  Intrinsic Value

$23.43

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  Rating & Target

str. buy

+132%

Previous close

$10.08

 
Intrinsic value

$23.43

 
Up/down potential

+132%

 
Rating

str. buy

We calculate the intrinsic value of BEDU 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 0001), $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 1.2

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  25.20
  23.18
  21.36
  19.73
  18.25
  16.93
  15.74
  14.66
  13.70
  12.83
  12.04
  11.34
  10.71
  10.13
  9.62
  9.16
  8.74
  8.37
  8.03
  7.73
  7.46
  7.21
  6.99
  6.79
  6.61
  6.45
  6.31
  6.17
  6.06
  5.95
Revenue, $m
  316
  389
  472
  565
  668
  781
  904
  1,036
  1,178
  1,329
  1,489
  1,658
  1,836
  2,022
  2,216
  2,419
  2,631
  2,851
  3,080
  3,318
  3,565
  3,822
  4,089
  4,367
  4,656
  4,956
  5,269
  5,594
  5,933
  6,286
Variable operating expenses, $m
  261
  320
  386
  460
  542
  632
  729
  835
  947
  1,068
  1,184
  1,319
  1,460
  1,608
  1,763
  1,924
  2,092
  2,267
  2,449
  2,639
  2,835
  3,040
  3,252
  3,473
  3,703
  3,942
  4,190
  4,449
  4,718
  4,999
Fixed operating expenses, $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
Total operating expenses, $m
  261
  320
  386
  460
  542
  632
  729
  835
  947
  1,068
  1,184
  1,319
  1,460
  1,608
  1,763
  1,924
  2,092
  2,267
  2,449
  2,639
  2,835
  3,040
  3,252
  3,473
  3,703
  3,942
  4,190
  4,449
  4,718
  4,999
Operating income, $m
  54
  69
  86
  105
  126
  149
  174
  202
  231
  262
  305
  339
  376
  414
  454
  495
  538
  583
  630
  679
  730
  782
  837
  894
  953
  1,014
  1,078
  1,145
  1,214
  1,286
EBITDA, $m
  76
  94
  114
  137
  161
  189
  219
  251
  285
  321
  360
  401
  444
  489
  536
  585
  636
  689
  745
  802
  862
  924
  989
  1,056
  1,126
  1,198
  1,274
  1,353
  1,435
  1,520
Interest expense (income), $m
  0
  0
  4
  8
  13
  18
  24
  30
  37
  44
  52
  61
  69
  79
  89
  99
  110
  121
  133
  146
  158
  172
  185
  200
  215
  230
  246
  263
  281
  299
  318
Earnings before tax, $m
  54
  65
  78
  92
  108
  126
  145
  165
  186
  209
  244
  270
  297
  325
  354
  385
  417
  450
  485
  521
  558
  597
  637
  679
  723
  768
  815
  864
  916
  969
Tax expense, $m
  14
  18
  21
  25
  29
  34
  39
  44
  50
  57
  66
  73
  80
  88
  96
  104
  113
  122
  131
  141
  151
  161
  172
  183
  195
  207
  220
  233
  247
  262
Net income, $m
  39
  48
  57
  67
  79
  92
  105
  120
  136
  153
  178
  197
  217
  237
  259
  281
  304
  329
  354
  380
  407
  436
  465
  496
  528
  561
  595
  631
  668
  707

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  565
  696
  845
  1,012
  1,197
  1,399
  1,619
  1,857
  2,111
  2,382
  2,669
  2,972
  3,290
  3,623
  3,972
  4,335
  4,714
  5,109
  5,519
  5,946
  6,389
  6,850
  7,329
  7,826
  8,344
  8,882
  9,442
  10,025
  10,632
  11,265
Adjusted assets (=assets-cash), $m
  565
  696
  845
  1,012
  1,197
  1,399
  1,619
  1,857
  2,111
  2,382
  2,669
  2,972
  3,290
  3,623
  3,972
  4,335
  4,714
  5,109
  5,519
  5,946
  6,389
  6,850
  7,329
  7,826
  8,344
  8,882
  9,442
  10,025
  10,632
  11,265
Revenue / Adjusted assets
  0.559
  0.559
  0.559
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
Average production assets, $m
  123
  152
  184
  220
  260
  305
  352
  404
  459
  518
  581
  647
  716
  788
  864
  943
  1,026
  1,112
  1,201
  1,294
  1,390
  1,491
  1,595
  1,703
  1,816
  1,933
  2,055
  2,182
  2,314
  2,451
Working capital, $m
  -274
  -338
  -410
  -491
  -581
  -679
  -786
  -901
  -1,025
  -1,156
  -1,296
  -1,443
  -1,597
  -1,759
  -1,928
  -2,105
  -2,289
  -2,480
  -2,679
  -2,886
  -3,102
  -3,325
  -3,558
  -3,799
  -4,051
  -4,312
  -4,584
  -4,867
  -5,161
  -5,469
Total debt, $m
  73
  149
  235
  331
  438
  554
  681
  818
  965
  1,121
  1,287
  1,462
  1,645
  1,838
  2,039
  2,249
  2,467
  2,695
  2,932
  3,178
  3,434
  3,699
  3,976
  4,263
  4,561
  4,872
  5,195
  5,531
  5,882
  6,247
Total liabilities, $m
  326
  402
  488
  584
  691
  807
  934
  1,071
  1,218
  1,374
  1,540
  1,715
  1,898
  2,090
  2,292
  2,502
  2,720
  2,948
  3,185
  3,431
  3,687
  3,952
  4,229
  4,516
  4,814
  5,125
  5,448
  5,784
  6,135
  6,500
Total equity, $m
  239
  295
  358
  428
  506
  592
  685
  785
  893
  1,008
  1,129
  1,257
  1,392
  1,533
  1,680
  1,834
  1,994
  2,161
  2,335
  2,515
  2,703
  2,897
  3,100
  3,311
  3,529
  3,757
  3,994
  4,241
  4,497
  4,765
Total liabilities and equity, $m
  565
  697
  846
  1,012
  1,197
  1,399
  1,619
  1,856
  2,111
  2,382
  2,669
  2,972
  3,290
  3,623
  3,972
  4,336
  4,714
  5,109
  5,520
  5,946
  6,390
  6,849
  7,329
  7,827
  8,343
  8,882
  9,442
  10,025
  10,632
  11,265
Debt-to-equity ratio
  0.310
  0.510
  0.660
  0.770
  0.860
  0.940
  0.990
  1.040
  1.080
  1.110
  1.140
  1.160
  1.180
  1.200
  1.210
  1.230
  1.240
  1.250
  1.260
  1.260
  1.270
  1.280
  1.280
  1.290
  1.290
  1.300
  1.300
  1.300
  1.310
  1.310
Adjusted equity ratio
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423
  0.423

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  39
  48
  57
  67
  79
  92
  105
  120
  136
  153
  178
  197
  217
  237
  259
  281
  304
  329
  354
  380
  407
  436
  465
  496
  528
  561
  595
  631
  668
  707
Depreciation, amort., depletion, $m
  22
  25
  28
  31
  35
  40
  44
  49
  54
  60
  55
  62
  68
  75
  82
  90
  98
  106
  114
  123
  132
  142
  152
  162
  173
  184
  196
  208
  220
  233
Funds from operations, $m
  61
  72
  85
  99
  114
  131
  150
  169
  190
  213
  234
  259
  285
  312
  341
  371
  402
  435
  468
  503
  540
  578
  617
  658
  700
  745
  791
  839
  889
  941
Change in working capital, $m
  -55
  -64
  -72
  -81
  -90
  -98
  -107
  -115
  -123
  -131
  -139
  -147
  -154
  -162
  -169
  -177
  -184
  -192
  -199
  -207
  -215
  -224
  -232
  -242
  -251
  -261
  -272
  -283
  -295
  -307
Cash from operations, $m
  117
  136
  157
  180
  204
  230
  256
  285
  314
  344
  373
  406
  439
  474
  510
  548
  586
  626
  668
  710
  755
  801
  849
  900
  952
  1,006
  1,063
  1,122
  1,183
  1,248
Maintenance CAPEX, $m
  -9
  -12
  -14
  -18
  -21
  -25
  -29
  -34
  -38
  -44
  -49
  -55
  -62
  -68
  -75
  -82
  -90
  -98
  -106
  -114
  -123
  -132
  -142
  -152
  -162
  -173
  -184
  -196
  -208
  -220
New CAPEX, $m
  -25
  -29
  -32
  -36
  -40
  -44
  -48
  -52
  -55
  -59
  -62
  -66
  -69
  -73
  -76
  -79
  -82
  -86
  -89
  -93
  -96
  -100
  -104
  -108
  -113
  -117
  -122
  -127
  -132
  -138
Cash from investing activities, $m
  -34
  -41
  -46
  -54
  -61
  -69
  -77
  -86
  -93
  -103
  -111
  -121
  -131
  -141
  -151
  -161
  -172
  -184
  -195
  -207
  -219
  -232
  -246
  -260
  -275
  -290
  -306
  -323
  -340
  -358
Free cash flow, $m
  82
  96
  110
  126
  143
  161
  180
  199
  220
  242
  261
  284
  308
  333
  359
  386
  414
  443
  472
  503
  535
  569
  603
  639
  677
  716
  757
  799
  844
  890
Issuance/(repayment) of debt, $m
  66
  76
  86
  96
  107
  117
  127
  137
  147
  156
  166
  175
  184
  192
  201
  210
  219
  228
  237
  246
  256
  266
  276
  287
  299
  311
  323
  336
  350
  365
Issuance/(repurchase) of shares, $m
  9
  8
  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
Cash from financing (excl. dividends), $m  
  75
  84
  92
  99
  107
  117
  127
  137
  147
  156
  166
  175
  184
  192
  201
  210
  219
  228
  237
  246
  256
  266
  276
  287
  299
  311
  323
  336
  350
  365
Total cash flow (excl. dividends), $m
  157
  179
  202
  225
  249
  278
  307
  336
  367
  398
  427
  459
  492
  526
  560
  596
  632
  670
  709
  749
  791
  834
  880
  926
  975
  1,026
  1,080
  1,136
  1,194
  1,255
Retained Cash Flow (-), $m
  -48
  -55
  -63
  -71
  -78
  -86
  -93
  -100
  -108
  -115
  -121
  -128
  -135
  -141
  -147
  -154
  -160
  -167
  -174
  -180
  -188
  -195
  -203
  -210
  -219
  -228
  -237
  -247
  -257
  -268
Prev. year cash balance distribution, $m
  226
  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
  335
  124
  139
  155
  171
  192
  213
  236
  259
  283
  305
  331
  357
  385
  413
  442
  472
  503
  536
  569
  604
  640
  677
  716
  757
  799
  843
  889
  937
  987
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
  321
  113
  121
  127
  133
  139
  144
  147
  149
  148
  145
  141
  136
  129
  121
  112
  103
  93
  82
  72
  62
  53
  44
  36
  29
  23
  18
  14
  10
  7
Current shareholders' claim on cash, %
  98.5
  97.4
  96.7
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4
  96.4

Bright Scholar Education Holdings Limited is an operator of international and bilingual K-12 schools in China. The Company is engaged in providing international education to Chinese students. Its schools comprise international schools, bilingual schools and kindergartens. It offers a broad range of internationally-accredited curricula at its international schools. It also offers a range of complementary education services, including overseas camps and after-school programs. As of February 28, 2017, the Company had six international schools, which focus on internationally-accredited curricula and offer extracurricular activities and programs; 11 bilingual schools, which provide government-mandated curricula and developing students’ English proficiency; and 34 bilingual kindergartens, including 11 that deliver international curricula. As of February 28, 2017, the Company operated 51 schools.

FINANCIAL RATIOS  of  Bright Scholar Education Holdings Limite (BEDU)

Valuation Ratios
P/E Ratio 47.3
Price to Sales 6.2
Price to Book 5.8
Price to Tangible Book
Price to Cash Flow 17.6
Price to Free Cash Flow 22.3
Growth Rates
Sales Growth Rate 27.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 7.7%
Cap. Spend. - 3 Yr. Gr. Rate -8.6%
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 8.8%
Ret/ On Assets - 3 Yr. Avg. 0.6%
Return On Total Capital 22.5%
Ret/ On T. Cap. - 3 Yr. Avg. 27.2%
Return On Equity 22.5%
Return On Equity - 3 Yr. Avg. 27.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 35.4%
Gross Margin - 3 Yr. Avg. 25.5%
EBITDA Margin 24%
EBITDA Margin - 3 Yr. Avg. 10.2%
Operating Margin 16.1%
Oper. Margin - 3 Yr. Avg. 3%
Pre-Tax Margin 17.7%
Pre-Tax Margin - 3 Yr. Avg. 3.5%
Net Profit Margin 13%
Net Profit Margin - 3 Yr. Avg. 1.4%
Effective Tax Rate 17.6%
Eff/ Tax Rate - 3 Yr. Avg. 52.5%
Payout Ratio 0%

BEDU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the BEDU stock intrinsic value calculation we used $252 million for the last fiscal year's total revenue generated by Bright Scholar Education Holdings Limite. The default revenue input number comes from 0001 income statement of Bright Scholar Education Holdings Limite. 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 BEDU stock valuation model: a) initial revenue growth rate of 25.2% 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 BEDU is calculated based on our internal credit rating of Bright Scholar Education Holdings Limite, 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 Bright Scholar Education Holdings Limite.
    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 BEDU stock the variable cost ratio is equal to 83.7%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for BEDU 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 5.4% for Bright Scholar Education Holdings Limite.

Corporate tax rate of 27% is the nominal tax rate for Bright Scholar Education Holdings Limite. 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 BEDU 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 BEDU are equal to 39%.

Life of production assets of 10.5 years is the average useful life of capital assets used in Bright Scholar Education Holdings Limite 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 BEDU is equal to -87%. 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 - $416.653225807 million for Bright Scholar Education Holdings Limite - 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 123.529 million for Bright Scholar Education Holdings Limite 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 Bright Scholar Education Holdings Limite at the current share price and the inputted number of shares is $1.2 billion.

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