Intrinsic value of China Distance Education Holdings ADR - DL

Previous Close

$7.93

  Intrinsic Value

$37.65

stock screener

  Rating & Target

str. buy

+375%

Previous close

$7.93

 
Intrinsic value

$37.65

 
Up/down potential

+375%

 
Rating

str. buy

We calculate the intrinsic value of DL 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 0.2

 

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, %
  11.40
  10.76
  10.18
  9.67
  9.20
  8.78
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.81
  6.63
  6.46
  6.32
  6.19
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
Revenue, $m
  146
  162
  178
  195
  213
  232
  251
  272
  293
  315
  337
  361
  386
  411
  438
  466
  494
  524
  556
  588
  622
  658
  695
  733
  774
  816
  860
  906
  955
  1,005
Variable operating expenses, $m
  110
  121
  133
  146
  159
  172
  186
  201
  217
  232
  245
  262
  280
  299
  318
  338
  359
  381
  403
  427
  452
  477
  504
  532
  562
  592
  624
  658
  693
  730
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
  110
  121
  133
  146
  159
  172
  186
  201
  217
  232
  245
  262
  280
  299
  318
  338
  359
  381
  403
  427
  452
  477
  504
  532
  562
  592
  624
  658
  693
  730
Operating income, $m
  36
  40
  45
  50
  55
  60
  65
  71
  76
  82
  92
  99
  106
  113
  120
  128
  135
  144
  152
  161
  171
  180
  190
  201
  212
  224
  236
  248
  262
  276
EBITDA, $m
  42
  46
  51
  56
  61
  67
  72
  78
  84
  90
  97
  104
  111
  118
  126
  134
  142
  151
  160
  169
  179
  189
  200
  211
  222
  235
  247
  261
  274
  289
Interest expense (income), $m
  0
  3
  4
  5
  6
  7
  9
  10
  11
  13
  14
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  35
  38
  40
  43
  46
  49
  52
  55
  58
  62
Earnings before tax, $m
  33
  37
  40
  44
  47
  51
  55
  59
  64
  68
  77
  81
  87
  92
  97
  103
  109
  115
  121
  128
  135
  142
  150
  158
  166
  175
  184
  193
  203
  214
Tax expense, $m
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  21
  22
  23
  25
  26
  28
  29
  31
  33
  35
  36
  38
  40
  43
  45
  47
  50
  52
  55
  58
Net income, $m
  24
  27
  29
  32
  34
  37
  40
  43
  46
  50
  56
  59
  63
  67
  71
  75
  79
  84
  89
  93
  99
  104
  109
  115
  121
  128
  134
  141
  148
  156

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
  248
  275
  303
  332
  363
  395
  428
  462
  498
  535
  574
  614
  656
  699
  745
  792
  841
  892
  945
  1,000
  1,058
  1,118
  1,181
  1,247
  1,316
  1,388
  1,463
  1,541
  1,624
  1,710
Adjusted assets (=assets-cash), $m
  248
  275
  303
  332
  363
  395
  428
  462
  498
  535
  574
  614
  656
  699
  745
  792
  841
  892
  945
  1,000
  1,058
  1,118
  1,181
  1,247
  1,316
  1,388
  1,463
  1,541
  1,624
  1,710
Revenue / Adjusted assets
  0.589
  0.589
  0.587
  0.587
  0.587
  0.587
  0.586
  0.589
  0.588
  0.589
  0.587
  0.588
  0.588
  0.588
  0.588
  0.588
  0.587
  0.587
  0.588
  0.588
  0.588
  0.589
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
  0.588
Average production assets, $m
  38
  42
  46
  51
  55
  60
  65
  71
  76
  82
  88
  94
  100
  107
  114
  121
  129
  136
  144
  153
  162
  171
  181
  191
  201
  212
  224
  236
  248
  261
Working capital, $m
  -89
  -98
  -108
  -119
  -129
  -141
  -153
  -165
  -178
  -191
  -205
  -219
  -234
  -250
  -266
  -283
  -300
  -318
  -337
  -357
  -378
  -399
  -422
  -445
  -470
  -495
  -522
  -550
  -579
  -610
Total debt, $m
  70
  91
  113
  135
  159
  184
  210
  237
  265
  294
  324
  356
  388
  422
  458
  494
  533
  572
  614
  657
  702
  749
  799
  850
  904
  960
  1,018
  1,080
  1,144
  1,211
Total liabilities, $m
  194
  215
  237
  259
  283
  308
  334
  361
  389
  418
  448
  480
  512
  546
  582
  618
  657
  696
  738
  781
  826
  873
  923
  974
  1,028
  1,084
  1,142
  1,204
  1,268
  1,335
Total equity, $m
  54
  60
  66
  73
  79
  86
  94
  101
  109
  117
  126
  135
  144
  153
  163
  173
  184
  195
  207
  219
  232
  245
  259
  273
  288
  304
  320
  338
  356
  374
Total liabilities and equity, $m
  248
  275
  303
  332
  362
  394
  428
  462
  498
  535
  574
  615
  656
  699
  745
  791
  841
  891
  945
  1,000
  1,058
  1,118
  1,182
  1,247
  1,316
  1,388
  1,462
  1,542
  1,624
  1,709
Debt-to-equity ratio
  1.290
  1.510
  1.700
  1.860
  2.010
  2.130
  2.240
  2.340
  2.430
  2.510
  2.580
  2.640
  2.700
  2.760
  2.810
  2.850
  2.890
  2.930
  2.970
  3.000
  3.030
  3.060
  3.090
  3.110
  3.140
  3.160
  3.180
  3.200
  3.220
  3.240
Adjusted equity ratio
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219
  0.219

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  27
  29
  32
  34
  37
  40
  43
  46
  50
  56
  59
  63
  67
  71
  75
  79
  84
  89
  93
  99
  104
  109
  115
  121
  128
  134
  141
  148
  156
Depreciation, amort., depletion, $m
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  12
  12
  13
  13
Funds from operations, $m
  30
  33
  36
  38
  41
  44
  47
  51
  54
  58
  60
  64
  68
  72
  77
  81
  86
  91
  96
  101
  107
  113
  119
  125
  132
  139
  146
  153
  161
  170
Change in working capital, $m
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -25
  -26
  -27
  -28
  -29
  -31
Cash from operations, $m
  39
  42
  45
  49
  52
  56
  59
  63
  67
  71
  74
  79
  83
  88
  93
  98
  104
  109
  115
  121
  128
  134
  141
  149
  156
  164
  173
  181
  191
  200
Maintenance CAPEX, $m
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -12
  -12
  -13
New CAPEX, $m
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
Cash from investing activities, $m
  -6
  -6
  -6
  -6
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -13
  -15
  -15
  -15
  -17
  -17
  -19
  -19
  -21
  -21
  -22
  -24
  -25
  -26
Free cash flow, $m
  34
  36
  39
  42
  45
  48
  51
  54
  58
  61
  64
  68
  72
  76
  81
  85
  90
  95
  100
  105
  111
  117
  123
  129
  136
  143
  150
  158
  166
  174
Issuance/(repayment) of debt, $m
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
Issuance/(repurchase) of shares, $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 from financing (excl. dividends), $m  
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  42
  43
  45
  47
  49
  51
  54
  56
  59
  61
  64
  67
Total cash flow (excl. dividends), $m
  54
  57
  61
  65
  69
  73
  77
  81
  86
  91
  94
  99
  105
  110
  116
  122
  128
  135
  141
  148
  156
  164
  172
  181
  190
  199
  209
  219
  230
  241
Retained Cash Flow (-), $m
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
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
  48
  51
  55
  58
  62
  66
  70
  74
  78
  82
  86
  91
  96
  101
  106
  112
  117
  123
  130
  136
  143
  151
  158
  166
  174
  183
  192
  202
  212
  223
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
  46
  47
  48
  48
  48
  48
  47
  46
  45
  43
  41
  39
  36
  34
  31
  28
  26
  23
  20
  17
  15
  12
  10
  8
  7
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

China Distance Education Holdings Limited is a holding company. The Company is engaged in providing online and offline education services, and selling related products in the People's Republic of China (PRC). The Company's segments include online education services, business start-up training services and the sale of learning simulation software. The Company primarily sells books and reference materials related to its courses, such as the various levels of Accounting Professional Qualification Examinations, accounting continuing education, the National Practicing Medical Doctor Qualification Examination, the National Pharmacist Qualification Examination, and Associate Constructor and Constructor Qualification Examinations. It offers college oriented online-to-offline products and services, business start-up training courses and others. The Company had a content library with 263 course offerings of audio-video content, as of September 30, 2016.

FINANCIAL RATIOS  of  China Distance Education Holdings ADR (DL)

Valuation Ratios
P/E Ratio 69.7
Price to Sales 8
Price to Book 21.3
Price to Tangible Book
Price to Cash Flow 26.8
Price to Free Cash Flow 29
Growth Rates
Sales Growth Rate 11%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -40%
Cap. Spend. - 3 Yr. Gr. Rate 8.4%
Financial Strength
Quick Ratio 2
Current Ratio 0.3
LT Debt to Equity 40.8%
Total Debt to Equity 102%
Interest Coverage 0
Management Effectiveness
Return On Assets 8%
Ret/ On Assets - 3 Yr. Avg. 12.9%
Return On Total Capital 18.8%
Ret/ On T. Cap. - 3 Yr. Avg. 24.1%
Return On Equity 31.9%
Return On Equity - 3 Yr. Avg. 32.2%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 56.5%
Gross Margin - 3 Yr. Avg. 58.1%
EBITDA Margin 19.1%
EBITDA Margin - 3 Yr. Avg. 26.4%
Operating Margin 15.3%
Oper. Margin - 3 Yr. Avg. 21.3%
Pre-Tax Margin 16%
Pre-Tax Margin - 3 Yr. Avg. 23.9%
Net Profit Margin 11.5%
Net Profit Margin - 3 Yr. Avg. 18.9%
Effective Tax Rate 23.8%
Eff/ Tax Rate - 3 Yr. Avg. 19.6%
Payout Ratio 206.7%

DL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the DL stock intrinsic value calculation we used $130.988 million for the last fiscal year's total revenue generated by China Distance Education Holdings ADR. The default revenue input number comes from 0001 income statement of China Distance Education Holdings ADR. 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 DL stock valuation model: a) initial revenue growth rate of 11.4% 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 DL is calculated based on our internal credit rating of China Distance Education Holdings ADR, 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 China Distance Education Holdings ADR.
    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 DL stock the variable cost ratio is equal to 75.6%.

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 DL 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 China Distance Education Holdings ADR.

Corporate tax rate of 27% is the nominal tax rate for China Distance Education Holdings ADR. 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 DL 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 DL are equal to 26%.

Life of production assets of 19.4 years is the average useful life of capital assets used in China Distance Education Holdings ADR 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 DL is equal to -60.7%. 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 - $48.783 million for China Distance Education Holdings ADR - 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 22.141 million for China Distance Education Holdings ADR 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 China Distance Education Holdings ADR at the current share price and the inputted number of shares is $0.2 billion.

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