Intrinsic value of China Distance Education Holdings ADR - DL

Previous Close

$9.41

  Intrinsic Value

$26.45

stock screener

  Rating & Target

str. buy

+181%

Previous close

$9.41

 
Intrinsic value

$26.45

 
Up/down potential

+181%

 
Rating

str. buy

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

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 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, %
  9.26
  12.90
  12.11
  11.40
  10.76
  10.18
  9.66
  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
Revenue, $m
  118
  133
  149
  166
  184
  203
  223
  243
  264
  287
  310
  334
  359
  385
  412
  440
  469
  499
  531
  564
  598
  633
  671
  709
  750
  792
  836
  882
  930
  981
  1,033
Variable operating expenses, $m
 
  93
  104
  116
  128
  141
  154
  168
  182
  197
  213
  226
  243
  261
  279
  298
  318
  339
  360
  382
  406
  430
  455
  481
  509
  537
  567
  598
  631
  665
  701
Fixed operating expenses, $m
 
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  13
Total operating expenses, $m
  89
  99
  110
  122
  135
  148
  161
  175
  189
  204
  221
  234
  251
  269
  287
  307
  327
  348
  369
  392
  416
  440
  465
  492
  520
  548
  578
  610
  643
  677
  714
Operating income, $m
  29
  34
  39
  44
  50
  56
  62
  68
  75
  82
  89
  99
  107
  115
  124
  133
  142
  151
  161
  172
  182
  194
  205
  218
  230
  244
  257
  272
  287
  303
  320
EBITDA, $m
  33
  39
  44
  50
  56
  62
  69
  75
  82
  90
  97
  105
  114
  122
  131
  141
  150
  160
  171
  182
  193
  205
  217
  230
  244
  258
  272
  288
  304
  321
  338
Interest expense (income), $m
  0
  0
  0
  1
  1
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  22
Earnings before tax, $m
  33
  34
  39
  43
  49
  54
  60
  66
  72
  78
  85
  95
  102
  110
  117
  125
  134
  143
  152
  161
  171
  182
  192
  204
  216
  228
  241
  254
  268
  283
  298
Tax expense, $m
  6
  9
  10
  12
  13
  15
  16
  18
  19
  21
  23
  26
  28
  30
  32
  34
  36
  39
  41
  44
  46
  49
  52
  55
  58
  62
  65
  69
  72
  76
  81
Net income, $m
  26
  25
  28
  32
  36
  39
  44
  48
  52
  57
  62
  69
  74
  80
  86
  92
  98
  104
  111
  118
  125
  133
  141
  149
  157
  166
  176
  185
  196
  206
  218

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  55
  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
  149
  106
  119
  133
  147
  162
  177
  194
  211
  228
  247
  266
  286
  307
  328
  350
  374
  398
  423
  449
  476
  505
  534
  565
  597
  631
  666
  703
  741
  781
  823
Adjusted assets (=assets-cash), $m
  94
  106
  119
  133
  147
  162
  177
  194
  211
  228
  247
  266
  286
  307
  328
  350
  374
  398
  423
  449
  476
  505
  534
  565
  597
  631
  666
  703
  741
  781
  823
Revenue / Adjusted assets
  1.255
  1.255
  1.252
  1.248
  1.252
  1.253
  1.260
  1.253
  1.251
  1.259
  1.255
  1.256
  1.255
  1.254
  1.256
  1.257
  1.254
  1.254
  1.255
  1.256
  1.256
  1.253
  1.257
  1.255
  1.256
  1.255
  1.255
  1.255
  1.255
  1.256
  1.255
Average production assets, $m
  20
  23
  25
  28
  31
  34
  38
  41
  45
  48
  52
  56
  61
  65
  70
  74
  79
  84
  90
  95
  101
  107
  113
  120
  127
  134
  141
  149
  157
  166
  175
Working capital, $m
  -3
  -47
  -53
  -59
  -66
  -72
  -79
  -87
  -94
  -102
  -110
  -119
  -128
  -137
  -147
  -157
  -167
  -178
  -189
  -201
  -213
  -225
  -239
  -253
  -267
  -282
  -298
  -314
  -331
  -349
  -368
Total debt, $m
  16
  8
  19
  31
  44
  58
  72
  86
  102
  118
  134
  151
  169
  188
  207
  227
  248
  270
  293
  316
  341
  366
  393
  421
  450
  480
  512
  545
  579
  615
  653
Total liabilities, $m
  104
  96
  107
  119
  132
  146
  160
  174
  190
  206
  222
  239
  257
  276
  295
  315
  336
  358
  381
  404
  429
  454
  481
  509
  538
  568
  600
  633
  667
  703
  741
Total equity, $m
  45
  11
  12
  13
  15
  16
  18
  19
  21
  23
  25
  27
  29
  31
  33
  35
  37
  40
  42
  45
  48
  50
  53
  57
  60
  63
  67
  70
  74
  78
  82
Total liabilities and equity, $m
  149
  107
  119
  132
  147
  162
  178
  193
  211
  229
  247
  266
  286
  307
  328
  350
  373
  398
  423
  449
  477
  504
  534
  566
  598
  631
  667
  703
  741
  781
  823
Debt-to-equity ratio
  0.356
  0.710
  1.610
  2.360
  3.010
  3.560
  4.040
  4.460
  4.820
  5.150
  5.440
  5.690
  5.920
  6.130
  6.320
  6.490
  6.640
  6.790
  6.920
  7.040
  7.150
  7.260
  7.350
  7.440
  7.530
  7.610
  7.680
  7.750
  7.810
  7.870
  7.930
Adjusted equity ratio
  0.064
  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
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  26
  25
  28
  32
  36
  39
  44
  48
  52
  57
  62
  69
  74
  80
  86
  92
  98
  104
  111
  118
  125
  133
  141
  149
  157
  166
  176
  185
  196
  206
  218
Depreciation, amort., depletion, $m
  4
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  16
  17
  17
  18
Funds from operations, $m
  46
  30
  34
  38
  42
  46
  50
  55
  60
  65
  70
  75
  81
  87
  93
  99
  106
  113
  120
  128
  136
  144
  152
  161
  171
  180
  191
  201
  212
  224
  236
Change in working capital, $m
  7
  -5
  -6
  -6
  -6
  -7
  -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
Cash from operations, $m
  39
  35
  39
  44
  48
  53
  57
  62
  68
  73
  79
  84
  90
  96
  103
  109
  116
  124
  132
  140
  148
  157
  166
  175
  185
  195
  206
  218
  229
  242
  255
Maintenance CAPEX, $m
  0
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
New CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
Cash from investing activities, $m
  -34
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -10
  -12
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -17
  -19
  -20
  -20
  -21
  -23
  -24
  -26
  -26
Free cash flow, $m
  5
  31
  34
  38
  42
  46
  51
  55
  60
  65
  70
  74
  80
  85
  91
  97
  104
  110
  117
  125
  132
  140
  148
  157
  166
  175
  185
  195
  206
  217
  228
Issuance/(repayment) of debt, $m
  0
  8
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
Issuance/(repurchase) of shares, $m
  -35
  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  
  -32
  8
  12
  12
  13
  13
  14
  15
  15
  16
  17
  17
  18
  19
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
Total cash flow (excl. dividends), $m
  -33
  38
  46
  50
  55
  60
  65
  70
  75
  81
  86
  91
  97
  104
  111
  117
  125
  132
  140
  148
  157
  165
  175
  184
  195
  205
  216
  228
  240
  253
  266
Retained Cash Flow (-), $m
  46
  -5
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
Prev. year cash balance distribution, $m
 
  39
  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
 
  73
  45
  49
  53
  58
  63
  68
  73
  79
  84
  89
  96
  102
  108
  115
  122
  130
  137
  145
  154
  163
  172
  181
  191
  202
  213
  224
  236
  249
  262
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
 
  70
  41
  43
  44
  45
  46
  46
  46
  45
  44
  42
  41
  39
  36
  34
  31
  28
  25
  22
  20
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  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
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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 47.7
Price to Sales 10.5
Price to Book 27.5
Price to Tangible Book
Price to Cash Flow 31.8
Price to Free Cash Flow 34.4
Growth Rates
Sales Growth Rate 9.3%
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 3
Current Ratio 0.2
LT Debt to Equity 0%
Total Debt to Equity 35.6%
Interest Coverage 0
Management Effectiveness
Return On Assets 16.1%
Ret/ On Assets - 3 Yr. Avg. 15.7%
Return On Total Capital 31%
Ret/ On T. Cap. - 3 Yr. Avg. 26.3%
Return On Equity 38.2%
Return On Equity - 3 Yr. Avg. 31%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 58.5%
Gross Margin - 3 Yr. Avg. 58.8%
EBITDA Margin 31.4%
EBITDA Margin - 3 Yr. Avg. 30.6%
Operating Margin 24.6%
Oper. Margin - 3 Yr. Avg. 24.5%
Pre-Tax Margin 28%
Pre-Tax Margin - 3 Yr. Avg. 27.9%
Net Profit Margin 22%
Net Profit Margin - 3 Yr. Avg. 23%
Effective Tax Rate 18.2%
Eff/ Tax Rate - 3 Yr. Avg. 16.6%
Payout Ratio 119.2%

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 $118 million for the last fiscal year's total revenue generated by China Distance Education Holdings ADR. The default revenue input number comes from 2016 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 12.9% 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 70.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6 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 3.5% 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 16.9%.

Life of production assets of 9.5 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 -35.6%. 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 - $45 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 32.964 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 $0.3 billion.

RELATED COMPANIES Price Int.Val. Rating
ATAI ATA ADR 5.39 5.56  hold
HMHC Houghton Miffl 9.70 0.36  str.sell

COMPANY NEWS

▶ China Distance posts 4Q profit   [Nov-28-17 05:22PM  Associated Press]
▶ China Distance posts 3Q profit   [Aug-23-17 10:16PM  Associated Press]
▶ China Distance reports 2Q loss   [May-17-17 05:08PM  Associated Press]
▶ CDEL to Hold Annual General Meeting on May 19, 2017   [Apr-27-17 07:00AM  PR Newswire]
▶ China Distance posts 1Q profit   [Feb-21-17 06:18PM  Associated Press]
▶ 8 High-Yield Stocks With Falling Prices   [05:51PM  GuruFocus.com]
▶ Is Zoes Kitchen Inc (ZOES) A Good Stock To Buy?   [Dec-20-16 02:00PM  at Insider Monkey]
▶ Hedge Funds Are Betting On World Acceptance Corp. (WRLD)   [Dec-12-16 01:03PM  at Insider Monkey]
▶ Is Park Sterling Corp (PSTB) A Good Stock To Buy?   [Dec-08-16 03:11PM  at Insider Monkey]
▶ CDEL to Hold Annual General Meeting on May 26, 2016   [May-05-16 07:00AM  PR Newswire]
Financial statements of DL
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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