Intrinsic value of Gencor Industries - GENC

Previous Close

$12.70

  Intrinsic Value

$23.09

stock screener

  Rating & Target

str. buy

+82%

Previous close

$12.70

 
Intrinsic value

$23.09

 
Up/down potential

+82%

 
Rating

str. buy

We calculate the intrinsic value of GENC 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 2017), $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
   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
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  15.20
  14.18
  13.26
  12.44
  11.69
  11.02
  10.42
  9.88
  9.39
  8.95
  8.56
  8.20
  7.88
  7.59
  7.33
  7.10
  6.89
  6.70
  6.53
  6.38
  6.24
  6.12
  6.00
  5.90
  5.81
  5.73
  5.66
  5.59
  5.53
  5.48
Revenue, $m
  93
  107
  121
  136
  152
  168
  186
  204
  223
  243
  264
  286
  308
  332
  356
  381
  408
  435
  463
  493
  524
  556
  589
  624
  660
  698
  737
  779
  822
  867
Variable operating expenses, $m
  72
  82
  93
  104
  117
  129
  143
  157
  172
  187
  203
  220
  237
  255
  274
  293
  313
  334
  356
  379
  403
  427
  453
  480
  508
  537
  567
  599
  632
  666
Fixed operating expenses, $m
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  13
  14
  14
  14
  15
  15
  15
Total operating expenses, $m
  80
  90
  102
  113
  126
  138
  152
  167
  182
  197
  213
  230
  248
  266
  285
  304
  325
  346
  368
  391
  416
  440
  466
  493
  522
  551
  581
  614
  647
  681
Operating income, $m
  13
  16
  19
  23
  26
  30
  34
  38
  42
  46
  51
  56
  61
  66
  71
  77
  83
  89
  95
  101
  108
  115
  123
  131
  139
  147
  156
  165
  175
  185
EBITDA, $m
  14
  17
  20
  24
  27
  31
  35
  39
  43
  48
  53
  58
  63
  68
  74
  79
  85
  92
  98
  105
  112
  119
  127
  135
  143
  152
  161
  170
  180
  191
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
Earnings before tax, $m
  13
  16
  19
  22
  26
  29
  33
  37
  41
  45
  49
  54
  59
  64
  69
  74
  80
  86
  92
  98
  104
  111
  118
  126
  134
  142
  150
  159
  168
  178
Tax expense, $m
  4
  4
  5
  6
  7
  8
  9
  10
  11
  12
  13
  15
  16
  17
  19
  20
  22
  23
  25
  26
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
Net income, $m
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  67
  71
  76
  81
  86
  92
  98
  103
  110
  116
  123
  130

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
  51
  59
  67
  75
  84
  93
  102
  113
  123
  134
  146
  158
  170
  183
  196
  210
  225
  240
  255
  272
  289
  306
  325
  344
  364
  385
  406
  429
  453
  478
Adjusted assets (=assets-cash), $m
  51
  59
  67
  75
  84
  93
  102
  113
  123
  134
  146
  158
  170
  183
  196
  210
  225
  240
  255
  272
  289
  306
  325
  344
  364
  385
  406
  429
  453
  478
Revenue / Adjusted assets
  1.824
  1.814
  1.806
  1.813
  1.810
  1.806
  1.824
  1.805
  1.813
  1.813
  1.808
  1.810
  1.812
  1.814
  1.816
  1.814
  1.813
  1.813
  1.816
  1.813
  1.813
  1.817
  1.812
  1.814
  1.813
  1.813
  1.815
  1.816
  1.815
  1.814
Average production assets, $m
  6
  7
  8
  9
  10
  11
  13
  14
  15
  17
  18
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
Working capital, $m
  18
  20
  23
  26
  29
  32
  35
  39
  43
  46
  50
  55
  59
  63
  68
  73
  78
  83
  88
  94
  100
  106
  112
  119
  126
  133
  141
  149
  157
  166
Total debt, $m
  2
  5
  7
  10
  12
  15
  18
  21
  25
  28
  32
  36
  39
  44
  48
  52
  57
  61
  66
  71
  77
  82
  88
  94
  100
  107
  114
  121
  128
  136
Total liabilities, $m
  16
  18
  21
  23
  26
  29
  32
  35
  39
  42
  46
  49
  53
  57
  62
  66
  71
  75
  80
  85
  91
  96
  102
  108
  114
  121
  128
  135
  142
  150
Total equity, $m
  35
  40
  46
  51
  57
  64
  70
  77
  84
  92
  100
  108
  117
  125
  135
  144
  154
  164
  175
  186
  198
  210
  223
  236
  250
  264
  279
  294
  311
  328
Total liabilities and equity, $m
  51
  58
  67
  74
  83
  93
  102
  112
  123
  134
  146
  157
  170
  182
  197
  210
  225
  239
  255
  271
  289
  306
  325
  344
  364
  385
  407
  429
  453
  478
Debt-to-equity ratio
  0.060
  0.110
  0.150
  0.190
  0.220
  0.240
  0.260
  0.280
  0.290
  0.310
  0.320
  0.330
  0.340
  0.350
  0.350
  0.360
  0.370
  0.370
  0.380
  0.380
  0.390
  0.390
  0.400
  0.400
  0.400
  0.410
  0.410
  0.410
  0.410
  0.420
Adjusted equity ratio
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686
  0.686

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  10
  12
  14
  16
  19
  21
  24
  27
  30
  33
  36
  39
  43
  46
  50
  54
  58
  62
  67
  71
  76
  81
  86
  92
  98
  103
  110
  116
  123
  130
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  6
  6
Funds from operations, $m
  10
  13
  15
  17
  20
  22
  25
  28
  31
  34
  38
  41
  45
  49
  53
  57
  61
  65
  70
  75
  80
  85
  90
  96
  102
  108
  115
  121
  128
  136
Change in working capital, $m
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
Cash from operations, $m
  8
  10
  12
  14
  17
  19
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  95
  101
  107
  113
  120
  127
Maintenance CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
Cash from investing activities, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -9
Free cash flow, $m
  7
  8
  10
  12
  15
  17
  20
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  64
  68
  73
  78
  83
  88
  94
  100
  106
  112
  119
Issuance/(repayment) of debt, $m
  2
  2
  2
  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
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  
  2
  2
  2
  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
Total cash flow (excl. dividends), $m
  9
  11
  13
  15
  17
  20
  23
  25
  28
  31
  34
  38
  41
  45
  48
  52
  56
  60
  65
  69
  74
  79
  84
  89
  95
  100
  106
  113
  119
  126
Retained Cash Flow (-), $m
  -5
  -5
  -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
Prev. year cash balance distribution, $m
  98
  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
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash available for distribution, $m
  103
  6
  7
  9
  11
  14
  16
  18
  21
  24
  26
  29
  33
  36
  39
  43
  46
  50
  54
  58
  62
  67
  71
  76
  81
  86
  92
  97
  103
  109
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
  98
  5
  7
  8
  9
  10
  11
  11
  12
  12
  13
  13
  12
  12
  11
  11
  10
  9
  8
  7
  6
  6
  5
  4
  3
  3
  2
  2
  1
  1
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

Gencor Industries, Inc. is a manufacturer of heavy machinery used in the production of highway construction materials, synthetic fuels and environmental control equipment. The Company designs, manufactures and sells machinery and related equipment used primarily for the production of asphalt and highway construction materials. Its geographical segments are United States and Other. The Company's principal products include asphalt plants, combustion systems and fluid heat transfer systems. It also manufactures related asphalt plant equipment, including hot mix storage silos, fabric filtration systems, cold feed bins and other plant components. The Company also manufactures soil remediation machinery, as well as combustion systems for rotary dryers, kilns, fume and liquid incinerators and fuel heaters. Its General Combustion subsidiary also manufactures the Hy-Way heat and Beverley lines of thermal fluid heat transfer systems and specialty storage tanks for an array of industry uses.

FINANCIAL RATIOS  of  Gencor Industries (GENC)

Valuation Ratios
P/E Ratio 22.9
Price to Sales 2.3
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow 30.5
Price to Free Cash Flow 45.8
Growth Rates
Sales Growth Rate 15.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate 14.9%
Financial Strength
Quick Ratio NaN
Current Ratio 0.6
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 5.9%
Ret/ On Assets - 3 Yr. Avg. 3.3%
Return On Total Capital 6.4%
Ret/ On T. Cap. - 3 Yr. Avg. 3.6%
Return On Equity 6.4%
Return On Equity - 3 Yr. Avg. 3.6%
Asset Turnover 0.6
Profitability Ratios
Gross Margin 25.9%
Gross Margin - 3 Yr. Avg. 24.1%
EBITDA Margin 16%
EBITDA Margin - 3 Yr. Avg. 7.5%
Operating Margin 13.6%
Oper. Margin - 3 Yr. Avg. 7.5%
Pre-Tax Margin 14.8%
Pre-Tax Margin - 3 Yr. Avg. 5.8%
Net Profit Margin 9.9%
Net Profit Margin - 3 Yr. Avg. 4.9%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 35.2%
Payout Ratio 0%

GENC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the GENC stock intrinsic value calculation we used $81 million for the last fiscal year's total revenue generated by Gencor Industries. The default revenue input number comes from 2017 income statement of Gencor Industries. 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 GENC stock valuation model: a) initial revenue growth rate of 15.2% 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 GENC is calculated based on our internal credit rating of Gencor Industries, 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 Gencor Industries.
    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 GENC stock the variable cost ratio is equal to 76.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8 million in the base year in the intrinsic value calculation for GENC 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 Gencor Industries.

Corporate tax rate of 27% is the nominal tax rate for Gencor Industries. 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 GENC stock is equal to 0.1%.

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 GENC are equal to 6.8%.

Life of production assets of 10 years is the average useful life of capital assets used in Gencor Industries 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 GENC is equal to 19.1%. 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 - $129 million for Gencor Industries - 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 14 million for Gencor Industries 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 Gencor Industries at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Gencor: Fiscal 3Q Earnings Snapshot   [Aug-02-18 12:05PM  Associated Press]
▶ Gencor: Fiscal 2Q Earnings Snapshot   [May-03-18 11:04AM  Associated Press]
▶ Gencor posts 1Q profit   [Feb-02-18 10:09AM  Associated Press]
▶ Gencor Releases Fiscal Year and Fourth Quarter 2017 Results   [Dec-06-17 05:00PM  GlobeNewswire]
▶ Gencor Industries Sees Its Composite Rating Rise To 96   [Sep-28-17 03:00AM  Investor's Business Daily]
▶ Gencor Industries Sees Its Composite Rating Rise To 96   [Sep-25-17 03:00AM  Investor's Business Daily]
▶ Gencor posts 3Q profit   [Aug-04-17 03:17AM  Associated Press]
▶ Gencor Releases Third Quarter Fiscal 2017 Results   [Aug-03-17 08:35AM  GlobeNewswire]
▶ Gencor posts 2Q profit   [May-05-17 08:16AM  Associated Press]
▶ Another Play on Trump Infrastructure Spending   [Feb-27-17 04:03PM  GuruFocus.com]
▶ Gencor posts 1Q profit   [08:04AM  Associated Press]
▶ Is Osiris Therapeutics, Inc. (OSIR) A Good Stock To Buy?   [Dec-18-16 09:53PM  Insider Monkey]
▶ Is Autobytel Inc. (ABTL) Going to Burn These Hedge Funds?   [Dec-05-16 05:10PM  Insider Monkey]
▶ Gencor Announces 50% Stock Dividend   [10:14AM  GlobeNewswire]
▶ 10-Q for Gencor Industries, Inc.   [Aug-07  08:12PM  at Company Spotlight]
▶ 10-Q for Gencor Industries, Inc.   [May-10  08:11PM  at Company Spotlight]
▶ Articles of Association for Genmab A/S   [Apr-01  11:40AM  at noodls]
▶ Genmab Acquires Antibody Assets from iDD Biotech   [Mar-18  10:11AM  at noodls]
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