Intrinsic value of RADA Electronic Industries Ltd. - RADA

Previous Close

$2.79

  Intrinsic Value

$18.44

stock screener

  Rating & Target

str. buy

+560%

Previous close

$2.79

 
Intrinsic value

$18.44

 
Up/down potential

+560%

 
Rating

str. buy

We calculate the intrinsic value of RADA 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 0.1

 

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, %
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  42
  64
  96
  139
  197
  271
  363
  477
  613
  775
  962
  1,176
  1,418
  1,687
  1,984
  2,308
  2,658
  3,035
  3,437
  3,864
  4,316
  4,791
  5,291
  5,813
  6,359
  6,928
  7,520
  8,137
  8,778
  9,444
Variable operating expenses, $m
  26
  40
  59
  86
  121
  166
  223
  293
  377
  477
  592
  723
  872
  1,038
  1,220
  1,419
  1,635
  1,866
  2,114
  2,377
  2,654
  2,947
  3,254
  3,575
  3,911
  4,261
  4,625
  5,004
  5,398
  5,808
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
  34
  48
  68
  95
  130
  175
  232
  303
  387
  487
  602
  733
  883
  1,049
  1,231
  1,430
  1,647
  1,878
  2,126
  2,389
  2,667
  2,960
  3,267
  3,588
  3,925
  4,275
  4,639
  5,019
  5,413
  5,823
Operating income, $m
  8
  16
  28
  45
  67
  95
  130
  174
  226
  288
  360
  443
  535
  639
  753
  877
  1,012
  1,157
  1,311
  1,475
  1,649
  1,832
  2,024
  2,225
  2,434
  2,653
  2,881
  3,118
  3,364
  3,621
EBITDA, $m
  9
  18
  31
  48
  72
  102
  139
  186
  242
  308
  384
  472
  570
  680
  802
  934
  1,077
  1,232
  1,396
  1,571
  1,756
  1,950
  2,154
  2,368
  2,591
  2,824
  3,067
  3,319
  3,581
  3,854
Interest expense (income), $m
  0
  0
  0
  1
  2
  3
  4
  6
  8
  11
  15
  19
  23
  29
  34
  41
  49
  57
  65
  75
  85
  95
  106
  118
  130
  143
  157
  171
  186
  201
  217
Earnings before tax, $m
  8
  16
  28
  43
  64
  91
  124
  166
  215
  274
  342
  419
  507
  604
  711
  829
  955
  1,091
  1,237
  1,391
  1,554
  1,726
  1,906
  2,094
  2,291
  2,496
  2,710
  2,932
  3,163
  3,404
Tax expense, $m
  2
  4
  7
  12
  17
  25
  34
  45
  58
  74
  92
  113
  137
  163
  192
  224
  258
  295
  334
  376
  420
  466
  515
  565
  619
  674
  732
  792
  854
  919
Net income, $m
  6
  12
  20
  32
  47
  66
  91
  121
  157
  200
  249
  306
  370
  441
  519
  605
  697
  797
  903
  1,015
  1,134
  1,260
  1,391
  1,529
  1,672
  1,822
  1,978
  2,141
  2,309
  2,485

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
  47
  73
  109
  158
  222
  306
  410
  539
  693
  876
  1,087
  1,329
  1,602
  1,906
  2,242
  2,607
  3,004
  3,429
  3,884
  4,366
  4,877
  5,414
  5,978
  6,568
  7,185
  7,828
  8,497
  9,194
  9,918
  10,671
Adjusted assets (=assets-cash), $m
  47
  73
  109
  158
  222
  306
  410
  539
  693
  876
  1,087
  1,329
  1,602
  1,906
  2,242
  2,607
  3,004
  3,429
  3,884
  4,366
  4,877
  5,414
  5,978
  6,568
  7,185
  7,828
  8,497
  9,194
  9,918
  10,671
Revenue / Adjusted assets
  0.894
  0.877
  0.881
  0.880
  0.887
  0.886
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
  0.885
Average production assets, $m
  5
  8
  12
  18
  25
  34
  46
  60
  77
  98
  121
  148
  179
  213
  250
  291
  335
  382
  433
  487
  544
  604
  667
  732
  801
  873
  948
  1,025
  1,106
  1,190
Working capital, $m
  21
  32
  48
  69
  98
  134
  180
  236
  304
  384
  477
  583
  703
  837
  984
  1,145
  1,318
  1,505
  1,705
  1,917
  2,141
  2,377
  2,624
  2,883
  3,154
  3,436
  3,730
  4,036
  4,354
  4,684
Total debt, $m
  4
  11
  20
  33
  49
  70
  97
  130
  169
  216
  270
  331
  401
  479
  564
  657
  758
  867
  983
  1,106
  1,236
  1,373
  1,517
  1,667
  1,825
  1,989
  2,159
  2,337
  2,522
  2,714
Total liabilities, $m
  12
  19
  28
  40
  57
  78
  105
  137
  177
  223
  277
  339
  409
  486
  572
  665
  766
  874
  990
  1,113
  1,244
  1,381
  1,524
  1,675
  1,832
  1,996
  2,167
  2,344
  2,529
  2,721
Total equity, $m
  35
  54
  81
  117
  166
  228
  306
  401
  516
  652
  810
  990
  1,194
  1,420
  1,670
  1,943
  2,238
  2,555
  2,893
  3,253
  3,633
  4,034
  4,454
  4,893
  5,353
  5,832
  6,331
  6,850
  7,389
  7,950
Total liabilities and equity, $m
  47
  73
  109
  157
  223
  306
  411
  538
  693
  875
  1,087
  1,329
  1,603
  1,906
  2,242
  2,608
  3,004
  3,429
  3,883
  4,366
  4,877
  5,415
  5,978
  6,568
  7,185
  7,828
  8,498
  9,194
  9,918
  10,671
Debt-to-equity ratio
  0.130
  0.200
  0.250
  0.280
  0.300
  0.310
  0.320
  0.320
  0.330
  0.330
  0.330
  0.330
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
  0.340
Adjusted equity ratio
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  6
  12
  20
  32
  47
  66
  91
  121
  157
  200
  249
  306
  370
  441
  519
  605
  697
  797
  903
  1,015
  1,134
  1,260
  1,391
  1,529
  1,672
  1,822
  1,978
  2,141
  2,309
  2,485
Depreciation, amort., depletion, $m
  1
  2
  2
  3
  5
  7
  9
  12
  15
  19
  24
  29
  35
  42
  49
  57
  66
  75
  85
  95
  107
  118
  131
  144
  157
  171
  186
  201
  217
  233
Funds from operations, $m
  7
  13
  22
  35
  52
  73
  100
  133
  172
  219
  273
  335
  405
  483
  568
  662
  763
  872
  988
  1,111
  1,241
  1,378
  1,522
  1,672
  1,829
  1,993
  2,164
  2,342
  2,526
  2,718
Change in working capital, $m
  8
  11
  16
  21
  28
  37
  46
  56
  68
  80
  93
  106
  120
  133
  147
  161
  174
  187
  200
  212
  224
  236
  248
  259
  271
  282
  294
  306
  318
  330
Cash from operations, $m
  -1
  2
  7
  14
  23
  36
  54
  76
  105
  139
  180
  229
  285
  349
  421
  501
  589
  685
  788
  899
  1,017
  1,142
  1,274
  1,413
  1,559
  1,711
  1,870
  2,036
  2,208
  2,388
Maintenance CAPEX, $m
  -1
  -1
  -2
  -2
  -3
  -5
  -7
  -9
  -12
  -15
  -19
  -24
  -29
  -35
  -42
  -49
  -57
  -66
  -75
  -85
  -95
  -107
  -118
  -131
  -144
  -157
  -171
  -186
  -201
  -217
New CAPEX, $m
  -2
  -3
  -4
  -5
  -7
  -9
  -12
  -14
  -17
  -20
  -24
  -27
  -30
  -34
  -37
  -41
  -44
  -47
  -51
  -54
  -57
  -60
  -63
  -66
  -69
  -72
  -75
  -78
  -81
  -84
Cash from investing activities, $m
  -3
  -4
  -6
  -7
  -10
  -14
  -19
  -23
  -29
  -35
  -43
  -51
  -59
  -69
  -79
  -90
  -101
  -113
  -126
  -139
  -152
  -167
  -181
  -197
  -213
  -229
  -246
  -264
  -282
  -301
Free cash flow, $m
  -4
  -2
  1
  6
  13
  22
  36
  53
  76
  103
  138
  178
  226
  280
  342
  411
  488
  572
  662
  760
  865
  976
  1,093
  1,217
  1,346
  1,482
  1,624
  1,772
  1,926
  2,087
Issuance/(repayment) of debt, $m
  4
  7
  9
  12
  17
  21
  27
  33
  39
  47
  54
  62
  70
  78
  85
  93
  101
  109
  116
  123
  130
  137
  144
  151
  157
  164
  171
  178
  185
  192
Issuance/(repurchase) of shares, $m
  7
  7
  7
  5
  1
  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  
  11
  14
  16
  17
  18
  21
  27
  33
  39
  47
  54
  62
  70
  78
  85
  93
  101
  109
  116
  123
  130
  137
  144
  151
  157
  164
  171
  178
  185
  192
Total cash flow (excl. dividends), $m
  8
  12
  17
  23
  31
  43
  62
  86
  115
  150
  192
  240
  295
  358
  428
  505
  589
  680
  778
  883
  995
  1,113
  1,237
  1,367
  1,504
  1,646
  1,795
  1,950
  2,111
  2,279
Retained Cash Flow (-), $m
  -13
  -19
  -27
  -36
  -48
  -62
  -78
  -96
  -115
  -136
  -158
  -180
  -203
  -227
  -250
  -273
  -295
  -317
  -339
  -360
  -380
  -400
  -420
  -440
  -459
  -479
  -499
  -519
  -540
  -561
Prev. year cash balance distribution, $m
  7
  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
  2
  -7
  -10
  -13
  -18
  -19
  -16
  -10
  0
  14
  34
  60
  92
  131
  178
  232
  294
  363
  440
  524
  615
  712
  817
  927
  1,044
  1,167
  1,296
  1,431
  1,571
  1,718
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
  -6
  -9
  -11
  -14
  -13
  -11
  -6
  0
  7
  16
  25
  35
  44
  52
  59
  64
  67
  68
  67
  64
  59
  54
  47
  41
  34
  28
  22
  17
  13
Current shareholders' claim on cash, %
  91.5
  86.6
  83.7
  82.4
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1
  82.1

RADA Electronic Industries Ltd. is an aviation and defense company. The Company develops, manufactures and sells defense electronics, including, avionics solutions (including avionics for unmanned aerial vehicles (UAVs)), airborne data/video recording and management systems, inertial navigation systems and tactical land radars for defense forces and border protection systems. The Company's product lines include Military avionics (Data/video recorders, core avionics for aircraft and UAVs); Inertial navigation systems (INS) for aerial and land platforms, and Tactical Radars for defense forces and border protection systems (land-based). The Company's INS products are used by multiple combat platforms and weapon systems. The Company develops ground radars for tactical applications, such as defense forces protection and border protection. Its products are primarily sold to governmental agencies, governmental authorities and government-owned companies.

FINANCIAL RATIOS  of  RADA Electronic Industries Ltd. (RADA)

Valuation Ratios
P/E Ratio -11.9
Price to Sales 4.6
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow -11.9
Price to Free Cash Flow -11.9
Growth Rates
Sales Growth Rate -7.1%
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 1
Current Ratio 0.5
LT Debt to Equity 27.3%
Total Debt to Equity 36.4%
Interest Coverage 0
Management Effectiveness
Return On Assets -25%
Ret/ On Assets - 3 Yr. Avg. -18.6%
Return On Total Capital -35.7%
Ret/ On T. Cap. - 3 Yr. Avg. -26.7%
Return On Equity -50%
Return On Equity - 3 Yr. Avg. -47.4%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 7.7%
Gross Margin - 3 Yr. Avg. 17.9%
EBITDA Margin -30.8%
EBITDA Margin - 3 Yr. Avg. -20.6%
Operating Margin -23.1%
Oper. Margin - 3 Yr. Avg. -13.3%
Pre-Tax Margin -38.5%
Pre-Tax Margin - 3 Yr. Avg. -27.1%
Net Profit Margin -38.5%
Net Profit Margin - 3 Yr. Avg. -27.1%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

RADA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RADA stock intrinsic value calculation we used $26 million for the last fiscal year's total revenue generated by RADA Electronic Industries Ltd.. The default revenue input number comes from 0001 income statement of RADA Electronic Industries Ltd.. 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 RADA stock valuation model: a) initial revenue growth rate of 60% 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 RADA is calculated based on our internal credit rating of RADA Electronic Industries Ltd., 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 RADA Electronic Industries Ltd..
    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 RADA stock the variable cost ratio is equal to 61.5%.

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 RADA 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 8.6% for RADA Electronic Industries Ltd..

Corporate tax rate of 27% is the nominal tax rate for RADA Electronic Industries Ltd.. 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 RADA 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 RADA are equal to 12.6%.

Life of production assets of 5.1 years is the average useful life of capital assets used in RADA Electronic Industries Ltd. 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 RADA is equal to 49.6%. 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 - $28.526 million for RADA Electronic Industries Ltd. - 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 37.520 million for RADA Electronic Industries Ltd. 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 RADA Electronic Industries Ltd. at the current share price and the inputted number of shares is $0.1 billion.

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