Intrinsic value of Recon Technology, Ltd. - RCON

Previous Close

$0.79

  Intrinsic Value

$0.14

stock screener

  Rating & Target

str. sell

-83%

Previous close

$0.79

 
Intrinsic value

$0.14

 
Up/down potential

-83%

 
Rating

str. sell

We calculate the intrinsic value of RCON 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 0.0

 

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, %
  45.60
  41.54
  37.89
  34.60
  31.64
  28.97
  26.58
  24.42
  22.48
  20.73
  19.16
  17.74
  16.47
  15.32
  14.29
  13.36
  12.52
  11.77
  11.09
  10.48
  9.94
  9.44
  9.00
  8.60
  8.24
  7.91
  7.62
  7.36
  7.12
  6.91
Revenue, $m
  19
  27
  37
  50
  65
  84
  107
  133
  163
  197
  234
  276
  321
  370
  423
  480
  540
  604
  670
  741
  814
  891
  972
  1,055
  1,142
  1,232
  1,326
  1,424
  1,525
  1,631
Variable operating expenses, $m
  26
  37
  51
  69
  91
  117
  148
  184
  226
  272
  324
  382
  445
  513
  586
  665
  748
  836
  929
  1,026
  1,128
  1,234
  1,346
  1,461
  1,582
  1,707
  1,837
  1,972
  2,113
  2,259
Fixed operating expenses, $m
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
Total operating expenses, $m
  27
  38
  52
  70
  92
  118
  149
  185
  227
  273
  325
  383
  446
  514
  587
  666
  749
  837
  931
  1,028
  1,130
  1,236
  1,348
  1,463
  1,584
  1,709
  1,839
  1,974
  2,115
  2,261
Operating income, $m
  -8
  -11
  -15
  -20
  -26
  -34
  -42
  -52
  -64
  -77
  -91
  -107
  -125
  -144
  -164
  -186
  -209
  -234
  -260
  -287
  -315
  -345
  -376
  -408
  -441
  -476
  -512
  -550
  -589
  -630
EBITDA, $m
  -8
  -11
  -15
  -20
  -25
  -33
  -41
  -51
  -62
  -74
  -89
  -104
  -121
  -139
  -159
  -180
  -203
  -226
  -251
  -277
  -305
  -334
  -363
  -395
  -427
  -461
  -496
  -532
  -570
  -609
Interest expense (income), $m
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  4
  5
  6
  7
  8
  9
  11
  12
  14
  16
  17
  19
  21
  23
  25
  27
  30
  32
  34
  37
  40
Earnings before tax, $m
  -8
  -12
  -16
  -21
  -27
  -35
  -44
  -55
  -67
  -81
  -96
  -113
  -132
  -152
  -174
  -197
  -222
  -248
  -275
  -304
  -334
  -366
  -399
  -433
  -469
  -506
  -544
  -584
  -626
  -669
Tax expense, $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
Net income, $m
  -8
  -12
  -16
  -21
  -27
  -35
  -44
  -55
  -67
  -81
  -96
  -113
  -132
  -152
  -174
  -197
  -222
  -248
  -275
  -304
  -334
  -366
  -399
  -433
  -469
  -506
  -544
  -584
  -626
  -669

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
  20
  28
  38
  51
  68
  87
  110
  137
  168
  203
  242
  285
  332
  383
  438
  496
  558
  624
  693
  766
  842
  922
  1,005
  1,091
  1,181
  1,274
  1,372
  1,472
  1,577
  1,686
Adjusted assets (=assets-cash), $m
  20
  28
  38
  51
  68
  87
  110
  137
  168
  203
  242
  285
  332
  383
  438
  496
  558
  624
  693
  766
  842
  922
  1,005
  1,091
  1,181
  1,274
  1,372
  1,472
  1,577
  1,686
Revenue / Adjusted assets
  0.950
  0.964
  0.974
  0.980
  0.956
  0.966
  0.973
  0.971
  0.970
  0.970
  0.967
  0.968
  0.967
  0.966
  0.966
  0.968
  0.968
  0.968
  0.967
  0.967
  0.967
  0.966
  0.967
  0.967
  0.967
  0.967
  0.966
  0.967
  0.967
  0.967
Average production assets, $m
  2
  3
  4
  5
  7
  9
  11
  14
  17
  21
  25
  30
  34
  40
  45
  51
  58
  65
  72
  79
  87
  95
  104
  113
  122
  132
  142
  152
  163
  174
Working capital, $m
  8
  11
  15
  20
  27
  35
  44
  55
  67
  81
  96
  113
  132
  152
  174
  197
  222
  248
  276
  304
  335
  366
  399
  434
  469
  506
  545
  585
  627
  670
Total debt, $m
  5
  9
  13
  18
  25
  33
  42
  53
  66
  80
  96
  113
  132
  153
  175
  199
  224
  251
  279
  308
  339
  372
  405
  440
  477
  515
  554
  595
  638
  682
Total liabilities, $m
  8
  11
  16
  21
  27
  35
  45
  56
  68
  83
  98
  116
  135
  156
  178
  201
  227
  253
  282
  311
  342
  374
  408
  443
  479
  517
  557
  598
  640
  685
Total equity, $m
  12
  16
  23
  31
  40
  52
  66
  82
  100
  121
  144
  169
  197
  228
  260
  295
  332
  371
  412
  455
  500
  548
  597
  648
  701
  757
  815
  875
  937
  1,002
Total liabilities and equity, $m
  20
  27
  39
  52
  67
  87
  111
  138
  168
  204
  242
  285
  332
  384
  438
  496
  559
  624
  694
  766
  842
  922
  1,005
  1,091
  1,180
  1,274
  1,372
  1,473
  1,577
  1,687
Debt-to-equity ratio
  0.460
  0.520
  0.570
  0.600
  0.620
  0.630
  0.640
  0.650
  0.660
  0.660
  0.670
  0.670
  0.670
  0.670
  0.670
  0.670
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
  0.680
Adjusted equity ratio
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594
  0.594

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -8
  -12
  -16
  -21
  -27
  -35
  -44
  -55
  -67
  -81
  -96
  -113
  -132
  -152
  -174
  -197
  -222
  -248
  -275
  -304
  -334
  -366
  -399
  -433
  -469
  -506
  -544
  -584
  -626
  -669
Depreciation, amort., depletion, $m
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
Funds from operations, $m
  -8
  -11
  -15
  -20
  -27
  -34
  -43
  -53
  -65
  -79
  -93
  -110
  -128
  -147
  -169
  -191
  -215
  -240
  -267
  -295
  -324
  -355
  -386
  -420
  -454
  -490
  -528
  -566
  -607
  -649
Change in working capital, $m
  2
  3
  4
  5
  6
  8
  9
  11
  12
  14
  15
  17
  19
  20
  22
  23
  25
  26
  28
  29
  30
  32
  33
  34
  36
  37
  39
  40
  42
  43
Cash from operations, $m
  -11
  -15
  -20
  -26
  -33
  -42
  -52
  -64
  -77
  -92
  -109
  -127
  -147
  -168
  -190
  -214
  -240
  -266
  -294
  -324
  -354
  -386
  -419
  -454
  -490
  -527
  -566
  -607
  -649
  -692
Maintenance CAPEX, $m
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -5
  -5
  -6
  -7
  -8
  -8
  -9
  -10
  -11
  -12
  -13
  -14
  -16
  -17
  -18
  -19
New CAPEX, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
Cash from investing activities, $m
  -1
  -1
  -1
  -1
  -3
  -3
  -3
  -4
  -5
  -6
  -6
  -7
  -8
  -9
  -11
  -11
  -12
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -26
  -27
  -29
  -30
Free cash flow, $m
  -11
  -16
  -21
  -27
  -35
  -45
  -56
  -68
  -82
  -98
  -115
  -134
  -155
  -177
  -201
  -226
  -252
  -280
  -309
  -340
  -371
  -405
  -439
  -475
  -513
  -551
  -592
  -634
  -677
  -723
Issuance/(repayment) of debt, $m
  2
  3
  4
  5
  7
  8
  9
  11
  13
  14
  16
  17
  19
  21
  22
  24
  25
  27
  28
  30
  31
  32
  34
  35
  36
  38
  39
  41
  43
  44
Issuance/(repurchase) of shares, $m
  12
  17
  22
  29
  37
  47
  58
  71
  86
  102
  120
  139
  160
  182
  206
  232
  259
  287
  316
  347
  379
  413
  448
  484
  522
  561
  602
  644
  688
  734
Cash from financing (excl. dividends), $m  
  14
  20
  26
  34
  44
  55
  67
  82
  99
  116
  136
  156
  179
  203
  228
  256
  284
  314
  344
  377
  410
  445
  482
  519
  558
  599
  641
  685
  731
  778
Total cash flow (excl. dividends), $m
  3
  4
  5
  7
  8
  10
  12
  14
  16
  18
  20
  22
  24
  26
  28
  30
  32
  34
  35
  37
  39
  41
  42
  44
  46
  48
  50
  52
  54
  56
Retained Cash Flow (-), $m
  -12
  -17
  -22
  -29
  -37
  -47
  -58
  -71
  -86
  -102
  -120
  -139
  -160
  -182
  -206
  -232
  -259
  -287
  -316
  -347
  -379
  -413
  -448
  -484
  -522
  -561
  -602
  -644
  -688
  -734
Prev. year cash balance distribution, $m
  4
  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
  -5
  -12
  -17
  -22
  -29
  -37
  -46
  -57
  -70
  -84
  -100
  -117
  -136
  -156
  -178
  -202
  -227
  -253
  -281
  -310
  -341
  -372
  -406
  -440
  -476
  -514
  -552
  -593
  -635
  -678
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
  -5
  -11
  -15
  -18
  -22
  -27
  -31
  -36
  -40
  -44
  -47
  -50
  -52
  -52
  -52
  -51
  -49
  -47
  -43
  -39
  -35
  -31
  -27
  -22
  -19
  -15
  -12
  -9
  -7
  -5
Current shareholders' claim on cash, %
  48.6
  24.4
  12.6
  6.7
  3.6
  2.0
  1.1
  0.6
  0.4
  0.2
  0.1
  0.1
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Recon Technology, Ltd. is a provider of hardware, software and on-site services to companies in the petroleum mining and extraction industry in China, the People's Republic of China. The Company provides services designed to automate and enhance the extraction of petroleum. The Company controls by contract the People's Republic of China companies of Beijing BHD Petroleum Technology Co., Ltd. (BHD) and Nanjing Recon Technology Co., Ltd. It serves as the center of strategic management, financial control and human resources allocation for the Domestic Companies. Through its contractual relationships with the Domestic Companies, it provides equipment, tools and other hardware related to oilfield production and management, and develops and sells its specialized industrial automation control and information solutions. Its products and services include Equipment for Oil and Gas Production and Transportation, Oil and Gas Production Improvement Techniques, and Automation System and Service.

FINANCIAL RATIOS  of  Recon Technology, Ltd. (RCON)

Valuation Ratios
P/E Ratio -1.6
Price to Sales 0.9
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 7.8
Price to Free Cash Flow 7.8
Growth Rates
Sales Growth Rate 50%
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
LT Debt to Equity 0%
Total Debt to Equity 20%
Interest Coverage 0
Management Effectiveness
Return On Assets -47.6%
Ret/ On Assets - 3 Yr. Avg. -37.3%
Return On Total Capital -71.4%
Ret/ On T. Cap. - 3 Yr. Avg. -53.1%
Return On Equity -90.9%
Return On Equity - 3 Yr. Avg. -67.2%
Asset Turnover 0.9
Profitability Ratios
Gross Margin 22.2%
Gross Margin - 3 Yr. Avg. 17.7%
EBITDA Margin -44.4%
EBITDA Margin - 3 Yr. Avg. -72%
Operating Margin -44.4%
Oper. Margin - 3 Yr. Avg. -76.7%
Pre-Tax Margin -44.4%
Pre-Tax Margin - 3 Yr. Avg. -72%
Net Profit Margin -55.6%
Net Profit Margin - 3 Yr. Avg. -75.7%
Effective Tax Rate -25%
Eff/ Tax Rate - 3 Yr. Avg. -8.3%
Payout Ratio 0%

RCON stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RCON stock intrinsic value calculation we used $13 million for the last fiscal year's total revenue generated by Recon Technology, Ltd.. The default revenue input number comes from 0001 income statement of Recon Technology, 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 RCON stock valuation model: a) initial revenue growth rate of 45.6% 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 RCON is calculated based on our internal credit rating of Recon Technology, 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 Recon Technology, 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 RCON stock the variable cost ratio is equal to 138.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $1 million in the base year in the intrinsic value calculation for RCON 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 6.2% for Recon Technology, Ltd..

Corporate tax rate of 27% is the nominal tax rate for Recon Technology, 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 RCON 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 RCON are equal to 10.7%.

Life of production assets of 8.5 years is the average useful life of capital assets used in Recon Technology, 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 RCON is equal to 41.1%. 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 - $11.5166412121 million for Recon Technology, 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 20.939 million for Recon Technology, 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 Recon Technology, Ltd. at the current share price and the inputted number of shares is $0.0 billion.

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