Intrinsic value of Recon Technology - RCON

Previous Close

$1.06

  Intrinsic Value

$11.62

stock screener

  Rating & Target

str. buy

+996%

Previous close

$1.06

 
Intrinsic value

$11.62

 
Up/down potential

+996%

 
Rating

str. buy

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, %
  37.00
  33.80
  30.92
  28.33
  26.00
  23.90
  22.01
  20.31
  18.77
  17.40
  16.16
  15.04
  14.04
  13.13
  12.32
  11.59
  10.93
  10.34
  9.80
  9.32
  8.89
  8.50
  8.15
  7.84
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
Revenue, $m
  12
  16
  21
  27
  34
  42
  52
  62
  74
  87
  101
  116
  132
  150
  168
  187
  208
  229
  252
  275
  300
  325
  352
  379
  408
  438
  469
  501
  534
  569
Variable operating expenses, $m
  4
  5
  7
  9
  11
  14
  17
  21
  25
  29
  34
  39
  44
  50
  56
  62
  69
  76
  84
  92
  100
  108
  117
  126
  136
  146
  156
  167
  178
  190
Fixed operating expenses, $m
  10
  10
  11
  11
  11
  11
  12
  12
  12
  12
  13
  13
  13
  14
  14
  14
  14
  15
  15
  15
  16
  16
  16
  17
  17
  18
  18
  18
  19
  19
Total operating expenses, $m
  14
  15
  18
  20
  22
  25
  29
  33
  37
  41
  47
  52
  57
  64
  70
  76
  83
  91
  99
  107
  116
  124
  133
  143
  153
  164
  174
  185
  197
  209
Operating income, $m
  -2
  0
  3
  7
  12
  17
  23
  30
  37
  45
  54
  64
  75
  86
  98
  111
  124
  138
  153
  168
  184
  201
  218
  236
  255
  274
  295
  316
  338
  360
EBITDA, $m
  -2
  0
  4
  7
  12
  17
  23
  30
  38
  46
  55
  65
  76
  88
  100
  113
  126
  140
  155
  171
  187
  204
  221
  240
  259
  279
  299
  320
  343
  366
Interest expense (income), $m
  0
  0
  0
  0
  0
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  9
  10
  11
  12
  12
  13
  14
  15
  17
  18
Earnings before tax, $m
  -2
  0
  3
  7
  11
  16
  22
  28
  35
  43
  52
  61
  71
  82
  93
  105
  118
  131
  145
  160
  175
  191
  208
  225
  242
  261
  280
  300
  321
  343
Tax expense, $m
  0
  0
  1
  2
  3
  4
  6
  8
  10
  12
  14
  17
  19
  22
  25
  28
  32
  35
  39
  43
  47
  52
  56
  61
  65
  70
  76
  81
  87
  93
Net income, $m
  -2
  0
  2
  5
  8
  12
  16
  20
  26
  32
  38
  45
  52
  60
  68
  77
  86
  96
  106
  117
  128
  139
  151
  164
  177
  191
  205
  219
  234
  250

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
  14
  19
  25
  31
  40
  49
  60
  72
  86
  101
  117
  134
  153
  173
  195
  217
  241
  266
  292
  319
  348
  377
  408
  440
  473
  508
  544
  581
  620
  660
Adjusted assets (=assets-cash), $m
  14
  19
  25
  31
  40
  49
  60
  72
  86
  101
  117
  134
  153
  173
  195
  217
  241
  266
  292
  319
  348
  377
  408
  440
  473
  508
  544
  581
  620
  660
Revenue / Adjusted assets
  0.857
  0.842
  0.840
  0.871
  0.850
  0.857
  0.867
  0.861
  0.860
  0.861
  0.863
  0.866
  0.863
  0.867
  0.862
  0.862
  0.863
  0.861
  0.863
  0.862
  0.862
  0.862
  0.863
  0.861
  0.863
  0.862
  0.862
  0.862
  0.861
  0.862
Average production assets, $m
  1
  1
  1
  1
  2
  2
  2
  3
  3
  4
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
Working capital, $m
  6
  8
  11
  14
  17
  21
  26
  31
  37
  43
  50
  58
  66
  75
  84
  94
  104
  115
  126
  138
  150
  163
  176
  190
  204
  219
  234
  250
  267
  285
Total debt, $m
  3
  6
  9
  13
  17
  22
  28
  34
  42
  50
  58
  68
  78
  88
  100
  112
  124
  138
  152
  166
  181
  197
  213
  230
  248
  267
  286
  306
  326
  348
Total liabilities, $m
  7
  10
  13
  17
  21
  26
  32
  38
  46
  54
  62
  72
  82
  92
  104
  116
  129
  142
  156
  170
  185
  201
  218
  235
  252
  271
  290
  310
  330
  352
Total equity, $m
  7
  9
  11
  15
  19
  23
  28
  34
  40
  47
  55
  63
  72
  81
  91
  102
  113
  124
  136
  149
  162
  176
  191
  206
  221
  237
  254
  271
  289
  308
Total liabilities and equity, $m
  14
  19
  24
  32
  40
  49
  60
  72
  86
  101
  117
  135
  154
  173
  195
  218
  242
  266
  292
  319
  347
  377
  409
  441
  473
  508
  544
  581
  619
  660
Debt-to-equity ratio
  0.520
  0.680
  0.790
  0.860
  0.920
  0.960
  1.000
  1.020
  1.040
  1.050
  1.070
  1.080
  1.080
  1.090
  1.100
  1.100
  1.110
  1.110
  1.110
  1.110
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.130
  1.130
  1.130
  1.130
Adjusted equity ratio
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467
  0.467

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  0
  2
  5
  8
  12
  16
  20
  26
  32
  38
  45
  52
  60
  68
  77
  86
  96
  106
  117
  128
  139
  151
  164
  177
  191
  205
  219
  234
  250
Depreciation, amort., depletion, $m
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
Funds from operations, $m
  -2
  0
  2
  5
  8
  12
  16
  21
  26
  32
  39
  46
  53
  61
  70
  79
  88
  98
  109
  119
  131
  143
  155
  168
  181
  195
  209
  224
  239
  256
Change in working capital, $m
  2
  2
  2
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  15
  16
  17
  17
Cash from operations, $m
  -4
  -2
  0
  2
  5
  8
  12
  16
  21
  26
  32
  38
  45
  53
  61
  69
  78
  87
  97
  108
  118
  130
  142
  154
  167
  180
  194
  208
  223
  238
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
Cash from investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -7
  -7
Free cash flow, $m
  -4
  -2
  0
  2
  4
  7
  11
  15
  19
  25
  30
  37
  43
  51
  58
  67
  75
  84
  94
  104
  115
  126
  137
  149
  162
  175
  188
  202
  216
  232
Issuance/(repayment) of debt, $m
  2
  3
  3
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
Issuance/(repurchase) of shares, $m
  4
  2
  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  
  6
  5
  3
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
Total cash flow (excl. dividends), $m
  2
  3
  3
  5
  9
  12
  17
  21
  27
  33
  39
  46
  53
  61
  70
  79
  88
  98
  108
  119
  130
  142
  154
  166
  179
  193
  207
  222
  237
  253
Retained Cash Flow (-), $m
  -4
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -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
  -2
  0
  0
  2
  5
  8
  11
  16
  20
  26
  31
  38
  44
  52
  60
  68
  77
  86
  96
  106
  117
  128
  139
  151
  164
  177
  190
  204
  219
  234
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
  0
  0
  2
  4
  6
  8
  10
  12
  13
  15
  16
  17
  17
  18
  17
  17
  16
  15
  13
  12
  11
  9
  8
  6
  5
  4
  3
  2
  2
Current shareholders' claim on cash, %
  83.2
  77.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0
  76.0

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 (RCON)

Valuation Ratios
P/E Ratio -2.1
Price to Sales 1.2
Price to Book 2.1
Price to Tangible Book
Price to Cash Flow 10.5
Price to Free Cash Flow 10.5
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 $8.8133933079 million for the last fiscal year's total revenue generated by Recon Technology. The default revenue input number comes from 0001 income statement of Recon Technology. 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 37% 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, 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.
    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 33.3%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $10 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 5.4% for Recon Technology.

Corporate tax rate of 27% is the nominal tax rate for Recon Technology. 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 4.7%.

Life of production assets of 3.4 years is the average useful life of capital assets used in Recon Technology 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 50%. 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 - $4.8788442912 million for Recon Technology - 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 18.28 million for Recon Technology 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 at the current share price and the inputted number of shares is $0.0 billion.

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COMPANY NEWS

▶ Merger Monday Returns With A Vengeance   [Aug-06-18 03:50PM  Benzinga]
▶ Recon Announces Strategic Investment   [Nov-20-17 09:33AM  PR Newswire]
▶ Intel Continues Its Wearables Push   [Jun-17  03:47PM  at The Wall Street Journal]
▶ Recon Released 3D Video Introducing Its Major Business   [Mar-03  07:30AM  PR Newswire]
▶ Recon Reports FY 2015 Second Quarter Results   [Feb-13  05:00PM  PR Newswire]

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