Intrinsic value of Richardson Electronics, Ltd. - RELL

Previous Close

$5.92

  Intrinsic Value

$10.06

stock screener

  Rating & Target

str. buy

+70%

Previous close

$5.92

 
Intrinsic value

$10.06

 
Up/down potential

+70%

 
Rating

str. buy

We calculate the intrinsic value of RELL 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, %
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.20
  5.18
  5.16
  5.14
  5.13
  5.12
  5.11
  5.09
  5.09
  5.08
  5.07
  5.06
  5.06
  5.05
  5.05
  5.04
  5.04
  5.03
Revenue, $m
  172
  182
  192
  203
  214
  225
  237
  250
  263
  277
  292
  307
  323
  340
  357
  376
  395
  415
  436
  459
  482
  506
  532
  559
  587
  617
  648
  681
  715
  751
Variable operating expenses, $m
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
  185
  194
  204
  215
  226
  238
  250
  263
  276
  290
  305
  320
  336
  353
  371
  390
  410
  430
  452
  475
Fixed operating expenses, $m
  57
  58
  60
  61
  62
  64
  65
  67
  68
  70
  71
  73
  74
  76
  78
  79
  81
  83
  85
  87
  88
  90
  92
  94
  96
  99
  101
  103
  105
  108
Total operating expenses, $m
  167
  174
  182
  190
  198
  207
  216
  226
  235
  246
  256
  267
  278
  291
  304
  317
  331
  346
  361
  377
  393
  410
  428
  447
  467
  489
  511
  533
  557
  583
Operating income, $m
  5
  7
  10
  13
  15
  18
  21
  24
  28
  31
  36
  40
  44
  49
  54
  59
  64
  70
  76
  82
  89
  96
  103
  111
  119
  128
  137
  147
  157
  168
EBITDA, $m
  9
  11
  14
  16
  19
  22
  26
  29
  33
  36
  40
  45
  49
  54
  59
  64
  70
  76
  82
  89
  96
  103
  111
  119
  128
  137
  147
  157
  168
  180
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
Earnings before tax, $m
  5
  7
  10
  12
  15
  18
  21
  24
  27
  30
  35
  39
  43
  47
  52
  57
  62
  67
  73
  79
  86
  92
  100
  107
  115
  124
  133
  142
  152
  163
Tax expense, $m
  1
  2
  3
  3
  4
  5
  6
  6
  7
  8
  9
  10
  12
  13
  14
  15
  17
  18
  20
  21
  23
  25
  27
  29
  31
  33
  36
  38
  41
  44
Net income, $m
  4
  5
  7
  9
  11
  13
  15
  17
  20
  22
  25
  28
  31
  35
  38
  41
  45
  49
  53
  58
  62
  67
  73
  78
  84
  90
  97
  104
  111
  119

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
  144
  152
  160
  169
  178
  188
  198
  208
  219
  231
  243
  256
  269
  283
  298
  313
  329
  346
  364
  382
  402
  422
  443
  466
  489
  514
  540
  567
  596
  626
Adjusted assets (=assets-cash), $m
  144
  152
  160
  169
  178
  188
  198
  208
  219
  231
  243
  256
  269
  283
  298
  313
  329
  346
  364
  382
  402
  422
  443
  466
  489
  514
  540
  567
  596
  626
Revenue / Adjusted assets
  1.194
  1.197
  1.200
  1.201
  1.202
  1.197
  1.197
  1.202
  1.201
  1.199
  1.202
  1.199
  1.201
  1.201
  1.198
  1.201
  1.201
  1.199
  1.198
  1.202
  1.199
  1.199
  1.201
  1.200
  1.200
  1.200
  1.200
  1.201
  1.200
  1.200
Average production assets, $m
  23
  24
  26
  27
  29
  30
  32
  34
  35
  37
  39
  41
  43
  46
  48
  50
  53
  56
  58
  61
  65
  68
  71
  75
  79
  83
  87
  91
  96
  101
Working capital, $m
  50
  53
  56
  59
  62
  66
  69
  73
  77
  81
  85
  89
  94
  99
  104
  109
  115
  121
  127
  133
  140
  147
  155
  163
  171
  179
  189
  198
  208
  218
Total debt, $m
  2
  4
  6
  8
  10
  12
  14
  17
  19
  22
  25
  27
  30
  34
  37
  41
  44
  48
  52
  56
  61
  65
  70
  76
  81
  87
  92
  99
  105
  112
Total liabilities, $m
  33
  35
  37
  39
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  68
  72
  75
  79
  83
  88
  92
  97
  102
  107
  112
  118
  124
  130
  136
  143
Total equity, $m
  111
  117
  123
  130
  137
  145
  153
  161
  169
  178
  187
  197
  208
  218
  230
  241
  254
  267
  280
  295
  310
  325
  342
  359
  377
  396
  416
  437
  459
  482
Total liabilities and equity, $m
  144
  152
  160
  169
  178
  188
  198
  209
  219
  231
  243
  256
  270
  283
  298
  313
  329
  346
  363
  383
  402
  422
  444
  466
  489
  514
  540
  567
  595
  625
Debt-to-equity ratio
  0.020
  0.030
  0.040
  0.060
  0.070
  0.080
  0.090
  0.100
  0.110
  0.120
  0.130
  0.140
  0.150
  0.150
  0.160
  0.170
  0.170
  0.180
  0.190
  0.190
  0.200
  0.200
  0.210
  0.210
  0.210
  0.220
  0.220
  0.230
  0.230
  0.230
Adjusted equity ratio
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771
  0.771

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  4
  5
  7
  9
  11
  13
  15
  17
  20
  22
  25
  28
  31
  35
  38
  41
  45
  49
  53
  58
  62
  67
  73
  78
  84
  90
  97
  104
  111
  119
Depreciation, amort., depletion, $m
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
Funds from operations, $m
  7
  9
  11
  13
  15
  17
  19
  22
  24
  27
  30
  33
  36
  40
  43
  47
  51
  55
  60
  65
  70
  75
  81
  87
  93
  100
  107
  114
  122
  130
Change in working capital, $m
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  10
Cash from operations, $m
  5
  6
  8
  10
  12
  14
  16
  18
  21
  23
  26
  29
  32
  35
  38
  42
  46
  50
  54
  58
  63
  68
  73
  79
  85
  91
  98
  105
  112
  120
Maintenance CAPEX, $m
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
Cash from investing activities, $m
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -16
Free cash flow, $m
  1
  2
  4
  5
  7
  9
  11
  13
  15
  17
  20
  22
  25
  28
  31
  34
  37
  41
  45
  49
  53
  57
  62
  67
  73
  78
  84
  90
  97
  104
Issuance/(repayment) of debt, $m
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Issuance/(repurchase) of shares, $m
  2
  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
Cash from financing (excl. dividends), $m  
  4
  3
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
Total cash flow (excl. dividends), $m
  4
  5
  6
  7
  9
  11
  13
  15
  18
  20
  22
  25
  28
  31
  34
  37
  41
  45
  49
  53
  57
  62
  67
  72
  78
  84
  90
  97
  104
  111
Retained Cash Flow (-), $m
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Prev. year cash balance distribution, $m
  31
  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
  29
  -1
  -1
  1
  2
  4
  5
  7
  9
  11
  13
  15
  18
  20
  23
  26
  29
  32
  35
  39
  42
  46
  51
  55
  60
  65
  70
  76
  82
  88
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
  28
  -1
  -1
  1
  2
  3
  4
  5
  5
  6
  6
  6
  7
  7
  7
  6
  6
  6
  5
  5
  4
  4
  3
  3
  2
  2
  2
  1
  1
  1
Current shareholders' claim on cash, %
  97.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0
  96.0

Richardson Electronics, Ltd. is a provider of engineered solutions, power grid and microwave tubes, and related consumables; power conversion, and radio frequency (RF) and microwave components; high value displays, flat panel detector solutions and replacement parts for diagnostic imaging equipment, and customized display solutions. The Company's segments include Power and Microwave Technologies Group, which provides engineered solutions and distributes electronic components to customers in alternative energy, aviation, broadcast, communications, industrial, medical, military, scientific and semiconductor markets; Canvys, which provides customized display solutions to corporate enterprise, financial, healthcare, industrial and medical original equipment manufacturers markets, and Healthcare, which manufactures, distributes and services replacement parts for the healthcare market, including hospitals, medical centers, independent service organizations and multi-vendor service providers.

FINANCIAL RATIOS  of  Richardson Electronics, Ltd. (RELL)

Valuation Ratios
P/E Ratio -10.9
Price to Sales 0.6
Price to Book 0.6
Price to Tangible Book
Price to Cash Flow 38
Price to Free Cash Flow -25.4
Growth Rates
Sales Growth Rate -3.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 10.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -4.3%
Ret/ On Assets - 3 Yr. Avg. -3.8%
Return On Total Capital -5.1%
Ret/ On T. Cap. - 3 Yr. Avg. -4.5%
Return On Equity -5.1%
Return On Equity - 3 Yr. Avg. -4.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 32.1%
Gross Margin - 3 Yr. Avg. 31.2%
EBITDA Margin -2.2%
EBITDA Margin - 3 Yr. Avg. -2.9%
Operating Margin -4.4%
Oper. Margin - 3 Yr. Avg. -5%
Pre-Tax Margin -4.4%
Pre-Tax Margin - 3 Yr. Avg. -4.6%
Net Profit Margin -5.1%
Net Profit Margin - 3 Yr. Avg. -4.8%
Effective Tax Rate -16.7%
Eff/ Tax Rate - 3 Yr. Avg. -6.3%
Payout Ratio -42.9%

RELL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RELL stock intrinsic value calculation we used $163 million for the last fiscal year's total revenue generated by Richardson Electronics, Ltd.. The default revenue input number comes from 0001 income statement of Richardson Electronics, 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 RELL stock valuation model: a) initial revenue growth rate of 5.7% 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 RELL is calculated based on our internal credit rating of Richardson Electronics, 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 Richardson Electronics, 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 RELL stock the variable cost ratio is equal to 63.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $56 million in the base year in the intrinsic value calculation for RELL 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 Richardson Electronics, Ltd..

Corporate tax rate of 27% is the nominal tax rate for Richardson Electronics, 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 RELL 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 RELL are equal to 13.4%.

Life of production assets of 8.9 years is the average useful life of capital assets used in Richardson Electronics, 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 RELL is equal to 29.1%. 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 - $135.181 million for Richardson Electronics, 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 13.049 million for Richardson Electronics, 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 Richardson Electronics, Ltd. at the current share price and the inputted number of shares is $0.1 billion.

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