Intrinsic value of RF Industries, Ltd. - RFIL

Previous Close

$7.73

  Intrinsic Value

$58.89

stock screener

  Rating & Target

str. buy

+662%

Previous close

$7.73

 
Intrinsic value

$58.89

 
Up/down potential

+662%

 
Rating

str. buy

We calculate the intrinsic value of RFIL 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, %
  33.70
  30.83
  28.25
  25.92
  23.83
  21.95
  20.25
  18.73
  17.35
  16.12
  15.01
  14.01
  13.11
  12.30
  11.57
  10.91
  10.32
  9.79
  9.31
  8.88
  8.49
  8.14
  7.83
  7.54
  7.29
  7.06
  6.85
  6.67
  6.50
  6.35
Revenue, $m
  67
  87
  112
  141
  175
  213
  256
  305
  357
  415
  477
  544
  615
  691
  771
  855
  943
  1,036
  1,132
  1,232
  1,337
  1,446
  1,559
  1,677
  1,799
  1,926
  2,058
  2,195
  2,338
  2,486
Variable operating expenses, $m
  49
  64
  83
  104
  129
  157
  189
  224
  263
  305
  350
  399
  452
  507
  566
  628
  692
  760
  831
  905
  981
  1,061
  1,144
  1,231
  1,320
  1,414
  1,511
  1,611
  1,716
  1,825
Fixed operating expenses, $m
  6
  6
  6
  7
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
  10
  10
  10
  11
  11
  11
  11
  12
Total operating expenses, $m
  55
  70
  89
  111
  136
  164
  196
  231
  270
  312
  358
  407
  460
  515
  574
  636
  701
  769
  840
  914
  990
  1,071
  1,154
  1,241
  1,330
  1,425
  1,522
  1,622
  1,727
  1,837
Operating income, $m
  11
  17
  23
  31
  40
  50
  61
  74
  87
  103
  119
  137
  156
  176
  197
  219
  242
  267
  292
  319
  346
  375
  405
  436
  468
  502
  537
  573
  611
  650
EBITDA, $m
  12
  18
  24
  32
  41
  51
  63
  76
  90
  105
  122
  140
  159
  180
  201
  224
  248
  273
  299
  326
  354
  383
  414
  446
  479
  513
  549
  586
  624
  664
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
Earnings before tax, $m
  11
  17
  23
  30
  39
  49
  60
  73
  86
  101
  117
  135
  153
  173
  193
  215
  238
  262
  287
  313
  340
  368
  398
  428
  460
  493
  527
  563
  600
  638
Tax expense, $m
  3
  4
  6
  8
  11
  13
  16
  20
  23
  27
  32
  36
  41
  47
  52
  58
  64
  71
  77
  85
  92
  99
  107
  116
  124
  133
  142
  152
  162
  172
Net income, $m
  8
  12
  17
  22
  29
  36
  44
  53
  63
  74
  86
  98
  112
  126
  141
  157
  174
  191
  210
  229
  248
  269
  290
  313
  336
  360
  385
  411
  438
  466

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
  28
  37
  47
  59
  73
  89
  107
  127
  149
  173
  199
  227
  257
  289
  322
  357
  394
  433
  473
  515
  559
  604
  651
  700
  751
  804
  860
  917
  977
  1,039
Adjusted assets (=assets-cash), $m
  28
  37
  47
  59
  73
  89
  107
  127
  149
  173
  199
  227
  257
  289
  322
  357
  394
  433
  473
  515
  559
  604
  651
  700
  751
  804
  860
  917
  977
  1,039
Revenue / Adjusted assets
  2.393
  2.351
  2.383
  2.390
  2.397
  2.393
  2.393
  2.402
  2.396
  2.399
  2.397
  2.396
  2.393
  2.391
  2.394
  2.395
  2.393
  2.393
  2.393
  2.392
  2.392
  2.394
  2.395
  2.396
  2.395
  2.396
  2.393
  2.394
  2.393
  2.393
Average production assets, $m
  3
  4
  5
  6
  8
  10
  12
  14
  16
  19
  22
  25
  28
  32
  35
  39
  43
  48
  52
  57
  62
  67
  72
  77
  83
  89
  95
  101
  108
  114
Working capital, $m
  10
  13
  17
  21
  26
  32
  38
  46
  54
  62
  72
  82
  92
  104
  116
  128
  141
  155
  170
  185
  201
  217
  234
  252
  270
  289
  309
  329
  351
  373
Total debt, $m
  2
  4
  6
  9
  12
  15
  19
  24
  29
  34
  40
  47
  53
  61
  68
  76
  84
  93
  102
  112
  122
  132
  142
  154
  165
  177
  190
  203
  216
  230
Total liabilities, $m
  6
  8
  11
  13
  17
  20
  24
  29
  34
  39
  45
  51
  58
  65
  73
  81
  89
  98
  107
  116
  126
  137
  147
  158
  170
  182
  194
  207
  221
  235
Total equity, $m
  22
  28
  36
  46
  57
  69
  83
  98
  116
  134
  154
  176
  199
  223
  249
  276
  305
  335
  366
  398
  432
  467
  504
  542
  582
  623
  665
  710
  756
  804
Total liabilities and equity, $m
  28
  36
  47
  59
  74
  89
  107
  127
  150
  173
  199
  227
  257
  288
  322
  357
  394
  433
  473
  514
  558
  604
  651
  700
  752
  805
  859
  917
  977
  1,039
Debt-to-equity ratio
  0.070
  0.130
  0.160
  0.190
  0.210
  0.220
  0.240
  0.240
  0.250
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
Adjusted equity ratio
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774
  0.774

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  8
  12
  17
  22
  29
  36
  44
  53
  63
  74
  86
  98
  112
  126
  141
  157
  174
  191
  210
  229
  248
  269
  290
  313
  336
  360
  385
  411
  438
  466
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  3
  3
  3
  4
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  14
Funds from operations, $m
  9
  13
  18
  23
  30
  37
  46
  55
  65
  76
  89
  102
  115
  130
  146
  162
  179
  197
  216
  236
  256
  277
  299
  322
  346
  371
  397
  424
  451
  480
Change in working capital, $m
  3
  3
  4
  4
  5
  6
  6
  7
  8
  9
  9
  10
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  21
  22
Cash from operations, $m
  6
  10
  14
  19
  25
  32
  39
  48
  57
  68
  79
  92
  105
  119
  134
  150
  166
  183
  202
  221
  240
  261
  282
  305
  328
  352
  377
  403
  430
  458
Maintenance CAPEX, $m
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
New CAPEX, $m
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Cash from investing activities, $m
  -1
  -1
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -9
  -10
  -12
  -12
  -13
  -13
  -14
  -16
  -16
  -17
  -18
  -20
  -21
Free cash flow, $m
  5
  9
  12
  17
  22
  29
  36
  44
  53
  63
  74
  86
  98
  112
  126
  141
  157
  174
  191
  209
  228
  248
  269
  290
  312
  336
  360
  385
  411
  438
Issuance/(repayment) of debt, $m
  2
  2
  2
  3
  3
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
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
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  12
  13
  13
  14
Total cash flow (excl. dividends), $m
  7
  10
  15
  20
  26
  32
  40
  49
  58
  69
  80
  92
  105
  119
  134
  149
  165
  182
  200
  219
  238
  258
  279
  301
  324
  348
  372
  398
  424
  452
Retained Cash Flow (-), $m
  -5
  -7
  -8
  -9
  -11
  -12
  -14
  -16
  -17
  -19
  -20
  -22
  -23
  -24
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -41
  -43
  -44
  -46
  -48
Prev. year cash balance distribution, $m
  12
  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
  13
  4
  7
  10
  15
  20
  26
  33
  41
  50
  60
  70
  82
  94
  108
  122
  137
  153
  169
  186
  204
  223
  243
  263
  285
  307
  329
  353
  378
  404
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
  13
  3
  6
  8
  11
  14
  18
  21
  24
  26
  28
  30
  31
  32
  32
  31
  30
  28
  26
  24
  21
  19
  16
  13
  11
  9
  7
  5
  4
  3
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

RF Industries, Ltd. is engaged in the design, manufacture and marketing of interconnect products and systems, including coaxial and specialty cables, fiber optic cables and connectors, and electrical and electronic specialty cables. It operates through two segments: RF Connector and Cable Assembly, which consists of Connector and Cable Assembly Division, and the Custom Cabling Manufacturing and Assembly, which consists of subsidiaries, including Cables Unlimited, Inc. (Cables Unlimited,) Comnet Telecom Supply, Inc. (Comnet) and Rel-Tech Electronics, Inc. (Rel-Tech). The Connector and Cable Assembly Division designs, manufactures and distributes coaxial connectors and cable assemblies. Cables Unlimited manufactures custom and standard cable assemblies, hybrid fiber optic power solution cables and adapters, among others. Comnet manufactures and sells fiber optics cable and cabling technologies, among others. Rel-Tech designs and manufactures cable assemblies and wiring harnesses.

FINANCIAL RATIOS  of  RF Industries, Ltd. (RFIL)

Valuation Ratios
P/E Ratio -17.1
Price to Sales 2.3
Price to Book 3.3
Price to Tangible Book
Price to Cash Flow -68.3
Price to Free Cash Flow -68.3
Growth Rates
Sales Growth Rate -9.1%
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 NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -13.8%
Ret/ On Assets - 3 Yr. Avg. -2.4%
Return On Total Capital -17%
Ret/ On T. Cap. - 3 Yr. Avg. -3.1%
Return On Equity -17%
Return On Equity - 3 Yr. Avg. -3.1%
Asset Turnover 1
Profitability Ratios
Gross Margin 26.7%
Gross Margin - 3 Yr. Avg. 34.5%
EBITDA Margin -13.3%
EBITDA Margin - 3 Yr. Avg. 1.9%
Operating Margin -16.7%
Oper. Margin - 3 Yr. Avg. -1.6%
Pre-Tax Margin -16.7%
Pre-Tax Margin - 3 Yr. Avg. -1.6%
Net Profit Margin -13.3%
Net Profit Margin - 3 Yr. Avg. -2%
Effective Tax Rate 20%
Eff/ Tax Rate - 3 Yr. Avg. 23.3%
Payout Ratio -25%

RFIL stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the RFIL stock intrinsic value calculation we used $50 million for the last fiscal year's total revenue generated by RF Industries, Ltd.. The default revenue input number comes from 0001 income statement of RF 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 RFIL stock valuation model: a) initial revenue growth rate of 33.7% 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 RFIL is calculated based on our internal credit rating of RF 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 RF 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 RFIL stock the variable cost ratio is equal to 74%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $6 million in the base year in the intrinsic value calculation for RFIL 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 RF Industries, Ltd..

Corporate tax rate of 27% is the nominal tax rate for RF 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 RFIL 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 RFIL are equal to 4.6%.

Life of production assets of 7.9 years is the average useful life of capital assets used in RF 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 RFIL is equal to 15%. 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 - $27.783 million for RF 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 9.357 million for RF 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 RF Industries, Ltd. at the current share price and the inputted number of shares is $0.1 billion.

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