Intrinsic value of Technical Communications Corporation - TCCO

Previous Close

$3.51

  Intrinsic Value

$18.03

stock screener

  Rating & Target

str. buy

+414%

Previous close

$3.51

 
Intrinsic value

$18.03

 
Up/down potential

+414%

 
Rating

str. buy

We calculate the intrinsic value of TCCO 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, %
  44.60
  40.64
  37.08
  33.87
  30.98
  28.38
  26.05
  23.94
  22.05
  20.34
  18.81
  17.43
  16.18
  15.07
  14.06
  13.15
  12.34
  11.60
  10.94
  10.35
  9.81
  9.33
  8.90
  8.51
  8.16
  7.84
  7.56
  7.30
  7.07
  6.87
Revenue, $m
  6
  8
  11
  15
  20
  25
  32
  39
  48
  58
  68
  80
  93
  107
  123
  139
  156
  174
  193
  213
  234
  255
  278
  302
  327
  352
  379
  406
  435
  465
Variable operating expenses, $m
  3
  4
  6
  7
  10
  13
  16
  20
  24
  29
  34
  40
  47
  54
  61
  69
  78
  87
  96
  106
  117
  128
  139
  151
  163
  176
  189
  203
  218
  233
Fixed operating expenses, $m
  5
  5
  5
  5
  6
  6
  6
  6
  6
  6
  6
  6
  7
  7
  7
  7
  7
  7
  8
  8
  8
  8
  8
  8
  9
  9
  9
  9
  9
  10
Total operating expenses, $m
  8
  9
  11
  12
  16
  19
  22
  26
  30
  35
  40
  46
  54
  61
  68
  76
  85
  94
  104
  114
  125
  136
  147
  159
  172
  185
  198
  212
  227
  243
Operating income, $m
  -2
  -1
  0
  2
  4
  7
  10
  14
  18
  23
  28
  34
  40
  47
  54
  62
  71
  80
  89
  99
  109
  120
  131
  143
  155
  167
  180
  194
  208
  223
EBITDA, $m
  -2
  -1
  0
  2
  4
  7
  10
  14
  18
  23
  28
  34
  41
  47
  55
  63
  71
  80
  90
  100
  110
  121
  132
  144
  156
  169
  182
  196
  210
  225
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
Earnings before tax, $m
  -2
  -1
  0
  2
  4
  7
  10
  13
  18
  22
  28
  33
  40
  46
  54
  62
  70
  79
  88
  98
  108
  118
  129
  141
  153
  165
  178
  192
  206
  220
Tax expense, $m
  0
  0
  0
  1
  1
  2
  3
  4
  5
  6
  7
  9
  11
  13
  15
  17
  19
  21
  24
  26
  29
  32
  35
  38
  41
  45
  48
  52
  56
  60
Net income, $m
  -2
  -1
  0
  1
  3
  5
  7
  10
  13
  16
  20
  24
  29
  34
  39
  45
  51
  57
  64
  71
  79
  86
  94
  103
  112
  121
  130
  140
  150
  161

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
  4
  6
  8
  10
  13
  17
  21
  27
  32
  39
  46
  54
  63
  73
  83
  94
  106
  118
  131
  144
  158
  173
  189
  205
  221
  239
  257
  276
  295
  315
Adjusted assets (=assets-cash), $m
  4
  6
  8
  10
  13
  17
  21
  27
  32
  39
  46
  54
  63
  73
  83
  94
  106
  118
  131
  144
  158
  173
  189
  205
  221
  239
  257
  276
  295
  315
Revenue / Adjusted assets
  1.500
  1.333
  1.375
  1.500
  1.538
  1.471
  1.524
  1.444
  1.500
  1.487
  1.478
  1.481
  1.476
  1.466
  1.482
  1.479
  1.472
  1.475
  1.473
  1.479
  1.481
  1.474
  1.471
  1.473
  1.480
  1.473
  1.475
  1.471
  1.475
  1.476
Average production assets, $m
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  2
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  8
  8
  9
  9
  10
  11
  12
Working capital, $m
  3
  4
  5
  7
  9
  11
  14
  18
  21
  26
  31
  36
  42
  48
  55
  62
  70
  78
  86
  95
  104
  114
  124
  135
  146
  157
  169
  182
  195
  208
Total debt, $m
  0
  0
  1
  1
  2
  2
  3
  4
  5
  6
  7
  8
  10
  11
  13
  15
  16
  18
  20
  23
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
Total liabilities, $m
  1
  1
  1
  2
  2
  3
  3
  4
  5
  6
  7
  9
  10
  12
  13
  15
  17
  19
  21
  23
  25
  28
  30
  33
  35
  38
  41
  44
  47
  50
Total equity, $m
  3
  5
  6
  9
  11
  14
  18
  22
  27
  33
  39
  46
  53
  61
  70
  79
  89
  99
  110
  121
  133
  145
  158
  172
  186
  201
  216
  231
  248
  265
Total liabilities and equity, $m
  4
  6
  7
  11
  13
  17
  21
  26
  32
  39
  46
  55
  63
  73
  83
  94
  106
  118
  131
  144
  158
  173
  188
  205
  221
  239
  257
  275
  295
  315
Debt-to-equity ratio
  0.060
  0.100
  0.120
  0.140
  0.150
  0.160
  0.170
  0.170
  0.170
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.180
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
  0.190
Adjusted equity ratio
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840
  0.840

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -2
  -1
  0
  1
  3
  5
  7
  10
  13
  16
  20
  24
  29
  34
  39
  45
  51
  57
  64
  71
  79
  86
  94
  103
  112
  121
  130
  140
  150
  161
Depreciation, amort., depletion, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
Funds from operations, $m
  -2
  -1
  0
  2
  3
  5
  7
  10
  13
  17
  20
  25
  29
  34
  40
  46
  52
  58
  65
  72
  80
  88
  96
  104
  113
  122
  132
  142
  152
  163
Change in working capital, $m
  1
  1
  1
  2
  2
  2
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
Cash from operations, $m
  -3
  -2
  -1
  0
  1
  3
  4
  7
  9
  12
  16
  19
  24
  28
  33
  38
  44
  50
  57
  63
  70
  78
  86
  94
  102
  111
  120
  130
  140
  150
Maintenance CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
New CAPEX, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
Cash from investing activities, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
Free cash flow, $m
  -3
  -2
  -1
  0
  1
  2
  4
  6
  9
  12
  15
  19
  23
  27
  32
  37
  43
  49
  55
  62
  69
  76
  84
  92
  100
  109
  118
  127
  137
  147
Issuance/(repayment) of debt, $m
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
Issuance/(repurchase) of shares, $m
  3
  3
  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
Cash from financing (excl. dividends), $m  
  3
  3
  2
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
Total cash flow (excl. dividends), $m
  1
  0
  1
  1
  1
  3
  5
  7
  10
  13
  16
  20
  24
  29
  34
  39
  45
  51
  57
  64
  71
  79
  86
  94
  103
  112
  121
  130
  140
  150
Retained Cash Flow (-), $m
  -3
  -3
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -16
  -17
Prev. year cash balance distribution, $m
  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
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
  -2
  -1
  -1
  -1
  0
  1
  3
  5
  7
  10
  13
  17
  21
  25
  30
  35
  41
  46
  53
  59
  66
  73
  81
  89
  97
  105
  114
  124
  133
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
  -2
  -1
  -1
  -1
  0
  1
  2
  3
  4
  5
  6
  6
  7
  7
  8
  8
  7
  7
  7
  6
  5
  5
  4
  3
  3
  2
  2
  1
  1
Current shareholders' claim on cash, %
  56.6
  40.2
  34.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0
  32.0

Technical Communications Corporation is engaged in the design, development, manufacture, distribution, marketing and sale of communications security devices, systems, and services. The secure communications solutions provided by the Company protect information transmitted over a range of data, video, fax and voice networks. The Company's products are sold to governments, military agencies, telecommunications carriers, financial institutions and multinational corporations. Its products can be used to protect confidentiality in communications between radios, telephones, mobile phones, facsimile machines and data network equipment over wires, fiber optic cables, radio waves, and microwave and satellite links. Its DSD 72A-SP Military Bulk Ciphering System is a military system that provides cryptographic security for data networks operating at up to 34 million bits per second. The CSD 4100 Executive Secure Telephone offers voice and data security in an executive telephone package.

FINANCIAL RATIOS  of  Technical Communications Corporation (TCCO)

Valuation Ratios
P/E Ratio -3.2
Price to Sales 2.2
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow -6.5
Price to Free Cash Flow -6.5
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 NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -30.8%
Ret/ On Assets - 3 Yr. Avg. -26.8%
Return On Total Capital -33.3%
Ret/ On T. Cap. - 3 Yr. Avg. -29.4%
Return On Equity -33.3%
Return On Equity - 3 Yr. Avg. -29.4%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 33.3%
Gross Margin - 3 Yr. Avg. 50%
EBITDA Margin -100%
EBITDA Margin - 3 Yr. Avg. -55.6%
Operating Margin -100%
Oper. Margin - 3 Yr. Avg. -55.6%
Pre-Tax Margin -100%
Pre-Tax Margin - 3 Yr. Avg. -55.6%
Net Profit Margin -66.7%
Net Profit Margin - 3 Yr. Avg. -50%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. -5.6%
Payout Ratio 0%

TCCO stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TCCO stock intrinsic value calculation we used $4 million for the last fiscal year's total revenue generated by Technical Communications Corporation. The default revenue input number comes from 0001 income statement of Technical Communications Corporation. 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 TCCO stock valuation model: a) initial revenue growth rate of 44.6% 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 TCCO is calculated based on our internal credit rating of Technical Communications Corporation, 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 Technical Communications Corporation.
    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 TCCO stock the variable cost ratio is equal to 50%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $5 million in the base year in the intrinsic value calculation for TCCO 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 Technical Communications Corporation.

Corporate tax rate of 27% is the nominal tax rate for Technical Communications Corporation. 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 TCCO 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 TCCO are equal to 2.5%.

Life of production assets of 1 years is the average useful life of capital assets used in Technical Communications Corporation 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 TCCO is equal to 44.7%. 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 - $3.500354 million for Technical Communications Corporation - 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 1.849 million for Technical Communications Corporation 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 Technical Communications Corporation at the current share price and the inputted number of shares is $0.0 billion.

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