Intrinsic value of Trecora Resources - TREC

Previous Close

$8.52

  Intrinsic Value

$1.45

stock screener

  Rating & Target

str. sell

-83%

Previous close

$8.52

 
Intrinsic value

$1.45

 
Up/down potential

-83%

 
Rating

str. sell

We calculate the intrinsic value of TREC 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 0.2

 

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, %
  9.60
  9.14
  8.73
  8.35
  8.02
  7.72
  7.44
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
Revenue, $m
  269
  293
  319
  345
  373
  402
  432
  463
  495
  529
  564
  600
  638
  677
  718
  761
  806
  852
  900
  951
  1,004
  1,059
  1,117
  1,177
  1,241
  1,307
  1,376
  1,448
  1,524
  1,604
Variable operating expenses, $m
  244
  266
  289
  313
  337
  363
  390
  418
  446
  476
  503
  536
  569
  605
  641
  679
  719
  760
  804
  849
  896
  945
  997
  1,051
  1,107
  1,166
  1,228
  1,293
  1,361
  1,432
Fixed operating expenses, $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 operating expenses, $m
  244
  266
  289
  313
  337
  363
  390
  418
  446
  476
  503
  536
  569
  605
  641
  679
  719
  760
  804
  849
  896
  945
  997
  1,051
  1,107
  1,166
  1,228
  1,293
  1,361
  1,432
Operating income, $m
  25
  27
  30
  33
  36
  39
  42
  45
  49
  53
  61
  64
  69
  73
  77
  82
  86
  91
  97
  102
  108
  114
  120
  126
  133
  140
  148
  156
  164
  172
EBITDA, $m
  39
  43
  47
  51
  55
  59
  63
  68
  73
  78
  83
  88
  94
  100
  106
  112
  118
  125
  132
  140
  148
  156
  164
  173
  182
  192
  202
  213
  224
  236
Interest expense (income), $m
  3
  5
  6
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  17
  18
  19
  20
  22
  23
  24
  26
  28
  29
  31
  33
  35
  37
  39
  41
  43
  46
Earnings before tax, $m
  19
  21
  23
  25
  27
  30
  32
  34
  37
  39
  46
  49
  52
  55
  58
  61
  65
  68
  72
  76
  80
  84
  89
  94
  99
  104
  109
  115
  120
  127
Tax expense, $m
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  18
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  33
  34
Net income, $m
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  68
  72
  76
  80
  84
  88
  92

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
  359
  392
  426
  462
  499
  537
  577
  619
  662
  707
  754
  802
  853
  905
  960
  1,017
  1,077
  1,139
  1,204
  1,272
  1,342
  1,416
  1,493
  1,574
  1,658
  1,747
  1,839
  1,936
  2,038
  2,144
Adjusted assets (=assets-cash), $m
  359
  392
  426
  462
  499
  537
  577
  619
  662
  707
  754
  802
  853
  905
  960
  1,017
  1,077
  1,139
  1,204
  1,272
  1,342
  1,416
  1,493
  1,574
  1,658
  1,747
  1,839
  1,936
  2,038
  2,144
Revenue / Adjusted assets
  0.749
  0.747
  0.749
  0.747
  0.747
  0.749
  0.749
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
  0.748
Average production assets, $m
  201
  219
  238
  258
  279
  301
  323
  346
  370
  396
  422
  449
  477
  507
  537
  569
  603
  637
  674
  711
  751
  792
  835
  881
  928
  977
  1,029
  1,083
  1,140
  1,200
Working capital, $m
  34
  37
  40
  44
  47
  51
  54
  58
  62
  67
  71
  76
  80
  85
  91
  96
  101
  107
  113
  120
  126
  133
  141
  148
  156
  165
  173
  182
  192
  202
Total debt, $m
  113
  127
  142
  158
  174
  191
  208
  226
  245
  265
  285
  306
  328
  351
  375
  400
  426
  453
  481
  511
  542
  574
  608
  643
  680
  718
  758
  801
  845
  891
Total liabilities, $m
  157
  171
  186
  201
  218
  234
  252
  270
  289
  308
  329
  350
  372
  395
  419
  444
  470
  497
  525
  554
  585
  617
  651
  686
  723
  762
  802
  844
  888
  935
Total equity, $m
  203
  221
  240
  260
  281
  303
  326
  349
  373
  399
  425
  453
  481
  511
  542
  574
  607
  642
  679
  717
  757
  799
  842
  888
  935
  985
  1,037
  1,092
  1,149
  1,209
Total liabilities and equity, $m
  360
  392
  426
  461
  499
  537
  578
  619
  662
  707
  754
  803
  853
  906
  961
  1,018
  1,077
  1,139
  1,204
  1,271
  1,342
  1,416
  1,493
  1,574
  1,658
  1,747
  1,839
  1,936
  2,037
  2,144
Debt-to-equity ratio
  0.560
  0.580
  0.590
  0.610
  0.620
  0.630
  0.640
  0.650
  0.660
  0.660
  0.670
  0.680
  0.680
  0.690
  0.690
  0.700
  0.700
  0.710
  0.710
  0.710
  0.720
  0.720
  0.720
  0.720
  0.730
  0.730
  0.730
  0.730
  0.740
  0.740
Adjusted equity ratio
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564
  0.564

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  15
  17
  18
  20
  22
  23
  25
  27
  29
  34
  36
  38
  40
  42
  45
  47
  50
  53
  56
  59
  62
  65
  68
  72
  76
  80
  84
  88
  92
Depreciation, amort., depletion, $m
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  22
  24
  25
  27
  28
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  54
  57
  60
  63
Funds from operations, $m
  29
  31
  34
  36
  39
  42
  45
  48
  51
  54
  56
  60
  63
  67
  71
  75
  79
  84
  88
  93
  98
  104
  109
  115
  121
  127
  134
  141
  148
  156
Change in working capital, $m
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
Cash from operations, $m
  26
  28
  31
  33
  35
  38
  41
  44
  47
  50
  52
  55
  58
  62
  66
  70
  74
  78
  82
  87
  92
  97
  102
  107
  113
  119
  125
  132
  139
  146
Maintenance CAPEX, $m
  -10
  -11
  -12
  -13
  -14
  -15
  -16
  -17
  -18
  -20
  -21
  -22
  -24
  -25
  -27
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -44
  -47
  -49
  -52
  -54
  -57
  -60
New CAPEX, $m
  -18
  -18
  -19
  -20
  -21
  -22
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -29
  -31
  -32
  -33
  -35
  -36
  -38
  -40
  -41
  -43
  -45
  -47
  -49
  -52
  -54
  -57
  -59
Cash from investing activities, $m
  -28
  -29
  -31
  -33
  -35
  -37
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -54
  -58
  -60
  -63
  -67
  -70
  -74
  -78
  -81
  -85
  -89
  -94
  -98
  -104
  -108
  -114
  -119
Free cash flow, $m
  -1
  -1
  0
  0
  1
  2
  3
  3
  4
  5
  5
  5
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  20
  22
  23
  25
  26
Issuance/(repayment) of debt, $m
  14
  14
  15
  16
  16
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
Issuance/(repurchase) of shares, $m
  4
  3
  2
  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
Cash from financing (excl. dividends), $m  
  18
  17
  17
  18
  17
  17
  17
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
Total cash flow (excl. dividends), $m
  16
  17
  17
  18
  18
  19
  20
  21
  23
  24
  25
  27
  28
  30
  32
  34
  36
  38
  41
  43
  45
  48
  50
  53
  56
  59
  62
  65
  69
  72
Retained Cash Flow (-), $m
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -27
  -29
  -30
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -42
  -44
  -46
  -48
  -50
  -52
  -55
  -57
  -60
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
  -2
  -2
  -2
  -3
  -3
  -3
  -2
  -1
  -1
  -1
  -1
  0
  1
  1
  2
  3
  3
  4
  5
  5
  6
  7
  8
  8
  9
  10
  11
  12
  12
Discount rate, %
  5.70
  5.99
  6.28
  6.60
  6.93
  7.27
  7.64
  8.02
  8.42
  8.84
  9.28
  9.75
  10.24
  10.75
  11.29
  11.85
  12.44
  13.06
  13.72
  14.40
  15.12
  15.88
  16.67
  17.51
  18.38
  19.30
  20.27
  21.28
  22.34
  23.46
PV of cash for distribution, $m
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -1
  -1
  0
  -1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  98.2
  96.9
  96.0
  95.4
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0
  95.0

Trecora Resources (TREC) is a provider of high-purity specialty hydrocarbons and waxes. TREC owns and operates a facility located in southeast Texas, just north of Beaumont, which specializes in high-purity hydrocarbons and other petrochemical manufacturing. The Company operates through two segments: specialty petrochemical products and specialty synthetic waxes. The specialty petrochemical products segment operates through South Hampton Resources, Inc. (SHR). The specialty synthetic wax segment operates through Trecora Chemical, Inc. (TC). SHR owns and operates a specialty petrochemical facility that produces hydrocarbons and other petroleum-based products, including isopentane, normal pentane, isohexane and hexane. TC produces specialty polyethylene and poly alpha olefin waxes, and provides custom processing services. In addition, the Company is the 33.4% owner of Al Masane Al Kobra Mining Co., a Saudi Arabian joint stock company.

FINANCIAL RATIOS  of  Trecora Resources (TREC)

Valuation Ratios
P/E Ratio 10.9
Price to Sales 1
Price to Book 1.3
Price to Tangible Book
Price to Cash Flow 7.1
Price to Free Cash Flow -18.7
Growth Rates
Sales Growth Rate -12.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 29%
Cap. Spend. - 3 Yr. Gr. Rate 41.7%
Financial Strength
Quick Ratio 1
Current Ratio 0
LT Debt to Equity 44.5%
Total Debt to Equity 50.6%
Interest Coverage 11
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 8.3%
Return On Total Capital 8.1%
Ret/ On T. Cap. - 3 Yr. Avg. 9%
Return On Equity 12.4%
Return On Equity - 3 Yr. Avg. 13.7%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 18.9%
Gross Margin - 3 Yr. Avg. 19.7%
EBITDA Margin 20.3%
EBITDA Margin - 3 Yr. Avg. 15.5%
Operating Margin 14.2%
Oper. Margin - 3 Yr. Avg. 12.7%
Pre-Tax Margin 14.2%
Pre-Tax Margin - 3 Yr. Avg. 11.2%
Net Profit Margin 9%
Net Profit Margin - 3 Yr. Avg. 7.4%
Effective Tax Rate 36.7%
Eff/ Tax Rate - 3 Yr. Avg. 33.1%
Payout Ratio 0%

TREC stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TREC stock intrinsic value calculation we used $245.143 million for the last fiscal year's total revenue generated by Trecora Resources. The default revenue input number comes from 0001 income statement of Trecora Resources. 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 TREC stock valuation model: a) initial revenue growth rate of 9.6% 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 5.7%, whose default value for TREC is calculated based on our internal credit rating of Trecora Resources, 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 Trecora Resources.
    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 TREC stock the variable cost ratio is equal to 91%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for TREC 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 Trecora Resources.

Corporate tax rate of 27% is the nominal tax rate for Trecora Resources. 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 TREC 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 TREC are equal to 74.8%.

Life of production assets of 18.9 years is the average useful life of capital assets used in Trecora Resources 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 TREC is equal to 12.6%. 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 - $184.722 million for Trecora Resources - 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 24.487 million for Trecora Resources 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 Trecora Resources at the current share price and the inputted number of shares is $0.2 billion.

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COMPANY NEWS

▶ Trecora: 3Q Earnings Snapshot   [06:49PM  Associated Press]
▶ Is There Now An Opportunity In Trecora Resources (NYSE:TREC)?   [Oct-06-18 10:23AM  Simply Wall St.]
▶ What Kind Of Shareholders Own Trecora Resources (NYSE:TREC)?   [Sep-13-18 08:57AM  Simply Wall St.]
▶ Trecora: 2Q Earnings Snapshot   [Aug-01-18 05:35PM  Associated Press]
▶ Trecora: 1Q Earnings Snapshot   [May-01-18 05:30PM  Associated Press]
▶ Trecora Resources to Host Earnings Call   [Mar-08-18 06:00AM  ACCESSWIRE]
▶ Trecora posts 4Q profit   [Mar-07-18 06:19PM  Associated Press]
▶ Gabelli & Companys 9th Specialty Chemicals Conference   [Feb-15-18 07:30AM  Business Wire]
▶ Trecora Resources Provides Update on AMAK   [Jan-16-18 07:00AM  PR Newswire]
▶ Trecora posts 3Q profit   [Nov-07-17 06:16PM  Associated Press]
▶ Trecora Resources to Host Earnings Call   [12:10PM  ACCESSWIRE]
▶ Trecora Resources Provides Update on Operations   [Sep-06-17 04:05PM  PR Newswire]
▶ Trecora Resources Reports Second Quarter 2017 Results   [Aug-03-17 04:05PM  PR Newswire]
▶ LD Micro Index Reconstitution as of August 1, 2017   [Aug-01-17 09:40AM  ACCESSWIRE]
▶ Trecora posts 1Q profit   [May-04-17 06:36PM  Associated Press]

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