Estimating The Intrinsic Value Of Reckon Limited (ASX:RKN)

Reckon Limited (ASX:RKN) is an Australian technology company specializing in software solutions for accounting and bookkeeping professionals, small to medium-sized businesses, and personal wealth management sectors. To evaluate the intrinsic value of Reckon Limited, we'll employ the Discounted Cash Flow (DCF) model, considering its financial health, earnings growth, and future prospects.

Reckon's strong financial health is evident in its debt-to-equity ratio of 0% and an interest coverage ratio of 27x, indicating a robust ability to manage its debt obligations (Number 6). Its cash and short-term investments total AUD 855.0K, providing a solid liquidity buffer (Number 6).

Reckon's revenue growth has been volatile, with a 12% decrease in consensus EPS estimates in 2024 (Number 6). However, its 2022 revenue of AUD 51.2 million, driven by cloud software uptake and a significant reduction in net debt, demonstrates its potential for growth (Number 7).

To estimate Reckon's intrinsic value, we'll use the DCF model with the following assumptions:
- Growth rate: 5% (based on Reckon's historical revenue growth and market trends)
- Discount rate: 8.19% (Reckon's weighted average cost of capital, Number 2)
- Terminal growth rate: 3% (long-term market growth rate)

Using these assumptions, the DCF model estimates Reckon's intrinsic value to be AUD 0.75, with an upside of 36.50% (Number 2). This suggests that Reckon is currently undervalued, given its current market price of AUD 0.55 (Number 2).



Reckon's focus on cloud software and potential for long-term growth contribute to its intrinsic value. While its revenue growth has been volatile, the DCF model estimates Reckon's intrinsic value to be AUD 0.75, indicating a potential undervaluation at its current market price.



In conclusion, Reckon Limited's strong financial health, focus on cloud software, and potential for long-term growth contribute to its intrinsic value. Investors should monitor Reckon's revenue growth and profitability trends to reassess its intrinsic value and make informed investment decisions.