Intrinsic value of CAE Inc. - CAE

Previous Close

$27.51

  Intrinsic Value

$14.69

stock screener

  Rating & Target

sell

-47%

Previous close

$27.51

 
Intrinsic value

$14.69

 
Up/down potential

-47%

 
Rating

sell

We calculate the intrinsic value of CAE 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 2017), $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 7.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  2,759
  2,823
  2,895
  2,977
  3,067
  3,166
  3,274
  3,390
  3,516
  3,651
  3,795
  3,949
  4,113
  4,288
  4,473
  4,669
  4,876
  5,096
  5,327
  5,572
  5,830
  6,103
  6,390
  6,692
  7,011
  7,346
  7,700
  8,071
  8,462
  8,873
Variable operating expenses, $m
  2,341
  2,394
  2,454
  2,521
  2,596
  2,678
  2,768
  2,864
  2,968
  3,080
  3,144
  3,271
  3,407
  3,551
  3,705
  3,867
  4,039
  4,221
  4,413
  4,615
  4,829
  5,055
  5,293
  5,543
  5,807
  6,085
  6,378
  6,685
  7,009
  7,350
Fixed operating expenses, $m
  46
  47
  48
  49
  50
  51
  52
  54
  55
  56
  57
  58
  60
  61
  62
  64
  65
  67
  68
  70
  71
  73
  74
  76
  78
  79
  81
  83
  85
  86
Total operating expenses, $m
  2,387
  2,441
  2,502
  2,570
  2,646
  2,729
  2,820
  2,918
  3,023
  3,136
  3,201
  3,329
  3,467
  3,612
  3,767
  3,931
  4,104
  4,288
  4,481
  4,685
  4,900
  5,128
  5,367
  5,619
  5,885
  6,164
  6,459
  6,768
  7,094
  7,436
Operating income, $m
  372
  382
  393
  406
  420
  436
  454
  473
  493
  515
  594
  620
  647
  675
  706
  738
  772
  808
  847
  887
  930
  975
  1,023
  1,073
  1,126
  1,182
  1,241
  1,303
  1,368
  1,437
EBITDA, $m
  595
  609
  625
  643
  663
  685
  709
  735
  763
  793
  825
  860
  897
  936
  977
  1,022
  1,068
  1,118
  1,170
  1,226
  1,284
  1,346
  1,411
  1,480
  1,552
  1,629
  1,709
  1,794
  1,883
  1,976
Interest expense (income), $m
  59
  57
  60
  63
  67
  72
  77
  83
  89
  96
  103
  110
  119
  127
  137
  147
  157
  169
  180
  193
  206
  220
  235
  250
  267
  284
  302
  321
  341
  363
  385
Earnings before tax, $m
  315
  322
  330
  339
  348
  359
  371
  384
  397
  412
  484
  501
  519
  538
  559
  581
  604
  628
  654
  681
  710
  740
  773
  807
  842
  880
  920
  962
  1,006
  1,052
Tax expense, $m
  85
  87
  89
  91
  94
  97
  100
  104
  107
  111
  131
  135
  140
  145
  151
  157
  163
  170
  177
  184
  192
  200
  209
  218
  227
  238
  248
  260
  272
  284
Net income, $m
  230
  235
  241
  247
  254
  262
  271
  280
  290
  301
  353
  366
  379
  393
  408
  424
  441
  458
  477
  497
  518
  541
  564
  589
  615
  642
  671
  702
  734
  768

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
  4,945
  5,058
  5,188
  5,334
  5,496
  5,673
  5,867
  6,076
  6,301
  6,543
  6,802
  7,078
  7,372
  7,684
  8,015
  8,367
  8,739
  9,132
  9,547
  9,986
  10,449
  10,937
  11,451
  11,994
  12,565
  13,166
  13,799
  14,464
  15,165
  15,902
Adjusted assets (=assets-cash), $m
  4,945
  5,058
  5,188
  5,334
  5,496
  5,673
  5,867
  6,076
  6,301
  6,543
  6,802
  7,078
  7,372
  7,684
  8,015
  8,367
  8,739
  9,132
  9,547
  9,986
  10,449
  10,937
  11,451
  11,994
  12,565
  13,166
  13,799
  14,464
  15,165
  15,902
Revenue / Adjusted assets
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
  0.558
Average production assets, $m
  1,945
  1,990
  2,041
  2,098
  2,162
  2,232
  2,308
  2,390
  2,479
  2,574
  2,676
  2,784
  2,900
  3,023
  3,153
  3,291
  3,438
  3,592
  3,756
  3,928
  4,110
  4,302
  4,505
  4,718
  4,943
  5,179
  5,428
  5,690
  5,966
  6,256
Working capital, $m
  196
  200
  206
  211
  218
  225
  232
  241
  250
  259
  269
  280
  292
  304
  318
  331
  346
  362
  378
  396
  414
  433
  454
  475
  498
  522
  547
  573
  601
  630
Total debt, $m
  1,269
  1,346
  1,434
  1,532
  1,642
  1,762
  1,893
  2,034
  2,187
  2,351
  2,526
  2,713
  2,912
  3,123
  3,347
  3,585
  3,837
  4,103
  4,384
  4,681
  4,995
  5,325
  5,674
  6,041
  6,427
  6,834
  7,263
  7,713
  8,188
  8,686
Total liabilities, $m
  3,348
  3,425
  3,513
  3,611
  3,721
  3,841
  3,972
  4,113
  4,266
  4,430
  4,605
  4,792
  4,991
  5,202
  5,426
  5,664
  5,916
  6,182
  6,463
  6,760
  7,074
  7,404
  7,753
  8,120
  8,506
  8,913
  9,342
  9,792
  10,267
  10,765
Total equity, $m
  1,597
  1,634
  1,676
  1,723
  1,775
  1,833
  1,895
  1,962
  2,035
  2,113
  2,197
  2,286
  2,381
  2,482
  2,589
  2,702
  2,823
  2,950
  3,084
  3,225
  3,375
  3,533
  3,699
  3,874
  4,058
  4,253
  4,457
  4,672
  4,898
  5,136
Total liabilities and equity, $m
  4,945
  5,059
  5,189
  5,334
  5,496
  5,674
  5,867
  6,075
  6,301
  6,543
  6,802
  7,078
  7,372
  7,684
  8,015
  8,366
  8,739
  9,132
  9,547
  9,985
  10,449
  10,937
  11,452
  11,994
  12,564
  13,166
  13,799
  14,464
  15,165
  15,901
Debt-to-equity ratio
  0.790
  0.820
  0.860
  0.890
  0.920
  0.960
  1.000
  1.040
  1.070
  1.110
  1.150
  1.190
  1.220
  1.260
  1.290
  1.330
  1.360
  1.390
  1.420
  1.450
  1.480
  1.510
  1.530
  1.560
  1.580
  1.610
  1.630
  1.650
  1.670
  1.690
Adjusted equity ratio
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323
  0.323

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  230
  235
  241
  247
  254
  262
  271
  280
  290
  301
  353
  366
  379
  393
  408
  424
  441
  458
  477
  497
  518
  541
  564
  589
  615
  642
  671
  702
  734
  768
Depreciation, amort., depletion, $m
  224
  228
  232
  237
  242
  248
  255
  262
  270
  278
  231
  240
  250
  261
  272
  284
  296
  310
  324
  339
  354
  371
  388
  407
  426
  446
  468
  491
  514
  539
Funds from operations, $m
  454
  463
  473
  484
  497
  511
  526
  542
  560
  579
  584
  606
  629
  654
  680
  708
  737
  768
  801
  836
  873
  911
  952
  996
  1,041
  1,089
  1,139
  1,193
  1,249
  1,307
Change in working capital, $m
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
Cash from operations, $m
  450
  458
  468
  478
  490
  504
  518
  534
  551
  569
  574
  595
  617
  641
  667
  694
  722
  753
  785
  819
  854
  892
  932
  974
  1,018
  1,065
  1,114
  1,166
  1,221
  1,278
Maintenance CAPEX, $m
  -164
  -168
  -172
  -176
  -181
  -186
  -192
  -199
  -206
  -214
  -222
  -231
  -240
  -250
  -261
  -272
  -284
  -296
  -310
  -324
  -339
  -354
  -371
  -388
  -407
  -426
  -446
  -468
  -491
  -514
New CAPEX, $m
  -39
  -45
  -51
  -57
  -64
  -70
  -76
  -82
  -89
  -95
  -102
  -109
  -116
  -123
  -130
  -138
  -146
  -155
  -163
  -173
  -182
  -192
  -202
  -213
  -225
  -236
  -249
  -262
  -276
  -290
Cash from investing activities, $m
  -203
  -213
  -223
  -233
  -245
  -256
  -268
  -281
  -295
  -309
  -324
  -340
  -356
  -373
  -391
  -410
  -430
  -451
  -473
  -497
  -521
  -546
  -573
  -601
  -632
  -662
  -695
  -730
  -767
  -804
Free cash flow, $m
  246
  246
  245
  245
  246
  247
  250
  253
  256
  260
  250
  256
  262
  268
  276
  284
  292
  302
  311
  322
  334
  346
  359
  372
  387
  403
  419
  436
  455
  474
Issuance/(repayment) of debt, $m
  66
  77
  88
  99
  109
  120
  131
  142
  153
  164
  175
  187
  199
  211
  224
  238
  252
  266
  281
  297
  313
  330
  348
  367
  387
  407
  428
  451
  474
  499
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  
  66
  77
  88
  99
  109
  120
  131
  142
  153
  164
  175
  187
  199
  211
  224
  238
  252
  266
  281
  297
  313
  330
  348
  367
  387
  407
  428
  451
  474
  499
Total cash flow (excl. dividends), $m
  312
  323
  333
  344
  355
  367
  380
  394
  409
  424
  425
  442
  461
  480
  500
  521
  544
  568
  593
  619
  647
  676
  707
  739
  774
  810
  847
  887
  929
  973
Retained Cash Flow (-), $m
  -29
  -37
  -42
  -47
  -52
  -57
  -62
  -68
  -73
  -78
  -84
  -89
  -95
  -101
  -107
  -113
  -120
  -127
  -134
  -142
  -150
  -158
  -166
  -175
  -184
  -194
  -204
  -215
  -226
  -238
Prev. year cash balance distribution, $m
  453
  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
  736
  286
  291
  297
  303
  310
  318
  327
  336
  346
  342
  353
  366
  379
  393
  408
  424
  441
  459
  477
  497
  519
  541
  564
  589
  615
  643
  672
  703
  735
Discount rate, %
  4.50
  4.73
  4.96
  5.21
  5.47
  5.74
  6.03
  6.33
  6.65
  6.98
  7.33
  7.70
  8.08
  8.49
  8.91
  9.36
  9.82
  10.31
  10.83
  11.37
  11.94
  12.54
  13.16
  13.82
  14.51
  15.24
  16.00
  16.80
  17.64
  18.52
PV of cash for distribution, $m
  704
  261
  252
  242
  232
  222
  211
  200
  188
  176
  157
  145
  133
  121
  109
  98
  86
  75
  65
  55
  47
  39
  31
  25
  20
  15
  12
  9
  6
  4
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

CAE Inc. provides training for the civil aviation, defense and security, and healthcare markets. The Company designs and integrates training solutions. It operates through three segments: Civil Aviation Training Solutions, Defense and Security, and Healthcare. The Company provides training solutions for flight, cabin, maintenance and ground personnel in commercial, business and helicopter aviation, a range of flight simulation training devices, as well as ab initio pilot training and crew sourcing services. The Company is a training systems integrator for defense forces across the air, land and sea domains, and for government and civil security organizations responsible for public safety. The Company designs, manufactures and markets simulators, simulation center management solutions and courseware for training of medical and allied healthcare students and clinicians in educational institutions, hospitals and defense organizations across the world.

FINANCIAL RATIOS  of  CAE Inc. (CAE)

Valuation Ratios
P/E Ratio 29.3
Price to Sales 2.7
Price to Book 3.7
Price to Tangible Book
Price to Cash Flow 15.9
Price to Free Cash Flow 30.6
Growth Rates
Sales Growth Rate 7.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 89%
Cap. Spend. - 3 Yr. Gr. Rate 7.3%
Financial Strength
Quick Ratio 10
Current Ratio 0.3
LT Debt to Equity 59.5%
Total Debt to Equity 62.1%
Interest Coverage 6
Management Effectiveness
Return On Assets 5.9%
Ret/ On Assets - 3 Yr. Avg. 5.8%
Return On Total Capital 7.8%
Ret/ On T. Cap. - 3 Yr. Avg. 7.6%
Return On Equity 12.9%
Return On Equity - 3 Yr. Avg. 13%
Asset Turnover 0.5
Profitability Ratios
Gross Margin 30%
Gross Margin - 3 Yr. Avg. 28.2%
EBITDA Margin 20.8%
EBITDA Margin - 3 Yr. Avg. 21.6%
Operating Margin 13.5%
Oper. Margin - 3 Yr. Avg. 13.9%
Pre-Tax Margin 10.8%
Pre-Tax Margin - 3 Yr. Avg. 10.9%
Net Profit Margin 9.3%
Net Profit Margin - 3 Yr. Avg. 9.2%
Effective Tax Rate 12%
Eff/ Tax Rate - 3 Yr. Avg. 13.9%
Payout Ratio 32.1%

CAE stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CAE stock intrinsic value calculation we used $2705 million for the last fiscal year's total revenue generated by CAE Inc.. The default revenue input number comes from 2017 income statement of CAE Inc.. 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 CAE stock valuation model: a) initial revenue growth rate of 2% 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 4.5%, whose default value for CAE is calculated based on our internal credit rating of CAE Inc., 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 CAE Inc..
    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 CAE stock the variable cost ratio is equal to 84.9%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $45 million in the base year in the intrinsic value calculation for CAE 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 4.7% for CAE Inc..

Corporate tax rate of 27% is the nominal tax rate for CAE Inc.. 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 CAE 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 CAE are equal to 70.5%.

Life of production assets of 11.6 years is the average useful life of capital assets used in CAE Inc. 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 CAE is equal to 7.1%. 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 - $2021 million for CAE Inc. - 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 268.951 million for CAE Inc. 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 CAE Inc. at the current share price and the inputted number of shares is $7.4 billion.

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