Intrinsic value of Tricon Capital Group Inc. - TCN

Previous Close

$10.51

  Intrinsic Value

$1.83

stock screener

  Rating & Target

str. sell

-83%

Previous close

$10.51

 
Intrinsic value

$1.83

 
Up/down potential

-83%

 
Rating

str. sell

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of TCN 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 2016), $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 1.4

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   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

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  9.42
  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
  151
  154
  158
  162
  166
  171
  177
  183
  189
  196
  204
  212
  220
  230
  239
  250
  261
  272
  284
  297
  311
  325
  341
  357
  374
  391
  410
  430
  451
  472
  495
Variable operating expenses, $m
 
  81
  82
  85
  87
  90
  92
  96
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  149
  156
  163
  170
  178
  187
  195
  205
  214
  225
  236
  247
  259
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
  54
  81
  82
  85
  87
  90
  92
  96
  99
  103
  107
  111
  115
  120
  125
  131
  136
  142
  149
  156
  163
  170
  178
  187
  195
  205
  214
  225
  236
  247
  259
Operating income, $m
  96
  73
  75
  77
  79
  82
  84
  87
  90
  94
  97
  101
  105
  110
  114
  119
  124
  130
  136
  142
  148
  155
  163
  170
  178
  187
  196
  205
  215
  225
  236
EBITDA, $m
  104
  81
  83
  85
  87
  90
  93
  96
  100
  103
  107
  112
  116
  121
  126
  131
  137
  143
  150
  157
  164
  171
  179
  188
  197
  206
  216
  226
  237
  249
  261
Interest expense (income), $m
  11
  16
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  26
  27
  29
  30
  32
  33
  35
  37
  39
  41
  43
  46
  48
  51
  54
  57
  60
  63
Earnings before tax, $m
  97
  58
  59
  61
  62
  64
  66
  68
  70
  72
  75
  78
  81
  84
  87
  91
  94
  98
  102
  107
  111
  116
  121
  127
  132
  138
  145
  151
  158
  166
  173
Tax expense, $m
  16
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  24
  25
  27
  28
  29
  30
  31
  33
  34
  36
  37
  39
  41
  43
  45
  47
Net income, $m
  80
  42
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  106
  110
  116
  121
  127

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  24
  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
  1,314
  1,316
  1,347
  1,381
  1,420
  1,463
  1,510
  1,562
  1,618
  1,678
  1,742
  1,811
  1,884
  1,963
  2,046
  2,134
  2,227
  2,326
  2,431
  2,542
  2,659
  2,782
  2,912
  3,049
  3,193
  3,345
  3,505
  3,674
  3,851
  4,037
  4,234
Adjusted assets (=assets-cash), $m
  1,290
  1,316
  1,347
  1,381
  1,420
  1,463
  1,510
  1,562
  1,618
  1,678
  1,742
  1,811
  1,884
  1,963
  2,046
  2,134
  2,227
  2,326
  2,431
  2,542
  2,659
  2,782
  2,912
  3,049
  3,193
  3,345
  3,505
  3,674
  3,851
  4,037
  4,234
Revenue / Adjusted assets
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
Average production assets, $m
  38
  38
  39
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  59
  62
  65
  68
  71
  74
  77
  81
  84
  88
  93
  97
  102
  107
  112
  117
  123
Working capital, $m
  28
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  6
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
Total debt, $m
  228
  234
  242
  251
  261
  272
  284
  297
  311
  326
  342
  360
  379
  398
  420
  442
  466
  491
  518
  546
  575
  607
  640
  674
  711
  750
  790
  833
  878
  925
  975
Total liabilities, $m
  328
  334
  342
  351
  361
  372
  384
  397
  411
  426
  442
  460
  479
  498
  520
  542
  566
  591
  618
  646
  675
  707
  740
  774
  811
  850
  890
  933
  978
  1,025
  1,075
Total equity, $m
  986
  982
  1,005
  1,030
  1,059
  1,092
  1,127
  1,165
  1,207
  1,251
  1,299
  1,351
  1,406
  1,464
  1,526
  1,592
  1,662
  1,736
  1,814
  1,896
  1,983
  2,075
  2,172
  2,274
  2,382
  2,495
  2,615
  2,741
  2,873
  3,012
  3,158
Total liabilities and equity, $m
  1,314
  1,316
  1,347
  1,381
  1,420
  1,464
  1,511
  1,562
  1,618
  1,677
  1,741
  1,811
  1,885
  1,962
  2,046
  2,134
  2,228
  2,327
  2,432
  2,542
  2,658
  2,782
  2,912
  3,048
  3,193
  3,345
  3,505
  3,674
  3,851
  4,037
  4,233
Debt-to-equity ratio
  0.231
  0.240
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
  0.290
  0.290
  0.300
  0.300
  0.300
  0.300
  0.300
  0.310
  0.310
  0.310
Adjusted equity ratio
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  80
  42
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  81
  85
  89
  92
  97
  101
  106
  110
  116
  121
  127
Depreciation, amort., depletion, $m
  8
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  14
  14
  15
  15
  16
  17
  18
  19
  19
  20
  21
  22
  23
  25
Funds from operations, $m
  200
  50
  51
  52
  54
  55
  57
  59
  61
  63
  65
  67
  70
  73
  75
  78
  82
  85
  89
  93
  97
  101
  105
  110
  115
  120
  126
  132
  138
  144
  151
Change in working capital, $m
  283
  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
  1
  1
  1
  1
Cash from operations, $m
  -83
  50
  51
  52
  54
  55
  57
  58
  60
  62
  65
  67
  70
  72
  75
  78
  81
  85
  88
  92
  96
  101
  105
  110
  115
  120
  125
  131
  137
  144
  151
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
Cash from investing activities, $m
  -1
  -9
  -9
  -9
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -13
  -15
  -15
  -16
  -17
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -29
Free cash flow, $m
  -84
  42
  42
  43
  44
  46
  47
  48
  50
  51
  53
  55
  57
  59
  61
  64
  66
  69
  72
  75
  78
  82
  85
  89
  93
  97
  101
  106
  111
  116
  121
Issuance/(repayment) of debt, $m
  127
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  45
  47
  50
Issuance/(repurchase) of shares, $m
  -2
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  2
  3
  5
  6
  7
  8
  10
  11
  12
  14
  15
  17
  18
  20
Cash from financing (excl. dividends), $m  
  125
  6
  8
  9
  10
  11
  12
  13
  14
  15
  16
  17
  19
  20
  21
  22
  25
  27
  30
  33
  36
  38
  41
  45
  48
  51
  55
  58
  62
  65
  70
Total cash flow (excl. dividends), $m
  41
  48
  50
  52
  54
  56
  59
  61
  64
  67
  69
  72
  76
  79
  83
  86
  91
  96
  102
  108
  114
  120
  127
  133
  141
  148
  156
  164
  173
  182
  191
Retained Cash Flow (-), $m
  -64
  -20
  -23
  -26
  -29
  -32
  -35
  -38
  -42
  -45
  -48
  -51
  -55
  -58
  -62
  -66
  -70
  -74
  -78
  -83
  -87
  -92
  -97
  -102
  -108
  -113
  -119
  -126
  -132
  -139
  -146
Prev. year cash balance distribution, $m
 
  24
  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
 
  52
  28
  26
  25
  24
  24
  23
  22
  22
  21
  21
  21
  21
  20
  20
  21
  23
  24
  25
  27
  28
  30
  31
  33
  35
  36
  38
  40
  42
  45
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  49
  24
  21
  19
  16
  14
  12
  11
  9
  8
  6
  5
  4
  4
  3
  2
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  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
  99.9
  99.7
  99.6
  99.3
  99.1
  98.8
  98.5
  98.2
  97.8
  97.4
  97.0
  96.6
  96.2
  95.8

Tricon Capital Group Inc. is a Canada-based company, which is a principal investor and asset manager focused on the residential real estate industry in North America. The Company operates through five segments: Private Funds and Advisory (PF&A), Principal Investing in Tricon Housing Partners (THP), Tricon American Homes (TAH), Tricon Lifestyle Communities (TLC) and Tricon Luxury Residences (TLR). In Private Funds and Advisory, the Company manages, on behalf of private investors, commingled funds, sidecars and separate investment accounts that invest in the development of real estate in North America. Tricon's investment activities are carried on through Tricon Housing Partners (land and homebuilding), Tricon American Homes (single-family rental), Tricon Lifestyle Communities (manufactured housing communities) and Tricon Luxury Residences (purpose-built multi-family apartments). It manages capital on behalf of third-party institutional and high net-worth accredited investors.

FINANCIAL RATIOS  of  Tricon Capital Group Inc. (TCN)

Valuation Ratios
P/E Ratio 14.8
Price to Sales 7.8
Price to Book 1.2
Price to Tangible Book
Price to Cash Flow -14.3
Price to Free Cash Flow -14.1
Growth Rates
Sales Growth Rate 9.4%
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 23.1%
Total Debt to Equity 23.1%
Interest Coverage 10
Management Effectiveness
Return On Assets 7.3%
Ret/ On Assets - 3 Yr. Avg. 10.7%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 11.5%
Return On Equity 8.4%
Return On Equity - 3 Yr. Avg. 14.1%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 89.4%
Gross Margin - 3 Yr. Avg. 89.1%
EBITDA Margin 76.8%
EBITDA Margin - 3 Yr. Avg. 77%
Operating Margin 64.2%
Oper. Margin - 3 Yr. Avg. 61.2%
Pre-Tax Margin 64.2%
Pre-Tax Margin - 3 Yr. Avg. 67.1%
Net Profit Margin 53%
Net Profit Margin - 3 Yr. Avg. 56.3%
Effective Tax Rate 16.5%
Eff/ Tax Rate - 3 Yr. Avg. 15.8%
Payout Ratio 28.8%

TCN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TCN stock intrinsic value calculation we used $151 million for the last fiscal year's total revenue generated by Tricon Capital Group Inc.. The default revenue input number comes from 2016 income statement of Tricon Capital Group 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 TCN 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 7%, whose default value for TCN is calculated based on our internal credit rating of Tricon Capital Group 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 Tricon Capital Group 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 TCN stock the variable cost ratio is equal to 52.3%.

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 TCN 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 6.8% for Tricon Capital Group Inc..

Corporate tax rate of 27% is the nominal tax rate for Tricon Capital Group 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 TCN 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 TCN are equal to 24.8%.

Life of production assets of 4.7 years is the average useful life of capital assets used in Tricon Capital Group 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 TCN is equal to 2.6%. 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 - $986 million for Tricon Capital Group 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 134.384 million for Tricon Capital Group 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 Tricon Capital Group Inc. at the current share price and the inputted number of shares is $1.4 billion.

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Financial statements of TCN
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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