Intrinsic value of Toromont Industries Ltd. - TIH

Previous Close

$56.01

  Intrinsic Value

$51.33

stock screener

  Rating & Target

hold

-8%

Previous close

$56.01

 
Intrinsic value

$51.33

 
Up/down potential

-8%

 
Rating

hold

We calculate the intrinsic value of TIH 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 4.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  14.50
  13.55
  12.70
  11.93
  11.23
  10.61
  10.05
  9.54
  9.09
  8.68
  8.31
  7.98
  7.68
  7.41
  7.17
  6.96
  6.76
  6.58
  6.43
  6.28
  6.15
  6.04
  5.94
  5.84
  5.76
  5.68
  5.61
  5.55
  5.50
  5.45
Revenue, $m
  2,138
  2,427
  2,736
  3,062
  3,406
  3,767
  4,146
  4,541
  4,954
  5,384
  5,832
  6,297
  6,781
  7,284
  7,806
  8,349
  8,913
  9,500
  10,111
  10,746
  11,407
  12,096
  12,814
  13,563
  14,344
  15,159
  16,010
  16,899
  17,828
  18,799
Variable operating expenses, $m
  1,742
  1,978
  2,229
  2,494
  2,775
  3,069
  3,377
  3,699
  4,035
  4,386
  4,749
  5,128
  5,522
  5,931
  6,356
  6,799
  7,258
  7,736
  8,233
  8,751
  9,289
  9,850
  10,435
  11,044
  11,680
  12,344
  13,037
  13,761
  14,517
  15,308
Fixed operating expenses, $m
  135
  138
  141
  144
  147
  150
  154
  157
  161
  164
  168
  171
  175
  179
  183
  187
  191
  195
  200
  204
  208
  213
  218
  223
  227
  232
  238
  243
  248
  254
Total operating expenses, $m
  1,877
  2,116
  2,370
  2,638
  2,922
  3,219
  3,531
  3,856
  4,196
  4,550
  4,917
  5,299
  5,697
  6,110
  6,539
  6,986
  7,449
  7,931
  8,433
  8,955
  9,497
  10,063
  10,653
  11,267
  11,907
  12,576
  13,275
  14,004
  14,765
  15,562
Operating income, $m
  261
  312
  366
  423
  484
  548
  615
  685
  758
  834
  915
  998
  1,084
  1,174
  1,267
  1,363
  1,464
  1,569
  1,678
  1,792
  1,910
  2,033
  2,162
  2,296
  2,436
  2,583
  2,735
  2,895
  3,062
  3,237
EBITDA, $m
  307
  364
  425
  489
  557
  629
  704
  782
  864
  950
  1,039
  1,131
  1,228
  1,328
  1,432
  1,540
  1,653
  1,770
  1,892
  2,019
  2,152
  2,290
  2,434
  2,584
  2,740
  2,904
  3,075
  3,254
  3,440
  3,636
Interest expense (income), $m
  7
  7
  10
  14
  18
  22
  27
  31
  36
  41
  47
  52
  58
  64
  70
  77
  84
  91
  98
  106
  113
  122
  130
  139
  148
  158
  168
  179
  190
  201
  213
Earnings before tax, $m
  254
  301
  352
  405
  462
  521
  583
  648
  717
  788
  863
  940
  1,020
  1,103
  1,190
  1,280
  1,373
  1,471
  1,572
  1,678
  1,788
  1,903
  2,023
  2,148
  2,278
  2,414
  2,557
  2,706
  2,861
  3,024
Tax expense, $m
  69
  81
  95
  109
  125
  141
  157
  175
  193
  213
  233
  254
  275
  298
  321
  346
  371
  397
  425
  453
  483
  514
  546
  580
  615
  652
  690
  731
  773
  817
Net income, $m
  185
  220
  257
  296
  337
  380
  426
  473
  523
  575
  630
  686
  744
  805
  868
  934
  1,003
  1,074
  1,148
  1,225
  1,305
  1,389
  1,477
  1,568
  1,663
  1,763
  1,866
  1,975
  2,089
  2,208

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
  1,399
  1,589
  1,790
  2,004
  2,229
  2,465
  2,713
  2,972
  3,242
  3,524
  3,816
  4,121
  4,438
  4,767
  5,109
  5,464
  5,833
  6,217
  6,617
  7,033
  7,466
  7,917
  8,386
  8,876
  9,387
  9,921
  10,478
  11,060
  11,667
  12,303
Adjusted assets (=assets-cash), $m
  1,399
  1,589
  1,790
  2,004
  2,229
  2,465
  2,713
  2,972
  3,242
  3,524
  3,816
  4,121
  4,438
  4,767
  5,109
  5,464
  5,833
  6,217
  6,617
  7,033
  7,466
  7,917
  8,386
  8,876
  9,387
  9,921
  10,478
  11,060
  11,667
  12,303
Revenue / Adjusted assets
  1.528
  1.527
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
Average production assets, $m
  227
  257
  290
  325
  361
  399
  439
  481
  525
  571
  618
  667
  719
  772
  827
  885
  945
  1,007
  1,072
  1,139
  1,209
  1,282
  1,358
  1,438
  1,520
  1,607
  1,697
  1,791
  1,890
  1,993
Working capital, $m
  445
  505
  569
  637
  708
  784
  862
  945
  1,030
  1,120
  1,213
  1,310
  1,410
  1,515
  1,624
  1,737
  1,854
  1,976
  2,103
  2,235
  2,373
  2,516
  2,665
  2,821
  2,984
  3,153
  3,330
  3,515
  3,708
  3,910
Total debt, $m
  227
  309
  395
  487
  583
  685
  791
  902
  1,018
  1,139
  1,264
  1,395
  1,531
  1,672
  1,819
  1,971
  2,130
  2,294
  2,466
  2,644
  2,830
  3,023
  3,225
  3,435
  3,654
  3,883
  4,122
  4,372
  4,632
  4,905
Total liabilities, $m
  600
  682
  768
  860
  956
  1,058
  1,164
  1,275
  1,391
  1,512
  1,637
  1,768
  1,904
  2,045
  2,192
  2,344
  2,503
  2,667
  2,839
  3,017
  3,203
  3,396
  3,598
  3,808
  4,027
  4,256
  4,495
  4,745
  5,005
  5,278
Total equity, $m
  799
  907
  1,022
  1,144
  1,273
  1,408
  1,549
  1,697
  1,851
  2,012
  2,179
  2,353
  2,534
  2,722
  2,917
  3,120
  3,331
  3,550
  3,778
  4,016
  4,263
  4,520
  4,789
  5,068
  5,360
  5,665
  5,983
  6,315
  6,662
  7,025
Total liabilities and equity, $m
  1,399
  1,589
  1,790
  2,004
  2,229
  2,466
  2,713
  2,972
  3,242
  3,524
  3,816
  4,121
  4,438
  4,767
  5,109
  5,464
  5,834
  6,217
  6,617
  7,033
  7,466
  7,916
  8,387
  8,876
  9,387
  9,921
  10,478
  11,060
  11,667
  12,303
Debt-to-equity ratio
  0.280
  0.340
  0.390
  0.430
  0.460
  0.490
  0.510
  0.530
  0.550
  0.570
  0.580
  0.590
  0.600
  0.610
  0.620
  0.630
  0.640
  0.650
  0.650
  0.660
  0.660
  0.670
  0.670
  0.680
  0.680
  0.690
  0.690
  0.690
  0.700
  0.700
Adjusted equity ratio
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  185
  220
  257
  296
  337
  380
  426
  473
  523
  575
  630
  686
  744
  805
  868
  934
  1,003
  1,074
  1,148
  1,225
  1,305
  1,389
  1,477
  1,568
  1,663
  1,763
  1,866
  1,975
  2,089
  2,208
Depreciation, amort., depletion, $m
  47
  53
  59
  66
  74
  81
  89
  98
  106
  115
  124
  133
  144
  154
  165
  177
  189
  201
  214
  228
  242
  256
  272
  288
  304
  321
  339
  358
  378
  399
Funds from operations, $m
  232
  273
  316
  362
  410
  461
  515
  571
  629
  690
  753
  820
  888
  960
  1,034
  1,111
  1,192
  1,275
  1,362
  1,453
  1,547
  1,646
  1,748
  1,855
  1,967
  2,084
  2,206
  2,333
  2,467
  2,606
Change in working capital, $m
  56
  60
  64
  68
  72
  75
  79
  82
  86
  89
  93
  97
  101
  105
  109
  113
  117
  122
  127
  132
  138
  143
  149
  156
  162
  170
  177
  185
  193
  202
Cash from operations, $m
  176
  212
  252
  294
  339
  386
  436
  489
  544
  601
  660
  723
  788
  855
  925
  998
  1,074
  1,153
  1,235
  1,321
  1,410
  1,502
  1,599
  1,700
  1,805
  1,914
  2,029
  2,149
  2,274
  2,404
Maintenance CAPEX, $m
  -39
  -45
  -51
  -58
  -65
  -72
  -80
  -88
  -96
  -105
  -114
  -124
  -133
  -144
  -154
  -165
  -177
  -189
  -201
  -214
  -228
  -242
  -256
  -272
  -288
  -304
  -321
  -339
  -358
  -378
New CAPEX, $m
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -44
  -46
  -47
  -49
  -51
  -53
  -55
  -58
  -60
  -62
  -65
  -67
  -70
  -73
  -76
  -79
  -83
  -86
  -90
  -94
  -98
  -103
Cash from investing activities, $m
  -69
  -76
  -84
  -93
  -101
  -110
  -120
  -130
  -140
  -151
  -161
  -173
  -184
  -197
  -209
  -223
  -237
  -251
  -266
  -281
  -298
  -315
  -332
  -351
  -371
  -390
  -411
  -433
  -456
  -481
Free cash flow, $m
  107
  136
  168
  201
  238
  276
  316
  359
  404
  450
  499
  550
  603
  658
  715
  775
  837
  902
  969
  1,039
  1,112
  1,187
  1,266
  1,349
  1,434
  1,524
  1,617
  1,715
  1,817
  1,923
Issuance/(repayment) of debt, $m
  76
  81
  87
  92
  97
  101
  106
  111
  116
  121
  126
  131
  136
  141
  147
  152
  158
  165
  171
  178
  186
  193
  202
  210
  219
  229
  239
  250
  261
  273
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  
  76
  81
  87
  92
  97
  101
  106
  111
  116
  121
  126
  131
  136
  141
  147
  152
  158
  165
  171
  178
  186
  193
  202
  210
  219
  229
  239
  250
  261
  273
Total cash flow (excl. dividends), $m
  183
  218
  254
  293
  334
  377
  423
  470
  519
  571
  624
  680
  739
  799
  862
  928
  996
  1,067
  1,141
  1,217
  1,297
  1,381
  1,468
  1,559
  1,654
  1,753
  1,856
  1,964
  2,078
  2,196
Retained Cash Flow (-), $m
  -101
  -108
  -115
  -122
  -129
  -135
  -141
  -148
  -154
  -161
  -167
  -174
  -181
  -188
  -195
  -203
  -211
  -219
  -228
  -237
  -247
  -257
  -268
  -280
  -292
  -305
  -318
  -332
  -347
  -363
Prev. year cash balance distribution, $m
  187
  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
  269
  109
  139
  171
  206
  242
  281
  322
  365
  410
  457
  507
  558
  611
  667
  725
  785
  847
  912
  980
  1,050
  1,123
  1,200
  1,279
  1,362
  1,448
  1,538
  1,632
  1,730
  1,833
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
  258
  100
  121
  141
  159
  176
  190
  201
  210
  215
  217
  216
  212
  205
  196
  184
  171
  156
  140
  125
  109
  93
  79
  65
  53
  42
  33
  25
  19
  14
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

Toromont Industries Ltd is a Canada-based company, which operates through two segments: Equipment Group and CIMCO. The Company's Equipment Group is involved in supply of specialized mobile equipment and industrial engines. It consists of businesses, including Toromont CAT, Battlefield-The CAT Rental Store, Sitech Mid-Canada Ltd., Toromont Energy Ltd. and AgWest Ltd. Its customer base includes infrastructure contractors, residential and commercial contractors, mining companies, forestry companies, pulp and paper producers, general contractors, utilities, municipalities, marine companies, waste handling companies and agricultural enterprises. CIMCO is involved in the design, engineering, fabrication and installation of industrial and recreational refrigeration systems with operations in Canada and the United States. Its customer base consists of companies engaged in all aspects of food and beverage industry, food and beverage processors, and recreational facilities.

FINANCIAL RATIOS  of  Toromont Industries Ltd. (TIH)

Valuation Ratios
P/E Ratio 28.1
Price to Sales 2.4
Price to Book 5
Price to Tangible Book
Price to Cash Flow 23.2
Price to Free Cash Flow 26.8
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.7%
Cap. Spend. - 3 Yr. Gr. Rate -23.4%
Financial Strength
Quick Ratio 95
Current Ratio 0
LT Debt to Equity 17.1%
Total Debt to Equity 17.3%
Interest Coverage 31
Management Effectiveness
Return On Assets 12%
Ret/ On Assets - 3 Yr. Avg. 12.6%
Return On Total Capital 15.9%
Ret/ On T. Cap. - 3 Yr. Avg. 16.8%
Return On Equity 18.8%
Return On Equity - 3 Yr. Avg. 20.1%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 25.1%
Gross Margin - 3 Yr. Avg. 24.9%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 15.6%
Operating Margin 11.6%
Oper. Margin - 3 Yr. Avg. 11.3%
Pre-Tax Margin 11.4%
Pre-Tax Margin - 3 Yr. Avg. 11.1%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 8.2%
Effective Tax Rate 26.8%
Eff/ Tax Rate - 3 Yr. Avg. 26.6%
Payout Ratio 35.3%

TIH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TIH stock intrinsic value calculation we used $1867 million for the last fiscal year's total revenue generated by Toromont Industries Ltd.. The default revenue input number comes from 2016 income statement of Toromont Industries Ltd.. 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 TIH stock valuation model: a) initial revenue growth rate of 14.5% 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 TIH is calculated based on our internal credit rating of Toromont Industries Ltd., 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 Toromont Industries Ltd..
    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 TIH stock the variable cost ratio is equal to 81.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $132 million in the base year in the intrinsic value calculation for TIH 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 4.6% for Toromont Industries Ltd..

Corporate tax rate of 27% is the nominal tax rate for Toromont Industries Ltd.. 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 TIH 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 TIH are equal to 10.6%.

Life of production assets of 2.7 years is the average useful life of capital assets used in Toromont Industries Ltd. 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 TIH is equal to 20.8%. 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 - $885 million for Toromont Industries Ltd. - 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 80.944 million for Toromont Industries Ltd. 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 Toromont Industries Ltd. at the current share price and the inputted number of shares is $4.5 billion.

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