Intrinsic value of Toromont Industries Ltd. - TIH

Previous Close

$55.04

  Intrinsic Value

$26.07

stock screener

  Rating & Target

str. sell

-53%

Previous close

$55.04

 
Intrinsic value

$26.07

 
Up/down potential

-53%

 
Rating

str. sell

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

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 4.3

 

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, %
  3.61
  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
  1,867
  1,904
  1,948
  1,998
  2,054
  2,117
  2,185
  2,259
  2,340
  2,427
  2,520
  2,620
  2,726
  2,839
  2,959
  3,087
  3,222
  3,366
  3,517
  3,677
  3,846
  4,024
  4,212
  4,410
  4,619
  4,839
  5,071
  5,314
  5,571
  5,841
  6,124
Variable operating expenses, $m
 
  1,552
  1,588
  1,628
  1,674
  1,725
  1,781
  1,841
  1,907
  1,977
  2,053
  2,133
  2,220
  2,312
  2,410
  2,514
  2,624
  2,741
  2,864
  2,994
  3,132
  3,277
  3,430
  3,591
  3,761
  3,940
  4,129
  4,327
  4,536
  4,756
  4,987
Fixed operating expenses, $m
 
  135
  139
  142
  146
  149
  153
  157
  161
  165
  169
  173
  178
  182
  187
  191
  196
  201
  206
  211
  216
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
Total operating expenses, $m
  1,651
  1,687
  1,727
  1,770
  1,820
  1,874
  1,934
  1,998
  2,068
  2,142
  2,222
  2,306
  2,398
  2,494
  2,597
  2,705
  2,820
  2,942
  3,070
  3,205
  3,348
  3,499
  3,657
  3,824
  4,000
  4,185
  4,380
  4,584
  4,800
  5,026
  5,264
Operating income, $m
  217
  217
  222
  228
  234
  242
  251
  261
  272
  284
  298
  313
  329
  345
  363
  382
  402
  424
  447
  472
  498
  526
  555
  586
  619
  654
  691
  730
  771
  814
  860
EBITDA, $m
  294
  259
  264
  271
  279
  289
  299
  311
  323
  337
  352
  369
  386
  405
  426
  448
  471
  495
  522
  550
  579
  611
  644
  680
  717
  756
  798
  842
  889
  938
  990
Interest expense (income), $m
  7
  7
  7
  8
  9
  9
  10
  11
  12
  13
  14
  15
  17
  18
  20
  21
  23
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  51
  55
  58
Earnings before tax, $m
  213
  210
  214
  220
  226
  233
  241
  250
  260
  271
  283
  298
  312
  327
  344
  361
  380
  400
  421
  444
  468
  493
  520
  549
  579
  611
  645
  681
  719
  760
  802
Tax expense, $m
  57
  57
  58
  59
  61
  63
  65
  68
  70
  73
  77
  80
  84
  88
  93
  97
  103
  108
  114
  120
  126
  133
  140
  148
  156
  165
  174
  184
  194
  205
  217
Net income, $m
  156
  153
  156
  160
  165
  170
  176
  183
  190
  198
  207
  217
  228
  239
  251
  264
  277
  292
  307
  324
  341
  360
  380
  401
  423
  446
  471
  497
  525
  555
  586

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  189
  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
  1,411
  1,246
  1,275
  1,308
  1,345
  1,385
  1,430
  1,479
  1,531
  1,588
  1,649
  1,714
  1,784
  1,858
  1,937
  2,020
  2,109
  2,203
  2,302
  2,406
  2,517
  2,634
  2,757
  2,886
  3,023
  3,167
  3,318
  3,478
  3,646
  3,822
  4,008
Adjusted assets (=assets-cash), $m
  1,222
  1,246
  1,275
  1,308
  1,345
  1,385
  1,430
  1,479
  1,531
  1,588
  1,649
  1,714
  1,784
  1,858
  1,937
  2,020
  2,109
  2,203
  2,302
  2,406
  2,517
  2,634
  2,757
  2,886
  3,023
  3,167
  3,318
  3,478
  3,646
  3,822
  4,008
Revenue / Adjusted assets
  1.528
  1.528
  1.528
  1.528
  1.527
  1.529
  1.528
  1.527
  1.528
  1.528
  1.528
  1.529
  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
  197
  202
  207
  212
  218
  224
  232
  240
  248
  257
  267
  278
  289
  301
  314
  327
  342
  357
  373
  390
  408
  427
  446
  467
  490
  513
  537
  563
  590
  619
  649
Working capital, $m
  575
  396
  405
  416
  427
  440
  454
  470
  487
  505
  524
  545
  567
  591
  616
  642
  670
  700
  732
  765
  800
  837
  876
  917
  961
  1,007
  1,055
  1,105
  1,159
  1,215
  1,274
Total debt, $m
  153
  162
  174
  188
  204
  221
  240
  261
  284
  308
  334
  362
  392
  424
  458
  494
  532
  572
  614
  659
  707
  757
  810
  865
  924
  986
  1,051
  1,119
  1,191
  1,267
  1,346
Total liabilities, $m
  525
  535
  547
  561
  577
  594
  613
  634
  657
  681
  707
  735
  765
  797
  831
  867
  905
  945
  987
  1,032
  1,080
  1,130
  1,183
  1,238
  1,297
  1,359
  1,424
  1,492
  1,564
  1,640
  1,719
Total equity, $m
  885
  712
  728
  747
  768
  791
  817
  844
  874
  907
  942
  979
  1,019
  1,061
  1,106
  1,154
  1,204
  1,258
  1,314
  1,374
  1,437
  1,504
  1,574
  1,648
  1,726
  1,808
  1,895
  1,986
  2,082
  2,183
  2,289
Total liabilities and equity, $m
  1,410
  1,247
  1,275
  1,308
  1,345
  1,385
  1,430
  1,478
  1,531
  1,588
  1,649
  1,714
  1,784
  1,858
  1,937
  2,021
  2,109
  2,203
  2,301
  2,406
  2,517
  2,634
  2,757
  2,886
  3,023
  3,167
  3,319
  3,478
  3,646
  3,823
  4,008
Debt-to-equity ratio
  0.173
  0.230
  0.240
  0.250
  0.270
  0.280
  0.290
  0.310
  0.320
  0.340
  0.360
  0.370
  0.390
  0.400
  0.410
  0.430
  0.440
  0.450
  0.470
  0.480
  0.490
  0.500
  0.510
  0.520
  0.540
  0.550
  0.550
  0.560
  0.570
  0.580
  0.590
Adjusted equity ratio
  0.570
  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
  156
  153
  156
  160
  165
  170
  176
  183
  190
  198
  207
  217
  228
  239
  251
  264
  277
  292
  307
  324
  341
  360
  380
  401
  423
  446
  471
  497
  525
  555
  586
Depreciation, amort., depletion, $m
  77
  42
  43
  44
  45
  46
  48
  49
  51
  53
  55
  56
  58
  60
  63
  65
  68
  71
  75
  78
  82
  85
  89
  93
  98
  103
  107
  113
  118
  124
  130
Funds from operations, $m
  162
  195
  199
  204
  210
  216
  224
  232
  241
  251
  262
  273
  286
  299
  314
  329
  345
  363
  382
  402
  423
  445
  469
  494
  521
  549
  579
  610
  643
  678
  715
Change in working capital, $m
  -27
  8
  9
  10
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  25
  27
  28
  30
  31
  33
  35
  37
  39
  41
  43
  46
  48
  51
  53
  56
  59
Cash from operations, $m
  189
  187
  190
  194
  198
  203
  209
  216
  224
  233
  242
  252
  263
  275
  288
  302
  317
  333
  350
  368
  388
  408
  430
  453
  477
  503
  530
  559
  590
  622
  656
Maintenance CAPEX, $m
  0
  -39
  -40
  -41
  -42
  -44
  -45
  -46
  -48
  -50
  -51
  -53
  -56
  -58
  -60
  -63
  -65
  -68
  -71
  -75
  -78
  -82
  -85
  -89
  -93
  -98
  -103
  -107
  -113
  -118
  -124
New CAPEX, $m
  -25
  -5
  -5
  -5
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -25
  -26
  -27
  -29
  -30
Cash from investing activities, $m
  -19
  -44
  -45
  -46
  -48
  -51
  -52
  -54
  -57
  -59
  -61
  -64
  -67
  -70
  -73
  -77
  -79
  -83
  -87
  -92
  -96
  -101
  -105
  -110
  -115
  -121
  -128
  -133
  -140
  -147
  -154
Free cash flow, $m
  170
  143
  145
  147
  150
  153
  157
  162
  168
  174
  181
  188
  197
  206
  216
  226
  238
  250
  263
  277
  292
  308
  325
  343
  362
  382
  403
  426
  450
  476
  502
Issuance/(repayment) of debt, $m
  -2
  11
  12
  14
  16
  17
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  47
  50
  53
  56
  59
  62
  65
  68
  72
  76
  80
Issuance/(repurchase) of shares, $m
  9
  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  
  7
  11
  12
  14
  16
  17
  19
  21
  23
  24
  26
  28
  30
  32
  34
  36
  38
  40
  43
  45
  47
  50
  53
  56
  59
  62
  65
  68
  72
  76
  80
Total cash flow (excl. dividends), $m
  177
  154
  157
  161
  165
  171
  177
  183
  190
  198
  207
  216
  226
  237
  249
  262
  276
  290
  305
  322
  339
  358
  377
  398
  420
  444
  468
  494
  522
  551
  582
Retained Cash Flow (-), $m
  -110
  -14
  -16
  -19
  -21
  -23
  -26
  -28
  -30
  -32
  -35
  -37
  -40
  -42
  -45
  -48
  -51
  -54
  -57
  -60
  -63
  -67
  -70
  -74
  -78
  -82
  -87
  -91
  -96
  -101
  -106
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
 
  327
  141
  142
  144
  147
  151
  155
  160
  166
  172
  179
  187
  195
  204
  214
  225
  237
  249
  262
  276
  291
  307
  324
  342
  361
  382
  403
  426
  450
  476
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
 
  314
  129
  124
  119
  114
  110
  105
  100
  95
  90
  85
  80
  74
  69
  63
  57
  51
  46
  40
  35
  30
  25
  21
  17
  14
  11
  9
  7
  5
  4
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
  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 27.7
Price to Sales 2.3
Price to Book 4.9
Price to Tangible Book
Price to Cash Flow 22.8
Price to Free Cash Flow 26.3
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 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 4.3%, 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 78.671 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 $4.3 billion.

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Financial statements of TIH
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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