Intrinsic value of Altus Group Limited - AIF

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$30.80

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$30.80

 
Intrinsic value

$12.65

 
Up/down potential

-59%

 
Rating

str. sell

 
Value-price divergence* premium content

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

We calculate the intrinsic value of AIF 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 1.2

 

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, %
  6.49
  3.60
  3.74
  3.87
  3.98
  4.08
  4.17
  4.26
  4.33
  4.40
  4.46
  4.51
  4.56
  4.60
  4.64
  4.68
  4.71
  4.74
  4.77
  4.79
  4.81
  4.83
  4.85
  4.86
  4.88
  4.89
  4.90
  4.91
  4.92
  4.93
  4.93
Revenue, $m
  443
  459
  476
  495
  514
  535
  558
  581
  606
  633
  661
  691
  723
  756
  791
  828
  867
  908
  951
  997
  1,045
  1,095
  1,149
  1,204
  1,263
  1,325
  1,390
  1,458
  1,530
  1,605
  1,684
Variable operating expenses, $m
 
  373
  386
  400
  416
  432
  449
  467
  486
  506
  528
  529
  553
  578
  605
  634
  663
  695
  728
  763
  800
  838
  879
  922
  966
  1,014
  1,063
  1,116
  1,170
  1,228
  1,289
Fixed operating expenses, $m
 
  58
  60
  61
  63
  64
  66
  68
  69
  71
  73
  75
  77
  79
  81
  83
  85
  87
  89
  91
  93
  96
  98
  101
  103
  106
  108
  111
  114
  117
  120
Total operating expenses, $m
  417
  431
  446
  461
  479
  496
  515
  535
  555
  577
  601
  604
  630
  657
  686
  717
  748
  782
  817
  854
  893
  934
  977
  1,023
  1,069
  1,120
  1,171
  1,227
  1,284
  1,345
  1,409
Operating income, $m
  26
  27
  30
  33
  36
  39
  43
  47
  51
  55
  60
  88
  93
  99
  105
  112
  119
  127
  135
  143
  152
  162
  172
  182
  194
  206
  218
  231
  246
  260
  276
EBITDA, $m
  59
  63
  66
  69
  73
  77
  81
  86
  91
  96
  102
  108
  114
  121
  128
  136
  144
  153
  162
  172
  183
  194
  205
  218
  231
  244
  259
  274
  290
  307
  325
Interest expense (income), $m
  4
  4
  4
  5
  5
  5
  6
  6
  7
  7
  8
  8
  9
  9
  10
  11
  11
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  24
  25
  26
Earnings before tax, $m
  21
  23
  25
  28
  31
  34
  37
  40
  44
  48
  53
  79
  84
  90
  95
  101
  108
  114
  122
  129
  137
  146
  155
  165
  175
  186
  197
  209
  222
  235
  250
Tax expense, $m
  7
  6
  7
  8
  8
  9
  10
  11
  12
  13
  14
  21
  23
  24
  26
  27
  29
  31
  33
  35
  37
  39
  42
  44
  47
  50
  53
  56
  60
  64
  67
Net income, $m
  14
  17
  19
  20
  22
  25
  27
  29
  32
  35
  38
  58
  61
  65
  69
  74
  79
  83
  89
  94
  100
  107
  113
  120
  128
  136
  144
  153
  162
  172
  182

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  44
  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
  591
  567
  588
  611
  635
  661
  688
  718
  749
  782
  816
  853
  892
  933
  977
  1,022
  1,070
  1,121
  1,175
  1,231
  1,290
  1,352
  1,418
  1,487
  1,559
  1,636
  1,716
  1,800
  1,889
  1,982
  2,079
Adjusted assets (=assets-cash), $m
  547
  567
  588
  611
  635
  661
  688
  718
  749
  782
  816
  853
  892
  933
  977
  1,022
  1,070
  1,121
  1,175
  1,231
  1,290
  1,352
  1,418
  1,487
  1,559
  1,636
  1,716
  1,800
  1,889
  1,982
  2,079
Revenue / Adjusted assets
  0.810
  0.810
  0.810
  0.810
  0.809
  0.809
  0.811
  0.809
  0.809
  0.809
  0.810
  0.810
  0.811
  0.810
  0.810
  0.810
  0.810
  0.810
  0.809
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
  0.810
Average production assets, $m
  150
  155
  160
  167
  173
  180
  188
  196
  204
  213
  223
  233
  244
  255
  267
  279
  292
  306
  321
  336
  352
  369
  387
  406
  426
  446
  468
  491
  516
  541
  568
Working capital, $m
  81
  45
  47
  49
  51
  53
  55
  58
  60
  63
  65
  68
  72
  75
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
  138
  144
  151
  159
  167
Total debt, $m
  124
  126
  135
  145
  156
  167
  180
  193
  206
  221
  236
  253
  270
  288
  308
  328
  349
  372
  396
  421
  447
  474
  504
  534
  566
  600
  636
  673
  713
  754
  797
Total liabilities, $m
  250
  252
  261
  271
  282
  293
  306
  319
  332
  347
  362
  379
  396
  414
  434
  454
  475
  498
  522
  547
  573
  600
  630
  660
  692
  726
  762
  799
  839
  880
  923
Total equity, $m
  341
  315
  327
  339
  353
  367
  383
  399
  416
  435
  454
  474
  496
  519
  543
  568
  595
  623
  653
  684
  717
  752
  788
  827
  867
  909
  954
  1,001
  1,050
  1,102
  1,156
Total liabilities and equity, $m
  591
  567
  588
  610
  635
  660
  689
  718
  748
  782
  816
  853
  892
  933
  977
  1,022
  1,070
  1,121
  1,175
  1,231
  1,290
  1,352
  1,418
  1,487
  1,559
  1,635
  1,716
  1,800
  1,889
  1,982
  2,079
Debt-to-equity ratio
  0.364
  0.400
  0.410
  0.430
  0.440
  0.460
  0.470
  0.480
  0.500
  0.510
  0.520
  0.530
  0.540
  0.560
  0.570
  0.580
  0.590
  0.600
  0.610
  0.610
  0.620
  0.630
  0.640
  0.650
  0.650
  0.660
  0.670
  0.670
  0.680
  0.680
  0.690
Adjusted equity ratio
  0.543
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556
  0.556

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  14
  17
  19
  20
  22
  25
  27
  29
  32
  35
  38
  58
  61
  65
  69
  74
  79
  83
  89
  94
  100
  107
  113
  120
  128
  136
  144
  153
  162
  172
  182
Depreciation, amort., depletion, $m
  33
  36
  36
  37
  37
  38
  38
  39
  40
  41
  41
  20
  21
  22
  23
  24
  25
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Funds from operations, $m
  65
  52
  55
  57
  60
  62
  65
  69
  72
  76
  80
  78
  83
  88
  93
  98
  104
  110
  117
  124
  131
  139
  147
  156
  165
  174
  185
  195
  207
  219
  232
Change in working capital, $m
  -2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
Cash from operations, $m
  67
  35
  53
  55
  58
  60
  63
  66
  70
  73
  77
  75
  80
  84
  89
  94
  100
  106
  112
  119
  126
  134
  142
  150
  159
  168
  178
  189
  200
  211
  224
Maintenance CAPEX, $m
  0
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -41
  -43
  -45
  -47
New CAPEX, $m
  -7
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -15
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -27
Cash from investing activities, $m
  -8
  -18
  -19
  -20
  -21
  -22
  -24
  -24
  -25
  -27
  -29
  -29
  -31
  -32
  -34
  -35
  -37
  -39
  -42
  -43
  -45
  -48
  -50
  -53
  -55
  -58
  -61
  -64
  -67
  -70
  -74
Free cash flow, $m
  59
  17
  34
  35
  36
  38
  40
  42
  44
  46
  49
  46
  49
  52
  55
  59
  63
  67
  71
  76
  81
  86
  92
  98
  104
  110
  118
  125
  133
  141
  150
Issuance/(repayment) of debt, $m
  -11
  9
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
Issuance/(repurchase) of shares, $m
  -4
  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  
  -15
  9
  9
  10
  11
  12
  12
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  23
  24
  25
  26
  28
  29
  31
  32
  34
  36
  37
  39
  41
  43
Total cash flow (excl. dividends), $m
  43
  26
  43
  45
  47
  50
  52
  55
  58
  61
  64
  62
  66
  70
  74
  79
  84
  89
  95
  101
  107
  114
  121
  128
  136
  144
  153
  162
  172
  183
  193
Retained Cash Flow (-), $m
  10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -28
  -30
  -31
  -33
  -35
  -36
  -38
  -40
  -42
  -45
  -47
  -49
  -52
  -54
Prev. year cash balance distribution, $m
 
  37
  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
  31
  32
  34
  35
  37
  39
  41
  43
  45
  42
  44
  47
  50
  54
  57
  61
  65
  69
  74
  79
  84
  90
  96
  102
  109
  116
  123
  131
  139
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
 
  50
  29
  28
  28
  27
  27
  26
  25
  25
  24
  20
  19
  18
  17
  16
  15
  13
  12
  11
  9
  8
  7
  6
  5
  4
  3
  2
  2
  1
  1
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

Altus Group Limited provides independent advisory services, software, and data solutions to the commercial real estate industry. Its Research, Valuation & Advisory unit offers commercial real estate data solutions, valuations, advisory, litigation support, financial due diligence, research, and real estate-related services. The company’s ARGUS Software unit provides software and solutions for analysis and management of commercial real estate investments. This unit’s software provides support for business processes and decisions, including real estate asset management, valuation, portfolio management, budgeting, forecasting, reporting, and lease management solutions. Its Property Tax Consulting unit offers real estate property tax services that comprise tax assessment reviews, tax management, appeal and expert witness services, and vacancy rebate counsel, as well as personal property tax, and state and local tax advisory services, such as transaction taxes, location incentives, and unclaimed property services. The company’s Cost Consulting & Project Management unit provides services in the area of construction feasibility studies, budgeting, cost and loan monitoring, and project management, as well as physical conditions assessments, reserve fund studies, construction cost estimation, tender documentation, procurement/delivery strategies, and risk management in support of feasibility studies. Its Geomatics unit offers geomatics solutions that consist of geographic information systems, digital mapping, remote sensing, 3-D laser scanning, and orthophoto maps primarily to oil and gas sector; and environmental services to the forestry and energy sectors. The company operates in Canada, the United Kingdom, the United States, Australia, and various countries throughout Asia. Altus Group Limited was founded in 2005 and is headquartered in Toronto, Canada.

FINANCIAL RATIOS  of  Altus Group Limited (AIF)

Valuation Ratios
P/E Ratio 81.7
Price to Sales 2.6
Price to Book 3.4
Price to Tangible Book
Price to Cash Flow 17.1
Price to Free Cash Flow 19.1
Growth Rates
Sales Growth Rate 6.5%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -50%
Cap. Spend. - 3 Yr. Gr. Rate 7%
Financial Strength
Quick Ratio 6
Current Ratio 0
LT Debt to Equity 34.3%
Total Debt to Equity 36.4%
Interest Coverage 6
Management Effectiveness
Return On Assets 2.8%
Ret/ On Assets - 3 Yr. Avg. 3.1%
Return On Total Capital 2.9%
Ret/ On T. Cap. - 3 Yr. Avg. 2.7%
Return On Equity 4%
Return On Equity - 3 Yr. Avg. 4.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 13.1%
EBITDA Margin - 3 Yr. Avg. 14%
Operating Margin 5.9%
Oper. Margin - 3 Yr. Avg. 7.2%
Pre-Tax Margin 4.7%
Pre-Tax Margin - 3 Yr. Avg. 4.2%
Net Profit Margin 3.2%
Net Profit Margin - 3 Yr. Avg. 3%
Effective Tax Rate 33.3%
Eff/ Tax Rate - 3 Yr. Avg. 25%
Payout Ratio 135.7%

AIF stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AIF stock intrinsic value calculation we used $443 million for the last fiscal year's total revenue generated by Altus Group Limited. The default revenue input number comes from 2016 income statement of Altus Group Limited. 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 AIF stock valuation model: a) initial revenue growth rate of 3.6% 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 AIF is calculated based on our internal credit rating of Altus Group Limited, 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 Altus Group Limited.
    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 AIF 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 $57 million in the base year in the intrinsic value calculation for AIF 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 3.5% for Altus Group Limited.

Corporate tax rate of 27% is the nominal tax rate for Altus Group Limited. 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 AIF 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 AIF are equal to 33.7%.

Life of production assets of 11.5 years is the average useful life of capital assets used in Altus Group Limited 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 AIF is equal to 9.9%. 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 - $341 million for Altus Group Limited - 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 37.923 million for Altus Group Limited 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 Altus Group Limited at the current share price and the inputted number of shares is $1.2 billion.


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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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