Intrinsic value of CAE Inc. - CAE

Previous Close

$22.43

  Intrinsic Value

$18.18

stock screener

  Rating & Target

hold

-19%

Previous close

$22.43

 
Intrinsic value

$18.18

 
Up/down potential

-19%

 
Rating

hold

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 6.0

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   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, %
  7.64
  7.20
  6.98
  6.78
  6.60
  6.44
  6.30
  6.17
  6.05
  5.95
  5.85
  5.77
  5.69
  5.62
  5.56
  5.50
  5.45
  5.41
  5.37
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.18
  5.16
  5.14
  5.13
  5.12
  5.10
Revenue, $m
  2,705
  2,900
  3,102
  3,313
  3,531
  3,759
  3,996
  4,242
  4,499
  4,766
  5,045
  5,336
  5,640
  5,957
  6,288
  6,634
  6,996
  7,374
  7,770
  8,184
  8,618
  9,072
  9,547
  10,045
  10,567
  11,114
  11,687
  12,288
  12,918
  13,579
  14,272
Variable operating expenses, $m
 
  2,458
  2,626
  2,800
  2,981
  3,169
  3,366
  3,570
  3,782
  4,004
  4,235
  4,420
  4,672
  4,934
  5,208
  5,495
  5,795
  6,108
  6,436
  6,779
  7,138
  7,514
  7,908
  8,320
  8,753
  9,206
  9,680
  10,178
  10,700
  11,248
  11,822
Fixed operating expenses, $m
 
  46
  47
  48
  50
  51
  52
  53
  55
  56
  58
  59
  61
  62
  64
  65
  67
  68
  70
  72
  74
  76
  77
  79
  81
  83
  86
  88
  90
  92
  94
Total operating expenses, $m
  2,340
  2,504
  2,673
  2,848
  3,031
  3,220
  3,418
  3,623
  3,837
  4,060
  4,293
  4,479
  4,733
  4,996
  5,272
  5,560
  5,862
  6,176
  6,506
  6,851
  7,212
  7,590
  7,985
  8,399
  8,834
  9,289
  9,766
  10,266
  10,790
  11,340
  11,916
Operating income, $m
  365
  396
  429
  464
  501
  538
  578
  619
  662
  706
  753
  857
  908
  961
  1,016
  1,074
  1,134
  1,198
  1,264
  1,333
  1,406
  1,482
  1,562
  1,645
  1,733
  1,825
  1,921
  2,022
  2,128
  2,239
  2,356
EBITDA, $m
  577
  628
  674
  722
  771
  823
  877
  933
  991
  1,052
  1,115
  1,182
  1,251
  1,323
  1,398
  1,477
  1,560
  1,646
  1,736
  1,831
  1,930
  2,033
  2,142
  2,256
  2,375
  2,500
  2,632
  2,769
  2,913
  3,065
  3,224
Interest expense (income), $m
  59
  57
  68
  79
  91
  104
  117
  130
  144
  159
  174
  190
  207
  224
  242
  261
  281
  301
  323
  345
  369
  394
  420
  447
  475
  505
  536
  569
  603
  639
  677
Earnings before tax, $m
  292
  339
  362
  385
  409
  435
  461
  489
  517
  547
  579
  667
  701
  737
  774
  813
  854
  896
  941
  988
  1,037
  1,088
  1,142
  1,199
  1,258
  1,320
  1,385
  1,454
  1,525
  1,601
  1,680
Tax expense, $m
  35
  92
  98
  104
  111
  117
  125
  132
  140
  148
  156
  180
  189
  199
  209
  220
  231
  242
  254
  267
  280
  294
  308
  324
  340
  356
  374
  392
  412
  432
  453
Net income, $m
  252
  248
  264
  281
  299
  317
  337
  357
  378
  400
  422
  487
  512
  538
  565
  594
  623
  654
  687
  721
  757
  794
  834
  875
  918
  964
  1,011
  1,061
  1,113
  1,168
  1,226

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  505
  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
  5,355
  5,197
  5,559
  5,936
  6,329
  6,736
  7,161
  7,602
  8,062
  8,542
  9,042
  9,563
  10,107
  10,676
  11,269
  11,889
  12,538
  13,216
  13,925
  14,667
  15,444
  16,258
  17,110
  18,002
  18,937
  19,917
  20,945
  22,022
  23,151
  24,335
  25,577
Adjusted assets (=assets-cash), $m
  4,850
  5,197
  5,559
  5,936
  6,329
  6,736
  7,161
  7,602
  8,062
  8,542
  9,042
  9,563
  10,107
  10,676
  11,269
  11,889
  12,538
  13,216
  13,925
  14,667
  15,444
  16,258
  17,110
  18,002
  18,937
  19,917
  20,945
  22,022
  23,151
  24,335
  25,577
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
  0.558
Average production assets, $m
  1,906
  2,044
  2,187
  2,335
  2,490
  2,650
  2,817
  2,991
  3,172
  3,360
  3,557
  3,762
  3,976
  4,200
  4,433
  4,677
  4,932
  5,199
  5,478
  5,770
  6,076
  6,396
  6,731
  7,082
  7,450
  7,835
  8,239
  8,663
  9,107
  9,573
  10,062
Working capital, $m
  646
  206
  220
  235
  251
  267
  284
  301
  319
  338
  358
  379
  400
  423
  446
  471
  497
  524
  552
  581
  612
  644
  678
  713
  750
  789
  830
  872
  917
  964
  1,013
Total debt, $m
  1,255
  1,439
  1,685
  1,940
  2,205
  2,481
  2,769
  3,068
  3,379
  3,704
  4,042
  4,395
  4,764
  5,148
  5,550
  5,970
  6,409
  6,868
  7,348
  7,851
  8,377
  8,927
  9,504
  10,108
  10,742
  11,405
  12,101
  12,830
  13,594
  14,396
  15,237
Total liabilities, $m
  3,334
  3,518
  3,764
  4,019
  4,284
  4,560
  4,848
  5,147
  5,458
  5,783
  6,121
  6,474
  6,843
  7,227
  7,629
  8,049
  8,488
  8,947
  9,427
  9,930
  10,456
  11,006
  11,583
  12,187
  12,821
  13,484
  14,180
  14,909
  15,673
  16,475
  17,316
Total equity, $m
  2,021
  1,679
  1,796
  1,917
  2,044
  2,176
  2,313
  2,456
  2,604
  2,759
  2,921
  3,089
  3,265
  3,448
  3,640
  3,840
  4,050
  4,269
  4,498
  4,737
  4,988
  5,251
  5,526
  5,815
  6,117
  6,433
  6,765
  7,113
  7,478
  7,860
  8,261
Total liabilities and equity, $m
  5,355
  5,197
  5,560
  5,936
  6,328
  6,736
  7,161
  7,603
  8,062
  8,542
  9,042
  9,563
  10,108
  10,675
  11,269
  11,889
  12,538
  13,216
  13,925
  14,667
  15,444
  16,257
  17,109
  18,002
  18,938
  19,917
  20,945
  22,022
  23,151
  24,335
  25,577
Debt-to-equity ratio
  0.621
  0.860
  0.940
  1.010
  1.080
  1.140
  1.200
  1.250
  1.300
  1.340
  1.380
  1.420
  1.460
  1.490
  1.520
  1.550
  1.580
  1.610
  1.630
  1.660
  1.680
  1.700
  1.720
  1.740
  1.760
  1.770
  1.790
  1.800
  1.820
  1.830
  1.840
Adjusted equity ratio
  0.313
  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
  252
  248
  264
  281
  299
  317
  337
  357
  378
  400
  422
  487
  512
  538
  565
  594
  623
  654
  687
  721
  757
  794
  834
  875
  918
  964
  1,011
  1,061
  1,113
  1,168
  1,226
Depreciation, amort., depletion, $m
  212
  232
  245
  257
  271
  284
  299
  314
  329
  346
  363
  324
  343
  362
  382
  403
  425
  448
  472
  497
  524
  551
  580
  611
  642
  675
  710
  747
  785
  825
  867
Funds from operations, $m
  518
  480
  509
  538
  570
  602
  636
  671
  707
  745
  785
  811
  855
  900
  947
  997
  1,048
  1,103
  1,159
  1,219
  1,281
  1,346
  1,414
  1,486
  1,560
  1,639
  1,721
  1,808
  1,899
  1,994
  2,093
Change in working capital, $m
  54
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  31
  32
  34
  35
  37
  39
  41
  43
  45
  47
  49
Cash from operations, $m
  464
  466
  494
  524
  554
  586
  619
  653
  689
  726
  765
  791
  833
  877
  924
  972
  1,023
  1,076
  1,131
  1,189
  1,250
  1,314
  1,380
  1,450
  1,523
  1,600
  1,681
  1,765
  1,854
  1,947
  2,044
Maintenance CAPEX, $m
  0
  -164
  -176
  -189
  -201
  -215
  -228
  -243
  -258
  -273
  -290
  -307
  -324
  -343
  -362
  -382
  -403
  -425
  -448
  -472
  -497
  -524
  -551
  -580
  -611
  -642
  -675
  -710
  -747
  -785
  -825
New CAPEX, $m
  -223
  -138
  -143
  -148
  -154
  -160
  -167
  -174
  -181
  -189
  -197
  -205
  -214
  -224
  -233
  -244
  -255
  -267
  -279
  -292
  -306
  -320
  -335
  -351
  -368
  -386
  -404
  -424
  -444
  -466
  -489
Cash from investing activities, $m
  -259
  -302
  -319
  -337
  -355
  -375
  -395
  -417
  -439
  -462
  -487
  -512
  -538
  -567
  -595
  -626
  -658
  -692
  -727
  -764
  -803
  -844
  -886
  -931
  -979
  -1,028
  -1,079
  -1,134
  -1,191
  -1,251
  -1,314
Free cash flow, $m
  205
  163
  175
  187
  198
  211
  223
  236
  250
  264
  279
  279
  295
  311
  328
  346
  365
  384
  404
  425
  447
  470
  494
  519
  545
  572
  601
  631
  663
  696
  730
Issuance/(repayment) of debt, $m
  -72
  236
  246
  255
  265
  276
  287
  299
  311
  325
  338
  353
  368
  385
  402
  420
  439
  459
  480
  502
  526
  551
  577
  604
  633
  664
  696
  729
  765
  802
  841
Issuance/(repurchase) of shares, $m
  -29
  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  
  -100
  236
  246
  255
  265
  276
  287
  299
  311
  325
  338
  353
  368
  385
  402
  420
  439
  459
  480
  502
  526
  551
  577
  604
  633
  664
  696
  729
  765
  802
  841
Total cash flow (excl. dividends), $m
  100
  400
  421
  442
  464
  487
  511
  536
  562
  589
  617
  632
  663
  696
  730
  766
  803
  843
  884
  927
  973
  1,021
  1,071
  1,123
  1,178
  1,236
  1,297
  1,360
  1,427
  1,497
  1,571
Retained Cash Flow (-), $m
  -132
  -111
  -117
  -122
  -127
  -132
  -137
  -143
  -149
  -155
  -161
  -168
  -176
  -184
  -192
  -200
  -209
  -219
  -229
  -240
  -251
  -263
  -275
  -288
  -302
  -317
  -332
  -348
  -365
  -382
  -401
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
 
  742
  304
  320
  337
  355
  374
  393
  413
  434
  456
  464
  487
  512
  538
  566
  594
  624
  655
  688
  722
  758
  795
  835
  876
  919
  965
  1,013
  1,063
  1,115
  1,170
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
 
  710
  277
  277
  275
  272
  267
  261
  253
  243
  232
  213
  200
  187
  172
  157
  142
  127
  112
  97
  84
  71
  59
  49
  39
  31
  24
  18
  14
  10
  7
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

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 23.9
Price to Sales 2.2
Price to Book 3
Price to Tangible Book
Price to Cash Flow 13
Price to Free Cash Flow 25
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 7.2% 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 269.264 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 $6.0 billion.

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Financial statements of CAE
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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