Intrinsic value of Capital Power Corporation - CPX

Previous Close

$23.88

  Intrinsic Value

$6.70

stock screener

  Rating & Target

str. sell

-72%

Previous close

$23.88

 
Intrinsic value

$6.70

 
Up/down potential

-72%

 
Rating

str. sell

We calculate the intrinsic value of CPX 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 2.5

 

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, %
  -2.18
  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
  1,214
  1,238
  1,267
  1,299
  1,336
  1,376
  1,421
  1,469
  1,522
  1,578
  1,639
  1,703
  1,772
  1,846
  1,924
  2,007
  2,095
  2,188
  2,287
  2,391
  2,501
  2,617
  2,739
  2,868
  3,004
  3,147
  3,297
  3,456
  3,622
  3,798
  3,982
Variable operating expenses, $m
 
  1,008
  1,031
  1,057
  1,087
  1,120
  1,156
  1,195
  1,238
  1,284
  1,333
  1,383
  1,439
  1,499
  1,563
  1,630
  1,702
  1,777
  1,857
  1,942
  2,031
  2,125
  2,224
  2,329
  2,439
  2,555
  2,678
  2,806
  2,942
  3,084
  3,234
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
  1,032
  1,008
  1,031
  1,057
  1,087
  1,120
  1,156
  1,195
  1,238
  1,284
  1,333
  1,383
  1,439
  1,499
  1,563
  1,630
  1,702
  1,777
  1,857
  1,942
  2,031
  2,125
  2,224
  2,329
  2,439
  2,555
  2,678
  2,806
  2,942
  3,084
  3,234
Operating income, $m
  182
  230
  236
  242
  249
  256
  265
  274
  284
  294
  306
  320
  333
  347
  362
  377
  394
  411
  430
  449
  470
  492
  515
  539
  564
  591
  620
  649
  681
  714
  748
EBITDA, $m
  398
  451
  461
  473
  486
  501
  517
  535
  554
  574
  596
  620
  645
  672
  700
  731
  763
  797
  832
  870
  910
  953
  997
  1,044
  1,093
  1,145
  1,200
  1,258
  1,319
  1,382
  1,450
Interest expense (income), $m
  76
  72
  75
  79
  83
  88
  93
  98
  104
  111
  118
  126
  134
  143
  152
  162
  172
  184
  195
  208
  221
  235
  249
  265
  281
  298
  316
  335
  355
  376
  399
Earnings before tax, $m
  132
  158
  160
  163
  166
  169
  172
  175
  179
  183
  187
  194
  199
  204
  210
  215
  221
  228
  234
  242
  249
  257
  265
  274
  283
  293
  303
  314
  325
  337
  350
Tax expense, $m
  30
  43
  43
  44
  45
  46
  46
  47
  48
  49
  51
  52
  54
  55
  57
  58
  60
  61
  63
  65
  67
  69
  72
  74
  76
  79
  82
  85
  88
  91
  94
Net income, $m
  111
  115
  117
  119
  121
  123
  126
  128
  131
  134
  137
  142
  145
  149
  153
  157
  162
  166
  171
  176
  182
  188
  194
  200
  207
  214
  221
  229
  237
  246
  255

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  20
  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
  6,062
  6,161
  6,302
  6,464
  6,646
  6,848
  7,069
  7,309
  7,570
  7,851
  8,152
  8,474
  8,818
  9,184
  9,574
  9,987
  10,424
  10,888
  11,377
  11,895
  12,442
  13,018
  13,627
  14,268
  14,943
  15,654
  16,403
  17,192
  18,021
  18,894
  19,812
Adjusted assets (=assets-cash), $m
  6,042
  6,161
  6,302
  6,464
  6,646
  6,848
  7,069
  7,309
  7,570
  7,851
  8,152
  8,474
  8,818
  9,184
  9,574
  9,987
  10,424
  10,888
  11,377
  11,895
  12,442
  13,018
  13,627
  14,268
  14,943
  15,654
  16,403
  17,192
  18,021
  18,894
  19,812
Revenue / Adjusted assets
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
  0.201
Average production assets, $m
  2,202
  2,246
  2,298
  2,357
  2,423
  2,497
  2,577
  2,665
  2,760
  2,862
  2,972
  3,090
  3,215
  3,349
  3,491
  3,641
  3,801
  3,970
  4,148
  4,337
  4,536
  4,747
  4,968
  5,202
  5,448
  5,708
  5,981
  6,268
  6,571
  6,889
  7,224
Working capital, $m
  6
  191
  195
  200
  206
  212
  219
  226
  234
  243
  252
  262
  273
  284
  296
  309
  323
  337
  352
  368
  385
  403
  422
  442
  463
  485
  508
  532
  558
  585
  613
Total debt, $m
  1,528
  1,568
  1,643
  1,729
  1,825
  1,931
  2,048
  2,176
  2,314
  2,462
  2,621
  2,792
  2,974
  3,168
  3,373
  3,592
  3,823
  4,069
  4,328
  4,602
  4,891
  5,196
  5,517
  5,857
  6,214
  6,590
  6,986
  7,403
  7,842
  8,304
  8,790
Total liabilities, $m
  3,219
  3,259
  3,334
  3,420
  3,516
  3,622
  3,739
  3,867
  4,005
  4,153
  4,312
  4,483
  4,665
  4,859
  5,064
  5,283
  5,514
  5,760
  6,019
  6,293
  6,582
  6,887
  7,208
  7,548
  7,905
  8,281
  8,677
  9,094
  9,533
  9,995
  10,481
Total equity, $m
  2,843
  2,902
  2,968
  3,045
  3,130
  3,225
  3,329
  3,443
  3,565
  3,698
  3,840
  3,991
  4,153
  4,326
  4,509
  4,704
  4,910
  5,128
  5,359
  5,603
  5,860
  6,132
  6,418
  6,720
  7,038
  7,373
  7,726
  8,097
  8,488
  8,899
  9,332
Total liabilities and equity, $m
  6,062
  6,161
  6,302
  6,465
  6,646
  6,847
  7,068
  7,310
  7,570
  7,851
  8,152
  8,474
  8,818
  9,185
  9,573
  9,987
  10,424
  10,888
  11,378
  11,896
  12,442
  13,019
  13,626
  14,268
  14,943
  15,654
  16,403
  17,191
  18,021
  18,894
  19,813
Debt-to-equity ratio
  0.537
  0.540
  0.550
  0.570
  0.580
  0.600
  0.620
  0.630
  0.650
  0.670
  0.680
  0.700
  0.720
  0.730
  0.750
  0.760
  0.780
  0.790
  0.810
  0.820
  0.830
  0.850
  0.860
  0.870
  0.880
  0.890
  0.900
  0.910
  0.920
  0.930
  0.940
Adjusted equity ratio
  0.467
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  111
  115
  117
  119
  121
  123
  126
  128
  131
  134
  137
  142
  145
  149
  153
  157
  162
  166
  171
  176
  182
  188
  194
  200
  207
  214
  221
  229
  237
  246
  255
Depreciation, amort., depletion, $m
  216
  220
  225
  231
  238
  245
  253
  261
  270
  280
  291
  300
  312
  325
  339
  354
  369
  385
  403
  421
  440
  461
  482
  505
  529
  554
  581
  609
  638
  669
  701
Funds from operations, $m
  292
  336
  343
  350
  359
  368
  378
  389
  401
  414
  428
  442
  457
  474
  492
  511
  531
  552
  574
  597
  622
  648
  676
  705
  736
  768
  802
  838
  875
  915
  957
Change in working capital, $m
  -83
  4
  4
  5
  6
  6
  7
  7
  8
  9
  9
  10
  11
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
Cash from operations, $m
  375
  332
  338
  345
  353
  362
  371
  382
  393
  405
  418
  432
  447
  463
  480
  498
  517
  537
  559
  581
  605
  631
  657
  685
  715
  746
  779
  813
  850
  888
  928
Maintenance CAPEX, $m
  0
  -214
  -218
  -223
  -229
  -235
  -242
  -250
  -259
  -268
  -278
  -289
  -300
  -312
  -325
  -339
  -354
  -369
  -385
  -403
  -421
  -440
  -461
  -482
  -505
  -529
  -554
  -581
  -609
  -638
  -669
New CAPEX, $m
  -313
  -44
  -52
  -59
  -66
  -73
  -81
  -88
  -95
  -102
  -110
  -118
  -125
  -134
  -142
  -151
  -160
  -169
  -179
  -189
  -199
  -210
  -222
  -234
  -246
  -259
  -273
  -287
  -302
  -318
  -335
Cash from investing activities, $m
  -253
  -258
  -270
  -282
  -295
  -308
  -323
  -338
  -354
  -370
  -388
  -407
  -425
  -446
  -467
  -490
  -514
  -538
  -564
  -592
  -620
  -650
  -683
  -716
  -751
  -788
  -827
  -868
  -911
  -956
  -1,004
Free cash flow, $m
  122
  74
  68
  63
  58
  53
  48
  44
  39
  35
  31
  26
  21
  17
  13
  8
  4
  -1
  -5
  -10
  -15
  -20
  -25
  -31
  -37
  -42
  -48
  -55
  -61
  -68
  -75
Issuance/(repayment) of debt, $m
  -96
  60
  75
  86
  96
  107
  117
  127
  138
  149
  159
  171
  182
  194
  206
  218
  232
  245
  259
  274
  289
  305
  322
  339
  357
  376
  396
  417
  439
  462
  486
Issuance/(repurchase) of shares, $m
  178
  0
  0
  0
  0
  0
  0
  0
  0
  0
  5
  10
  17
  23
  30
  37
  45
  52
  60
  68
  76
  84
  93
  102
  111
  121
  131
  142
  153
  165
  177
Cash from financing (excl. dividends), $m  
  64
  60
  75
  86
  96
  107
  117
  127
  138
  149
  164
  181
  199
  217
  236
  255
  277
  297
  319
  342
  365
  389
  415
  441
  468
  497
  527
  559
  592
  627
  663
Total cash flow (excl. dividends), $m
  184
  134
  143
  149
  154
  159
  165
  171
  177
  183
  195
  206
  220
  234
  249
  264
  280
  296
  313
  331
  350
  369
  389
  410
  432
  455
  479
  504
  531
  558
  587
Retained Cash Flow (-), $m
  -95
  -59
  -67
  -76
  -86
  -95
  -104
  -113
  -123
  -132
  -142
  -152
  -162
  -172
  -183
  -195
  -206
  -218
  -231
  -244
  -257
  -272
  -286
  -302
  -318
  -335
  -353
  -371
  -391
  -411
  -432
Prev. year cash balance distribution, $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 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
 
  75
  77
  72
  68
  65
  61
  58
  54
  51
  53
  54
  58
  62
  66
  70
  74
  78
  83
  87
  92
  97
  103
  108
  114
  120
  126
  133
  140
  147
  155
Discount rate, %
 
  6.10
  6.41
  6.73
  7.06
  7.41
  7.79
  8.17
  8.58
  9.01
  9.46
  9.94
  10.43
  10.95
  11.50
  12.08
  12.68
  13.32
  13.98
  14.68
  15.41
  16.19
  16.99
  17.84
  18.74
  19.67
  20.66
  21.69
  22.77
  23.91
  25.11
PV of cash for distribution, $m
 
  71
  68
  59
  52
  45
  39
  33
  28
  24
  22
  19
  18
  16
  14
  13
  11
  9
  8
  6
  5
  4
  3
  2
  2
  1
  1
  1
  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
  99.8
  99.5
  99.1
  98.5
  97.7
  96.8
  95.7
  94.6
  93.4
  92.1
  90.7
  89.2
  87.7
  86.2
  84.6
  83.0
  81.3
  79.7
  78.0
  76.3
  74.7

Capital Power Corporation is a North American power producing company. The Company develops, acquires, operates and optimizes power generation from a range of energy sources. The Company is engaged in the operation of electrical generation facilities within Canada, including Alberta, British Columbia and Ontario, and in the United States, including North Carolina, New Mexico and Kansas. It also holds a portfolio of wind and solar development sites in the United States. It owns over 3,200 megawatts (MW) of power generation capacity at approximately 20 facilities across North America and owns approximately 370 MW of capacity through its interest in the Sundance C power purchase arrangement (Sundance PPA). It also owns natural gas, wind, and solid fuel facilities and has a range of generation facilities in development or construction in Canada and the United States. Its facilities include Clover Bar Energy Centre 1, 2 and 3, Genesee 3, Keephills 3, Clover Bar Landfill Gas and K2 Wind.

FINANCIAL RATIOS  of  Capital Power Corporation (CPX)

Valuation Ratios
P/E Ratio 20.7
Price to Sales 1.9
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 6.1
Price to Free Cash Flow 37
Growth Rates
Sales Growth Rate -2.2%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 123.6%
Cap. Spend. - 3 Yr. Gr. Rate -19.8%
Financial Strength
Quick Ratio 0
Current Ratio 0.4
LT Debt to Equity 46.7%
Total Debt to Equity 53.7%
Interest Coverage 3
Management Effectiveness
Return On Assets 3%
Ret/ On Assets - 3 Yr. Avg. 2.3%
Return On Total Capital 2.5%
Ret/ On T. Cap. - 3 Yr. Avg. 1.9%
Return On Equity 4%
Return On Equity - 3 Yr. Avg. 3.1%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 34.9%
EBITDA Margin - 3 Yr. Avg. 35.9%
Operating Margin 15%
Oper. Margin - 3 Yr. Avg. 17.3%
Pre-Tax Margin 10.9%
Pre-Tax Margin - 3 Yr. Avg. 12.3%
Net Profit Margin 9.1%
Net Profit Margin - 3 Yr. Avg. 6.7%
Effective Tax Rate 22.7%
Eff/ Tax Rate - 3 Yr. Avg. 45.5%
Payout Ratio 149.5%

CPX stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CPX stock intrinsic value calculation we used $1214 million for the last fiscal year's total revenue generated by Capital Power Corporation. The default revenue input number comes from 2016 income statement of Capital Power Corporation. 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 CPX 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 6.1%, whose default value for CPX is calculated based on our internal credit rating of Capital Power Corporation, 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 Capital Power Corporation.
    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 CPX stock the variable cost ratio is equal to 81.4%.

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 CPX 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 4.8% for Capital Power Corporation.

Corporate tax rate of 27% is the nominal tax rate for Capital Power Corporation. 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 CPX 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 CPX are equal to 181.4%.

Life of production assets of 10.3 years is the average useful life of capital assets used in Capital Power Corporation 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 CPX is equal to 15.4%. 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 - $2843 million for Capital Power Corporation - 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 105.284 million for Capital Power Corporation 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 Capital Power Corporation at the current share price and the inputted number of shares is $2.5 billion.

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Financial statements of CPX
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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