Intrinsic value of Canadian Utilities Limited Class A Non-V - CU

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$40.81

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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$40.81

 
Intrinsic value

$49.15

 
Up/down potential

+20%

 
Rating

buy

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

We calculate the intrinsic value of CU 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 11.0

 

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, %
  4.14
  17.80
  16.52
  15.37
  14.33
  13.40
  12.56
  11.80
  11.12
  10.51
  9.96
  9.46
  9.02
  8.62
  8.25
  7.93
  7.64
  7.37
  7.13
  6.92
  6.73
  6.56
  6.40
  6.26
  6.13
  6.02
  5.92
  5.83
  5.74
  5.67
  5.60
Revenue, $m
  0
  4,004
  4,665
  5,382
  6,154
  6,978
  7,855
  8,782
  9,758
  10,784
  11,858
  12,980
  14,151
  15,370
  16,638
  17,957
  19,329
  20,753
  22,234
  23,773
  25,373
  27,036
  28,767
  30,568
  32,443
  34,396
  36,432
  38,555
  40,769
  43,081
  45,495
Variable operating expenses, $m
 
  2,955
  3,443
  3,972
  4,542
  5,150
  5,797
  6,481
  7,202
  7,959
  8,751
  9,579
  10,443
  11,343
  12,279
  13,253
  14,264
  15,316
  16,409
  17,544
  18,725
  19,953
  21,230
  22,559
  23,943
  25,384
  26,887
  28,453
  30,088
  31,794
  33,575
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
  2,152
  2,955
  3,443
  3,972
  4,542
  5,150
  5,797
  6,481
  7,202
  7,959
  8,751
  9,579
  10,443
  11,343
  12,279
  13,253
  14,264
  15,316
  16,409
  17,544
  18,725
  19,953
  21,230
  22,559
  23,943
  25,384
  26,887
  28,453
  30,088
  31,794
  33,575
Operating income, $m
  1,247
  1,049
  1,222
  1,410
  1,612
  1,828
  2,058
  2,301
  2,557
  2,825
  3,107
  3,401
  3,707
  4,027
  4,359
  4,705
  5,064
  5,437
  5,825
  6,229
  6,648
  7,083
  7,537
  8,009
  8,500
  9,012
  9,545
  10,101
  10,682
  11,287
  11,920
EBITDA, $m
  1,820
  1,594
  1,857
  2,142
  2,449
  2,777
  3,126
  3,495
  3,884
  4,292
  4,720
  5,166
  5,632
  6,117
  6,622
  7,147
  7,693
  8,260
  8,849
  9,462
  10,098
  10,760
  11,449
  12,166
  12,912
  13,690
  14,500
  15,345
  16,226
  17,146
  18,107
Interest expense (income), $m
  394
  391
  496
  610
  733
  865
  1,007
  1,157
  1,316
  1,484
  1,660
  1,844
  2,037
  2,238
  2,447
  2,665
  2,891
  3,127
  3,371
  3,625
  3,889
  4,164
  4,450
  4,747
  5,056
  5,378
  5,713
  6,062
  6,427
  6,807
  7,204
Earnings before tax, $m
  865
  658
  726
  801
  880
  963
  1,051
  1,144
  1,240
  1,342
  1,447
  1,557
  1,671
  1,789
  1,912
  2,040
  2,173
  2,311
  2,454
  2,603
  2,758
  2,919
  3,087
  3,262
  3,444
  3,634
  3,832
  4,039
  4,255
  4,480
  4,716
Tax expense, $m
  236
  178
  196
  216
  237
  260
  284
  309
  335
  362
  391
  420
  451
  483
  516
  551
  587
  624
  663
  703
  745
  788
  834
  881
  930
  981
  1,035
  1,091
  1,149
  1,210
  1,273
Net income, $m
  629
  480
  530
  584
  642
  703
  767
  835
  906
  979
  1,056
  1,136
  1,220
  1,306
  1,396
  1,489
  1,586
  1,687
  1,792
  1,900
  2,013
  2,131
  2,254
  2,381
  2,514
  2,653
  2,797
  2,948
  3,106
  3,271
  3,443

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  345
  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
  18,781
  21,761
  25,356
  29,253
  33,445
  37,926
  42,689
  47,727
  53,035
  58,609
  64,446
  70,545
  76,906
  83,531
  90,425
  97,594
  105,046
  112,790
  120,837
  129,201
  137,895
  146,935
  156,340
  166,128
  176,319
  186,935
  197,999
  209,537
  221,573
  234,136
  247,255
Adjusted assets (=assets-cash), $m
  18,436
  21,761
  25,356
  29,253
  33,445
  37,926
  42,689
  47,727
  53,035
  58,609
  64,446
  70,545
  76,906
  83,531
  90,425
  97,594
  105,046
  112,790
  120,837
  129,201
  137,895
  146,935
  156,340
  166,128
  176,319
  186,935
  197,999
  209,537
  221,573
  234,136
  247,255
Revenue / Adjusted assets
  0.000
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
  0.184
Average production assets, $m
  2,312
  2,723
  3,173
  3,660
  4,185
  4,745
  5,341
  5,972
  6,636
  7,333
  8,063
  8,827
  9,622
  10,451
  11,314
  12,211
  13,143
  14,112
  15,119
  16,166
  17,253
  18,385
  19,561
  20,786
  22,061
  23,389
  24,774
  26,217
  27,723
  29,295
  30,937
Working capital, $m
  93
  -28
  -33
  -38
  -43
  -49
  -55
  -61
  -68
  -75
  -83
  -91
  -99
  -108
  -116
  -126
  -135
  -145
  -156
  -166
  -178
  -189
  -201
  -214
  -227
  -241
  -255
  -270
  -285
  -302
  -318
Total debt, $m
  8,378
  10,336
  12,701
  15,265
  18,024
  20,972
  24,106
  27,421
  30,914
  34,582
  38,423
  42,435
  46,621
  50,980
  55,517
  60,234
  65,137
  70,233
  75,528
  81,031
  86,752
  92,700
  98,889
  105,329
  112,035
  119,020
  126,301
  133,892
  141,812
  150,079
  158,711
Total liabilities, $m
  12,361
  14,319
  16,684
  19,248
  22,007
  24,955
  28,089
  31,404
  34,897
  38,565
  42,406
  46,418
  50,604
  54,963
  59,500
  64,217
  69,120
  74,216
  79,511
  85,014
  90,735
  96,683
  102,872
  109,312
  116,018
  123,003
  130,284
  137,875
  145,795
  154,062
  162,694
Total equity, $m
  6,420
  7,442
  8,672
  10,004
  11,438
  12,971
  14,600
  16,323
  18,138
  20,044
  22,041
  24,126
  26,302
  28,568
  30,925
  33,377
  35,926
  38,574
  41,326
  44,187
  47,160
  50,252
  53,468
  56,816
  60,301
  63,932
  67,716
  71,662
  75,778
  80,075
  84,561
Total liabilities and equity, $m
  18,781
  21,761
  25,356
  29,252
  33,445
  37,926
  42,689
  47,727
  53,035
  58,609
  64,447
  70,544
  76,906
  83,531
  90,425
  97,594
  105,046
  112,790
  120,837
  129,201
  137,895
  146,935
  156,340
  166,128
  176,319
  186,935
  198,000
  209,537
  221,573
  234,137
  247,255
Debt-to-equity ratio
  1.305
  1.390
  1.460
  1.530
  1.580
  1.620
  1.650
  1.680
  1.700
  1.730
  1.740
  1.760
  1.770
  1.780
  1.800
  1.800
  1.810
  1.820
  1.830
  1.830
  1.840
  1.840
  1.850
  1.850
  1.860
  1.860
  1.870
  1.870
  1.870
  1.870
  1.880
Adjusted equity ratio
  0.333
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342
  0.342

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  629
  480
  530
  584
  642
  703
  767
  835
  906
  979
  1,056
  1,136
  1,220
  1,306
  1,396
  1,489
  1,586
  1,687
  1,792
  1,900
  2,013
  2,131
  2,254
  2,381
  2,514
  2,653
  2,797
  2,948
  3,106
  3,271
  3,443
Depreciation, amort., depletion, $m
  573
  545
  635
  732
  837
  949
  1,068
  1,194
  1,327
  1,467
  1,613
  1,765
  1,924
  2,090
  2,263
  2,442
  2,629
  2,822
  3,024
  3,233
  3,451
  3,677
  3,912
  4,157
  4,412
  4,678
  4,955
  5,243
  5,545
  5,859
  6,187
Funds from operations, $m
  1,466
  1,025
  1,165
  1,316
  1,479
  1,652
  1,836
  2,029
  2,233
  2,446
  2,669
  2,902
  3,144
  3,396
  3,659
  3,931
  4,215
  4,509
  4,815
  5,133
  5,464
  5,808
  6,166
  6,538
  6,926
  7,331
  7,752
  8,192
  8,651
  9,130
  9,630
Change in working capital, $m
  -156
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
Cash from operations, $m
  1,622
  1,071
  1,169
  1,321
  1,484
  1,658
  1,842
  2,036
  2,240
  2,453
  2,676
  2,909
  3,152
  3,405
  3,668
  3,941
  4,224
  4,519
  4,826
  5,144
  5,475
  5,820
  6,178
  6,551
  6,940
  7,344
  7,766
  8,207
  8,666
  9,146
  9,647
Maintenance CAPEX, $m
  0
  -462
  -545
  -635
  -732
  -837
  -949
  -1,068
  -1,194
  -1,327
  -1,467
  -1,613
  -1,765
  -1,924
  -2,090
  -2,263
  -2,442
  -2,629
  -2,822
  -3,024
  -3,233
  -3,451
  -3,677
  -3,912
  -4,157
  -4,412
  -4,678
  -4,955
  -5,243
  -5,545
  -5,859
New CAPEX, $m
  -1,293
  -411
  -450
  -488
  -525
  -561
  -596
  -630
  -664
  -697
  -730
  -763
  -796
  -829
  -863
  -897
  -932
  -969
  -1,007
  -1,046
  -1,088
  -1,131
  -1,177
  -1,225
  -1,275
  -1,328
  -1,384
  -1,444
  -1,506
  -1,572
  -1,641
Cash from investing activities, $m
  -1,456
  -873
  -995
  -1,123
  -1,257
  -1,398
  -1,545
  -1,698
  -1,858
  -2,024
  -2,197
  -2,376
  -2,561
  -2,753
  -2,953
  -3,160
  -3,374
  -3,598
  -3,829
  -4,070
  -4,321
  -4,582
  -4,854
  -5,137
  -5,432
  -5,740
  -6,062
  -6,399
  -6,749
  -7,117
  -7,500
Free cash flow, $m
  166
  198
  175
  199
  228
  260
  297
  337
  381
  429
  479
  534
  591
  651
  715
  781
  850
  922
  996
  1,074
  1,154
  1,238
  1,324
  1,414
  1,507
  1,604
  1,704
  1,808
  1,917
  2,029
  2,146
Issuance/(repayment) of debt, $m
  410
  2,187
  2,365
  2,564
  2,758
  2,948
  3,134
  3,315
  3,493
  3,668
  3,841
  4,013
  4,185
  4,360
  4,536
  4,717
  4,903
  5,095
  5,295
  5,503
  5,721
  5,949
  6,188
  6,440
  6,706
  6,985
  7,280
  7,592
  7,920
  8,266
  8,632
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  
  23
  2,187
  2,365
  2,564
  2,758
  2,948
  3,134
  3,315
  3,493
  3,668
  3,841
  4,013
  4,185
  4,360
  4,536
  4,717
  4,903
  5,095
  5,295
  5,503
  5,721
  5,949
  6,188
  6,440
  6,706
  6,985
  7,280
  7,592
  7,920
  8,266
  8,632
Total cash flow (excl. dividends), $m
  185
  2,385
  2,540
  2,763
  2,986
  3,209
  3,431
  3,652
  3,874
  4,096
  4,320
  4,547
  4,776
  5,011
  5,251
  5,498
  5,753
  6,017
  6,291
  6,577
  6,875
  7,187
  7,513
  7,854
  8,213
  8,589
  8,985
  9,400
  9,837
  10,296
  10,778
Retained Cash Flow (-), $m
  -227
  -1,138
  -1,229
  -1,333
  -1,434
  -1,532
  -1,629
  -1,723
  -1,815
  -1,906
  -1,996
  -2,086
  -2,175
  -2,266
  -2,358
  -2,452
  -2,548
  -2,648
  -2,752
  -2,860
  -2,973
  -3,092
  -3,216
  -3,347
  -3,485
  -3,631
  -3,784
  -3,946
  -4,116
  -4,297
  -4,486
Prev. year cash balance distribution, $m
 
  116
  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
 
  1,362
  1,311
  1,431
  1,553
  1,676
  1,802
  1,929
  2,058
  2,190
  2,324
  2,461
  2,601
  2,745
  2,893
  3,046
  3,205
  3,369
  3,539
  3,717
  3,902
  4,095
  4,296
  4,507
  4,728
  4,959
  5,201
  5,454
  5,720
  5,999
  6,292
Discount rate, %
 
  8.20
  8.61
  9.04
  9.49
  9.97
  10.47
  10.99
  11.54
  12.12
  12.72
  13.36
  14.02
  14.73
  15.46
  16.24
  17.05
  17.90
  18.79
  19.73
  20.72
  21.76
  22.84
  23.99
  25.19
  26.45
  27.77
  29.16
  30.61
  32.15
  33.75
PV of cash for distribution, $m
 
  1,259
  1,111
  1,104
  1,080
  1,042
  992
  930
  859
  782
  702
  620
  538
  460
  387
  319
  258
  205
  159
  121
  90
  66
  46
  32
  22
  14
  9
  5
  3
  2
  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

Canadian Utilities Limited engages in the electricity, and pipelines and liquids businesses. It operates through Electricity, Pipelines & Liquids, and Corporate & Other segments. The Electricity segment engages in generation, distribution, and transmission of electricity to industrial, commercial, and residential customers, as well as provides transmission and infrastructure development services in northern and central east Alberta, the Yukon, the Northwest Territories, and Australia. The Pipelines & Liquids segment offer natural gas transmission, distribution, and infrastructure development; natural gas liquids storage and processing; and industrial water solutions throughout Alberta, the Lloydminster area of Saskatchewan, and Western Australia. It owns and operates approximately 8,500 kilometers of natural gas pipelines, 18 compressor sites, approximately 4,000 receipt and delivery points, and a salt cavern storage peaking facility located near Fort Saskatchewan, Alberta in Canada, as well as 4,000 receipt and delivery points. The Corporate & Other segment includes owning of commercial real estate in Alberta; and engages in business development activities, as well as provides billing, payment processing, credit collection, and call center services. Canadian Utilities Limited was incorporated in 1927 and is headquartered in Calgary, Canada. Canadian Utilities Ltd. operates as a subsidiary of ATCO Ltd.

FINANCIAL RATIOS  of  Canadian Utilities Limited Class A Non-V (CU)

Valuation Ratios
P/E Ratio 17.4
Price to Sales 3.2
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow 33.3
Growth Rates
Sales Growth Rate 4.1%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -22.6%
Cap. Spend. - 3 Yr. Gr. Rate -11.1%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 126.9%
Total Debt to Equity 130.5%
Interest Coverage 3
Management Effectiveness
Return On Assets 5%
Ret/ On Assets - 3 Yr. Avg. 4.9%
Return On Total Capital 4.3%
Ret/ On T. Cap. - 3 Yr. Avg. 4.3%
Return On Equity 10%
Return On Equity - 3 Yr. Avg. 9.7%
Asset Turnover 0.2
Profitability Ratios
Gross Margin 0%
Gross Margin - 3 Yr. Avg. 0%
EBITDA Margin 53.9%
EBITDA Margin - 3 Yr. Avg. 50.6%
Operating Margin 36.7%
Oper. Margin - 3 Yr. Avg. 32.3%
Pre-Tax Margin 25.4%
Pre-Tax Margin - 3 Yr. Avg. 22.9%
Net Profit Margin 18.5%
Net Profit Margin - 3 Yr. Avg. 16.5%
Effective Tax Rate 27.3%
Eff/ Tax Rate - 3 Yr. Avg. 28.6%
Payout Ratio 57.9%

CU stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the CU stock intrinsic value calculation we used $3399 million for the last fiscal year's total revenue generated by Canadian Utilities Limited Class A Non-V. The default revenue input number comes from 2016 income statement of Canadian Utilities Limited Class A Non-V. 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 CU stock valuation model: a) initial revenue growth rate of 17.8% 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 8.2%, whose default value for CU is calculated based on our internal credit rating of Canadian Utilities Limited Class A Non-V, 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 Canadian Utilities Limited Class A Non-V.
    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 CU stock the variable cost ratio is equal to 73.8%.

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 CU 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 Canadian Utilities Limited Class A Non-V.

Corporate tax rate of 27% is the nominal tax rate for Canadian Utilities Limited Class A Non-V. 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 CU 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 CU are equal to 68%.

Life of production assets of 4 years is the average useful life of capital assets used in Canadian Utilities Limited Class A Non-V 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 CU is equal to -0.7%. 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 - $6420 million for Canadian Utilities Limited Class A Non-V - 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 268.974 million for Canadian Utilities Limited Class A Non-V 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 Canadian Utilities Limited Class A Non-V at the current share price and the inputted number of shares is $11.0 billion.


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Stock chart of CU Financial statements of CU
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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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