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

Previous Close

$37.94

  Intrinsic Value

$58.71

stock screener

  Rating & Target

str. buy

+55%

Previous close

$37.94

 
Intrinsic value

$58.71

 
Up/down potential

+55%

 
Rating

str. buy

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 10.3

 

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, %
  4.14
  20.20
  18.68
  17.31
  16.08
  14.97
  13.98
  13.08
  12.27
  11.54
  10.89
  10.30
  9.77
  9.29
  8.86
  8.48
  8.13
  7.82
  7.53
  7.28
  7.05
  6.85
  6.66
  6.50
  6.35
  6.21
  6.09
  5.98
  5.88
  5.80
  5.72
Revenue, $m
  0
  4,086
  4,849
  5,688
  6,603
  7,592
  8,653
  9,784
  10,985
  12,253
  13,587
  14,986
  16,450
  17,979
  19,573
  21,232
  22,958
  24,752
  26,617
  28,556
  30,570
  32,663
  34,839
  37,103
  39,458
  41,909
  44,462
  47,122
  49,894
  52,786
  55,803
Variable operating expenses, $m
 
  3,015
  3,578
  4,198
  4,873
  5,603
  6,386
  7,221
  8,107
  9,042
  10,027
  11,060
  12,140
  13,268
  14,445
  15,669
  16,943
  18,267
  19,644
  21,074
  22,560
  24,105
  25,712
  27,382
  29,120
  30,929
  32,813
  34,776
  36,822
  38,956
  41,183
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
  3,015
  3,578
  4,198
  4,873
  5,603
  6,386
  7,221
  8,107
  9,042
  10,027
  11,060
  12,140
  13,268
  14,445
  15,669
  16,943
  18,267
  19,644
  21,074
  22,560
  24,105
  25,712
  27,382
  29,120
  30,929
  32,813
  34,776
  36,822
  38,956
  41,183
Operating income, $m
  1,247
  1,070
  1,270
  1,490
  1,730
  1,989
  2,267
  2,563
  2,878
  3,210
  3,560
  3,926
  4,310
  4,710
  5,128
  5,563
  6,015
  6,485
  6,974
  7,482
  8,009
  8,558
  9,128
  9,721
  10,338
  10,980
  11,649
  12,346
  13,072
  13,830
  14,620
EBITDA, $m
  1,820
  1,626
  1,930
  2,264
  2,628
  3,021
  3,444
  3,894
  4,372
  4,877
  5,408
  5,964
  6,547
  7,156
  7,790
  8,450
  9,137
  9,851
  10,594
  11,365
  12,167
  13,000
  13,866
  14,767
  15,704
  16,680
  17,696
  18,754
  19,858
  21,009
  22,210
Interest expense (income), $m
  394
  391
  510
  641
  785
  942
  1,112
  1,294
  1,488
  1,694
  1,912
  2,141
  2,381
  2,633
  2,895
  3,168
  3,453
  3,750
  4,058
  4,378
  4,710
  5,056
  5,416
  5,789
  6,178
  6,582
  7,003
  7,441
  7,897
  8,373
  8,870
Earnings before tax, $m
  865
  679
  760
  849
  945
  1,047
  1,155
  1,269
  1,390
  1,516
  1,648
  1,785
  1,929
  2,078
  2,233
  2,394
  2,562
  2,736
  2,916
  3,104
  3,299
  3,502
  3,712
  3,932
  4,160
  4,398
  4,646
  4,905
  5,175
  5,457
  5,751
Tax expense, $m
  236
  183
  205
  229
  255
  283
  312
  343
  375
  409
  445
  482
  521
  561
  603
  646
  692
  739
  787
  838
  891
  945
  1,002
  1,062
  1,123
  1,188
  1,255
  1,324
  1,397
  1,473
  1,553
Net income, $m
  629
  496
  555
  620
  690
  764
  843
  927
  1,014
  1,107
  1,203
  1,303
  1,408
  1,517
  1,630
  1,748
  1,870
  1,997
  2,129
  2,266
  2,408
  2,556
  2,710
  2,870
  3,037
  3,211
  3,392
  3,581
  3,778
  3,983
  4,198

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
  22,204
  26,352
  30,914
  35,885
  41,258
  47,025
  53,174
  59,699
  66,590
  73,841
  81,446
  89,404
  97,712
  106,373
  115,390
  124,771
  134,524
  144,660
  155,193
  166,140
  177,517
  189,345
  201,646
  214,445
  227,768
  241,641
  256,096
  271,165
  286,880
  303,278
Adjusted assets (=assets-cash), $m
  18,436
  22,204
  26,352
  30,914
  35,885
  41,258
  47,025
  53,174
  59,699
  66,590
  73,841
  81,446
  89,404
  97,712
  106,373
  115,390
  124,771
  134,524
  144,660
  155,193
  166,140
  177,517
  189,345
  201,646
  214,445
  227,768
  241,641
  256,096
  271,165
  286,880
  303,278
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
  2,778
  3,297
  3,868
  4,490
  5,162
  5,884
  6,653
  7,470
  8,332
  9,239
  10,191
  11,186
  12,226
  13,309
  14,438
  15,611
  16,832
  18,100
  19,418
  20,787
  22,211
  23,691
  25,230
  26,831
  28,498
  30,234
  32,043
  33,928
  35,894
  37,946
Working capital, $m
  93
  -29
  -34
  -40
  -46
  -53
  -61
  -68
  -77
  -86
  -95
  -105
  -115
  -126
  -137
  -149
  -161
  -173
  -186
  -200
  -214
  -229
  -244
  -260
  -276
  -293
  -311
  -330
  -349
  -370
  -391
Total debt, $m
  8,378
  10,627
  13,357
  16,359
  19,630
  23,165
  26,959
  31,006
  35,299
  39,833
  44,604
  49,609
  54,845
  60,311
  66,010
  71,944
  78,116
  84,534
  91,203
  98,134
  105,337
  112,823
  120,606
  128,700
  137,122
  145,888
  155,017
  164,528
  174,443
  184,784
  195,574
Total liabilities, $m
  12,361
  14,610
  17,340
  20,342
  23,613
  27,148
  30,942
  34,989
  39,282
  43,816
  48,587
  53,592
  58,828
  64,294
  69,993
  75,927
  82,099
  88,517
  95,186
  102,117
  109,320
  116,806
  124,589
  132,683
  141,105
  149,871
  159,000
  168,511
  178,426
  188,767
  199,557
Total equity, $m
  6,420
  7,594
  9,012
  10,573
  12,273
  14,110
  16,082
  18,186
  20,417
  22,774
  25,254
  27,855
  30,576
  33,417
  36,379
  39,463
  42,672
  46,007
  49,474
  53,076
  56,820
  60,711
  64,756
  68,963
  73,340
  77,896
  82,641
  87,585
  92,738
  98,113
  103,721
Total liabilities and equity, $m
  18,781
  22,204
  26,352
  30,915
  35,886
  41,258
  47,024
  53,175
  59,699
  66,590
  73,841
  81,447
  89,404
  97,711
  106,372
  115,390
  124,771
  134,524
  144,660
  155,193
  166,140
  177,517
  189,345
  201,646
  214,445
  227,767
  241,641
  256,096
  271,164
  286,880
  303,278
Debt-to-equity ratio
  1.305
  1.400
  1.480
  1.550
  1.600
  1.640
  1.680
  1.700
  1.730
  1.750
  1.770
  1.780
  1.790
  1.800
  1.810
  1.820
  1.830
  1.840
  1.840
  1.850
  1.850
  1.860
  1.860
  1.870
  1.870
  1.870
  1.880
  1.880
  1.880
  1.880
  1.890
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
  496
  555
  620
  690
  764
  843
  927
  1,014
  1,107
  1,203
  1,303
  1,408
  1,517
  1,630
  1,748
  1,870
  1,997
  2,129
  2,266
  2,408
  2,556
  2,710
  2,870
  3,037
  3,211
  3,392
  3,581
  3,778
  3,983
  4,198
Depreciation, amort., depletion, $m
  573
  556
  659
  774
  898
  1,032
  1,177
  1,331
  1,494
  1,666
  1,848
  2,038
  2,237
  2,445
  2,662
  2,888
  3,122
  3,366
  3,620
  3,884
  4,157
  4,442
  4,738
  5,046
  5,366
  5,700
  6,047
  6,409
  6,786
  7,179
  7,589
Funds from operations, $m
  1,466
  1,052
  1,214
  1,394
  1,588
  1,797
  2,020
  2,257
  2,508
  2,773
  3,051
  3,341
  3,645
  3,962
  4,292
  4,635
  4,992
  5,363
  5,749
  6,149
  6,566
  6,998
  7,448
  7,916
  8,403
  8,910
  9,439
  9,989
  10,563
  11,162
  11,787
Change in working capital, $m
  -156
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -15
  -16
  -16
  -17
  -18
  -19
  -19
  -20
  -21
Cash from operations, $m
  1,622
  1,056
  1,220
  1,399
  1,594
  1,804
  2,027
  2,265
  2,517
  2,782
  3,060
  3,351
  3,655
  3,973
  4,303
  4,647
  5,004
  5,376
  5,762
  6,163
  6,580
  7,013
  7,463
  7,932
  8,420
  8,928
  9,457
  10,008
  10,583
  11,182
  11,808
Maintenance CAPEX, $m
  0
  -462
  -556
  -659
  -774
  -898
  -1,032
  -1,177
  -1,331
  -1,494
  -1,666
  -1,848
  -2,038
  -2,237
  -2,445
  -2,662
  -2,888
  -3,122
  -3,366
  -3,620
  -3,884
  -4,157
  -4,442
  -4,738
  -5,046
  -5,366
  -5,700
  -6,047
  -6,409
  -6,786
  -7,179
New CAPEX, $m
  -1,293
  -466
  -519
  -571
  -622
  -672
  -721
  -769
  -816
  -862
  -907
  -952
  -996
  -1,040
  -1,084
  -1,128
  -1,174
  -1,220
  -1,268
  -1,318
  -1,370
  -1,424
  -1,480
  -1,539
  -1,601
  -1,667
  -1,736
  -1,809
  -1,885
  -1,966
  -2,052
Cash from investing activities, $m
  -1,456
  -928
  -1,075
  -1,230
  -1,396
  -1,570
  -1,753
  -1,946
  -2,147
  -2,356
  -2,573
  -2,800
  -3,034
  -3,277
  -3,529
  -3,790
  -4,062
  -4,342
  -4,634
  -4,938
  -5,254
  -5,581
  -5,922
  -6,277
  -6,647
  -7,033
  -7,436
  -7,856
  -8,294
  -8,752
  -9,231
Free cash flow, $m
  166
  128
  145
  169
  198
  233
  273
  319
  370
  426
  486
  552
  622
  696
  774
  857
  943
  1,033
  1,127
  1,225
  1,327
  1,432
  1,541
  1,655
  1,772
  1,894
  2,021
  2,152
  2,289
  2,431
  2,578
Issuance/(repayment) of debt, $m
  410
  2,478
  2,729
  3,002
  3,271
  3,535
  3,794
  4,047
  4,293
  4,534
  4,771
  5,004
  5,236
  5,467
  5,699
  5,934
  6,172
  6,417
  6,670
  6,931
  7,203
  7,486
  7,783
  8,094
  8,422
  8,766
  9,129
  9,512
  9,915
  10,341
  10,790
Issuance/(repurchase) of shares, $m
  4
  794
  864
  940
  1,010
  1,073
  1,129
  1,177
  1,217
  1,250
  1,277
  1,298
  1,313
  1,325
  1,332
  1,336
  1,338
  1,339
  1,338
  1,337
  1,335
  1,335
  1,335
  1,337
  1,340
  1,345
  1,353
  1,363
  1,376
  1,391
  1,410
Cash from financing (excl. dividends), $m  
  23
  3,272
  3,593
  3,942
  4,281
  4,608
  4,923
  5,224
  5,510
  5,784
  6,048
  6,302
  6,549
  6,792
  7,031
  7,270
  7,510
  7,756
  8,008
  8,268
  8,538
  8,821
  9,118
  9,431
  9,762
  10,111
  10,482
  10,875
  11,291
  11,732
  12,200
Total cash flow (excl. dividends), $m
  185
  3,400
  3,738
  4,111
  4,480
  4,842
  5,196
  5,542
  5,880
  6,210
  6,534
  6,854
  7,171
  7,487
  7,805
  8,126
  8,454
  8,789
  9,135
  9,493
  9,865
  10,253
  10,660
  11,086
  11,534
  12,006
  12,503
  13,027
  13,580
  14,163
  14,778
Retained Cash Flow (-), $m
  -227
  -1,290
  -1,419
  -1,560
  -1,700
  -1,838
  -1,972
  -2,103
  -2,231
  -2,357
  -2,480
  -2,601
  -2,721
  -2,841
  -2,962
  -3,084
  -3,208
  -3,335
  -3,467
  -3,602
  -3,744
  -3,891
  -4,045
  -4,207
  -4,377
  -4,556
  -4,745
  -4,944
  -5,153
  -5,375
  -5,608
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
 
  2,226
  2,319
  2,551
  2,780
  3,005
  3,224
  3,439
  3,648
  3,853
  4,055
  4,253
  4,450
  4,646
  4,843
  5,043
  5,246
  5,454
  5,668
  5,890
  6,121
  6,362
  6,614
  6,879
  7,157
  7,450
  7,758
  8,083
  8,426
  8,788
  9,170
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
 
  2,058
  1,966
  1,968
  1,934
  1,868
  1,775
  1,658
  1,523
  1,377
  1,224
  1,071
  921
  779
  647
  528
  423
  332
  255
  192
  142
  102
  72
  49
  33
  21
  13
  8
  5
  3
  1
Current shareholders' claim on cash, %
  100
  92.7
  86.5
  81.2
  76.6
  72.7
  69.2
  66.2
  63.5
  61.2
  59.1
  57.2
  55.6
  54.1
  52.8
  51.6
  50.5
  49.6
  48.7
  47.9
  47.1
  46.5
  45.8
  45.2
  44.7
  44.2
  43.7
  43.3
  42.8
  42.4
  42.1

Canadian Utilities Limited is a global enterprise company. Its segments include Electricity, Pipeline & Liquids, and Corporate & Other. Its Electricity segment's activities are conducted through two regulated businesses; ATCO Electric Distribution and ATCO Electric Transmission, and three non-regulated businesses, ATCO Power, ATCO Power Australia and Alberta PowerLine (APL). The Pipelines & Liquids segment's activities are conducted through three regulated businesses, ATCO Gas, ATCO Pipelines and ATCO Gas Australia, and one non-regulated business, ATCO Energy Solutions. It delivers natural gas distribution and transmission services, energy storage, and industrial water solutions to existing and new customers. The Corporate & Other segment includes retail energy business, which through ATCOenergy, sells electricity and natural gas to large commercial retail customers. It also includes the commercial real estate in Alberta, and the strategic investment and expansion into Mexico.

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

Valuation Ratios
P/E Ratio 16.2
Price to Sales 3
Price to Book 1.6
Price to Tangible Book
Price to Cash Flow 6.3
Price to Free Cash Flow 31
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 20.2% 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 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 270.235 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 $10.3 billion.

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Financial statements of CU
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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