Intrinsic value of Finning International Inc. - FTT

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$25.92

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$25.92

 
Intrinsic value

$2.66

 
Up/down potential

-90%

 
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 FTT 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 4.3

 

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, %
  -10.31
  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
  5,628
  5,741
  5,873
  6,024
  6,193
  6,381
  6,587
  6,811
  7,054
  7,315
  7,596
  7,897
  8,217
  8,558
  8,921
  9,306
  9,714
  10,145
  10,602
  11,084
  11,593
  12,131
  12,697
  13,295
  13,924
  14,587
  15,285
  16,020
  16,793
  17,606
  18,461
Variable operating expenses, $m
 
  5,838
  5,972
  6,125
  6,297
  6,488
  6,697
  6,924
  7,171
  7,436
  7,721
  8,014
  8,340
  8,686
  9,054
  9,444
  9,858
  10,296
  10,760
  11,249
  11,766
  12,312
  12,887
  13,493
  14,132
  14,805
  15,513
  16,258
  17,043
  17,868
  18,737
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
  5,463
  5,838
  5,972
  6,125
  6,297
  6,488
  6,697
  6,924
  7,171
  7,436
  7,721
  8,014
  8,340
  8,686
  9,054
  9,444
  9,858
  10,296
  10,760
  11,249
  11,766
  12,312
  12,887
  13,493
  14,132
  14,805
  15,513
  16,258
  17,043
  17,868
  18,737
Operating income, $m
  165
  -97
  -99
  -102
  -104
  -107
  -110
  -113
  -117
  -121
  -125
  -118
  -122
  -128
  -133
  -139
  -145
  -151
  -158
  -165
  -173
  -181
  -189
  -198
  -208
  -217
  -228
  -239
  -250
  -262
  -275
EBITDA, $m
  357
  90
  92
  95
  97
  100
  104
  107
  111
  115
  119
  124
  129
  135
  140
  146
  153
  159
  167
  174
  182
  191
  200
  209
  219
  229
  240
  252
  264
  277
  290
Interest expense (income), $m
  77
  73
  76
  79
  83
  88
  93
  98
  104
  110
  117
  124
  132
  141
  150
  159
  169
  180
  191
  203
  216
  229
  243
  258
  274
  290
  308
  326
  345
  365
  387
Earnings before tax, $m
  80
  -170
  -175
  -181
  -187
  -195
  -203
  -211
  -221
  -231
  -242
  -242
  -255
  -268
  -283
  -298
  -314
  -331
  -349
  -368
  -389
  -410
  -432
  -456
  -481
  -508
  -535
  -565
  -595
  -628
  -662
Tax expense, $m
  15
  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
Net income, $m
  65
  -170
  -175
  -181
  -187
  -195
  -203
  -211
  -221
  -231
  -242
  -242
  -255
  -268
  -283
  -298
  -314
  -331
  -349
  -368
  -389
  -410
  -432
  -456
  -481
  -508
  -535
  -565
  -595
  -628
  -662

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  593
  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
  4,910
  4,402
  4,504
  4,619
  4,749
  4,893
  5,051
  5,223
  5,409
  5,610
  5,825
  6,056
  6,301
  6,563
  6,841
  7,136
  7,449
  7,780
  8,130
  8,500
  8,891
  9,303
  9,737
  10,195
  10,678
  11,186
  11,722
  12,285
  12,878
  13,502
  14,158
Adjusted assets (=assets-cash), $m
  4,317
  4,402
  4,504
  4,619
  4,749
  4,893
  5,051
  5,223
  5,409
  5,610
  5,825
  6,056
  6,301
  6,563
  6,841
  7,136
  7,449
  7,780
  8,130
  8,500
  8,891
  9,303
  9,737
  10,195
  10,678
  11,186
  11,722
  12,285
  12,878
  13,502
  14,158
Revenue / Adjusted assets
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
  1.304
Average production assets, $m
  1,104
  1,125
  1,151
  1,181
  1,214
  1,251
  1,291
  1,335
  1,383
  1,434
  1,489
  1,548
  1,611
  1,677
  1,749
  1,824
  1,904
  1,988
  2,078
  2,172
  2,272
  2,378
  2,489
  2,606
  2,729
  2,859
  2,996
  3,140
  3,291
  3,451
  3,618
Working capital, $m
  2,145
  1,584
  1,621
  1,662
  1,709
  1,761
  1,818
  1,880
  1,947
  2,019
  2,097
  2,179
  2,268
  2,362
  2,462
  2,568
  2,681
  2,800
  2,926
  3,059
  3,200
  3,348
  3,505
  3,669
  3,843
  4,026
  4,219
  4,421
  4,635
  4,859
  5,095
Total debt, $m
  1,489
  1,548
  1,619
  1,700
  1,790
  1,891
  2,001
  2,121
  2,250
  2,390
  2,540
  2,701
  2,872
  3,054
  3,248
  3,454
  3,672
  3,903
  4,147
  4,405
  4,677
  4,964
  5,267
  5,586
  5,923
  6,277
  6,650
  7,043
  7,456
  7,891
  8,348
Total liabilities, $m
  3,009
  3,068
  3,139
  3,220
  3,310
  3,411
  3,521
  3,641
  3,770
  3,910
  4,060
  4,221
  4,392
  4,574
  4,768
  4,974
  5,192
  5,423
  5,667
  5,925
  6,197
  6,484
  6,787
  7,106
  7,443
  7,797
  8,170
  8,563
  8,976
  9,411
  9,868
Total equity, $m
  1,901
  1,334
  1,365
  1,400
  1,439
  1,483
  1,531
  1,583
  1,639
  1,700
  1,765
  1,835
  1,909
  1,989
  2,073
  2,162
  2,257
  2,357
  2,463
  2,576
  2,694
  2,819
  2,950
  3,089
  3,235
  3,389
  3,552
  3,722
  3,902
  4,091
  4,290
Total liabilities and equity, $m
  4,910
  4,402
  4,504
  4,620
  4,749
  4,894
  5,052
  5,224
  5,409
  5,610
  5,825
  6,056
  6,301
  6,563
  6,841
  7,136
  7,449
  7,780
  8,130
  8,501
  8,891
  9,303
  9,737
  10,195
  10,678
  11,186
  11,722
  12,285
  12,878
  13,502
  14,158
Debt-to-equity ratio
  0.783
  1.160
  1.190
  1.210
  1.240
  1.280
  1.310
  1.340
  1.370
  1.410
  1.440
  1.470
  1.500
  1.540
  1.570
  1.600
  1.630
  1.660
  1.680
  1.710
  1.740
  1.760
  1.790
  1.810
  1.830
  1.850
  1.870
  1.890
  1.910
  1.930
  1.950
Adjusted equity ratio
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303
  0.303

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  65
  -170
  -175
  -181
  -187
  -195
  -203
  -211
  -221
  -231
  -242
  -242
  -255
  -268
  -283
  -298
  -314
  -331
  -349
  -368
  -389
  -410
  -432
  -456
  -481
  -508
  -535
  -565
  -595
  -628
  -662
Depreciation, amort., depletion, $m
  192
  188
  192
  196
  201
  207
  214
  220
  228
  236
  244
  242
  252
  262
  273
  285
  297
  311
  325
  339
  355
  372
  389
  407
  426
  447
  468
  491
  514
  539
  565
Funds from operations, $m
  332
  17
  16
  15
  14
  13
  11
  9
  7
  5
  2
  0
  -3
  -6
  -9
  -13
  -17
  -20
  -25
  -29
  -34
  -38
  -44
  -49
  -55
  -61
  -67
  -74
  -81
  -89
  -96
Change in working capital, $m
  -108
  31
  36
  42
  47
  52
  57
  62
  67
  72
  77
  83
  88
  94
  100
  106
  113
  119
  126
  133
  141
  148
  156
  165
  174
  183
  193
  203
  213
  224
  236
Cash from operations, $m
  440
  -77
  -20
  -26
  -33
  -39
  -46
  -53
  -60
  -67
  -75
  -83
  -92
  -100
  -110
  -119
  -129
  -140
  -151
  -162
  -174
  -187
  -200
  -214
  -229
  -244
  -260
  -277
  -294
  -313
  -332
Maintenance CAPEX, $m
  0
  -172
  -176
  -180
  -184
  -190
  -195
  -202
  -209
  -216
  -224
  -233
  -242
  -252
  -262
  -273
  -285
  -297
  -311
  -325
  -339
  -355
  -372
  -389
  -407
  -426
  -447
  -468
  -491
  -514
  -539
New CAPEX, $m
  -92
  -22
  -26
  -30
  -33
  -37
  -40
  -44
  -48
  -51
  -55
  -59
  -63
  -67
  -71
  -75
  -80
  -85
  -89
  -95
  -100
  -105
  -111
  -117
  -123
  -130
  -137
  -144
  -152
  -159
  -168
Cash from investing activities, $m
  -40
  -194
  -202
  -210
  -217
  -227
  -235
  -246
  -257
  -267
  -279
  -292
  -305
  -319
  -333
  -348
  -365
  -382
  -400
  -420
  -439
  -460
  -483
  -506
  -530
  -556
  -584
  -612
  -643
  -673
  -707
Free cash flow, $m
  400
  -271
  -222
  -236
  -250
  -266
  -282
  -299
  -316
  -335
  -354
  -375
  -396
  -419
  -443
  -468
  -494
  -522
  -551
  -581
  -613
  -647
  -683
  -720
  -759
  -800
  -843
  -889
  -937
  -987
  -1,039
Issuance/(repayment) of debt, $m
  -132
  61
  71
  81
  91
  100
  110
  120
  130
  140
  150
  161
  171
  182
  194
  206
  218
  231
  244
  258
  272
  287
  303
  319
  336
  354
  373
  393
  413
  435
  457
Issuance/(repurchase) of shares, $m
  0
  0
  182
  190
  199
  209
  219
  231
  243
  256
  269
  284
  299
  316
  333
  351
  371
  391
  413
  436
  460
  485
  511
  539
  569
  600
  633
  667
  703
  741
  781
Cash from financing (excl. dividends), $m  
  -132
  61
  253
  271
  290
  309
  329
  351
  373
  396
  419
  445
  470
  498
  527
  557
  589
  622
  657
  694
  732
  772
  814
  858
  905
  954
  1,006
  1,060
  1,116
  1,176
  1,238
Total cash flow (excl. dividends), $m
  241
  -210
  -151
  -155
  -160
  -165
  -172
  -179
  -186
  -195
  -204
  -214
  -225
  -236
  -249
  -262
  -276
  -291
  -307
  -323
  -341
  -360
  -380
  -401
  -423
  -446
  -470
  -496
  -523
  -552
  -582
Retained Cash Flow (-), $m
  149
  -24
  -31
  -35
  -39
  -44
  -48
  -52
  -56
  -61
  -65
  -70
  -74
  -79
  -84
  -89
  -95
  -100
  -106
  -112
  -118
  -125
  -132
  -139
  -146
  -154
  -162
  -171
  -180
  -189
  -199
Prev. year cash balance distribution, $m
 
  591
  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
 
  357
  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
Discount rate, %
 
  4.40
  4.62
  4.85
  5.09
  5.35
  5.62
  5.90
  6.19
  6.50
  6.83
  7.17
  7.53
  7.90
  8.30
  8.71
  9.15
  9.60
  10.08
  10.59
  11.12
  11.67
  12.26
  12.87
  13.51
  14.19
  14.90
  15.64
  16.43
  17.25
  18.11
PV of cash for distribution, $m
 
  342
  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
Current shareholders' claim on cash, %
  100
  100.0
  94.4
  89.0
  83.8
  78.8
  74.0
  69.4
  65.0
  60.9
  56.9
  53.2
  49.7
  46.3
  43.2
  40.2
  37.4
  34.7
  32.3
  30.0
  27.8
  25.8
  23.9
  22.1
  20.5
  18.9
  17.5
  16.2
  14.9
  13.8
  12.7

Finning International Inc. provides, sells, and rents parts and services for equipment and engines in Canada, South America, the United Kingdom, and Ireland. It serves various industries, including mining, construction, petroleum, and forestry, as well as various power system applications. The company was formerly known as Finning Ltd. and changed its name to Finning International Inc. in April 1997. Finning International Inc. was founded in 1933 and is headquartered in Vancouver, Canada.

FINANCIAL RATIOS  of  Finning International Inc. (FTT)

Valuation Ratios
P/E Ratio 67.1
Price to Sales 0.8
Price to Book 2.3
Price to Tangible Book
Price to Cash Flow 9.9
Price to Free Cash Flow 12.5
Growth Rates
Sales Growth Rate -10.3%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 21.1%
Cap. Spend. - 3 Yr. Gr. Rate -1.5%
Financial Strength
Quick Ratio 297
Current Ratio 0.1
LT Debt to Equity 78.2%
Total Debt to Equity 78.3%
Interest Coverage 2
Management Effectiveness
Return On Assets 2.5%
Ret/ On Assets - 3 Yr. Avg. 2.6%
Return On Total Capital 1.8%
Ret/ On T. Cap. - 3 Yr. Avg. 2.2%
Return On Equity 3.3%
Return On Equity - 3 Yr. Avg. 3.8%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 26.2%
Gross Margin - 3 Yr. Avg. 27.4%
EBITDA Margin 6.2%
EBITDA Margin - 3 Yr. Avg. 6.1%
Operating Margin 2.9%
Oper. Margin - 3 Yr. Avg. 2.8%
Pre-Tax Margin 1.4%
Pre-Tax Margin - 3 Yr. Avg. 1.5%
Net Profit Margin 1.2%
Net Profit Margin - 3 Yr. Avg. 1.1%
Effective Tax Rate 18.8%
Eff/ Tax Rate - 3 Yr. Avg. 19.4%
Payout Ratio 189.2%

FTT stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the FTT stock intrinsic value calculation we used $5628 million for the last fiscal year's total revenue generated by Finning International Inc.. The default revenue input number comes from 2016 income statement of Finning International 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 FTT 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 4.4%, whose default value for FTT is calculated based on our internal credit rating of Finning International 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 Finning International 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 FTT stock the variable cost ratio is equal to 101.7%.

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 FTT 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 4.9% for Finning International Inc..

Corporate tax rate of 27% is the nominal tax rate for Finning International 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 FTT 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 FTT are equal to 19.6%.

Life of production assets of 6.4 years is the average useful life of capital assets used in Finning International 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 FTT is equal to 27.6%. 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 - $1901 million for Finning International 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 167.81 million for Finning International 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 Finning International Inc. at the current share price and the inputted number of shares is $4.3 billion.


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Stock chart of FTT Financial statements of FTT
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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