Intrinsic value of Linamar Corporation - LNR

Previous Close

$70.98

  Intrinsic Value

$109.53

stock screener

  Rating & Target

str. buy

+54%

Previous close

$70.98

 
Intrinsic value

$109.53

 
Up/down potential

+54%

 
Rating

str. buy

We calculate the intrinsic value of LNR 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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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, %
  16.35
  6.50
  6.35
  6.21
  6.09
  5.98
  5.89
  5.80
  5.72
  5.65
  5.58
  5.52
  5.47
  5.42
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
Revenue, $m
  6,006
  6,396
  6,803
  7,225
  7,666
  8,124
  8,603
  9,101
  9,622
  10,165
  10,732
  11,325
  11,944
  12,592
  13,270
  13,979
  14,721
  15,498
  16,312
  17,164
  18,057
  18,993
  19,973
  21,002
  22,080
  23,210
  24,396
  25,639
  26,943
  28,312
  29,747
Variable operating expenses, $m
 
  5,632
  5,987
  6,356
  6,741
  7,141
  7,559
  7,995
  8,449
  8,924
  9,419
  9,891
  10,432
  10,998
  11,590
  12,209
  12,857
  13,536
  14,246
  14,991
  15,771
  16,588
  17,445
  18,343
  19,284
  20,271
  21,307
  22,393
  23,532
  24,727
  25,981
Fixed operating expenses, $m
 
  15
  16
  16
  17
  17
  17
  18
  18
  19
  19
  20
  20
  21
  21
  22
  22
  23
  23
  24
  25
  25
  26
  26
  27
  28
  29
  29
  30
  31
  31
Total operating expenses, $m
  5,309
  5,647
  6,003
  6,372
  6,758
  7,158
  7,576
  8,013
  8,467
  8,943
  9,438
  9,911
  10,452
  11,019
  11,611
  12,231
  12,879
  13,559
  14,269
  15,015
  15,796
  16,613
  17,471
  18,369
  19,311
  20,299
  21,336
  22,422
  23,562
  24,758
  26,012
Operating income, $m
  697
  749
  800
  853
  908
  966
  1,026
  1,089
  1,154
  1,223
  1,294
  1,414
  1,492
  1,574
  1,659
  1,748
  1,842
  1,939
  2,042
  2,149
  2,262
  2,379
  2,503
  2,633
  2,768
  2,911
  3,060
  3,217
  3,381
  3,554
  3,735
EBITDA, $m
  1,030
  1,109
  1,180
  1,254
  1,331
  1,411
  1,494
  1,582
  1,673
  1,768
  1,867
  1,971
  2,079
  2,192
  2,311
  2,435
  2,565
  2,701
  2,843
  2,992
  3,149
  3,313
  3,484
  3,664
  3,853
  4,051
  4,259
  4,477
  4,705
  4,945
  5,196
Interest expense (income), $m
  37
  45
  51
  57
  64
  70
  77
  84
  92
  99
  108
  116
  125
  134
  144
  154
  165
  176
  187
  200
  212
  226
  240
  254
  270
  286
  303
  321
  339
  359
  379
Earnings before tax, $m
  673
  703
  749
  796
  845
  896
  949
  1,005
  1,063
  1,123
  1,186
  1,298
  1,367
  1,439
  1,515
  1,594
  1,677
  1,764
  1,854
  1,950
  2,049
  2,154
  2,263
  2,378
  2,499
  2,625
  2,757
  2,896
  3,042
  3,195
  3,356
Tax expense, $m
  150
  190
  202
  215
  228
  242
  256
  271
  287
  303
  320
  350
  369
  389
  409
  430
  453
  476
  501
  526
  553
  582
  611
  642
  675
  709
  744
  782
  821
  863
  906
Net income, $m
  522
  513
  546
  581
  617
  654
  693
  733
  776
  820
  866
  948
  998
  1,051
  1,106
  1,164
  1,224
  1,287
  1,354
  1,423
  1,496
  1,572
  1,652
  1,736
  1,824
  1,916
  2,013
  2,114
  2,221
  2,332
  2,450

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  405
  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
  5,227
  5,134
  5,460
  5,799
  6,152
  6,520
  6,904
  7,304
  7,722
  8,158
  8,613
  9,089
  9,586
  10,106
  10,650
  11,219
  11,815
  12,438
  13,091
  13,775
  14,492
  15,243
  16,030
  16,855
  17,720
  18,628
  19,579
  20,577
  21,624
  22,722
  23,874
Adjusted assets (=assets-cash), $m
  4,822
  5,134
  5,460
  5,799
  6,152
  6,520
  6,904
  7,304
  7,722
  8,158
  8,613
  9,089
  9,586
  10,106
  10,650
  11,219
  11,815
  12,438
  13,091
  13,775
  14,492
  15,243
  16,030
  16,855
  17,720
  18,628
  19,579
  20,577
  21,624
  22,722
  23,874
Revenue / Adjusted assets
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
  1.246
Average production assets, $m
  2,039
  2,168
  2,306
  2,449
  2,599
  2,754
  2,916
  3,085
  3,262
  3,446
  3,638
  3,839
  4,049
  4,269
  4,498
  4,739
  4,990
  5,254
  5,530
  5,819
  6,121
  6,439
  6,771
  7,120
  7,485
  7,868
  8,270
  8,692
  9,134
  9,598
  10,084
Working capital, $m
  877
  723
  769
  816
  866
  918
  972
  1,028
  1,087
  1,149
  1,213
  1,280
  1,350
  1,423
  1,499
  1,580
  1,663
  1,751
  1,843
  1,940
  2,040
  2,146
  2,257
  2,373
  2,495
  2,623
  2,757
  2,897
  3,045
  3,199
  3,361
Total debt, $m
  1,433
  1,383
  1,548
  1,719
  1,897
  2,082
  2,276
  2,477
  2,688
  2,908
  3,137
  3,377
  3,627
  3,889
  4,164
  4,450
  4,751
  5,065
  5,394
  5,739
  6,100
  6,478
  6,875
  7,291
  7,727
  8,184
  8,664
  9,167
  9,694
  10,248
  10,829
Total liabilities, $m
  2,637
  2,587
  2,752
  2,923
  3,101
  3,286
  3,480
  3,681
  3,892
  4,112
  4,341
  4,581
  4,831
  5,093
  5,368
  5,654
  5,955
  6,269
  6,598
  6,943
  7,304
  7,682
  8,079
  8,495
  8,931
  9,388
  9,868
  10,371
  10,898
  11,452
  12,033
Total equity, $m
  2,590
  2,546
  2,708
  2,876
  3,051
  3,234
  3,424
  3,623
  3,830
  4,046
  4,272
  4,508
  4,755
  5,013
  5,282
  5,565
  5,860
  6,169
  6,493
  6,832
  7,188
  7,560
  7,951
  8,360
  8,789
  9,239
  9,711
  10,206
  10,725
  11,270
  11,842
Total liabilities and equity, $m
  5,227
  5,133
  5,460
  5,799
  6,152
  6,520
  6,904
  7,304
  7,722
  8,158
  8,613
  9,089
  9,586
  10,106
  10,650
  11,219
  11,815
  12,438
  13,091
  13,775
  14,492
  15,242
  16,030
  16,855
  17,720
  18,627
  19,579
  20,577
  21,623
  22,722
  23,875
Debt-to-equity ratio
  0.553
  0.540
  0.570
  0.600
  0.620
  0.640
  0.660
  0.680
  0.700
  0.720
  0.730
  0.750
  0.760
  0.780
  0.790
  0.800
  0.810
  0.820
  0.830
  0.840
  0.850
  0.860
  0.860
  0.870
  0.880
  0.890
  0.890
  0.900
  0.900
  0.910
  0.910
Adjusted equity ratio
  0.455
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496
  0.496

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  522
  513
  546
  581
  617
  654
  693
  733
  776
  820
  866
  948
  998
  1,051
  1,106
  1,164
  1,224
  1,287
  1,354
  1,423
  1,496
  1,572
  1,652
  1,736
  1,824
  1,916
  2,013
  2,114
  2,221
  2,332
  2,450
Depreciation, amort., depletion, $m
  333
  360
  380
  401
  422
  445
  468
  493
  518
  545
  573
  556
  587
  619
  652
  687
  723
  761
  801
  843
  887
  933
  981
  1,032
  1,085
  1,140
  1,199
  1,260
  1,324
  1,391
  1,461
Funds from operations, $m
  896
  873
  926
  982
  1,039
  1,099
  1,161
  1,226
  1,294
  1,365
  1,439
  1,504
  1,585
  1,669
  1,758
  1,850
  1,947
  2,049
  2,155
  2,266
  2,383
  2,505
  2,634
  2,768
  2,909
  3,056
  3,211
  3,374
  3,544
  3,723
  3,911
Change in working capital, $m
  -2
  44
  46
  48
  50
  52
  54
  56
  59
  61
  64
  67
  70
  73
  77
  80
  84
  88
  92
  96
  101
  106
  111
  116
  122
  128
  134
  141
  147
  155
  162
Cash from operations, $m
  898
  829
  881
  934
  989
  1,047
  1,107
  1,170
  1,235
  1,304
  1,375
  1,437
  1,515
  1,596
  1,681
  1,770
  1,864
  1,961
  2,063
  2,170
  2,282
  2,400
  2,523
  2,652
  2,787
  2,929
  3,077
  3,233
  3,397
  3,569
  3,749
Maintenance CAPEX, $m
  0
  -296
  -314
  -334
  -355
  -377
  -399
  -423
  -447
  -473
  -499
  -527
  -556
  -587
  -619
  -652
  -687
  -723
  -761
  -801
  -843
  -887
  -933
  -981
  -1,032
  -1,085
  -1,140
  -1,199
  -1,260
  -1,324
  -1,391
New CAPEX, $m
  -343
  -129
  -138
  -143
  -149
  -156
  -162
  -169
  -176
  -184
  -192
  -201
  -210
  -220
  -230
  -240
  -252
  -263
  -276
  -289
  -303
  -317
  -332
  -349
  -365
  -383
  -402
  -422
  -442
  -464
  -487
Cash from investing activities, $m
  -1,575
  -425
  -452
  -477
  -504
  -533
  -561
  -592
  -623
  -657
  -691
  -728
  -766
  -807
  -849
  -892
  -939
  -986
  -1,037
  -1,090
  -1,146
  -1,204
  -1,265
  -1,330
  -1,397
  -1,468
  -1,542
  -1,621
  -1,702
  -1,788
  -1,878
Free cash flow, $m
  -677
  404
  429
  456
  485
  515
  546
  578
  612
  647
  683
  709
  748
  790
  833
  878
  925
  974
  1,026
  1,080
  1,136
  1,195
  1,257
  1,322
  1,390
  1,461
  1,535
  1,613
  1,695
  1,781
  1,871
Issuance/(repayment) of debt, $m
  836
  155
  164
  171
  178
  186
  193
  202
  210
  220
  229
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  416
  436
  457
  480
  503
  528
  553
  581
Issuance/(repurchase) of shares, $m
  1
  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  
  816
  155
  164
  171
  178
  186
  193
  202
  210
  220
  229
  240
  251
  262
  274
  287
  300
  314
  329
  345
  361
  379
  397
  416
  436
  457
  480
  503
  528
  553
  581
Total cash flow (excl. dividends), $m
  92
  560
  593
  627
  663
  700
  739
  780
  822
  866
  913
  949
  999
  1,052
  1,107
  1,165
  1,225
  1,289
  1,355
  1,425
  1,497
  1,574
  1,654
  1,738
  1,826
  1,918
  2,015
  2,116
  2,223
  2,335
  2,452
Retained Cash Flow (-), $m
  -331
  -156
  -162
  -168
  -175
  -183
  -190
  -199
  -207
  -216
  -226
  -236
  -247
  -258
  -270
  -282
  -295
  -309
  -324
  -339
  -355
  -373
  -390
  -409
  -429
  -450
  -472
  -495
  -519
  -545
  -571
Prev. year cash balance distribution, $m
 
  200
  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
 
  603
  431
  459
  488
  518
  549
  581
  615
  650
  687
  713
  752
  794
  837
  883
  930
  979
  1,031
  1,085
  1,142
  1,201
  1,263
  1,328
  1,397
  1,468
  1,543
  1,621
  1,704
  1,790
  1,880
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  579
  395
  399
  402
  401
  398
  393
  384
  373
  360
  338
  321
  302
  281
  259
  236
  213
  190
  167
  145
  124
  105
  87
  71
  57
  45
  35
  26
  20
  14
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

Linamar Corporation is a Canada-based diversified manufacturing company of engineered products powering vehicles, motion, work and lives. The Company operates through two segments: the Powertrain/Driveline and the Industrial. The segments are divided into four operating groups: Machining & Assembly, Light Metal Casting, Forging and Skyjack. The Company's Machining and Assembly, Casting and Forging operating groups focus on precision metallic components, modules and systems for engine, transmission, driveline and body systems designed for global vehicle and industrial markets. The Company's Skyjack operating group is noted for its mobile industrial equipment, notably its aerial work platforms and tele handlers. The Company provides core engine components, including cylinder blocks and heads, camshafts and connecting rods. For transmission, it builds differential assemblies, gear sets, shaft and shell assemblies, as well as clutch modules.

FINANCIAL RATIOS  of  Linamar Corporation (LNR)

Valuation Ratios
P/E Ratio 8.9
Price to Sales 0.8
Price to Book 1.8
Price to Tangible Book
Price to Cash Flow 5.2
Price to Free Cash Flow 8.3
Growth Rates
Sales Growth Rate 16.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0.3%
Cap. Spend. - 3 Yr. Gr. Rate 7%
Financial Strength
Quick Ratio 2
Current Ratio 0
LT Debt to Equity 47.4%
Total Debt to Equity 55.3%
Interest Coverage 19
Management Effectiveness
Return On Assets 12.2%
Ret/ On Assets - 3 Yr. Avg. 12.6%
Return On Total Capital 15.3%
Ret/ On T. Cap. - 3 Yr. Avg. 16.4%
Return On Equity 21.5%
Return On Equity - 3 Yr. Avg. 21.7%
Asset Turnover 1.3
Profitability Ratios
Gross Margin 16.7%
Gross Margin - 3 Yr. Avg. 16.4%
EBITDA Margin 17.4%
EBITDA Margin - 3 Yr. Avg. 17%
Operating Margin 11.6%
Oper. Margin - 3 Yr. Avg. 11.3%
Pre-Tax Margin 11.2%
Pre-Tax Margin - 3 Yr. Avg. 10.9%
Net Profit Margin 8.7%
Net Profit Margin - 3 Yr. Avg. 8.3%
Effective Tax Rate 22.3%
Eff/ Tax Rate - 3 Yr. Avg. 23.9%
Payout Ratio 5%

LNR stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the LNR stock intrinsic value calculation we used $6006 million for the last fiscal year's total revenue generated by Linamar Corporation. The default revenue input number comes from 2016 income statement of Linamar 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 LNR stock valuation model: a) initial revenue growth rate of 6.5% 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 4.3%, whose default value for LNR is calculated based on our internal credit rating of Linamar 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 Linamar 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 LNR stock the variable cost ratio is equal to 88.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $15 million in the base year in the intrinsic value calculation for LNR 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 3.7% for Linamar Corporation.

Corporate tax rate of 27% is the nominal tax rate for Linamar 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 LNR 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 LNR are equal to 33.9%.

Life of production assets of 6.9 years is the average useful life of capital assets used in Linamar 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 LNR is equal to 11.3%. 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 - $2590 million for Linamar 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 65.292 million for Linamar 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 Linamar Corporation at the current share price and the inputted number of shares is $4.6 billion.

RELATED COMPANIES Price Int.Val. Rating
MRE Martinrea Inte 14.96 11.81  sell
MG Magna Internat 71.31 152.19  str.buy
Financial statements of LNR
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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