Intrinsic value of Transcontinental Inc. Class A Subordinat - TCL-A

Previous Close

$23.95

  Intrinsic Value

$36.63

stock screener

  Rating & Target

str. buy

+53%

  Value-price divergence*

0%

Previous close

$23.95

 
Intrinsic value

$36.63

 
Up/down potential

+53%

 
Rating

str. buy

 
Value-price divergence*

0%

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

We calculate the intrinsic value of TCL-A 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 1.8

 

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, %
  0.90
  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
  2,020
  2,060
  2,108
  2,162
  2,223
  2,290
  2,364
  2,445
  2,532
  2,626
  2,726
  2,834
  2,949
  3,072
  3,202
  3,340
  3,486
  3,641
  3,805
  3,978
  4,161
  4,354
  4,557
  4,772
  4,998
  5,236
  5,486
  5,750
  6,027
  6,319
  6,626
Variable operating expenses, $m
 
  1,794
  1,834
  1,879
  1,931
  1,988
  2,050
  2,119
  2,192
  2,272
  2,357
  2,397
  2,494
  2,598
  2,708
  2,825
  2,949
  3,080
  3,218
  3,365
  3,519
  3,682
  3,854
  4,036
  4,227
  4,428
  4,640
  4,863
  5,098
  5,344
  5,604
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
  1,807
  1,794
  1,834
  1,879
  1,931
  1,988
  2,050
  2,119
  2,192
  2,272
  2,357
  2,397
  2,494
  2,598
  2,708
  2,825
  2,949
  3,080
  3,218
  3,365
  3,519
  3,682
  3,854
  4,036
  4,227
  4,428
  4,640
  4,863
  5,098
  5,344
  5,604
Operating income, $m
  213
  267
  274
  282
  292
  302
  314
  326
  340
  354
  370
  437
  455
  474
  494
  515
  538
  562
  587
  614
  642
  672
  703
  736
  771
  808
  846
  887
  930
  975
  1,022
EBITDA, $m
  346
  388
  397
  407
  418
  431
  445
  460
  476
  494
  513
  533
  555
  578
  603
  629
  656
  685
  716
  749
  783
  819
  858
  898
  941
  985
  1,032
  1,082
  1,134
  1,189
  1,247
Interest expense (income), $m
  16
  15
  16
  17
  18
  20
  21
  23
  25
  26
  28
  31
  33
  35
  38
  41
  44
  47
  50
  54
  58
  62
  66
  70
  75
  80
  85
  90
  96
  102
  108
Earnings before tax, $m
  197
  251
  258
  265
  273
  283
  292
  303
  315
  328
  341
  407
  422
  438
  456
  474
  494
  515
  537
  560
  584
  610
  637
  666
  696
  728
  761
  797
  834
  873
  914
Tax expense, $m
  51
  68
  70
  72
  74
  76
  79
  82
  85
  88
  92
  110
  114
  118
  123
  128
  133
  139
  145
  151
  158
  165
  172
  180
  188
  197
  206
  215
  225
  236
  247
Net income, $m
  146
  184
  188
  194
  200
  206
  214
  221
  230
  239
  249
  297
  308
  320
  333
  346
  361
  376
  392
  409
  426
  445
  465
  486
  508
  531
  556
  581
  609
  637
  667

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  17
  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
  2,062
  2,085
  2,133
  2,188
  2,250
  2,318
  2,393
  2,474
  2,563
  2,658
  2,760
  2,869
  2,985
  3,109
  3,241
  3,381
  3,529
  3,686
  3,851
  4,027
  4,212
  4,407
  4,613
  4,830
  5,058
  5,299
  5,553
  5,820
  6,100
  6,396
  6,707
Adjusted assets (=assets-cash), $m
  2,045
  2,085
  2,133
  2,188
  2,250
  2,318
  2,393
  2,474
  2,563
  2,658
  2,760
  2,869
  2,985
  3,109
  3,241
  3,381
  3,529
  3,686
  3,851
  4,027
  4,212
  4,407
  4,613
  4,830
  5,058
  5,299
  5,553
  5,820
  6,100
  6,396
  6,707
Revenue / Adjusted assets
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
  0.988
Average production assets, $m
  521
  532
  544
  558
  573
  591
  610
  631
  653
  677
  703
  731
  761
  793
  826
  862
  899
  939
  982
  1,026
  1,074
  1,123
  1,176
  1,231
  1,289
  1,351
  1,415
  1,483
  1,555
  1,630
  1,710
Working capital, $m
  165
  150
  154
  158
  162
  167
  173
  178
  185
  192
  199
  207
  215
  224
  234
  244
  255
  266
  278
  290
  304
  318
  333
  348
  365
  382
  400
  420
  440
  461
  484
Total debt, $m
  348
  369
  392
  418
  448
  482
  518
  558
  600
  647
  696
  749
  806
  866
  930
  998
  1,070
  1,146
  1,227
  1,312
  1,402
  1,497
  1,597
  1,702
  1,813
  1,930
  2,054
  2,183
  2,320
  2,463
  2,614
Total liabilities, $m
  994
  1,014
  1,037
  1,063
  1,093
  1,127
  1,163
  1,203
  1,245
  1,292
  1,341
  1,394
  1,451
  1,511
  1,575
  1,643
  1,715
  1,791
  1,872
  1,957
  2,047
  2,142
  2,242
  2,347
  2,458
  2,575
  2,699
  2,828
  2,965
  3,108
  3,259
Total equity, $m
  1,069
  1,072
  1,097
  1,125
  1,156
  1,191
  1,230
  1,272
  1,317
  1,366
  1,418
  1,474
  1,534
  1,598
  1,666
  1,738
  1,814
  1,894
  1,980
  2,070
  2,165
  2,265
  2,371
  2,482
  2,600
  2,724
  2,854
  2,991
  3,136
  3,287
  3,447
Total liabilities and equity, $m
  2,063
  2,086
  2,134
  2,188
  2,249
  2,318
  2,393
  2,475
  2,562
  2,658
  2,759
  2,868
  2,985
  3,109
  3,241
  3,381
  3,529
  3,685
  3,852
  4,027
  4,212
  4,407
  4,613
  4,829
  5,058
  5,299
  5,553
  5,819
  6,101
  6,395
  6,706
Debt-to-equity ratio
  0.326
  0.340
  0.360
  0.370
  0.390
  0.400
  0.420
  0.440
  0.460
  0.470
  0.490
  0.510
  0.530
  0.540
  0.560
  0.570
  0.590
  0.610
  0.620
  0.630
  0.650
  0.660
  0.670
  0.690
  0.700
  0.710
  0.720
  0.730
  0.740
  0.750
  0.760
Adjusted equity ratio
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514
  0.514

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  146
  184
  188
  194
  200
  206
  214
  221
  230
  239
  249
  297
  308
  320
  333
  346
  361
  376
  392
  409
  426
  445
  465
  486
  508
  531
  556
  581
  609
  637
  667
Depreciation, amort., depletion, $m
  133
  121
  123
  124
  126
  129
  131
  134
  137
  140
  144
  96
  100
  104
  109
  113
  118
  124
  129
  135
  141
  148
  155
  162
  170
  178
  186
  195
  205
  215
  225
Funds from operations, $m
  276
  305
  311
  318
  326
  335
  345
  355
  367
  379
  393
  393
  408
  424
  441
  460
  479
  499
  521
  544
  568
  593
  620
  648
  678
  709
  742
  777
  813
  852
  892
Change in working capital, $m
  3
  3
  3
  4
  4
  5
  5
  6
  6
  7
  7
  8
  8
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
Cash from operations, $m
  273
  302
  307
  314
  322
  330
  339
  350
  361
  372
  385
  385
  400
  415
  432
  450
  468
  488
  509
  531
  554
  579
  605
  632
  661
  692
  724
  757
  793
  830
  870
Maintenance CAPEX, $m
  0
  -68
  -70
  -72
  -73
  -75
  -78
  -80
  -83
  -86
  -89
  -93
  -96
  -100
  -104
  -109
  -113
  -118
  -124
  -129
  -135
  -141
  -148
  -155
  -162
  -170
  -178
  -186
  -195
  -205
  -215
New CAPEX, $m
  -77
  -11
  -12
  -14
  -16
  -17
  -19
  -21
  -22
  -24
  -26
  -28
  -30
  -32
  -34
  -36
  -38
  -40
  -42
  -45
  -47
  -50
  -52
  -55
  -58
  -61
  -65
  -68
  -72
  -75
  -79
Cash from investing activities, $m
  -152
  -79
  -82
  -86
  -89
  -92
  -97
  -101
  -105
  -110
  -115
  -121
  -126
  -132
  -138
  -145
  -151
  -158
  -166
  -174
  -182
  -191
  -200
  -210
  -220
  -231
  -243
  -254
  -267
  -280
  -294
Free cash flow, $m
  121
  222
  225
  229
  233
  237
  243
  248
  255
  262
  270
  265
  274
  284
  294
  305
  317
  330
  343
  357
  372
  388
  405
  422
  441
  461
  481
  503
  526
  550
  576
Issuance/(repayment) of debt, $m
  -58
  21
  23
  27
  30
  33
  36
  40
  43
  46
  50
  53
  57
  60
  64
  68
  72
  76
  81
  85
  90
  95
  100
  105
  111
  117
  123
  130
  136
  144
  151
Issuance/(repurchase) of shares, $m
  -21
  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  
  -88
  21
  23
  27
  30
  33
  36
  40
  43
  46
  50
  53
  57
  60
  64
  68
  72
  76
  81
  85
  90
  95
  100
  105
  111
  117
  123
  130
  136
  144
  151
Total cash flow (excl. dividends), $m
  34
  243
  249
  255
  262
  270
  279
  288
  298
  308
  320
  318
  330
  344
  358
  373
  389
  406
  424
  442
  462
  483
  505
  528
  552
  578
  605
  633
  663
  694
  727
Retained Cash Flow (-), $m
  -53
  -20
  -25
  -28
  -32
  -35
  -38
  -42
  -45
  -49
  -52
  -56
  -60
  -64
  -68
  -72
  -76
  -81
  -85
  -90
  -95
  -100
  -106
  -112
  -118
  -124
  -130
  -137
  -144
  -152
  -160
Prev. year cash balance distribution, $m
 
  17
  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
 
  240
  224
  227
  231
  235
  240
  246
  253
  260
  267
  262
  271
  280
  290
  301
  313
  325
  338
  352
  367
  382
  399
  416
  435
  454
  474
  496
  518
  542
  567
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
 
  230
  205
  198
  190
  182
  174
  166
  158
  149
  140
  124
  115
  107
  97
  88
  80
  71
  62
  54
  47
  40
  33
  27
  22
  18
  14
  11
  8
  6
  4
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

Transcontinental Inc. is a printing company. The Company has operations in print, flexible packaging, publishing and digital media, both in Canada and the United States. The Company's segments include the Printing and Packaging Sector, and the Media Sector. The Printing and Packaging Sector includes the manufacturing activities of the Company, and generates revenues from various activities, such as the printing of retail flyers, magazines, newspapers, color books, personalized and mass marketing products, and the production of flexible packaging solutions in Canada and the United States. The Media Sector generates revenues through print and digital publishing products, in French and English, of various types, such as newspapers, educational books, specialized publications for professionals, retail promotional content, mass and personalized marketing, mobile and interactive applications, and geotargeted door-to-door and digital distribution services.

FINANCIAL RATIOS  of  Transcontinental Inc. Class A Subordinat (TCL-A)

Valuation Ratios
P/E Ratio 12.6
Price to Sales 0.9
Price to Book 1.7
Price to Tangible Book
Price to Cash Flow 6.8
Price to Free Cash Flow 9.4
Growth Rates
Sales Growth Rate 0.9%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -11.5%
Cap. Spend. - 3 Yr. Gr. Rate 0.8%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 32.6%
Total Debt to Equity 32.6%
Interest Coverage 13
Management Effectiveness
Return On Assets 7.6%
Ret/ On Assets - 3 Yr. Avg. 9.2%
Return On Total Capital 10.4%
Ret/ On T. Cap. - 3 Yr. Avg. 13.1%
Return On Equity 14%
Return On Equity - 3 Yr. Avg. 19%
Asset Turnover 1
Profitability Ratios
Gross Margin 56.1%
Gross Margin - 3 Yr. Avg. 56.3%
EBITDA Margin 17.1%
EBITDA Margin - 3 Yr. Avg. 17.3%
Operating Margin 10.5%
Oper. Margin - 3 Yr. Avg. 10.6%
Pre-Tax Margin 9.8%
Pre-Tax Margin - 3 Yr. Avg. 10%
Net Profit Margin 7.2%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 25.9%
Eff/ Tax Rate - 3 Yr. Avg. 19.3%
Payout Ratio 38.4%

TCL-A stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TCL-A stock intrinsic value calculation we used $2020 million for the last fiscal year's total revenue generated by Transcontinental Inc. Class A Subordinat. The default revenue input number comes from 2016 income statement of Transcontinental Inc. Class A Subordinat. 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 TCL-A 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 4.3%, whose default value for TCL-A is calculated based on our internal credit rating of Transcontinental Inc. Class A Subordinat, 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 Transcontinental Inc. Class A Subordinat.
    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 TCL-A stock the variable cost ratio is equal to 87.1%.

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 TCL-A 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 4.4% for Transcontinental Inc. Class A Subordinat.

Corporate tax rate of 27% is the nominal tax rate for Transcontinental Inc. Class A Subordinat. 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 TCL-A 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 TCL-A are equal to 25.8%.

Life of production assets of 7.6 years is the average useful life of capital assets used in Transcontinental Inc. Class A Subordinat 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 TCL-A is equal to 7.3%. 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 - $1069 million for Transcontinental Inc. Class A Subordinat - 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 77.244 million for Transcontinental Inc. Class A Subordinat 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 Transcontinental Inc. Class A Subordinat at the current share price and the inputted number of shares is $1.8 billion.

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Financial statements of TCL-A
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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