Intrinsic value of Tricon Capital Group Inc. - TCN

Previous Close

$11.83

  Intrinsic Value

$1.84

stock screener

  Rating & Target

str. sell

-84%

  Value-price divergence*

+40%

Previous close

$11.83

 
Intrinsic value

$1.84

 
Up/down potential

-84%

 
Rating

str. sell

 
Value-price divergence*

+40%

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

We calculate the intrinsic value of TCN 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 1.6

 

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, %
  9.42
  2.70
  2.93
  3.14
  3.32
  3.49
  3.64
  3.78
  3.90
  4.01
  4.11
  4.20
  4.28
  4.35
  4.42
  4.47
  4.53
  4.57
  4.62
  4.65
  4.69
  4.72
  4.75
  4.77
  4.80
  4.82
  4.83
  4.85
  4.87
  4.88
  4.89
Revenue, $m
  151
  155
  160
  165
  170
  176
  182
  189
  197
  205
  213
  222
  231
  242
  252
  263
  275
  288
  301
  315
  330
  346
  362
  379
  398
  417
  437
  458
  480
  504
  528
Variable operating expenses, $m
 
  81
  83
  86
  89
  92
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  189
  198
  208
  218
  228
  240
  251
  263
  276
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
  54
  81
  83
  86
  89
  92
  95
  99
  103
  107
  111
  116
  121
  126
  132
  138
  144
  151
  158
  165
  173
  181
  189
  198
  208
  218
  228
  240
  251
  263
  276
Operating income, $m
  96
  74
  76
  79
  81
  84
  87
  90
  94
  98
  102
  106
  110
  115
  120
  126
  131
  137
  144
  150
  157
  165
  173
  181
  190
  199
  208
  219
  229
  240
  252
EBITDA, $m
  104
  82
  84
  87
  90
  93
  96
  100
  104
  108
  112
  117
  122
  127
  133
  139
  145
  152
  159
  166
  174
  182
  191
  200
  209
  219
  230
  241
  253
  265
  278
Interest expense (income), $m
  11
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  25
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  47
  49
  52
  55
  58
  61
  64
  68
Earnings before tax, $m
  97
  58
  60
  62
  64
  66
  68
  70
  73
  75
  78
  81
  84
  88
  91
  95
  99
  104
  108
  113
  118
  123
  128
  134
  140
  147
  154
  161
  168
  176
  184
Tax expense, $m
  16
  16
  16
  17
  17
  18
  18
  19
  20
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
  30
  32
  33
  35
  36
  38
  40
  41
  43
  45
  48
  50
Net income, $m
  80
  43
  44
  45
  46
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  70
  72
  76
  79
  82
  86
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  24
  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
  1,314
  1,325
  1,364
  1,407
  1,454
  1,505
  1,559
  1,618
  1,681
  1,749
  1,821
  1,897
  1,978
  2,064
  2,155
  2,252
  2,354
  2,462
  2,575
  2,695
  2,821
  2,955
  3,095
  3,243
  3,398
  3,562
  3,734
  3,915
  4,106
  4,306
  4,517
Adjusted assets (=assets-cash), $m
  1,290
  1,325
  1,364
  1,407
  1,454
  1,505
  1,559
  1,618
  1,681
  1,749
  1,821
  1,897
  1,978
  2,064
  2,155
  2,252
  2,354
  2,462
  2,575
  2,695
  2,821
  2,955
  3,095
  3,243
  3,398
  3,562
  3,734
  3,915
  4,106
  4,306
  4,517
Revenue / Adjusted assets
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
  0.117
Average production assets, $m
  38
  38
  40
  41
  42
  44
  45
  47
  49
  51
  53
  55
  57
  60
  63
  65
  68
  71
  75
  78
  82
  86
  90
  94
  99
  103
  108
  114
  119
  125
  131
Working capital, $m
  28
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Total debt, $m
  228
  237
  247
  257
  269
  282
  296
  311
  327
  344
  362
  382
  402
  424
  447
  472
  498
  525
  554
  585
  617
  650
  686
  724
  763
  805
  848
  894
  943
  994
  1,047
Total liabilities, $m
  328
  337
  347
  357
  369
  382
  396
  411
  427
  444
  462
  482
  502
  524
  547
  572
  598
  625
  654
  685
  717
  750
  786
  824
  863
  905
  948
  994
  1,043
  1,094
  1,147
Total equity, $m
  986
  989
  1,018
  1,050
  1,085
  1,122
  1,163
  1,207
  1,254
  1,305
  1,358
  1,415
  1,476
  1,540
  1,608
  1,680
  1,756
  1,836
  1,921
  2,010
  2,105
  2,204
  2,309
  2,419
  2,535
  2,657
  2,786
  2,921
  3,063
  3,212
  3,369
Total liabilities and equity, $m
  1,314
  1,326
  1,365
  1,407
  1,454
  1,504
  1,559
  1,618
  1,681
  1,749
  1,820
  1,897
  1,978
  2,064
  2,155
  2,252
  2,354
  2,461
  2,575
  2,695
  2,822
  2,954
  3,095
  3,243
  3,398
  3,562
  3,734
  3,915
  4,106
  4,306
  4,516
Debt-to-equity ratio
  0.231
  0.240
  0.240
  0.250
  0.250
  0.250
  0.250
  0.260
  0.260
  0.260
  0.270
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.290
  0.290
  0.290
  0.290
  0.300
  0.300
  0.300
  0.300
  0.300
  0.300
  0.310
  0.310
  0.310
  0.310
Adjusted equity ratio
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746
  0.746

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  80
  43
  44
  45
  46
  48
  50
  51
  53
  55
  57
  59
  62
  64
  67
  70
  72
  76
  79
  82
  86
  90
  94
  98
  103
  107
  112
  117
  123
  129
  135
Depreciation, amort., depletion, $m
  8
  8
  8
  8
  8
  9
  9
  9
  10
  10
  11
  11
  11
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  19
  20
  21
  22
  23
  24
  25
  26
Funds from operations, $m
  200
  50
  52
  53
  55
  57
  59
  61
  63
  65
  68
  70
  73
  76
  79
  83
  86
  90
  94
  98
  102
  107
  112
  117
  122
  128
  134
  140
  147
  154
  161
Change in working capital, $m
  283
  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
  1
  1
  1
  1
  1
Cash from operations, $m
  -83
  47
  52
  53
  55
  57
  58
  60
  63
  65
  67
  70
  73
  76
  79
  82
  86
  90
  93
  98
  102
  107
  111
  116
  122
  127
  133
  140
  146
  153
  160
Maintenance CAPEX, $m
  0
  -8
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -11
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
New CAPEX, $m
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  -1
  -9
  -9
  -9
  -9
  -9
  -11
  -11
  -11
  -12
  -12
  -13
  -13
  -13
  -15
  -16
  -16
  -17
  -17
  -18
  -20
  -20
  -21
  -22
  -24
  -25
  -26
  -27
  -29
  -30
  -31
Free cash flow, $m
  -84
  38
  43
  44
  45
  47
  48
  50
  51
  53
  55
  57
  60
  62
  64
  67
  70
  73
  76
  79
  83
  86
  90
  94
  98
  103
  108
  113
  118
  123
  129
Issuance/(repayment) of debt, $m
  127
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  54
Issuance/(repurchase) of shares, $m
  -2
  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  
  125
  9
  10
  11
  12
  13
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  26
  27
  29
  30
  32
  34
  36
  38
  40
  42
  44
  46
  48
  51
  54
Total cash flow (excl. dividends), $m
  41
  47
  53
  55
  57
  59
  62
  65
  67
  70
  73
  77
  80
  84
  88
  91
  96
  100
  105
  110
  115
  120
  126
  132
  138
  145
  151
  159
  166
  174
  183
Retained Cash Flow (-), $m
  -64
  -27
  -29
  -32
  -35
  -38
  -41
  -44
  -47
  -50
  -54
  -57
  -61
  -64
  -68
  -72
  -76
  -80
  -85
  -89
  -94
  -99
  -105
  -110
  -116
  -122
  -128
  -135
  -142
  -149
  -157
Prev. year cash balance distribution, $m
 
  24
  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
 
  44
  24
  23
  22
  22
  21
  21
  20
  20
  20
  20
  20
  20
  20
  20
  20
  20
  20
  20
  20
  21
  21
  21
  22
  22
  23
  24
  24
  25
  26
Discount rate, %
 
  7.00
  7.35
  7.72
  8.10
  8.51
  8.93
  9.38
  9.85
  10.34
  10.86
  11.40
  11.97
  12.57
  13.20
  13.86
  14.55
  15.28
  16.04
  16.85
  17.69
  18.57
  19.50
  20.48
  21.50
  22.58
  23.70
  24.89
  26.13
  27.44
  28.81
PV of cash for distribution, $m
 
  41
  21
  18
  16
  14
  13
  11
  10
  8
  7
  6
  5
  4
  3
  3
  2
  2
  1
  1
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
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

Tricon Capital Group Inc. is a real estate investment firm specializing in making investments in the residential sector with a focus on for-sale housing and financially distressed investments in primarily entitled land, finished and partially-finished lots, and standing home inventory, largely through the purchase of deeply discounted bank notes, REO, bankruptcy sales and sales from other motivated buyers at significant discounts to peak pricing. The firm seeks to invest in North America with a focus on United States and Canada. It also provides financing to local operators or developers in select markets in the United States and Canada, with a primary focus on for-sale housing in growing markets. Tricon Capital Group Inc. was founded in 1988 and is based in Toronto, Canada with additional offices in New York, New York and San Francisco, California.

FINANCIAL RATIOS  of  Tricon Capital Group Inc. (TCN)

Valuation Ratios
P/E Ratio 16.7
Price to Sales 8.8
Price to Book 1.4
Price to Tangible Book
Price to Cash Flow -16.1
Price to Free Cash Flow -15.9
Growth Rates
Sales Growth Rate 9.4%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate NaN%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 23.1%
Total Debt to Equity 23.1%
Interest Coverage 10
Management Effectiveness
Return On Assets 7.3%
Ret/ On Assets - 3 Yr. Avg. 10.8%
Return On Total Capital 7.2%
Ret/ On T. Cap. - 3 Yr. Avg. 11.7%
Return On Equity 8.4%
Return On Equity - 3 Yr. Avg. 14.4%
Asset Turnover 0.1
Profitability Ratios
Gross Margin 89.4%
Gross Margin - 3 Yr. Avg. 58.5%
EBITDA Margin 76.8%
EBITDA Margin - 3 Yr. Avg. 219.6%
Operating Margin 64.2%
Oper. Margin - 3 Yr. Avg. 214.1%
Pre-Tax Margin 64.2%
Pre-Tax Margin - 3 Yr. Avg. 204.5%
Net Profit Margin 53%
Net Profit Margin - 3 Yr. Avg. 172.1%
Effective Tax Rate 16.5%
Eff/ Tax Rate - 3 Yr. Avg. 15.8%
Payout Ratio 28.8%

TCN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TCN stock intrinsic value calculation we used $151 million for the last fiscal year's total revenue generated by Tricon Capital Group Inc.. The default revenue input number comes from 2016 income statement of Tricon Capital Group 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 TCN stock valuation model: a) initial revenue growth rate of 2.7% 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 7%, whose default value for TCN is calculated based on our internal credit rating of Tricon Capital Group 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 Tricon Capital Group 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 TCN stock the variable cost ratio is equal to 52.3%.

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 TCN 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 6.8% for Tricon Capital Group Inc..

Corporate tax rate of 27% is the nominal tax rate for Tricon Capital Group 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 TCN 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 TCN are equal to 24.8%.

Life of production assets of 4.7 years is the average useful life of capital assets used in Tricon Capital Group 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 TCN is equal to 2.6%. 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 - $986 million for Tricon Capital Group 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 133.752 million for Tricon Capital Group 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 Tricon Capital Group Inc. at the current share price and the inputted number of shares is $1.6 billion.

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Stock chart of TCN Financial statements of TCN
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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