Intrinsic value of Teck Resources Limited Class B Subordina - TECK-B

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$24.95

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$24.95

 
Intrinsic value

$6.98

 
Up/down potential

-72%

 
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 TECK-B 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 14.6

 

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, %
  12.60
  60.00
  54.50
  49.55
  45.10
  41.09
  37.48
  34.23
  31.31
  28.68
  26.31
  24.18
  22.26
  20.53
  18.98
  17.58
  16.32
  15.19
  14.17
  13.26
  12.43
  11.69
  11.02
  10.42
  9.87
  9.39
  8.95
  8.55
  8.20
  7.88
  7.59
Revenue, $m
  9,300
  14,880
  22,990
  34,381
  49,885
  70,381
  96,757
  129,876
  170,536
  219,438
  277,168
  344,180
  420,793
  507,197
  603,464
  709,567
  825,396
  950,787
  1,085,537
  1,229,428
  1,382,242
  1,543,780
  1,713,875
  1,892,396
  2,079,263
  2,274,446
  2,477,974
  2,689,930
  2,910,456
  3,139,754
  3,378,079
Variable operating expenses, $m
 
  20,066
  30,941
  46,217
  67,008
  94,493
  129,865
  174,278
  228,803
  294,383
  371,800
  461,553
  564,292
  680,162
  809,258
  951,544
  1,106,874
  1,275,026
  1,455,729
  1,648,689
  1,853,616
  2,070,242
  2,298,343
  2,537,744
  2,788,336
  3,050,081
  3,323,016
  3,607,253
  3,902,985
  4,210,478
  4,530,077
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
  7,413
  20,066
  30,941
  46,217
  67,008
  94,493
  129,865
  174,278
  228,803
  294,383
  371,800
  461,553
  564,292
  680,162
  809,258
  951,544
  1,106,874
  1,275,026
  1,455,729
  1,648,689
  1,853,616
  2,070,242
  2,298,343
  2,537,744
  2,788,336
  3,050,081
  3,323,016
  3,607,253
  3,902,985
  4,210,478
  4,530,077
Operating income, $m
  1,887
  -5,186
  -7,951
  -11,836
  -17,123
  -24,113
  -33,108
  -44,402
  -58,268
  -74,944
  -94,632
  -117,373
  -143,499
  -172,965
  -205,794
  -241,978
  -281,478
  -324,239
  -370,192
  -419,261
  -471,374
  -526,462
  -584,468
  -645,348
  -709,073
  -775,635
  -845,042
  -917,324
  -992,528
  -1,070,724
  -1,151,998
EBITDA, $m
  3,272
  -2,946
  -4,552
  -6,807
  -9,877
  -13,935
  -19,158
  -25,715
  -33,766
  -43,448
  -54,878
  -68,147
  -83,316
  -100,424
  -119,484
  -140,492
  -163,426
  -188,253
  -214,933
  -243,423
  -273,680
  -305,664
  -339,342
  -374,689
  -411,688
  -450,334
  -490,632
  -532,598
  -576,262
  -621,662
  -668,850
Interest expense (income), $m
  571
  528
  1,222
  2,232
  3,649
  5,579
  8,130
  11,413
  15,536
  20,597
  26,684
  33,869
  42,210
  51,746
  62,501
  74,484
  87,690
  102,108
  117,715
  134,487
  152,398
  171,418
  191,525
  212,697
  234,918
  258,177
  282,472
  307,805
  334,187
  361,636
  390,177
Earnings before tax, $m
  1,628
  -5,713
  -9,173
  -14,068
  -20,773
  -29,692
  -41,238
  -55,815
  -73,804
  -95,541
  -121,315
  -151,242
  -185,710
  -224,711
  -268,295
  -316,461
  -369,168
  -426,347
  -487,907
  -553,749
  -623,772
  -697,881
  -775,993
  -858,045
  -943,991
  -1,033,812
  -1,127,514
  -1,225,129
  -1,326,715
  -1,432,360
  -1,542,175
Tax expense, $m
  587
  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
  1,040
  -5,713
  -9,173
  -14,068
  -20,773
  -29,692
  -41,238
  -55,815
  -73,804
  -95,541
  -121,315
  -151,242
  -185,710
  -224,711
  -268,295
  -316,461
  -369,168
  -426,347
  -487,907
  -553,749
  -623,772
  -697,881
  -775,993
  -858,045
  -943,991
  -1,033,812
  -1,127,514
  -1,225,129
  -1,326,715
  -1,432,360
  -1,542,175

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  1,407
  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
  35,629
  54,706
  84,521
  126,401
  183,401
  258,752
  355,724
  477,486
  626,970
  806,758
  1,019,000
  1,265,367
  1,547,033
  1,864,695
  2,218,618
  2,608,701
  3,034,546
  3,495,542
  3,990,946
  4,519,954
  5,081,770
  5,675,662
  6,301,010
  6,957,338
  7,644,348
  8,361,935
  9,110,198
  9,889,447
  10,700,207
  11,543,214
  12,419,409
Adjusted assets (=assets-cash), $m
  34,222
  54,706
  84,521
  126,401
  183,401
  258,752
  355,724
  477,486
  626,970
  806,758
  1,019,000
  1,265,367
  1,547,033
  1,864,695
  2,218,618
  2,608,701
  3,034,546
  3,495,542
  3,990,946
  4,519,954
  5,081,770
  5,675,662
  6,301,010
  6,957,338
  7,644,348
  8,361,935
  9,110,198
  9,889,447
  10,700,207
  11,543,214
  12,419,409
Revenue / Adjusted assets
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
  0.272
Average production assets, $m
  27,270
  43,628
  67,406
  100,805
  146,263
  206,356
  283,692
  380,797
  500,011
  643,392
  812,657
  1,009,135
  1,233,765
  1,487,101
  1,769,357
  2,080,450
  2,420,062
  2,787,709
  3,182,796
  3,604,682
  4,052,732
  4,526,364
  5,025,080
  5,548,505
  6,096,398
  6,668,677
  7,265,419
  7,886,874
  8,533,458
  9,205,759
  9,904,529
Working capital, $m
  2,562
  2,009
  3,104
  4,641
  6,734
  9,501
  13,062
  17,533
  23,022
  29,624
  37,418
  46,464
  56,807
  68,472
  81,468
  95,792
  111,429
  128,356
  146,548
  165,973
  186,603
  208,410
  231,373
  255,473
  280,700
  307,050
  334,526
  363,140
  392,912
  423,867
  456,041
Total debt, $m
  8,343
  19,095
  34,867
  57,022
  87,175
  127,036
  178,334
  242,746
  321,823
  416,931
  529,207
  659,535
  808,536
  976,579
  1,163,805
  1,370,159
  1,595,431
  1,839,298
  2,101,367
  2,381,212
  2,678,413
  2,992,581
  3,323,390
  3,670,588
  4,034,016
  4,413,620
  4,809,451
  5,221,673
  5,650,566
  6,096,516
  6,560,024
Total liabilities, $m
  18,187
  28,939
  44,711
  66,866
  97,019
  136,880
  188,178
  252,590
  331,667
  426,775
  539,051
  669,379
  818,380
  986,423
  1,173,649
  1,380,003
  1,605,275
  1,849,142
  2,111,211
  2,391,056
  2,688,257
  3,002,425
  3,333,234
  3,680,432
  4,043,860
  4,423,464
  4,819,295
  5,231,517
  5,660,410
  6,106,360
  6,569,868
Total equity, $m
  17,442
  25,766
  39,809
  59,535
  86,382
  121,872
  167,546
  224,896
  295,303
  379,983
  479,949
  595,988
  728,652
  878,271
  1,044,969
  1,228,698
  1,429,271
  1,646,400
  1,879,736
  2,128,898
  2,393,514
  2,673,237
  2,967,775
  3,276,906
  3,600,488
  3,938,471
  4,290,903
  4,657,930
  5,039,798
  5,436,854
  5,849,542
Total liabilities and equity, $m
  35,629
  54,705
  84,520
  126,401
  183,401
  258,752
  355,724
  477,486
  626,970
  806,758
  1,019,000
  1,265,367
  1,547,032
  1,864,694
  2,218,618
  2,608,701
  3,034,546
  3,495,542
  3,990,947
  4,519,954
  5,081,771
  5,675,662
  6,301,009
  6,957,338
  7,644,348
  8,361,935
  9,110,198
  9,889,447
  10,700,208
  11,543,214
  12,419,410
Debt-to-equity ratio
  0.478
  0.740
  0.880
  0.960
  1.010
  1.040
  1.060
  1.080
  1.090
  1.100
  1.100
  1.110
  1.110
  1.110
  1.110
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
  1.120
Adjusted equity ratio
  0.469
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471
  0.471

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  1,040
  -5,713
  -9,173
  -14,068
  -20,773
  -29,692
  -41,238
  -55,815
  -73,804
  -95,541
  -121,315
  -151,242
  -185,710
  -224,711
  -268,295
  -316,461
  -369,168
  -426,347
  -487,907
  -553,749
  -623,772
  -697,881
  -775,993
  -858,045
  -943,991
  -1,033,812
  -1,127,514
  -1,225,129
  -1,326,715
  -1,432,360
  -1,542,175
Depreciation, amort., depletion, $m
  1,385
  2,240
  3,399
  5,029
  7,246
  10,178
  13,950
  18,687
  24,502
  31,496
  39,753
  49,226
  60,184
  72,542
  86,310
  101,485
  118,052
  135,986
  155,258
  175,838
  197,694
  220,798
  245,126
  270,659
  297,385
  325,301
  354,411
  384,726
  416,266
  449,061
  483,148
Funds from operations, $m
  2,696
  -3,474
  -5,774
  -9,039
  -13,526
  -19,514
  -27,288
  -37,129
  -49,301
  -64,045
  -81,562
  -102,016
  -125,526
  -152,170
  -181,985
  -214,976
  -251,116
  -290,361
  -332,648
  -377,911
  -426,077
  -477,082
  -530,867
  -587,386
  -646,606
  -708,511
  -773,103
  -840,403
  -910,449
  -983,298
  -1,059,027
Change in working capital, $m
  -360
  753
  1,095
  1,538
  2,093
  2,767
  3,561
  4,471
  5,489
  6,602
  7,794
  9,047
  10,343
  11,665
  12,996
  14,324
  15,637
  16,928
  18,191
  19,425
  20,630
  21,808
  22,963
  24,100
  25,227
  26,350
  27,476
  28,614
  29,771
  30,955
  32,174
Cash from operations, $m
  3,056
  -3,828
  -6,869
  -10,577
  -15,620
  -22,281
  -30,849
  -41,600
  -54,790
  -70,647
  -89,356
  -111,062
  -135,869
  -163,834
  -194,981
  -229,300
  -266,753
  -307,289
  -350,840
  -397,336
  -446,707
  -498,890
  -553,830
  -611,486
  -671,833
  -734,861
  -800,580
  -869,017
  -940,220
  -1,014,254
  -1,091,201
Maintenance CAPEX, $m
  0
  -1,330
  -2,128
  -3,288
  -4,917
  -7,135
  -10,066
  -13,839
  -18,575
  -24,391
  -31,385
  -39,642
  -49,226
  -60,184
  -72,542
  -86,310
  -101,485
  -118,052
  -135,986
  -155,258
  -175,838
  -197,694
  -220,798
  -245,126
  -270,659
  -297,385
  -325,301
  -354,411
  -384,726
  -416,266
  -449,061
New CAPEX, $m
  -1,416
  -16,359
  -23,777
  -33,399
  -45,458
  -60,093
  -77,336
  -97,106
  -119,214
  -143,382
  -169,264
  -196,479
  -224,629
  -253,337
  -282,256
  -311,093
  -339,613
  -367,646
  -395,087
  -421,886
  -448,051
  -473,631
  -498,717
  -523,424
  -547,894
  -572,278
  -596,742
  -621,455
  -646,584
  -672,301
  -698,770
Cash from investing activities, $m
  -1,837
  -17,689
  -25,905
  -36,687
  -50,375
  -67,228
  -87,402
  -110,945
  -137,789
  -167,773
  -200,649
  -236,121
  -273,855
  -313,521
  -354,798
  -397,403
  -441,098
  -485,698
  -531,073
  -577,144
  -623,889
  -671,325
  -719,515
  -768,550
  -818,553
  -869,663
  -922,043
  -975,866
  -1,031,310
  -1,088,567
  -1,147,831
Free cash flow, $m
  1,219
  -21,516
  -32,774
  -47,264
  -65,995
  -89,509
  -118,251
  -152,544
  -192,579
  -238,419
  -290,005
  -347,183
  -409,724
  -477,355
  -549,779
  -626,702
  -707,852
  -792,987
  -881,912
  -974,480
  -1,070,596
  -1,170,216
  -1,273,345
  -1,380,037
  -1,490,385
  -1,604,524
  -1,722,623
  -1,844,882
  -1,971,530
  -2,102,821
  -2,239,032
Issuance/(repayment) of debt, $m
  -993
  10,851
  15,772
  22,154
  30,153
  39,861
  51,298
  64,412
  79,077
  95,108
  112,276
  130,328
  149,001
  168,043
  187,226
  206,354
  225,272
  243,867
  262,069
  279,845
  297,201
  314,169
  330,809
  347,198
  363,428
  379,603
  395,831
  412,223
  428,892
  445,950
  463,508
Issuance/(repurchase) of shares, $m
  8
  18,990
  31,045
  44,835
  62,689
  85,139
  112,626
  145,482
  183,909
  227,991
  277,695
  332,894
  393,388
  458,930
  529,251
  604,077
  683,153
  766,249
  853,179
  943,798
  1,038,011
  1,135,770
  1,237,075
  1,341,970
  1,450,538
  1,562,904
  1,679,224
  1,799,686
  1,924,506
  2,053,926
  2,188,213
Cash from financing (excl. dividends), $m  
  -1,577
  29,841
  46,817
  66,989
  92,842
  125,000
  163,924
  209,894
  262,986
  323,099
  389,971
  463,222
  542,389
  626,973
  716,477
  810,431
  908,425
  1,010,116
  1,115,248
  1,223,643
  1,335,212
  1,449,939
  1,567,884
  1,689,168
  1,813,966
  1,942,507
  2,075,055
  2,211,909
  2,353,398
  2,499,876
  2,651,721
Total cash flow (excl. dividends), $m
  -422
  -10,665
  -17,002
  -25,110
  -35,842
  -49,648
  -66,952
  -88,132
  -113,503
  -143,311
  -177,729
  -216,855
  -260,723
  -309,312
  -362,553
  -420,348
  -482,580
  -549,120
  -619,843
  -694,635
  -773,395
  -856,047
  -942,537
  -1,032,839
  -1,126,956
  -1,224,921
  -1,326,792
  -1,432,659
  -1,542,638
  -1,656,870
  -1,775,524
Retained Cash Flow (-), $m
  -1,035
  -9,632
  -14,043
  -19,725
  -26,847
  -35,490
  -45,674
  -57,350
  -70,407
  -84,680
  -99,966
  -116,039
  -132,664
  -149,619
  -166,698
  -183,729
  -200,573
  -217,129
  -233,335
  -249,163
  -264,615
  -279,723
  -294,538
  -309,131
  -323,582
  -337,983
  -352,432
  -367,026
  -381,868
  -397,056
  -412,688
Prev. year cash balance distribution, $m
 
  1,308
  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
 
  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
Discount rate, %
 
  4.80
  5.04
  5.29
  5.56
  5.83
  6.13
  6.43
  6.75
  7.09
  7.45
  7.82
  8.21
  8.62
  9.05
  9.50
  9.98
  10.48
  11.00
  11.55
  12.13
  12.74
  13.37
  14.04
  14.74
  15.48
  16.25
  17.07
  17.92
  18.82
  19.76
PV of cash for distribution, $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
Current shareholders' claim on cash, %
  100
  41.5
  17.0
  7.2
  3.2
  1.5
  0.7
  0.3
  0.2
  0.1
  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
  0.0
  0.0
  0.0
  0.0
  0.0
  0.0

Teck Resources Limited explores, develops, and produces natural resources in the Americas, the Asia Pacific, and Europe. The company’s principal products comprise steelmaking coal; copper concentrates and refined copper cathodes; refined zinc and zinc concentrates; and lead concentrates. It also produces molybdenum, gold, silver, germanium, indium, and cadmium, as well as chemicals and fertilizers. In addition, the company holds interest in oil sands projects and other interests in the Athabasca region of Alberta; and owns interests in mining and processing operations in Canada, the United States, Chile, and Peru, as well as operates a metallurgical complex. It also owns an interest in a wind power facility. The company was formerly known as Teck Cominco Limited and changed its name to Teck Resources Limited in April 2009. Teck Resources Limited was founded in 1906 and is based in Vancouver, Canada.

FINANCIAL RATIOS  of  Teck Resources Limited Class B Subordina (TECK-B)

Valuation Ratios
P/E Ratio 14.1
Price to Sales 1.6
Price to Book 0.8
Price to Tangible Book
Price to Cash Flow 4.8
Price to Free Cash Flow 8.9
Growth Rates
Sales Growth Rate 12.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -10.4%
Cap. Spend. - 3 Yr. Gr. Rate -5.3%
Financial Strength
Quick Ratio 14
Current Ratio 0
LT Debt to Equity 47.3%
Total Debt to Equity 47.8%
Interest Coverage 4
Management Effectiveness
Return On Assets 4%
Ret/ On Assets - 3 Yr. Avg. -0.1%
Return On Total Capital 4%
Ret/ On T. Cap. - 3 Yr. Avg. -1.3%
Return On Equity 6.1%
Return On Equity - 3 Yr. Avg. -2%
Asset Turnover 0.3
Profitability Ratios
Gross Margin 25.8%
Gross Margin - 3 Yr. Avg. 19.7%
EBITDA Margin 38.5%
EBITDA Margin - 3 Yr. Avg. 16.3%
Operating Margin 20.3%
Oper. Margin - 3 Yr. Avg. -1%
Pre-Tax Margin 17.5%
Pre-Tax Margin - 3 Yr. Avg. -4.8%
Net Profit Margin 11.2%
Net Profit Margin - 3 Yr. Avg. -4.9%
Effective Tax Rate 36.1%
Eff/ Tax Rate - 3 Yr. Avg. 36.2%
Payout Ratio 5.6%

TECK-B stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TECK-B stock intrinsic value calculation we used $9300 million for the last fiscal year's total revenue generated by Teck Resources Limited Class B Subordina. The default revenue input number comes from 2016 income statement of Teck Resources Limited Class B Subordina. 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 TECK-B stock valuation model: a) initial revenue growth rate of 60% 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 4.8%, whose default value for TECK-B is calculated based on our internal credit rating of Teck Resources Limited Class B Subordina, 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 Teck Resources Limited Class B Subordina.
    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 TECK-B stock the variable cost ratio is equal to 135.3%.

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 TECK-B 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 6.4% for Teck Resources Limited Class B Subordina.

Corporate tax rate of 27% is the nominal tax rate for Teck Resources Limited Class B Subordina. 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 TECK-B 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 TECK-B are equal to 293.2%.

Life of production assets of 20.5 years is the average useful life of capital assets used in Teck Resources Limited Class B Subordina 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 TECK-B is equal to 13.5%. 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 - $17442 million for Teck Resources Limited Class B Subordina - 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 584.468 million for Teck Resources Limited Class B Subordina 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 Teck Resources Limited Class B Subordina at the current share price and the inputted number of shares is $14.6 billion.


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Stock chart of TECK-B Financial statements of TECK-B
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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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