Intrinsic value of Toromont Industries Ltd. - TIH

Previous Close

$47.06

  Intrinsic Value

$33.17

stock screener

  Rating & Target

sell

-30%

  Value-price divergence*

-23%

Previous close

$47.06

 
Intrinsic value

$33.17

 
Up/down potential

-30%

 
Rating

sell

 
Value-price divergence*

-23%

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

We calculate the intrinsic value of TIH 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 3.7

 

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, %
  3.61
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
  5.57
  5.52
  5.46
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
Revenue, $m
  1,867
  1,983
  2,103
  2,229
  2,360
  2,496
  2,639
  2,788
  2,943
  3,105
  3,275
  3,453
  3,638
  3,833
  4,036
  4,249
  4,472
  4,705
  4,950
  5,206
  5,475
  5,757
  6,052
  6,362
  6,687
  7,027
  7,385
  7,760
  8,153
  8,566
  8,999
Variable operating expenses, $m
 
  1,616
  1,714
  1,816
  1,923
  2,034
  2,150
  2,271
  2,398
  2,530
  2,668
  2,811
  2,963
  3,121
  3,286
  3,460
  3,641
  3,831
  4,031
  4,239
  4,458
  4,688
  4,928
  5,181
  5,445
  5,723
  6,014
  6,319
  6,639
  6,975
  7,328
Fixed operating expenses, $m
 
  135
  139
  142
  146
  149
  153
  157
  161
  165
  169
  173
  178
  182
  187
  191
  196
  201
  206
  211
  216
  222
  227
  233
  239
  245
  251
  257
  264
  270
  277
Total operating expenses, $m
  1,651
  1,751
  1,853
  1,958
  2,069
  2,183
  2,303
  2,428
  2,559
  2,695
  2,837
  2,984
  3,141
  3,303
  3,473
  3,651
  3,837
  4,032
  4,237
  4,450
  4,674
  4,910
  5,155
  5,414
  5,684
  5,968
  6,265
  6,576
  6,903
  7,245
  7,605
Operating income, $m
  217
  232
  251
  270
  291
  313
  336
  359
  384
  411
  438
  468
  498
  530
  563
  598
  634
  673
  713
  756
  800
  847
  897
  948
  1,003
  1,060
  1,121
  1,184
  1,250
  1,321
  1,394
EBITDA, $m
  294
  275
  296
  319
  343
  367
  393
  420
  448
  478
  509
  541
  575
  611
  648
  688
  729
  773
  818
  866
  916
  969
  1,025
  1,083
  1,145
  1,209
  1,277
  1,348
  1,423
  1,502
  1,585
Interest expense (income), $m
  7
  7
  8
  10
  12
  13
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  38
  41
  44
  47
  50
  54
  57
  61
  65
  69
  74
  78
  83
  88
  93
Earnings before tax, $m
  213
  225
  242
  260
  280
  300
  321
  343
  366
  390
  415
  443
  471
  500
  531
  563
  597
  632
  670
  709
  750
  794
  839
  887
  938
  991
  1,047
  1,106
  1,167
  1,232
  1,301
Tax expense, $m
  57
  61
  65
  70
  75
  81
  87
  92
  99
  105
  112
  120
  127
  135
  143
  152
  161
  171
  181
  191
  203
  214
  227
  240
  253
  268
  283
  299
  315
  333
  351
Net income, $m
  156
  164
  177
  190
  204
  219
  234
  250
  267
  284
  303
  323
  344
  365
  387
  411
  436
  462
  489
  518
  548
  579
  613
  648
  685
  723
  764
  807
  852
  900
  950

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  189
  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
  1,411
  1,298
  1,377
  1,459
  1,544
  1,634
  1,727
  1,824
  1,926
  2,032
  2,143
  2,260
  2,381
  2,508
  2,641
  2,781
  2,926
  3,079
  3,239
  3,407
  3,583
  3,767
  3,961
  4,164
  4,376
  4,599
  4,833
  5,078
  5,336
  5,606
  5,890
Adjusted assets (=assets-cash), $m
  1,222
  1,298
  1,377
  1,459
  1,544
  1,634
  1,727
  1,824
  1,926
  2,032
  2,143
  2,260
  2,381
  2,508
  2,641
  2,781
  2,926
  3,079
  3,239
  3,407
  3,583
  3,767
  3,961
  4,164
  4,376
  4,599
  4,833
  5,078
  5,336
  5,606
  5,890
Revenue / Adjusted assets
  1.528
  1.528
  1.527
  1.528
  1.528
  1.528
  1.528
  1.529
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
  1.528
Average production assets, $m
  197
  210
  223
  236
  250
  265
  280
  295
  312
  329
  347
  366
  386
  406
  428
  450
  474
  499
  525
  552
  580
  610
  642
  674
  709
  745
  783
  823
  864
  908
  954
Working capital, $m
  575
  412
  437
  464
  491
  519
  549
  580
  612
  646
  681
  718
  757
  797
  839
  884
  930
  979
  1,030
  1,083
  1,139
  1,197
  1,259
  1,323
  1,391
  1,462
  1,536
  1,614
  1,696
  1,782
  1,872
Total debt, $m
  153
  184
  218
  253
  290
  328
  368
  410
  453
  499
  547
  596
  648
  703
  760
  820
  882
  948
  1,017
  1,089
  1,164
  1,243
  1,326
  1,413
  1,504
  1,600
  1,700
  1,806
  1,916
  2,032
  2,154
Total liabilities, $m
  525
  557
  591
  626
  663
  701
  741
  783
  826
  872
  920
  969
  1,021
  1,076
  1,133
  1,193
  1,255
  1,321
  1,390
  1,462
  1,537
  1,616
  1,699
  1,786
  1,877
  1,973
  2,073
  2,179
  2,289
  2,405
  2,527
Total equity, $m
  885
  741
  786
  833
  882
  933
  986
  1,042
  1,100
  1,160
  1,224
  1,290
  1,360
  1,432
  1,508
  1,588
  1,671
  1,758
  1,850
  1,946
  2,046
  2,151
  2,262
  2,377
  2,499
  2,626
  2,760
  2,900
  3,047
  3,201
  3,363
Total liabilities and equity, $m
  1,410
  1,298
  1,377
  1,459
  1,545
  1,634
  1,727
  1,825
  1,926
  2,032
  2,144
  2,259
  2,381
  2,508
  2,641
  2,781
  2,926
  3,079
  3,240
  3,408
  3,583
  3,767
  3,961
  4,163
  4,376
  4,599
  4,833
  5,079
  5,336
  5,606
  5,890
Debt-to-equity ratio
  0.173
  0.250
  0.280
  0.300
  0.330
  0.350
  0.370
  0.390
  0.410
  0.430
  0.450
  0.460
  0.480
  0.490
  0.500
  0.520
  0.530
  0.540
  0.550
  0.560
  0.570
  0.580
  0.590
  0.590
  0.600
  0.610
  0.620
  0.620
  0.630
  0.630
  0.640
Adjusted equity ratio
  0.570
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571
  0.571

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  156
  164
  177
  190
  204
  219
  234
  250
  267
  284
  303
  323
  344
  365
  387
  411
  436
  462
  489
  518
  548
  579
  613
  648
  685
  723
  764
  807
  852
  900
  950
Depreciation, amort., depletion, $m
  77
  43
  46
  49
  51
  54
  57
  60
  64
  67
  71
  73
  77
  81
  86
  90
  95
  100
  105
  110
  116
  122
  128
  135
  142
  149
  157
  165
  173
  182
  191
Funds from operations, $m
  162
  207
  223
  239
  255
  273
  291
  310
  331
  352
  374
  396
  421
  446
  473
  501
  530
  561
  594
  628
  664
  701
  741
  783
  826
  872
  921
  972
  1,025
  1,081
  1,140
Change in working capital, $m
  -27
  24
  25
  26
  27
  28
  30
  31
  32
  34
  35
  37
  39
  40
  42
  44
  46
  49
  51
  53
  56
  59
  61
  64
  68
  71
  74
  78
  82
  86
  90
Cash from operations, $m
  189
  183
  198
  213
  228
  245
  262
  280
  298
  318
  338
  360
  382
  406
  431
  457
  484
  513
  543
  575
  608
  643
  680
  718
  759
  802
  846
  894
  943
  995
  1,050
Maintenance CAPEX, $m
  0
  -39
  -42
  -45
  -47
  -50
  -53
  -56
  -59
  -62
  -66
  -69
  -73
  -77
  -81
  -86
  -90
  -95
  -100
  -105
  -110
  -116
  -122
  -128
  -135
  -142
  -149
  -157
  -165
  -173
  -182
New CAPEX, $m
  -25
  -13
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
  -24
  -25
  -26
  -27
  -28
  -30
  -31
  -33
  -34
  -36
  -38
  -40
  -42
  -44
  -46
Cash from investing activities, $m
  -19
  -52
  -55
  -58
  -61
  -64
  -68
  -72
  -75
  -79
  -84
  -88
  -93
  -98
  -103
  -109
  -114
  -120
  -126
  -132
  -138
  -146
  -153
  -161
  -169
  -178
  -187
  -197
  -207
  -217
  -228
Free cash flow, $m
  170
  131
  143
  155
  167
  180
  194
  208
  223
  238
  255
  271
  289
  308
  328
  349
  370
  393
  417
  442
  469
  497
  526
  557
  590
  624
  660
  697
  737
  779
  823
Issuance/(repayment) of debt, $m
  -2
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  75
  79
  83
  87
  91
  96
  100
  105
  110
  116
  122
Issuance/(repurchase) of shares, $m
  9
  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  
  7
  33
  34
  35
  37
  38
  40
  42
  44
  46
  48
  50
  52
  55
  57
  60
  63
  66
  69
  72
  75
  79
  83
  87
  91
  96
  100
  105
  110
  116
  122
Total cash flow (excl. dividends), $m
  177
  163
  177
  190
  204
  218
  234
  250
  266
  284
  302
  321
  341
  363
  385
  408
  433
  459
  486
  514
  544
  576
  609
  644
  681
  719
  760
  803
  847
  895
  944
Retained Cash Flow (-), $m
  -110
  -43
  -45
  -47
  -49
  -51
  -53
  -56
  -58
  -61
  -63
  -66
  -69
  -73
  -76
  -80
  -83
  -87
  -91
  -96
  -100
  -105
  -110
  -116
  -121
  -127
  -134
  -140
  -147
  -154
  -162
Prev. year cash balance distribution, $m
 
  187
  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
 
  307
  132
  143
  155
  167
  180
  194
  208
  223
  239
  255
  272
  290
  309
  329
  350
  371
  394
  419
  444
  471
  499
  528
  559
  592
  626
  662
  700
  740
  782
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
 
  295
  120
  124
  128
  130
  131
  131
  130
  128
  125
  121
  116
  110
  104
  97
  89
  81
  73
  64
  56
  49
  41
  35
  28
  23
  18
  14
  11
  8
  6
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

Toromont Industries Ltd. provides specialized capital equipment and customer support services in Canada, the United States, and internationally. It operates in two segments, Equipment Group and CIMCO. The Equipment Group segment is involved in the sale, rental, and service of mobile equipment for Caterpillar and other manufacturers; sale, rental, and service of engines used in a variety of applications, including industrial, commercial, marine, on-highway trucks and power generation; and sale of complementary and related products, parts and services. This segment is also involved in the infrastructure-related; mining; residential and commercial construction; power generation;, aggregates; waste management; steel; forestry; and agriculture activities. The CIMCO segment is involved in the design, engineering, sale, installation, and after-market service of industrial and recreational compression equipment primarily for food, dairy, cold storage and beverage, and artificial ice surface applications. Toromont Industries Ltd. was founded in 1961 and is based in Concord, Canada.

FINANCIAL RATIOS  of  Toromont Industries Ltd. (TIH)

Valuation Ratios
P/E Ratio 23.7
Price to Sales 2
Price to Book 4.2
Price to Tangible Book
Price to Cash Flow 19.5
Price to Free Cash Flow 22.5
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -16.7%
Cap. Spend. - 3 Yr. Gr. Rate -23.4%
Financial Strength
Quick Ratio 95
Current Ratio 0
LT Debt to Equity 17.1%
Total Debt to Equity 17.3%
Interest Coverage 31
Management Effectiveness
Return On Assets 12%
Ret/ On Assets - 3 Yr. Avg. 12.6%
Return On Total Capital 15.9%
Ret/ On T. Cap. - 3 Yr. Avg. 16.8%
Return On Equity 18.8%
Return On Equity - 3 Yr. Avg. 20.1%
Asset Turnover 1.4
Profitability Ratios
Gross Margin 25.1%
Gross Margin - 3 Yr. Avg. 24.9%
EBITDA Margin 15.9%
EBITDA Margin - 3 Yr. Avg. 15.6%
Operating Margin 11.6%
Oper. Margin - 3 Yr. Avg. 11.3%
Pre-Tax Margin 11.4%
Pre-Tax Margin - 3 Yr. Avg. 11.1%
Net Profit Margin 8.4%
Net Profit Margin - 3 Yr. Avg. 8.2%
Effective Tax Rate 26.8%
Eff/ Tax Rate - 3 Yr. Avg. 26.6%
Payout Ratio 35.3%

TIH stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the TIH stock intrinsic value calculation we used $1867 million for the last fiscal year's total revenue generated by Toromont Industries Ltd.. The default revenue input number comes from 2016 income statement of Toromont Industries Ltd.. 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 TIH stock valuation model: a) initial revenue growth rate of 6.2% 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 TIH is calculated based on our internal credit rating of Toromont Industries Ltd., 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 Toromont Industries Ltd..
    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 TIH stock the variable cost ratio is equal to 81.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $132 million in the base year in the intrinsic value calculation for TIH 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 4.6% for Toromont Industries Ltd..

Corporate tax rate of 27% is the nominal tax rate for Toromont Industries Ltd.. 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 TIH 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 TIH are equal to 10.6%.

Life of production assets of 2.7 years is the average useful life of capital assets used in Toromont Industries Ltd. 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 TIH is equal to 20.8%. 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 - $885 million for Toromont Industries Ltd. - 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 78.349 million for Toromont Industries Ltd. 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 Toromont Industries Ltd. at the current share price and the inputted number of shares is $3.7 billion.

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Stock chart of TIH Financial statements of TIH
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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