DCF Studio

    CNR.TO · TOR · Industrials

    Canadian National Railway Company

    Also onConsensus Drift

    Implied value per share

    CAD 81.88

    Market price

    CAD 166.68

    Implied upside

    -50.9%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedCapital expenditure runs at 19.2% of revenue against depreciation of 10.8%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.
    NoteRisk-free rate is an assumption: CAD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    CAD 81.88-50.9%
    Exit multiple
    CAD 133.23-20.1%
    Market price
    CAD 166.68

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 17.4bnCAD 17.4bnCAD 17.5bnCAD 17.6bnCAD 17.6bn+0.4%
    EBITCAD 6.7bnCAD 6.7bnCAD 6.8bnCAD 6.8bnCAD 6.8bn+0.4%
    NOPATCAD 5.1bnCAD 5.1bnCAD 5.1bnCAD 5.1bnCAD 5.2bn+0.4%
    Add depreciation & amortisationCAD 1.9bnCAD 1.9bnCAD 1.9bnCAD 1.9bnCAD 1.9bn+0.4%
    Less capital expenditureCAD -3.3bnCAD -3.4bnCAD -3.4bnCAD -3.4bnCAD -3.4bn+0.4%
    Less increase in working capitalCAD 27.9mCAD 28.0mCAD 28.1mCAD 28.2mCAD 28.4m-0.4%
    Free cashflow to firmCAD 3.6bnCAD 3.7bnCAD 3.7bnCAD 3.7bnCAD 3.7bn+0.4%
    Discount factor0.96320.89370.82920.76940.7139-
    Present valueCAD 3.5bnCAD 3.3bnCAD 3.0bnCAD 2.8bnCAD 2.6bn-6.9%
    Present Value Of The ForecastCAD 15.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.30%CAD assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta0.992Reported 0.988, pulled toward 1.0 (Blume)
    Cost of equity8.76%Risk-free + beta x equity risk premium
    Cost of debt4.25%Interest expense / average total debt
    Market capitalisationCAD 100.8bn82.3% of capital
    Total debtCAD 21.6bn17.7% of capital, book value as a proxy
    Tax rate24.2%Effective, capped at statutory
    WACC7.78%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareCAD 81.88

    79% of EV

    Forecast FCFF, final year
    CAD 3.7bn
    Capex at depreciation, working capital in reinvestment
    CAD 5.2bn
    Less reinvestment at g/ROIC (20.3% of NOPAT)
    CAD -1.0bn
    Capitalised
    CAD 4.1bn
    ROIC (reported)
    12.3%
    Terminal value, undiscounted
    CAD 79.9bn
    Terminal value, discounted
    CAD 57.0bn
    Enterprise value
    CAD 72.3bn
    Less net debt
    CAD 21.3bn
    Equity value
    CAD 51.1bn

    Exit at 14.3x EBITDA

    Value per shareCAD 133.23

    85% of EV

    Terminal value, undiscounted
    CAD 124.8bn
    Terminal value, discounted
    CAD 89.1bn
    Enterprise value
    CAD 104.4bn
    Less net debt
    CAD 21.3bn
    Equity value
    CAD 83.1bn

    Spread between methods: 48%.

    Sensitivity

    Value per share (CAD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.78%125.48136.91151.75171.83200.62
    6.78%95.03101.15108.64118.05130.25
    7.78%74.3177.7981.8886.7892.76
    8.78%59.3161.3463.6666.3369.47
    9.78%47.9649.1450.4551.9253.59

    Outlined: this model. Green text: above today's price of 166.68. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year0.4%12.2%+11.8pp
    EBIT margin38.6%64.6%+26.0pp
    Discount rate7.8%5.5%-2.2pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.