DCF Studio

    CP.TO · TOR · Industrials

    Canadian Pacific Kansas City Limited

    Also onConsensus Drift

    Implied value per share

    CAD 93.68

    Market price

    CAD 122.41

    Implied upside

    -23.5%

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

    AdjustedCapital expenditure runs at 19.5% of revenue against depreciation of 12.1%. 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 93.68-23.5%
    Exit multiple
    CAD 230.12+88.0%
    Market price
    CAD 122.41

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    0bn4bn7bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 18.0bnCAD 21.6bnCAD 25.8bnCAD 30.8bnCAD 36.9bn+19.6%
    EBITCAD 6.6bnCAD 7.8bnCAD 9.4bnCAD 11.2bnCAD 13.4bn+19.6%
    NOPATCAD 5.1bnCAD 6.1bnCAD 7.3bnCAD 8.7bnCAD 10.4bn+19.6%
    Add depreciation & amortisationCAD 2.2bnCAD 2.6bnCAD 3.1bnCAD 3.7bnCAD 4.5bn+19.6%
    Less capital expenditureCAD -3.5bnCAD -4.2bnCAD -5.0bnCAD -6.0bnCAD -7.2bn+19.6%
    Less increase in working capitalCAD -243.3mCAD -291.0mCAD -348.0mCAD -416.2mCAD -497.7m+19.6%
    Free cashflow to firmCAD 3.5bnCAD 4.2bnCAD 5.0bnCAD 6.0bnCAD 7.2bn+19.6%
    Discount factor0.96040.88590.81720.75380.6954-
    Present valueCAD 3.4bnCAD 3.7bnCAD 4.1bnCAD 4.5bnCAD 5.0bn+10.3%
    Present Value Of The ForecastCAD 20.8bn

    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
    Beta1.147Reported 1.220, pulled toward 1.0 (Blume)
    Cost of equity9.61%Risk-free + beta x equity risk premium
    Cost of debt3.76%Interest expense / average total debt
    Market capitalisationCAD 107.6bn82.0% of capital
    Total debtCAD 23.6bn18.0% of capital, book value as a proxy
    Tax rate22.2%Effective, capped at statutory
    WACC8.41%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 93.68

    81% of EV

    Forecast FCFF, final year
    CAD 7.2bn
    Capex at depreciation, working capital in reinvestment
    CAD 10.4bn
    Less reinvestment at g/ROIC (29.7% of NOPAT)
    CAD -3.1bn
    Capitalised
    CAD 7.3bn
    ROIC (WACC floor)
    8.4%
    Terminal value, undiscounted
    CAD 127.3bn
    Terminal value, discounted
    CAD 88.5bn
    Enterprise value
    CAD 109.3bn
    Less net debt
    CAD 23.4bn
    Equity value
    CAD 85.9bn

    Exit at 17.2x EBITDA

    Value per shareCAD 230.12

    91% of EV

    Terminal value, undiscounted
    CAD 307.3bn
    Terminal value, discounted
    CAD 213.7bn
    Enterprise value
    CAD 234.5bn
    Less net debt
    CAD 23.4bn
    Equity value
    CAD 211.0bn

    Spread between methods: 84%.

    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%
    6.41%134.71135.38136.05136.72137.39
    7.41%110.83111.39111.95112.51113.06
    8.41%92.7493.2193.6894.1594.62
    9.41%78.5778.9779.3779.7880.18
    10.41%67.1967.5467.8968.2468.59

    Outlined: this model. Green text: above today's price of 122.41. 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 year19.6%25.3%+5.7pp
    EBIT margin36.4%44.5%+8.1pp
    Discount rate8.4%6.9%-1.5pp
    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.