DCF Studio

    FTS.TO · TOR · Utilities

    Fortis Inc.

    Also onConsensus Drift

    Implied value per share

    CAD 35.38

    Market price

    CAD 75.78

    Implied upside

    -53.3%

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

    AdjustedFree cashflow is negative in at least one forecast year, so terminal value carries most of the valuation.
    AdjustedCapital expenditure runs at 41.9% of revenue against depreciation of 16.0%. 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 35.38-53.3%
    Exit multiple
    CAD 55.46-26.8%
    Market price
    CAD 75.78

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    -622965621-3114828100FY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 12.6bnCAD 13.0bnCAD 13.4bnCAD 13.9bnCAD 14.3bn+3.3%
    EBITCAD 3.4bnCAD 3.5bnCAD 3.7bnCAD 3.8bnCAD 3.9bn+3.3%
    NOPATCAD 2.9bnCAD 3.0bnCAD 3.1bnCAD 3.2bnCAD 3.3bn+3.3%
    Add depreciation & amortisationCAD 2.0bnCAD 2.1bnCAD 2.2bnCAD 2.2bnCAD 2.3bn+3.3%
    Less capital expenditureCAD -5.3bnCAD -5.4bnCAD -5.6bnCAD -5.8bnCAD -6.0bn+3.3%
    Less increase in working capitalCAD -153.0mCAD -158.0mCAD -163.2mCAD -168.6mCAD -174.2m+3.3%
    Free cashflow to firmCAD -547.3mCAD -565.3mCAD -583.9mCAD -603.1mCAD -623.0m-3.3%
    Discount factor0.97490.92660.88070.83710.7956-
    Present valueCAD -533.5mCAD -523.8mCAD -514.2mCAD -504.9mCAD -495.7m+1.8%
    Present Value Of The ForecastCAD -2.6bn

    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
    Beta0.607Reported 0.414, pulled toward 1.0 (Blume)
    Cost of equity6.64%Risk-free + beta x equity risk premium
    Cost of debt4.32%Interest expense / average total debt
    Market capitalisationCAD 38.7bn52.8% of capital
    Total debtCAD 34.7bn47.2% of capital, book value as a proxy
    Tax rate16.4%Effective, capped at statutory
    WACC5.21%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 35.38

    105% of EV

    Forecast FCFF, final year
    CAD -623.0m
    Capex at depreciation, working capital in reinvestment
    CAD 3.5bn
    Less reinvestment at g/ROIC (48.0% of NOPAT)
    CAD -1.7bn
    Capitalised
    CAD 1.8bn
    ROIC (WACC floor)
    5.2%
    Terminal value, undiscounted
    CAD 68.7bn
    Terminal value, discounted
    CAD 54.7bn
    Enterprise value
    CAD 52.1bn
    Less net debt
    CAD 34.3bn
    Equity value
    CAD 17.8bn

    Exit at 13.2x EBITDA

    Value per shareCAD 55.46

    104% of EV

    Terminal value, undiscounted
    CAD 81.5bn
    Terminal value, discounted
    CAD 64.8bn
    Enterprise value
    CAD 62.2bn
    Less net debt
    CAD 34.3bn
    Equity value
    CAD 27.9bn

    Spread between methods: 44%.

    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%
    3.21%177.84233.29365.841122.30—
    4.21%78.5587.57101.53126.55185.93
    5.21%34.3234.8535.3835.9136.44
    6.21%13.3713.7914.2214.6415.07
    7.21%-1.59-1.23-0.88-0.53-0.18

    Outlined: this model. Green text: above today's price of 75.78. 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 year3.3%10.7%+7.4pp
    EBIT margin27.2%35.8%+8.6pp
    Discount rate5.2%4.5%-0.7pp
    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.