DCF Studio

    POW.TO · TOR · Financial Services

    Power Corporation of Canada

    Also onConsensus Drift

    Implied value per share

    CAD 154.67

    Market price

    CAD 94.56

    Implied upside

    +63.6%

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

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedOnly 3 year(s) of history available to anchor assumptions on.
    AdjustedConsensus rests on as few as 1 analyst estimate(s).
    AdjustedCapital expenditure runs at 2.7% of revenue against depreciation of 0.0%. 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 154.67+63.6%
    Exit multiple
    CAD 118.75+25.6%
    Market price
    CAD 94.56

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 39.2bnCAD 40.9bnCAD 42.6bnCAD 44.5bnCAD 46.3bn+4.2%
    EBITCAD 5.5bnCAD 5.7bnCAD 6.0bnCAD 6.2bnCAD 6.5bn+4.2%
    NOPATCAD 4.6bnCAD 4.8bnCAD 5.0bnCAD 5.2bnCAD 5.4bn+4.2%
    Add depreciation & amortisationCAD 0.00CAD 0.00CAD 0.00CAD 0.00CAD 0.00-
    Less capital expenditureCAD -1.1bnCAD -1.1bnCAD -1.1bnCAD -1.2bnCAD -1.2bn+4.2%
    Less increase in working capitalCAD 1.2bnCAD 1.3bnCAD 1.3bnCAD 1.4bnCAD 1.5bn-4.2%
    Free cashflow to firmCAD 4.8bnCAD 5.0bnCAD 5.2bnCAD 5.4bnCAD 5.6bn+4.2%
    Discount factor0.96790.90670.84940.79580.7455-
    Present valueCAD 4.6bnCAD 4.5bnCAD 4.4bnCAD 4.3bnCAD 4.2bn-2.3%
    Present Value Of The ForecastCAD 22.0bn

    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
    Beta0.943Reported 0.915, pulled toward 1.0 (Blume)
    Cost of equity8.49%Risk-free + beta x equity risk premium
    Cost of debt3.30%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationCAD 59.4bn69.6% of capital
    Total debtCAD 25.9bn30.4% of capital, book value as a proxy
    Tax rate16.6%Effective, capped at statutory
    WACC6.75%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 154.67

    78% of EV

    Forecast FCFF, final year
    CAD 5.6bn
    Capex at depreciation, working capital in reinvestment
    CAD 5.4bn
    Less reinvestment at g/ROIC (22.2% of NOPAT)
    CAD -1.2bn
    Capitalised
    CAD 4.2bn
    ROIC (reported)
    11.3%
    Terminal value, undiscounted
    CAD 101.9bn
    Terminal value, discounted
    CAD 76.0bn
    Enterprise value
    CAD 98.0bn
    Less net debt
    CAD -2.0bn
    Equity value
    CAD 100.0bn

    Exit at 10.9x EBITDA

    Value per shareCAD 118.75

    71% of EV

    Terminal value, undiscounted
    CAD 70.7bn
    Terminal value, discounted
    CAD 52.7bn
    Enterprise value
    CAD 74.8bn
    Less net debt
    CAD -2.0bn
    Equity value
    CAD 76.8bn

    Spread between methods: 26%.

    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%
    4.75%223.41246.90280.71333.72429.05
    5.75%173.18184.11198.33217.61245.35
    6.75%142.06147.73154.67163.38174.69
    7.75%120.88123.96127.59131.92137.21
    8.75%105.51107.20109.13111.34113.93

    Outlined: this model. Green text: above today's price of 94.56. 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 year4.2%-3.9%-8.1pp
    EBIT margin14.0%8.4%-5.6pp
    Discount rate6.7%9.8%+3.1pp
    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.