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    TT · NYQ · Industrials

    Trane Technologies plc

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 194.68

    Market price

    USD 429.11

    Implied upside

    -54.6%

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

    Current EV/EBITDA of 22.4x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 194.68-54.6%
    Exit multiple
    USD 415.38-3.2%
    Market price
    USD 429.11

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn5bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 23.5bnUSD 25.8bnUSD 28.4bnUSD 31.3bnUSD 34.4bn+10.1%
    EBITUSD 4.0bnUSD 4.4bnUSD 4.8bnUSD 5.3bnUSD 5.8bn+10.1%
    NOPATUSD 3.2bnUSD 3.5bnUSD 3.9bnUSD 4.3bnUSD 4.7bn+10.1%
    Add depreciation & amortisationUSD 450.0mUSD 495.3mUSD 545.1mUSD 600.0mUSD 660.4m+10.1%
    Less capital expenditureUSD -421.8mUSD -464.3mUSD -511.0mUSD -562.4mUSD -619.0m+10.1%
    Less increase in working capitalUSD -92.7mUSD -102.0mUSD -112.2mUSD -123.5mUSD -136.0m+10.1%
    Free cashflow to firmUSD 3.1bnUSD 3.5bnUSD 3.8bnUSD 4.2bnUSD 4.6bn+10.1%
    Discount factor0.94960.85640.77230.69650.6281-
    Present valueUSD 3.0bnUSD 3.0bnUSD 2.9bnUSD 2.9bnUSD 2.9bn-0.7%
    Present Value Of The ForecastUSD 14.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.132Reported 1.197, pulled toward 1.0 (Blume)
    Cost of equity11.22%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 94.4bn95.3% of capital
    Total debtUSD 4.6bn4.7% of capital, book value as a proxy
    Tax rate19.3%Effective, capped at statutory
    WACC10.89%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 shareUSD 194.68

    68% of EV

    Forecast FCFF, final year
    USD 4.6bn
    Capex at depreciation, working capital in reinvestment
    USD 4.7bn
    Less reinvestment at g/ROIC (11.6% of NOPAT)
    USD -548.2m
    Capitalised
    USD 4.2bn
    ROIC (reported)
    21.5%
    Terminal value, undiscounted
    USD 50.8bn
    Terminal value, discounted
    USD 31.9bn
    Enterprise value
    USD 46.6bn
    Less net debt
    USD 2.9bn
    Equity value
    USD 43.8bn

    Exit at 20.0x EBITDA

    Value per shareUSD 415.38

    85% of EV

    Terminal value, undiscounted
    USD 129.9bn
    Terminal value, discounted
    USD 81.6bn
    Enterprise value
    USD 96.3bn
    Less net debt
    USD 2.9bn
    Equity value
    USD 93.4bn

    Spread between methods: 72%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    8.89%238.12247.40258.08270.51285.19
    9.89%208.35214.81222.09230.39239.93
    10.89%184.94189.55194.68200.41206.89
    11.89%166.04169.41173.10177.17181.69
    12.89%150.47152.96155.67158.62161.85

    Outlined: this model. Green text: above today's price of 429.11. 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 year10.1%30.7%+20.6pp
    EBIT margin16.9%36.0%+19.0pp
    Discount rate10.9%6.4%-4.5pp
    Download as Excel

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