CU.

TO
Canadian Utilities
INVESTMENT REPORT

2021-2022

MOHSIN DHRUBO
Data Analyst

Powered By
 TABLE OF CONTENTS

01 Company Summary

02 EPS Analysis

03 Financial Ratio Analysis

04 Stock Evaluation

05 INTRINSIC VALUE VS CURRENT VALUE UPSIDE PERCENTAGE

06 Economic Value Added

07 Risk & Sensitivity

08 Margin Of Safety

09 Technical Analysis

Econ:C.A.C | CU.TO Analysis

 COMPANY SUMMARY

CU.TO is a Canadian company that is in the Electric Utility industry. CU.TO

employs about 5,000 employees. It has a market cap of 8.6 Billion.

The company has a yearly dividend per share of $1.76. This means if you own &
hold 1 share of the company, they will pay you $1.76 each year.

The company has a beta of 0.53. This means that the stock moves less than the
TSX itself.

Return on Assets:
ROA Indicates how profitable a company is relative to its total assets. This gives an idea as to how
efficient a company's management is at using its assets to generate earnings.

The 8 yr ave is 3.39%, 2020 was 20.45% due to Covid. However it's debt structure shows that this
will recover as things return to normal. More on debt later.

Return on Investments:
It is a management performance measure used to evaluate the efficiency of an investment or
compare
the efficiency of a number of different investments.

5.99% over the last 8 years. So management is handing the company well.

Return on Equity:
Provides insight into how efficiently a company (or more specifically, its management team) is
handling the money that shareholders have contributed to it. In other words, it measures the
profitability of a
corporation in relation to stockholders’ equity.

The higher the ROE, the more efficient. 14.51% in 8 years is very good.

Econ:C.A.C | CU.TO Analysis

 EARNINGS PER SHARE

Earnings per share (EPS) measures how much of the company's total earnings are
given to the shareholders.

So when you purchase a share in a company EPS indicates how much of their
earnings you will receive, and so then you can take a look at the price you pay
for that one share & see if that is a good fit for you.

EPS graph 2010-2019 shows that

earnings for shareholders have
remained consistent from 2010
not a bad sign.

EPS growth rate measures simply

how fast the EPS has been
growing or declining. So use EPS
growth rate to see whether the
EPS is growing faster or slowing
down over the years, if slowing
down then it is of concern.

Read this graph from right to

left. Since we are concerned
with the historical data but we
also want to see the most current
data it made sense to present
the graphs this way.

As we can see the trend is

increasing from 2011, means that
the company is making more
money for the shareholders in
each year from 2011.

Econ:C.A.C | CU.TO Analysis

 FINANCIAL RATIOS

PROFITABLE RATIO

These are profitability

ratios, these show you how
profitable the company has
been over the years.

The graph shows the

company's ratios over the
last 4 years to see how
they have performed, look
for positive slope trend
lines as they indicate
improving conditions.

LIQUIDITY RATIO

A good liquidity ratio is anything

greater than 1. It indicates that
the company is in good financial
health and is less likely to face
financial hardships.

For current ratio look for above 1.

For quick ratio look for above 1.

When you see a current ratio

above 1 but quick ratio below 1, it
mean most of the company's
asset is just inventory in which
As we can see from this graph the current & quick
case it becomes important to see
ratios are upward sloping, this means the company
how efficient the company is in
is clearing up debt, which gives it room to be more
selling its assets, take a closer
profitable.
look at the asset turnover ratios.
Look for upward slope trendlines
for these ratios. Econ:C.A.C | CU.TO Analysis
 SOLVENCY RATIO

These ratios determine how well the company is in terms of debt

management. These ratios provide an insight into the company's financial
health in terms of debt, basically whether the company is being run in
such a manner where the investor's money is safe or not. It gives an
insight into how likely the company is to be bankrupt.

Debt-to-equity ratio should be

below 1, the higher this ratio is
the more debt it has. The lower
the ratio the more assets it has.

The interest cover means the

higher this number the better.
This ratio shows the ability of
the company to pay its debt
obligations using its operating
income.

As we see from the graphs the debt-to-equity ratio shows the level of
debt taken by the company as mentioned previously however it is
clear from the interest cover ratio that the company has more than 2
times its interest obligations. This means we shouldn't be too worried
about high debt.

Econ:C.A.C | CU.TO Analysis

 STOCK EVALUATION

I have used a number of methods to calculate a fair value or intrinsic

value of the stock. The fair value or intrinsic value of the stock means
what the actual value of the stock should be, after finding this value
I have compared it with the market value of the stock, which
determines if the stock is undervalued or overvalued.

The stock market price of the company is the current price for each
share of the company. Whereas the intrinsic/fair value of the
company represents what we believe the share should be worth. I
have used a DCF method, dividend discount method, comparable
analysis method as well as taken the projected fair value provided by
Simply Wall st, Tip ranks, Desjardins and yahoo finance. Then I took
an average of all the values to reflect the true intrinsic/fair value of
each share.

100

$84.24
75

50

$39.37 $37.57
$35.50 $35.19 $34.61
25 $31.57 $27.86

0
Quant Wall St TR YF CNN DCF DDM CM

Econ:C.A.C | CU.TO Analysis

 INTRINSIC VALUE VS CURRENT
VALUE UPSIDE PERCENTAGE

Based on our calculations the true intrinsic/fair value of each

share is $40.74. The current price per share is $32.06, as of
2021-03-12.

This represents an upside of 10% from current prices. For

example, an investment of $1000 will result in 1100 when CU.TO
reaches its intrinsic value calculated here.

50

40
$40.74
30
$32.06
20

10

0
Current Price Intrinsic Value

Econ:C.A.C | CU.TO Analysis

 ECONOMIC VALUE ADDED

Economic value added (EVA), also known as economic profit,

calculates the true economic profit of a company. EVA is used to
measure the value a company generates from funds invested in it.

If a company's EVA is negative, it means the company is not

generating value from the funds invested into the business.

A positive EVA shows a company is producing value from the funds

invested in it.

As we see below CU.TO has been consistently EVA positive, which

further provides grounds for it to be a good investment opportunity.

1,250B

1,000B
$1020B
750B
$748B
500B
$533B $484B
250B

0B
2017 2018 2019 2020
Econ:C.A.C | CU.TO Analysis
 RISK MANAGEMENT & SENSITIVITY

Below are the risk & sensitivity management of the investment in

CU.TO.

Treynor ratio determines how much excess return was generated for
each unit of risk taken by an investor. So for each unit of risk taken on
CU.TO was returned with a -3.046% return on the investment in the last
5 years. This tells us that this is not a good stock to take extra risk.

VaR @95%: CU.to with a 5 year average monthly return of -0.217%

means that with there is a 95% confidence level where the monthly loss
won’t be more than 13.23%.

VaR @99%: CU.TO with a 5 year average monthly return of 0.217%

means that with there is a 99% confidence level where the monthly loss
won’t be more than 19.73%.

Econ:C.A.C | CU.TO Analysis

 MARGIN OF SAFETY

Margin of safety measures the soundness of an investment. A high

margin of safety indicates a safer investment should the business
that is being invested in fails to deliver the investment is still safe
due to the high margin of safety determining an investment point
lower than the breakeven point.

To put it simply a margin of safety at 30% is encouraged normally,

which means that we find the breakeven point of the business. This is
the point where the revenue & the cost to generate that revenue is
the same for the business. We then invest when the prices are 30%
below that. This means that even if the business fails to generate 30%
of its sales, our investment is still safe.

Note: It may be a long & patient wait to purchase the share at this
margin of safety price. This is precisely why according to Qtrade
(online brokerage) has it's support at $32.24 & long term position at
$30.23. Whereas you can see from the data below that our 30% MOS
is $27.26.

Econ:C.A.C | CU.TO Analysis

 TECHNICAL ANALYSIS

For technical analysis my favourite indicator to use is the RSI which

stands for Relative Strength Index. This measures whether the stock
has been overbought or oversold. The general rule of thumb is to buy
when RSI is below 30 or near 30 & sell when RSI is above 80 or near
80.

As we can see from below the RSI is around 49.35 which means that
we are perfectly neutral at the moment.

Scenario: You purchase shares of CU.TO worth $1000, and what

happens to your investment after 1 year?

If you purchase at the current price of $32.06 then you get 31 shares.
After 1 year you have $54.56 in dividends, and if the price reaches
the intrinsic value then you would have $1262.94 worth of shares.
Altogether after 1 year with dividends & price appreciation would
give you $1317.5 on your $1000 investment. Whereas if your
$1000 was sitting in your savings account it would give you about
$1000.92.
Econ:C.A.C | CU.TO Analysis