Q: Today, Monday, May 27, 2024 the approx. price for TOU is $67.21 CAD.
In your opinion is it currently trading at fair value, expensive, cheap?
What would be your estimate of a fair value price and what valuation metric are you using to determine this?
In your opinion is it currently trading at fair value, expensive, cheap?
What would be your estimate of a fair value price and what valuation metric are you using to determine this?
5i Research Answer:
We think TOU has been trading at a fair valuation. TOU is trading at 6.6x EV/EBITDA, historical averages range from 3.9x to 8.5x in the last few years. But TOU is a very well-managed gas name; the company has maintained its capital investment flat in the last few years and instead paid very generous special dividends in the last few years. Given prices today, we think TOU’s valuation is fair to cheap. The sector as a whole is cheap vs historicals as well. Considering EV/EBITDA and cash flow multiples, we would consider $80 more of a true fair value, reflecting that it is perhaps the best natural gas company in Canada.