A Valuation of SaskPower

Valuation of Crown Corporations, Crown Corporations, Ian Madsen

Keeping Sask Power and being compelled to throw in more billions of dollars to keep it viable, or having an additional 15,000 teachers, nurses, or paramedics? This is the choice Saskatchewan would have if this Crown asset were sold.

There are two generally accepted methods for valuing a company: its intrinsic value as a cash-generating enterprise, and its standard market value in comparison with similar companies. This study used both methods to value SaskPower Corp. (SPC).

In the valuation, it was not possible to use the normal intrinsic value method, and discount to the present, the Province of  Saskatchewan’s interest in SaskPower’s projected future free cash flows, as the company has not in recent years, and is not projected to, have positive free cash flow. So, a conceptual equivalency was made for an alternative valuation, using similar techniques, treating net income as a proxy for free cash flow, which, in theory, would be correct for a typical, slow growing company in a mature industry, where capital expenditure would generally be approximately equal to depreciation, making net income and free cash flow the same number. This alternative intrinsic value, ‘as is’ (not taxed at statutory rates) could range from a median of $676M to a mean of $755M. It would range between a median of $497M and a mean of $613M if the company was to become taxed in the usual, statutory way. Note to the reader the company’s capex demands exceed cash flow, so the intrinsic valuation is quite optimistic.

Under the market-based valuation system, the current, ‘as is’ (not statutorily taxed) value ranges from $932M to $4,542M, with a median value of $2,273M, and a mean (average) value of $2,408M. Once it becomes taxable at statutory rates, the range could be between $803M and $4,542M, with a median value of $1,197M and a mean value of $2,270M.

Read the entire Valuation here: VS03_SaskPower-Valuation_MR0818_F2