🚚📨Business Overview

🎯Key Metrics

Total: 1/17

• +1 ✅ Projected Operating Margin: 10.00%
• +0 ⚠️ Projected 5-Year Revenue CAGR: 8.60%
• +0 ⚠️ Last 5-Year ROIC: 5.12%
• -2 ❌❌ Estimated Cost of Capital: 7.46% (greater than ROIC)
• +1 ✅ Last 5-Year Shares Outstanding CAGR: -2.84%
• +2 ✅✅ Projected 5-Year EPS CAGR: 23.74%
• +0 ⚠️ Projected 5-Year Dividend CAGR: 7.72%
• +1 ✅ Estimated Debt Rating: A3
• -1 ❌ Morningstar Moat: Narrow
• -1 ❌ Morningstar Uncertainty: High

CTT has spent decades building an unrivalled logistics operation in Portugal — density, efficiency, and customer trust that took years to develop. It is now exporting that model into Spain, a larger and underpenetrated market. The Cacesa acquisition and the pending DHL joint venture are not bets on the future, they are deliberate steps toward vertical integration of the supply chain, giving CTT increasing control over cross-border flows, customs clearance, and last-mile delivery across the entire Iberian Peninsula.

Compounding this is the Locky out-of-home network — a growing infrastructure moat that reduces cost per parcel while simultaneously improving the customer experience. As locker penetration deepens across Portugal and Spain, it becomes progressively harder and more expensive for competitors to replicate.

Please keep in mind this is my narrative for this company as we go through the following valuation methods.

Let’s check if its current valuation is justified at its current market price.

📝Business Valuation

To calculate the intrinsic value of the company I’ll use multiple methods:

• Discounted Cash Flows (DCF) – Intrinsic value is estimated by projecting its free cash flows over the next 10 years and discounting them to present value using the estimated cost of capital;
• EPS Growth – the fair value is estimated by projected the Earnings Per Share CAGR for the next 5 Years and then, given its current and historic values of PE, come up with a PE for the 5th Year. This will give us its price 5 Years from now using the formula: Price = EPS x PE that we then discount using the estimated cost of capital.

Cost of Capital

I’ve used the latest annual financial statement of the company, the 10-Year German bonds as the risk free rate (used the most default-free country that uses the same currency – the euro) and revenue geographic exposure to come up with its cost of capital, cost of debt and cost of equity. Also, given the fact that Moody’s does not provide a rating for the company I estimated it by passing the Operating Income (EBIT) that will be used internally to calculate an interest coverage ratio that is then compared to similar rated companies.

Cost of Capital: 7.46%.

This value will be used later as a discount rate in the valuation methods.

Please feel free to come up with your own values by using the tool I’ve used: Cost of Capital – The Fair Value Journal. It is and will ever be completely free 🙂

Discounted Cash Flows (Weight: 70%)

I’ve used the latest annual financial statement of the company, the analyst estimates for both revenue and margins and the cost of capital calculated previously.

Some notes on the inputs above:

• Revenue Growth – I’m using here the guidance from management that revenues will be around 1600-1700 million euros by 2028 (Year 3). Later on during the Monte Carlo simulations we will allow for exploration of the lower and upper end range;
• Terminal Revenue Growth – I’m using the risk-free rate (10-Yr bonds of Germany), because long term the company should not grow more than the rate of the economy. I’m using the risk-free rate as a proxy to it, so the terminal growth becomes it;
• Initial and Terminal Cost of Capital – I’m assuming the same value for both, given the estimated value previously;
• Initial and Terminal Tax Rate – I’m using a value taking into account the historical averages and the average for tax in Portugal;
• Initial and Terminal Operating Margin – it begins at its current value around ~9% and gradually expands to ~10%, following our narrative of margin expansion given the higher control over the supply chain and the improvement on the delivery efficiency;
• Initial and Terminal Sales/Capital Ratio – I’m assuming CTT will converge gradually to the global industry average value.

All the other inputs were taken from the financial statement or from analyst projections.

The DCF gives us an estimated fair value of 10.37 euros for CTT.

Something that we can also do now is to play around with Monte Carlo simulations. What this will allow us to do is to simulate multiple DCF valuations with pre-defined ranges for each of the inputs. Each simulation will randomize the inputs between these pre-defined values. For this I also used analysts estimates.

As you can see from the above CTT seems to be undervalued given that its current price of 6.50 euros is well below P10. From these simulations we can extrapolate that there’s more than 90% probability of CTT being undervalued.

Please be free, as before, to fill in your own values. Make the valuation your own and do yourself a DCF valuation using your own assumptions: DCF – The Fair Value Journal

EPS Growth (Weight: 30%)

For this valuation method, I’ve used the current EPS and the analysts estimates of EPS growth. I also assumed a 15 PE for the company.

Then again used the Monte Carlo simulations to check what happens when the input values change within a specified range:

Using this valuation method, CTT that is currently priced at 6.50 euros seems to be undervalued being currently priced well below P10. From this we can extrapolate that there’s more than ~90% probability of the stock being undervalued.

This seems to be in line with what we’ve seen on the DCF.

As before, feel free to try this yourself: EPS Growth – The Fair Value Journal

EPS Scenario Returns

We can also do some scenarios for the different EPS cases:

✍️Summary

Now that we did all the heavy work, let’s take the above and come up with the company weighted average fair value.

I basically take each valuation method used and given my confidence on the company apply a 20% or 10% discount (when to buy) and addition (when to sell) or use the Monte Carlo P10, P20, P80 and P90 values:

Feel free to choose your own values, but for me I’ll probably start buying below 9.39 euros, giving it a little higher margin of safety given the uncertainty of the company and the risk of CTT not being able to penetrate the spanish market as well as we thought of.

As always, remember that the fair value estimate has a 100% probability of being wrong and it will never be a precise number, even if it has decimals next to it 😮

Also keep in mind that fair value and market price can remain disconnected for extended periods, particularly for companies like CTT that are listed on a small and relatively illiquid market with limited analyst coverage. The gravitational pull toward intrinsic value is real, but is neither guaranteed nor timely and sometimes it takes longer than any investor’s patience allows.

Overall it seems CTT is undervalued at the current prices.

Fair Value: 10.67 euros