CFA Challenge 2018

Finning International Inc. (TSX: FTT)
Team C
February 9, 2018
ALL FIGURES IN C$ MILLION EXCEPT PER SHARE AMOUNTS UNLESS OTHERWISE NOTED

Executive Summary
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
1-2017 4-2017 7-2017 10-2017 1-2018
FTT S&P/TSX Composite
Last Twelve Month PerformanceInvestment Recommendation: BUY
Valuation Method Implied Value
DCF
Bear $30
Base $37
Bull $46
Relative Valuation
Mean $30.25-$74.40
Median $32.29-$66.56
Acquisition Multiple
Bucurys (12) $71
Kramer (15) $40.81
Monte Carlo Simulation $37.08
Dividend Discount Model $38.39
Valuation Summary
• Oil recovery - Price of WTI crude to reach $77 USD/barrel in 2023
• Copper recovery is expected as the Chinese economy surges
forward and finishing 2017 with a strong rally.
• Improving ROIC and maintaining cash flow during economic
downturn
• Exclusive CAT Dealer & Size creates strong, stable, long-run
competitive advantage
$15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75
DDM (10 yr & 20 yr Growth Rate)
Montecarlo
Comparable Company Valuation (Mean)
Comparable Company Valuation (Median)
Acquisition Multiples
DCF (Bull and Bear)
52 week Market Range
Current Price:
$33.41
(As at Feb 2 ‘18)
Target Price: $37.79
Upside: 13%
Target
Price:
$37.79

Business Overview
Company Highlights
• History: Finning International Inc. (TSX: FTT) was founded by Earl B.
Finning in Vancouver, and is the largest dealer of heavy equipment and
diesel engines made by Caterpillar Inc (NYSE: CAT)
• Geography: Finning serve clients in North America (Western Canada),
Europe (UK & Ireland), and South America (Argentina, Chile, Uruguay,
Bolivia)
• Strategy: High quality products with excellent customer service
• Business Segments: Product Support (48%), Sales of New Equipment
(42%), Sales of Used Equipment (4%), Equipment Rental (6%)
Closing Price $33.41 Enterprise Value $6.8 Bn
52-Week Range $23.98 - 35.56 Beta 1.89
Avg. Daily Volume 388,050 EV/EBITDA 11.52x
Shares Outstanding 168 mm P/E 19.79x
Market Cap $5.48 Bn Dividend Yield 2.65%
Market Profile
Enterprise Value Breakdown Revenue Segmented by Geography
50%
33%
17%
Canada South America UK & Ireland
Revenue Segmented by Line of Businesses
48%
42%
4%
6%
Product Support New Equipment
Used Equipment Rental

Business Overview – Company History
Share Performance – Finning International Inc. (TSX: FTT) 1995 - Present
$0
$5
$10
$15
$20
$25
$30
$35
$40
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Shareprice
2001: Finning acquired
Hewden Stuart Plc. in U.K.
2003: Finning acquired the Caterpillar
dealerships in Argentina and Bolivia
2005: Finning acquired 25% ownership in PipeLine
Machinery International
2010: Finning sold U.K. rental business
and obtained dealerships in Northern
Ireland and the Republic of Ireland
2012: Finning acquired the distribution and support
business formerly operated by Bucyrus from
Caterpillar
2015: Finning became the Caterpillar
dealer in Saskatchewan by acquiring
Kramer Ltd.
Financial Crisis
Falling Oil Price

Business Overview – Revenue Mix
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q3
12
Q1
13
Q3
13
Q1
14
Q3
14
Q1
15
Q3
15
Q1
16
Q3
16
Q1
17
Q3
17
New Equipment Used Equipment Equipment Rental Product Support Other
Revenue Mix– Finning International Inc. Q1’04-Q3’17
• Product Support (48%): Maintenance and repair services
• Sales of New Equipment (42%): Distribution of CAT products, consisting of
vehicles for operations (tractors, forklifts, etc.), underground equipment,
various power systems, and other merchandise complementary to CAT
products
• Sales of Used Equipment (4%): Resale of used CAT products
• Equipment Rental (6%): Fleets of CAT products specifically for rental
FTT (Q3’ 17) Revenue Mix
Business Segments

Business Overview – Geographical Segments
$0
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$30
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0
1
2
3
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8
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
SharePrice
Revenue(CADBn)
Canada South America UK & Ireland Share Price
Revenue Breakdown– Finning International Inc. 1995 - 2018
*Projected yearly revenue for 2017 according to the internal model
Q3’ 17 Consolidated EBIT Breakdown
o Dealerships in British Columbia, Yukon, Alberta, Saskatchewan, the Northwest Territories, and a
portion of Nunavut
o Main Customer Industry: Mining, forestry, construction, pipeline/oil field construction, agriculture
o Dealerships in Chile, Argentina and Bolivia
o Main Customer Industry: 80% of SA revenue generated from Chile in the mining sector
o Main Customer Industry: Oil & gas, electric power, marine, industrial applications,
earth moving & construction, industrial & waste, extraction & paving and agriculture
Rotary Drills, MD6240, Caterpillar
50%Canada
33%
17%
South
America
UK & Ireland

Environmental
o Implementation of energy efficiency
policy
o Encouraging use of emission reducing
Caterpillar products
o Reduced fuel consumption, support for
renewable products
o Tracking of carbon emissions
o Rights to shareholders implemented
in shareholder rights plan
o 23% of women on board of directors
o Finning scores in the 61st percentile
of all companies on the S&P/TSX
Composite
Environmental, Social, Governance
Safety and employee training policies Increasing number of women on the board
o Provide comprehensive safety training to
each year to employees like risk
assessment, incident investigation,
emergency response, induction training
o Operational controls – Implementation
and monitoring of controls to mitigate
risks in operations and activities
Bloomberg ESG Score
Social Governance
17
18
19
20
21
22
23
24
2011 2012 2013 2014 2015 2016
Source: Bloomberg
21% Increase in ESG Score
Source: Finning.com
0%
5%
10%
15%
20%
25%
2011 2012 2013 2014 2015 2016

Management Track Record and Team
1999
Douglas W.G.
Whitehead serves as
CEO of Finning from
2000 to 2008. He now
serves the chairman on
the board of directors
2018
Revenue Grows at 5.28% CAGR
2003
Finning South America
sees expansion into
Argentina and Bolivia
and officially becomes
largest CAT dealer
2013
Scott Thomson becomes
president and CEO. He has
improved FTT cost structure
and prepared them well to
thrive in a stronger economy
Source: Finning.com
2010
Finning U.K. sees
furthers expansion into
Northern Ireland and
the Republic of Ireland
2015
Western Canada growth
continues as Finning acquires
Kramer Ltd. To become the
CAT dealer in primary
Saskatchewan

Industry Analysis
• Cyclical: Highly sensitive to commodity prices
• Sales of New Equipment: Quickly pick up when the economy is doing well
• Mature Stage in Canada: Seeing 3% growth in best periods
• Strong Growth in U.K. Seeing almost 10% growth rates (CAGR)
Industry Characteristics
27
28
29
30
31
32
33
34
35
06 07 08 09 10 11 12 13 14 15 16
InvestmentinBillions(SAAR)
Year
Source: Statistics Canada
Canada Gross Fixed Capital Formation: Industrial
Equipment
88
90
92
94
96
98
100
102
07 08 09 10 11 12 13 14 15 16 17
Chile Mining Production Index
Year
Source: Institudo de Estadisticas
8
10
12
14
16
18
09 10 11 12 13 14 15 16 17
InvestmentinBillionGBP
U.K. Investment in Machinery, Equipment
Year
Source: Bank of England
• Supplier Power: High/Medium - exclusive CAT dealer
• Buyer Power: High – Demand driven industry
• Substitute Threats: Low – No close direct substitute for Finning
• New Entrants Threat: Low – High capital requirements
• Rivalry: High – Plenty of small firms and indirect competitors
Porter’s Five Forces Summary

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
United Rentals
Toromont
Finning
Product Support Product Rentals Product Used Product New
Competitive Positioning
Economies of scale: Exclusive rights to distribute CAT products in
assigned territories
Investment in Workforce: Investing in workforce results in strong
customer service driven model
Digital transformation: Finning Digital, provides faster and better
performance and innovative new products
Relationship with Caterpillar: By exclusively supplying CAT products
Finning receives Caterpillar’s competitive advantages
Competitor Revenue Percentage Breakdowns
95
115
135
155
175
195
NormalizedReturn(Jan=100)
CAT 2nd Best Performing Stock on DJIA in 2017
CAT
DJIA

Caterpillar(CAT) Overview
0.8
1
1.2
1.4
1.6
2010 2011 2012 2013 2014 2015 2016
Industry
Revenue
(FY 2016)*
$1,951
$1,389
$604 **
$2,774
$86
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
CAT Deer & Co. Komatsu Hitachi Terex
Industry R&D
Spending
(FY 2016)
* Normalized to 2010 Revenue =1
** JPY/USD 0.008563 as at Dec. 30, 2016
0%
1%
2%
3%
4%
5%
6%
2010 2011 2012 2013 2014 2015 2016
CAT Deere & Co. Komatsu Hitachi Terex
Industry R&D
as % of
Revenue
• CAT revenue decreased year
over year since 2012
• Revenue of construction and
mining equipment
manufacturers are all low
• CAT spends great amount of its
revenue in research and
development
• Only Deer& Co outspends in
proportion to revenue
• In absolute value, CAT is again
top spender only second to
Hitachi
FTT’S COMPETITIVE ADVANTAGE

UK & Ireland
o Two primary operating segments: equipment
solutions for construction and power systems
o U.K. grew at 2.2% in 2016, with Ireland
expanding by 5.2 in 2016.
o Significant contraction in demand from key
markets such as coal, steal and other sectors.
o Uncertainty around Brexit impacts the demand
o Outlook: 1.2% - 2% growth is estimated in UK’s
economy in ‘17 and ’18 with the country
recovering from post-referendum recession
o Chile: leader in the mining of copper; 25% of
GDP comes from mining activity
• GDP is expected grow by 3% in ’18
• China, the largest copper consumer is
expected to increase copper consumption
at 2% a year for the next 5 years
o Argentina: high-income economy, 3rd in LATAM
• 26.9% inflation rate & 28.8% interest rate
• Major miner of lithium
o Outlook: Strengthening economy in SA
Demand Review
0
20
40
60
80
100
120
140
160
0
100
200
300
400
500
600
Q1
04
Q1
05
Q1
06
Q1
07
Q1
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Q1
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Q1
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Q1
13
Q1
14
Q1
15
Q1
16
Q1
17
New Equipment Sales in Canada
Oil (WTI) Price
New Equipment Sales in Canada vs Oil Price New Equipment Sales in SA vs Copper Price
o Severe headwinds in Canada due to the economy
slowdown
• Low oil and commodity prices
• Lower activity and capital expenditure in
mining, oil & gas and construction sectors.
o Finning’s growing market share and expansion
through M&As (Kramer Ltd, Former Bucyrus
operations)
o Outlook: Canada’s recovery from the oil crisis;
expected 2% GDP growth rate
0
100
200
300
400
500
600
700
800
$0
$5
$10
$15
$20
$25
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
(Billions)
Forestry and logging
Mining and oil & gas extraction
Construction
Fisher Commodity Price Index (Canada)
CapEx, Machinery and Equipment
(USD/Barrel)
0
2
4
6
8
10
12
0
50
100
150
200
250
300
350
400
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
New Equipment Sales in South America
Copper Price (USD ‘000/TMT)
Canada South America

Demand Driver – Public Spending
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Canada South America UK
FTT Forecasted Revenue
Finning’s major selling products in the Britain region is the
power system.
72
110
0
20
40
60
80
100
120
2014 2025
9.7
26.6
0
5
10
15
20
25
30
2014 2025
UK Gov’t INFRASTRUCTURE Spending (£ Bn)
UK Public Inv’t in POWER GENERATION (£ Bn)
“Overall, utilities infrastructure spending is forecast to
grow by an average annual rate of 8% over the period
to 2025.”
– PWC and Oxford Economics, Building UK’s future

Demand Driver – Commodity Prices
0.0
1.0
2.0
3.0
4.0
0
20
40
60
80
100
120
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
WTI Crude (USD/Barrel) Revenue from Canada ($ Bn)
Copper Price** vs Revenue from South AmericaOil Price* vs Revenue from Canada
* Source: Conference board of Canada
** Source: International Monetary Fund; Copper Price was used as a proxy to expected copper production
0
500
1,000
1,500
2,000
2,500
3,000
4,800 5,000 5,200 5,400 5,600 5,800 6,000
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
35 45 55 65 75 85 95
Regression Results
Correlation 𝑹 𝟐 P-Value
0.644 0.415 0.017
Regression Results
Correlation 𝑹 𝟐 P-Value
0.660 0.435 0.014
Backtesting Results (Oil vs Canada) Backtesting Results (Copper Production in Chile vs S. Am)
Oil (WTI) Price (USD/Barrel) Copper Production (tmt)
SouthAmericanRevenue
CanadaRevenue
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
4
5
6
7
8
9
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
Copper (USD '000/MT) Revenue from South America ($ Bn)

Financial Analysis
9% 9%
10%
11%
12%
7%
8%
9%
10%
11%
12%
13%
Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017
2,908
1,838
3,114 3,182
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
3,300
2013 2016
New Equipment Sales Product Support Revenue
• Free Cash Flow - Remains strong, even during poor economic times
• Product Support Helps Hedges Economic Risks – Product support revenue
remains constant during economic downturn
• Constant Dividend Growth – Dividends have grown consistently, even in
bad economic conditions
• Efficient Capital Allocation – Finning has seen strong ROIC growth and
recovery after turbulent times
Finning Remains Stable When Economy Is Not
Select Key Financials (in CAD mm)
2012 2013 2014 2015 2016
Revenue 4,657 4,676 4,856 4,376 4,155
Revenue Growth -31% 0.40% 3.90% -9.90% -5.10%
Cost of sales 2,645 2,663 2,842 2,361 2,139
Gross Profit 1,483 1,555 1,556 1,542 1,280
Gross Margin 32% 33% 32% 35% 31%
EBITDA 701 737 720 126 357
EBITDA Margin 13% 16% 15% 3% 9%
Effective Tax Rate 19% 22% 24% 15% 19%
FCF -37 441 483 325 370
FTT ROIC (3Q ‘16 – 3Q ’17)
FTT’s Product Support Revenue Remains Strong

Financial Analysis
Financial Comparison: FTT vs. TIH
2013 2014 2015 2016
Profit Margin 30.8% 29.8% 29.3% 26.2%
TIH Profit Margin 24.6% 24.8% 24.7% 25.0%
Quick Ratio 2.1 2.53 2.78 2.74
TIH Quick Ratio 1.06 0.81 1.05 1.4
ROIC 16% 15% -3% 6%
TIH ROIC 34% 18% 17% 16%
Debt/Equity 0.74 0.67 0.77 0.8
TIH Debt/Equity 0.23 0.01 0.2 0.17
Gross
Margin Debt/Equity Quick Ratio ROIC
Dividend
yield
P/E Ratio
(TTM)
Finning 26.3 0.67 1.3 12 2.2 35.10x
Toromont 24.9 0.15 1.23 15.66 1.4 26.81x
0
1
2
3
4
5
6
7
8
NormalizedReturn Source: Bloomberg
Finning Toromont
2013 2014 2015 2016 2017
Total Return 6.3% 0.80% -10.8% 47.4% 17.6%
Dividend 0.6 0.69 0.72 0.73 0.74
P/E Ratio
FTT (TTM) 13.1x 14.4x 12.6x N/A 32.7x
S&P/TSX 16.4x 16.1x 15.7x 17.3x 17.1x
Historical Performance vs Toromont

Valuation - Summary
Valuation Range Under Different Models & Assumptions
Valuation Method Target Price
DCF
Bear $30
Base $37
Bull $46
Relative Valuation
Mean $30.25-$74.40
Median $32.29-$66.56
Acquisition Multiple
Bucurys (12) $71
Kramer (15) $40.81
Monte Carlo Simulation $37.08
Dividend Discount Model $38.39
Weighted Average Cost of Capital
Interest Cost 4.64%
Tax rate 30%
Debt 775
Debt as % of Total Capital 12.7%
Cost of Debt 3.25%
Risk Free Rate 2.02%
Beta 1.89
Market Risk Premium 7%
Equity as % of Total Capital 87.3%
Weighted Average Cost of Capital 10.7%
$15 $20 $25 $30 $35 $40 $45 $50 $55 $60 $65 $70 $75
DDM (10 yr & 20 yr Growth Rate)
Montecarlo
Comparable Company Valuation (Mean)
Comparable Company Valuation (Median)
Acquisition Multiples
DCF (Bull and Bear)
52 week Market Range
Current Price:
$33.41
(As at Feb 2 ‘18)
Target Price: $37.79
Upside: 13%

Valuation – Discounted Cash Flow
Intrinsic Value vs 52 Week Market Range
Sensitivity Analysis
DCF Break Down
Free Cash Flow Buildup 2018P 2019P 2020P 2021P 2022P
EBIAT 274 284 293 300 312
Depreciation & Amortization 251 258 331 344 429
Net Change in Working Capital 90 50 42 40 51
Capital Expenditures 105 125 129 166 172
Unlevered FCF 329 367 452 439 518
PV of Unlevered FCF 243 244 272 264 312
Cash & Equivalents 516
Long-term Debt 1291
Net Debt 775
Unlevered FCF in last period 518
FCF (2023) 526
Long-term growth (g) 1.5%
Terminal value 9637
Present value of terminal value 5794
PV unlevered cash flows 1335
Enterprise Value 7128
Less: Net Debt 775
Equity Value 6,353
Dilutive Shares Outstanding 168
Equity Value per Share 37.79
Upside 13%
34.1
24.0
42.4
35.6
22
27
32
37
42
DCF Value at 0.5%-2.5% Perpetuity Range 52 Week Market High/Low
Long term growth rate (g)
0.5% 1.0% 1.5% 2.0% 2.5%
8.7% 46.01 48.97 52.33 56.19 60.67
9.7% 39.43 41.67 44.19 47.03 50.27
10.7% 34.11 35.86 37.79 39.96 42.38
11.8% 29.48 30.84 32.34 33.99 35.81
12.9% 25.65 26.74 27.92 29.20 30.62
WACC
Current Price: $33.41
(As at Feb 2 ‘18)

Valuation – Comparable Company
Type Industrial Equipment Distributor Industrial Service Provider Industrial Equipment Rentals
Company Toromont HD Supply Holdings H&E Wajax McGrath Rental United Rentals
EV ($ mm) 4,421 11,084 2,010 619 1,773 23,426
Sales ($ mm) 1,867 7,439 978 1,222 424 5,762
Alternative
Products
Finning’s
Products

Company
Valuation – Comparable Company
Ticker EV/Sales EV/EBITDA EV/EBIT P/E
TMTNF 2.37x 15.07x 20.42x 28.48x
HDS 1.49x 12.03x 13.42x 13.63x
HEES 2.05x 6.65x 18.15x 37.39x
WJX 0.51x 12.02x 22.99x 44.07x
URI 4.07x 8.49x 16.56x 25.76x
MGRC 4.18x 10.85x 22.41x 30.22x
FTT 1.20x 11.52x 17.94x 19.79x
20 30 40 50 60 70 80
Mean
Median
Implied Equity Value per Share ($)

Valuation – Precedent Transaction Analysis
o On May 6, 2015, Finning announced it has reached
an agreement to purchase the operating assets of
the Cat dealership of Kramer Ltd. for approximately
$230 million. Finning became the approved Cat
Dealer in Saskatchewan in July 2015.
o The acquired dealership business generated
approximately $275 million in revenue in 2014 and
$107 million in the first half of 2015.
o Finning generated $3,175 million in the first half of
2015
Transaction Summary
o On Jan. 18, 2012, Finning announced it has reached
an agreement with Caterpillar to acquire from
Caterpillar the distribution and support business
formerly operated by Bucyrus in portions of South
America and Western Canada and in the U.K.
o The transaction is valued at approximately USD $465
million (CAD $460 million). In 2012, The acquired
distribution and support businesses generated $233
million in revenue.
o Finning generated 6,622 million in revenue in 2012.
Target Firm Valuation
Purchase Price $241M
Implied Equity Value $7,151M
Revenue (2015, Restated) $6,275M
P/S (LTM) Ratio 1.14x
Acquisition Multiple Valuation
Revenue (LTM, Q3'17) $6,021M
Acquisition Multiple 1.14x
Shares Outstanding (mm) 168
Implied Share Price $40.81
Purchase Price $460M
Implied Equity Value (using revenue %) $13,074M
Revenue (2012) $6,622M
Revenue (LTM, Q3'17) $6,021M
Shares Outstanding (mm) 168

Valuation – Others
$0.10 $0.32 $0.73
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
1997 2007 2017
10 year 20 year
Dividend Growth Rate 8.77% 10.45%
2018E Dividend ($) 0.76 0.76
Cost of Equity 12.43% 12.43%
Share Price ($) 20.75 38.39
Monte Carlo Simulation – Using return and volatility Discounted Dividend Growth Model
Summary Statistics for Finning
Stock’s Periodic Daily Return
Average Mean 0.0456%
Standard Deviation 1.9054%
Drift 0.0275%
Statistical Results
Simulation paths 100,000
Minimum $ 10.44
Maximum $ 123.28
Mean $ 37.08
Median $ 35.43
Skewness 0.948
Kurtosis 4.6677
5% confidence level 21.52
95% confidence level 58.19

Risk Assessment – Macroeconomic Risks
Likelihood
High
Likelihood
Low
Impact
High
Impact
Low
MR
BR
CR
FR
0%
10%
20%
30%
40%
50%
2012 2013 2014 2015 2016
Argentina Chile Colombia
0
20
40
60
80
100
120
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Revenue WTI Crude
Argentina Inflation Bear Case Forecast vs WTI Crude
• Inflation in Argentina/Chilean economy dependency on copper
• Foreign Exchange Risks – Sources products through the US and records in
Canadian dollars . Finning engages in derivatives hedging
• Commodity price fluctuation risk – Broad operations help hedge this out
• Impact on valuation: Bear case scenario
• WTI crude to improve 1% a year
• Copper production of Chile stays at 2017 levels
• U.K. spending on infrastructure to growth at 2% a year, and margins to
fall from 29% to 26%
• Predict a 10% downside
Macroeconomic Risks

Risk Assessment – Business & Financial Risks
0.10 0.10 0.10
0.17
0.21
0.24
0.32
0.40
0.44 0.45
0.49
0.53
0.57
0.64
0.72 0.73 0.73
0.76
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
1997 1998 1999 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Finning Annual Dividend
Likelihood
High
Likelihood
Low
Impact
High
Impact
Low
MR
BR
CR
FR
• Ecommerce: Threat of product
support revenue line falling from
availability of parts through online
vendors
• Unforeseen events: weather,
downtime, unexpected breaks in
activity
Business Risks
• Dividend increases during a
downturn may impend cash flow
• Capital intensive nature of the
industry increases reliance on
external financing. Lower cash
flow impacts ability to pay back
debt and secure loans
Financial Risks

Risk Assessment – Caterpillar Risks
Likelihood
High
Likelihood
Low
Impact
High
Impact
Low
MR
BR
CR
FR
• Sudden change in demand/acceptance for Caterpillar products
• Caterpillar’s ability to supply on a timely basis
• Caterpillar’s ability to keep up with technological change
• Finning has agreement with CAT that contracts can terminated with
90 days notice in Canada, and 6 months in South America
• Caterpillar tightening credit availability in rough times
• Finning has a strong relationship with Caterpillar and holds power
over them, being their largest supplier. No immediate risk is
present
Caterpillar Risks
Earl Finning (left) founded FTT in 1933 with the sole distribution rights to sell CAT products

Conclusion
Recovering
Commodity Price
• Oil recovery-OPEC
oil agreement
• Copper recovery-
Chinese economy
Strong Free Cash
Flow and Capital
Efficiency
Strong Competitive
Advantage
• Product and
Service Quality
• Digital
Transformation
• Human Capital
BUY
$ 37.79
Target Price
Upside
13%
$ 33.41
Closing Price
Feb 2nd 2018
• Free cash flow
keeps positive
• Improving return
on invested capital

Appendix A: Calculations
Comparable Company Analysis Market Data Financial Data Valuation
Price
Market
Cap. EV Sales EBITDA EBIT Earning Net Profit ROE ROIC EV/Sales EV/EBITDA EV/EBIT P/E
Ticker Company (mm) (mm) (mm) (mm) (mm) (mm) Margin (x) (x) (x) (x)
Industrial Equipment Distributer
TMTNF Toromont Industries (USD) 55 4435 4421 1867 293 217 156 0.03 0.18 0.28 2.37x 15.07x 20.42x 28.48x
HDS HD Supply Holdings inc (USD) 39 7253 11084 7439 921 826 532 0.05 0.55 0.55 1.49x 12.03x 13.42x 13.63x
Industrial Product Support/Service Provider
HEES H&E Equipment Services (USD) 39 1390 2010 978 302 111 37 0.06 0.26 0.10 2.05x 6.65x 18.15x 37.39x
WJX Wajax Corporation (CAD) 24 485 619 1222 51 27 11 0.01 0.04 0.06 0.51x 12.02x 22.99x 44.07x
Industrial Equipment Rentals
URI United Rentals (USD) 172 14582 23426 5762 2759 1415 566 0.16 0.34 0.17 4.07x 8.49x 16.56x 25.76x
MGRC McGrath Rental Corp (USD) 48 1156 1773 424 163 79 38 0.16 0.10 0.05 4.18x 10.85x 22.41x 30.22x
Mean 0.08 0.25 0.20 2.44x 10.85x 18.99x 29.93x
Median 0.09 0.26 0.18 2.21x 11.44x 19.28x 29.35x
FTT Finning (CAD)1 33 5481 6799 5657 590 379 277 0.07 0.15 0.10 1.20x 11.52x 17.94x 19.79x
1. Based on Forecasted Income Statement
Valuation (Mean) EV/Sales EV/EBITDA EV/EBIT P/E
Implied EV ($ mm) 13,828 6,404 7,197 8,289
Minority Interest 0 0 0 -
Debt 1776 1776 1776 -
Cash 458 458 458 -
Implied Equity Value ($ mm) 12510 5086 5879 8289
Shares outstanding (mm) 168.14 168.14 168.14 168.14
Intrinsic Value per share ($) 74.40 30.25 34.96 49.30
Valuation (Median) EV/Sales EV/EBITDA EV/EBIT P/E
Implied EV ($ mm) 12,510 6,748 7,308 -
Minority Interest 0 0 0 -
Debt 1776 1776 1776 -
Cash 458 458 458 -
Implied Equity Value ($ mm) 11192 5430 5990 8129
Shares outstanding (mm) 168.14 168.14 168.14 168.14
Intrinsic Value per share ($) 66.56 32.29 35.62 48.35
20 30 40 50 60 70 80
Mean
Median
Range in Intrinsic Value
Comparable Company Valuation

Transaction: Finning acquires Kramer Saskatchewan
Announcement Date 06-May-15
Purchase Price $241
Implied Equity Value $7,151
Revenue (2015, Restated) $6,275
Revenue (LTM, Q3'17) $6,021
Shares Outstanding (in millions) 168
Transaction: Finning to acquire from Caterpillar the distribution and support
business formely operated by Bucyrus
Announcement Date 18-Jan-12
Purchase Price $460
Implied Equity Value (using revenue %) $13,074
Revenue (2012) $6,622
Acquisition Multiple Valuation (P/S Ratio)
Revenue (LTM, Q3'17) $6,021
Shares Outstanding 168
Implied Share Price $71

Monte Carlo Simulation – 1 year Forward
Geometric Brownian Motion
Stochastic differential equation for GBM:
When applying:

Simple Linear Regression – WTI Oil Price and FTT Revenue from Canada
SUMMARY OUTPUT
Regression Statistics
Multiple R 0.659851669
R Square 0.435404225
Adjusted R Square 0.384077336
Standard Error 455.0822828
Observations 13
ANOVA
df SS MS F Significance F
Regression 1 1756821.167 1756821.167 8.482965475 0.014124375
Residual 11 2278098.725 207099.8841
Total 12 4034919.892
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept 1430.828049 481.0239285 2.974546514 0.012642169 372.1015212 2489.554578 372.1015212 2489.554578
X Variable 1 18.47654454 6.343762328 2.912553085 0.014124375 4.514017798 32.43907128 4.514017798 32.43907128

SUMMARY OUTPUT
Regression Statistics
Multiple R 0.644169098
R Square 0.414953827
Adjusted R Square 0.361767811
Standard Error 445.7407362
Observations 13
ANOVA
df SS MS F Significance F
Regression 1 1550125.886 1550125.886 7.801934799 0.017486342
Residual 11 2185532.843 198684.8039
Total 12 3735658.729
Coefficients Standard Error t Stat P-value Lower 95% Upper 95% Lower 95.0% Upper 95.0%
Intercept -6536.768654 2951.994627 -2.214356556 0.04884512 -13034.06502 -39.47228783 -13034.06502 -39.47228783
X Variable 1 1.512160303 0.541373102 2.793194372 0.017486342 0.320606138 2.703714467 0.320606138 2.703714467
Simple Linear Regression – Copper Production in Chile and FTT Revenue from South America

Appendix B: Oil Demand
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000 Feb-07
Aug-07
Feb-08
Aug-08
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
Aug-15
Feb-16
Aug-16
Feb-17
Aug-17
Oil & Gas Exploration Canada (Market Value $mm, 2-yr
moving average)
Source: Canadian Association of Petroleum Producers
• According to an outlook done by the Canadian Association of
Petroleum producers, Canada’s crude oil supply is forecasted to grow
by 5% until 2022, then slow to 2% per year until 2030 (growing by 1.5
million barrels per day in 2030)
• Success depends on the execution of Canada to build infrastructure to
support the increased supply

Appendix B: Copper Demand
Copper smelter in Chile: Source: Goldman Sachs
Demand Drivers
• Electric cars use twice as much copper as battery powered cars
• Goldman Sachs has forecasted short-term 1.8% increase in copper
demand coming from China (50% of world demand). They quoted a
slowdown in growth due to a rebalancing of the economy and slowed
production
• One Belt One Road Initiative out of China, where they plan to spend
between $4-8 trillion USD on a road that connects Eurasian countries
(Still highly speculative project)
• In the US President Donald Trump announced a call for a $1,5 trillion
infrastructure during his state of the union speech. The U.S. Is the
second largest consumer of copper worldwide
• Risks to the forecast include over optimism in forecasts and Chilean
mines going on strike (Their was a 43 day strike in Escondida, the
worlds largest copper mine in 2017)
4,200
4,400
4,600
4,800
5,000
5,200
5,400
5,600
5,800
6,000
Q1-13
Q2-13
Q3-13
Q4-13
Q1-14
Q2-14
Q3-14
Q4-14
Q1-15
Q2-15
Q3-15
Q4-15
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
Q3-17
Chile Copper Exports (Bil.Ch pesos)

Appendix C: Addendum
STRENGTH WEAKNESSES
o Strong supplier-Caterpillar Inc: Robust and cost
efficient product line with great intangible assets
o Finning has exclusive contractual rights to the
distribution of Caterpillar products in assigned
geographical regions
o Finning invests heavily in talents recruiting in order to
keep an outstanding human capital
o Customer service focused model: great after-sale
service provided to its clients
o Finning focuses on transforming itself into a digital
workforce
o Obsolescence: Carrying large inventory
o Bargaining power of supplier is high (CAT being the
only supplier). Finning’s profitability largely
depending on how well CAT is doing
OPPORTUNITIES THREATS
o Economic environment in South America is improving
o Operating in a monopolistic industry, Finning is the
leader in CAT product distribution network
o Economic of Scale: hard for potential competitors to
enter industrial equipment industry
o Volatile commodity prices: Finning’s revenue highly
relating to commodity prices
o Foreign competition (US, etc.) remains strong
o Limited industry revenue growth
o UK Economy faces uncertainty
SWOT Analysis

Bargaining Power of Suppliers The bargaining power of suppliers is high. Since Finning is carrying products exclusively from CAT, there
is high bargaining power from its supplier CAT since CAT may terminate any supply contracts with 90-
day notice. There would not be any substitute suppliers for Finning which leads to high bargain power
from the supplier CAT.
Bargaining Power of Buyers There is moderate bargaining power of buyers of Finning because of two factors. Many other
companies that buy from Finning obtain exclusive right to distribute CAT products in a market. Buyers
are locked in once a product is purchased through long term warranty contracts and training.
Meanwhile, the industrial equipment sector is considered demand-driven. The availability of goods
imposes little influence on demand. Price is mainly determined by market condition. This could be a
potential risk for Finning. The high market share won’t necessarily bring market/pricing power in the
playing field.
Rivalry Among Competitors The rivalry among competitors is considered high. Although Finning being a monopoly in CAT supplies,
other industrial tool companies exist as competitors.
Threat of Substitutes Medium threat of substitutes: Finning being one of the monopolies in the industrial equipment sector,
yet there are a great amount of substitutes especially in North America such as Toromont, another CAT
distributor.
Threat of New Entrants Low threat of new entrants: high capital requirements: witching costs for entering the equipment
industry. Additionally, most of the contracts are long-term-oriented which indicates high customer
loyalty to established brands.
Porter’s Five Forces Analysis

0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q3
12
Q1
13
Q3
13
Q1
14
Q3
14
Q1
15
Q3
15
Q1
16
Q3
16
Q1
17
Q3
17
FTT Revenue
0
200
400
600
800
1,000
1,200
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q3
12
Q1
13
Q3
13
Q1
14
Q3
14
Q1
15
Q3
15
Q1
16
Q3
16
Q1
17
Q3
17
Canada Revenue
0
100
200
300
400
500
600
700
800
900
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q3
12
Q1
13
Q3
13
Q1
14
Q3
14
Q1
15
Q3
15
Q1
16
Q3
16
Q1
17
Q3
17
South America
0
100
200
300
400
500
600
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
Q1
07
Q3
07
Q1
08
Q3
08
Q1
09
Q3
09
Q1
10
Q3
10
Q1
11
Q3
11
Q1
12
Q3
12
Q1
13
Q3
13
Q1
14
Q3
14
Q1
15
Q3
15
Q1
16
Q3
16
Q1
17
Q3
17
UK
FTT Revenue Analysis

$0.10 $0.10 $0.10
$0.17
$0.21
$0.24
$0.32
$0.40
$0.44 $0.45
$0.49
$0.53
$0.57
$0.64
$0.72
$0.73 $0.73
$0.76
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
1997 1998 1999 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Historical Dividend

# of Establishments by province/territory in Finning’s industry* (NAICS Code 41722)
* Source: Statistics Canada

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