TC Energy Corporation (TRP)

Total return at 5 years: 4.2%/year = -0.3% appreciation + 4.5% dividend. The target price ($60) is ex-dividend; the $14 in dividends collected over 5 years are added separately.

The methods disagree: one places the value today above the price ($61) and the other below.

Today — expensive, no margin of safety: at $61 trades ~1.3% above its value discounted to today (~$60); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — En valor: the target price ($60) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$39.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($61) is taken as given and it solves for what annual owner-earnings growth would need to hold for 10 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (1.5%/year) is in line with our base case (3.0%/year) → the price is consistent with the projection.

That growth implies ~CAD 7.5 bn of owner earnings in year 10 (vs ~CAD 8.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBITDA. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Annual reporter: TC Energy files a Form 40-F under the Canadian multijurisdictional regime and publishes its quarters on Form 6-K, which carry no tagged data, so the quarter does not exist in the securities commission's database. The annual reporter convention applies: year 0 is the fiscal year ended 31 December 2025 and no rolling twelve-month window is manufactured. Currency: the company reports in Canadian dollars and trades in New York in US dollars, at a ratio of one ordinary share per security verified on the cover of the annual form; the entire fundamental apparatus of this model is in Canadian dollars and the conversion happens only once, at the close of the waterfall, at the live exchange rate. The model's price anchor is in the quotation currency, exactly as the field requires, and the anchor market capitalization of 88.453 was computed at the exchange rate of 1.3709 Canadian dollars per US dollar that the filing's own long-term debt note implies at 31 December 2025, when it presents a loan of 693 million US dollars as 950 million Canadian dollars. Metric: the hydrocarbon infrastructure archetype values on a multiple of enterprise value over earnings before interest, taxes, depreciation and amortization, so the model is at the enterprise level and not at the equity level; that is also why the regulated company mold is not used, which would assume a rate base with an authorized return on the whole business when in reality only 34 per cent of comparable earnings comes from Canadian systems with an approved return. Year-0 earnings before depreciation are derived from the tagged data, 8.036 of operating income plus 2.769 of depreciation and amortization, equal to 10.804; the company reports comparable earnings before depreciation from continuing operations of 10.952, that is the sum of the four segments, 10.966, less 14 of corporate losses, and the 1.4 per cent difference against the accounting figure is explained by one-off 2025 items, among them an impairment charge of 110 in generation; a full breakdown of those items is not reconstructed here because it does not reconcile cleanly against the reconciliation in management's discussion. The model's debt field carries 71.945 and not 60.086 because it adds to gross debt the preferred shares of 2.255 and the non-controlling interest of 9.604: earnings before depreciation are consolidated and include the partners' portion of the minority interest in Mexico and in the Columbia system, which represents 16.3 per cent of earnings, so all three claims are deducted before reaching the common shareholder. Capital investment comes from the filing's cash flow statement, 5.270 in 2025, 6.308 in 2024 and 8.007 in 2023, and not from the tagged concept, whose last fact stopped at fiscal 2024 and which also measures a broader base. Year-0 maintenance capital is approximately 2.200 declared by the company, not depreciation: the maintenance fraction of 41.7 per cent is a figure from the filing and prevents owner earnings from ending up identical to after-tax operating income. The revenue path starts at 6.0 per cent, within the historical band of 3.8 to 10.7 per cent and below the 2025 high, which picked up the partial start-up of the Southeast Gateway pipeline in May and the jump in Mexican revenue from 870 to 1,450; from there it decays smoothly to 4.0 per cent by year 5. The company's guidance for 2026 is qualitative for earnings before depreciation and for comparable earnings per share, both above 2025, and is quantified only in the investment plan, of 6.0 to 6.5 billion gross and 5.5 to 6.0 net of the non-controlling interest; the only published numerical anchor is comparable earnings per share for the first half of 2026, of 1.93 against 1.76, an advance of 9.7 per cent. The perimeter is continuing operations across all four fiscal years: the oil pipeline business was spun off as South Bow on 1 October 2024 and prior periods are restated. Cash does not accumulate: the company distributed 3.507 of common dividends and 0.119 of preferred dividends against free cash flow of 2.076, so the shortfall is funded with debt and with contributions from the non-controlling partners, and no share path is modeled because the count barely went from 1,039 to 1,041 million in the fiscal year.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $60 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $61, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $60 in 5 years plus $14 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $60. Against the current market price ($61), the margin of safety is -1.3% (trades above the maximum → a premium is paid) and the total return at that price would be 4.2% annually.

• Entry multiple. 15× EBITDA, above the hydrocarbon infrastructure archetype's 9-to-12-times exit band.
• Forward compression. With earnings growing 5.5% a year, the entry point cheapens to 11× by year 5, still above the center of the band.
• Return composition. The estimated total return of +4% a year splits between +4% from the dividend and -0% from price: the thesis rests on the payout, not on appreciation.
• Divergence between methods. Discounting cash flows at the floored risk-free rate produces a higher value than the multiples approach: this is the structural divergence between an exit multiple and a perpetuity, largest in stable-cash-flow businesses.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (101%, cash vs. accruals)
• ✕ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. 6.6% on 96.8 billion, below the 10% bar; the denominator includes 13.0 of goodwill from the Columbia acquisition and construction work in progress.
• Cash conversion. Operating cash flow of 7,346 million against attributable earnings of 3,519 reflects the heavy depreciation on long-lived assets: accounting earnings understate cash flow.
• Maintenance capital. The company reports about 2,200 million of maintenance capital in 2025, 41.7% of total spending; in the regulated systems that spending enters the tariff base and is recovered through tolls.
• Stock-based compensation. 7 million for the year against 15,239 of revenue: immaterial to the metric and with no material dilutive effect.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The indicators for this business are infrastructure indicators, not consumption indicators: what matters is how much capital is placed into service, at what tariff or contract it is remunerated, and how much of that spending is maintenance recoverable through tolls. That is why capital expenditure is tracked against guidance, along with the comparable EBITDA that capital generates and the operating cash flow from which the dividend and part of the investment are funded. Dividend per share is shown in Canadian dollars, the reporting currency, and its 2025 level is not comparable to prior years because of the spin-off of the liquids pipelines business.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue growth. A trajectory of 7.8%, 3.8% and 10.7% over the last three fiscal years; the 2025 peak captured the start-up of the Mexican pipeline and the new tariff schedules.
• Contracted projects. The NGTL system's multi-year growth plan for up to 3,300 million, plus the Columbia connector, Heartland and Northwoods projects, with approvals in progress.
• Cost of growth. The gross capital plan of 6.0 to 6.5 billion for 2026 exceeds the year's free cash flow of 2,076 million: growth is financed with debt.
• Company guidance. For 2026 the guidance is qualitative — EBITDA and comparable earnings per share above 2025 — the only numerical anchor is first-half comparable earnings, 1.93 against 1.76.

• Revenue predictability. The three pipeline segments contribute 91% of comparable EBITDA (34% Canada, 45% United States, 12% Mexico); there is no exposure to the price of the gas transported.
• Ten-year relevance. Natural gas is the backup fuel for power generation in North America, and demand for contracted capacity keeps growing on top of the installed base.
• Pricing power. Limited by design: in the regulated systems the tariff is approved by the regulator and any excess return is returned to the customer; in the contracted ones the price is fixed for decades with inflation escalation.
• Capital intensity. It takes 96.8 billion of invested capital to produce 15.2 of revenue: every point of growth requires prior investment and several years of construction.
• Recession behavior. Revenue from reserved capacity does not depend on volume actually transported on the contracted systems, which cushions the cycle.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✕Leverage (net debt / EBITDA)Net debt / EBITDA 6.6x
• ✕Interest coverage (EBIT / interest)2.4x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 101% of ROIC
• ✕Value creation (ROIC − 10% bar)-3pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.9x
• !Float / working capitalConsumes cash $0.5 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Gross debt. 60,086 million across notes payable, the current portion, long-term debt and 12,094 of junior subordinated notes; interest for the year was 3,407 million.
• Available cash. 168 million at fiscal year-end: liquidity rests on committed credit facilities and on continuous access to the debt market, not on the balance sheet.
• Credit rating. Investment grade with a stable outlook at all three agencies that rate the issuer: Moody's Baa3, S&P BBB+ and Fitch BBB+; DBRS rates the preferred shares and the operating subsidiary's securities. The lower notch applies to Moody's, not to the other two.
• Claims ahead of common. Beyond the debt there are 2,255 million of preferred shares and 9,604 of noncontrolling interests, which represents 16.3% of earnings and is subtracted in the valuation bridge.
• Dividend coverage. 3,507 million of common dividends and 114 of preferred dividends in cash against 2,076 of free cash flow: the distribution is partly financed with new debt.

How cash comes in and how it is deployed. In green, the business's own cash (the owner-FCF it generates and reinvests); in gray, the float and credit — customer and funding money, which is not the shareholder's.

Breakdown of fiscal 2025 capital uses on a total of 9,942 million: 6,321 of reinvestment, that is 5,270 of capital expenditure plus 16 of development projects and 1,051 of contributions to equity investments, and 3,621 of distributions, that is 3,507 of common dividends and 114 of preferred dividends in cash. There were no buybacks or acquisitions during the year. Since operating cash flow was 7,346 million, the 2,596 shortfall was financed with new debt and with contributions from noncontrolling partners.

• Capital allocation. Spin-off of the liquids pipelines business in October 2024 and sale of 40% of Columbia's equity for 5,300 million while retaining control: two transactions that funded the plan without issuing shares.
• Project execution. The Coastal GasLink ended up at about 14,500 million, well above its original budget, and shareholders absorbed that cost overrun.
• Dilution. The share count moved from 1,039 to 1,041 million during the year, immaterial dilution; there is no buyback program in effect.
• Alignment. No holdings disclosure is available: the company files a foreign annual report rather than a proxy statement, so executive ownership cannot be documented, and the gap is declared.

• It is not cheap: it trades at 15× EBITDA, above the archetype's 9-to-12-times exit band.
• The market pays for the predictability of the cash flow: the three pipeline segments contribute 91% of comparable earnings, and in a high-rate environment that profile trades as a fixed-income substitute.
• The spin-off of South Bow in October 2024 left a purer natural-gas profile, with less commodity-price exposure, and that change in composition justifies part of the premium relative to the company's own history.
• The flip side that the price does not discount as clearly is financing: the distribution exceeds free cash flow, and the capital plan requires issuing debt every year.

The first-half 2026 release, subsequent to fiscal year-end, does not carry an event that changes the thesis: comparable earnings per share rose from CAD 1.76 to CAD 1.93, the company reiterated that 2026 EBITDA and comparable earnings will exceed 2025 levels without publishing a range, and declared a quarterly dividend of 0.8775, equivalent to 3.51 annually. The half's one-off items were a 139 million foreign-exchange gain on the peso-denominated intercompany loan, 103 in expenses for third-party agreements, and 236 in unrealized risk-management losses.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-23% total): the margin of safety protects the downside. The bull (+11%/year, +65% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Tariff renewal. The ANR proceeding is pending, and the Columbia Gas and Columbia Gulf settlements expire in 2028 and 2027; a renewal below what was requested compresses the return on those systems.
• Counterparty and political risk in Mexico. The Southeast Gateway pipeline contract runs through 2055 with a state-owned company, and the peso-denominated intercompany loan generates unrealized foreign-exchange results that distort earnings.
• Rate sensitivity. Stable-cash-flow infrastructure with high debt re-rates quickly when the long rate rises, both through refinancing cost and through the multiple.
• Construction cost overrun. The Coastal GasLink precedent, closed at about 14,500 million, shows that execution risk on large-scale projects is absorbed by shareholders.
• Energy transition. It does not threaten this decade's volume, but it does threaten the residual value of assets with forty-year useful lives and of the expansions being approved today.
• Supply-basin and market risk. The pipelines depend on production from the Western Canadian Sedimentary Basin and the Appalachian basin; the generation business is exposed to each electricity market's rules and to its own plants' availability.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: ROIC 7% does not clear the 10% bar.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 3% at a multiple/growth of 4.9 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 7% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 2%, in line with our 3%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -11%/yr over 5y (material loss) → risk of permanent capital loss.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, switching costs, cost advantage → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 2%, within what we project (3%) — the story squares with the numbers.