DCF Studio

    BMO.TO · TOR · Financial Services

    Bank of Montreal

    Also onConsensus Drift

    Implied value per share

    CAD 148.99

    Market price

    CAD 244.31

    Implied upside

    -39.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Wrong toolThis is a financial. Banks and insurers report no meaningful operating income, and capex and working capital do not mean what a free-cashflow model assumes, so a DCF will misprice it. The model below runs on best-effort numbers - treat it as an illustration, not a valuation.
    NoteRisk-free rate is an assumption: CAD assumption - no free live source available for this market.

    Current EV/EBITDA of 27.7x sits outside a defensible 3-20x band, so the exit multiple is capped at 20.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    CAD 148.99-39.0%
    Exit multiple
    CAD 376.68+54.2%
    Market price
    CAD 244.31

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    0bn10bn20bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 40.1bnCAD 44.6bnCAD 49.6bnCAD 55.2bnCAD 61.4bn+11.2%
    EBITCAD 14.9bnCAD 16.6bnCAD 18.5bnCAD 20.6bnCAD 22.9bn+11.2%
    NOPATCAD 11.3bnCAD 12.6bnCAD 14.0bnCAD 15.5bnCAD 17.3bn+11.2%
    Add depreciation & amortisationCAD 2.5bnCAD 2.8bnCAD 3.1bnCAD 3.4bnCAD 3.8bn+11.2%
    Less capital expenditureCAD -2.1bnCAD -2.3bnCAD -2.6bnCAD -2.8bnCAD -3.2bn+11.2%
    Less increase in working capitalCAD 1.6bnCAD 1.8bnCAD 2.0bnCAD 2.2bnCAD 2.5bn-11.2%
    Free cashflow to firmCAD 13.4bnCAD 14.9bnCAD 16.5bnCAD 18.4bnCAD 20.4bn+11.2%
    Discount factor0.97130.91640.86460.81570.7696-
    Present valueCAD 13.0bnCAD 13.6bnCAD 14.3bnCAD 15.0bnCAD 15.7bn+4.9%
    Present Value Of The ForecastCAD 71.6bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.30%CAD assumption - no free live source available for this market (assumption)
    Equity risk premium5.50%Market assumption
    Beta1.086Reported 1.128, pulled toward 1.0 (Blume)
    Cost of equity9.27%Risk-free + beta x equity risk premium
    Cost of debt5.30%Implied cost of debt of 15.4% is not a credible funding cost, so risk-free + 2bp is assumed instead. Interest expense and reported debt are measuring different things - common for banks, whose interest expense includes deposits that total debt excludes.
    Market capitalisationCAD 169.8bn37.7% of capital
    Total debtCAD 280.2bn62.3% of capital, book value as a proxy
    Tax rate24.4%Effective, capped at statutory
    WACC5.99%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareCAD 148.99

    77% of EV

    Forecast FCFF, final year
    CAD 20.4bn
    Capex at depreciation, working capital in reinvestment
    CAD 18.7bn
    Less reinvestment at g/ROIC (41.7% of NOPAT)
    CAD -7.8bn
    Capitalised
    CAD 10.9bn
    ROIC (WACC floor)
    6.0%
    Terminal value, undiscounted
    CAD 319.7bn
    Terminal value, discounted
    CAD 246.0bn
    Enterprise value
    CAD 317.7bn
    Less net debt
    CAD 209.9bn
    Equity value
    CAD 107.8bn

    Exit at 20.0x EBITDA

    Value per shareCAD 376.68

    85% of EV

    Terminal value, undiscounted
    CAD 533.7bn
    Terminal value, discounted
    CAD 410.7bn
    Enterprise value
    CAD 482.3bn
    Less net debt
    CAD 209.9bn
    Equity value
    CAD 272.4bn

    Spread between methods: 87%.

    Sensitivity

    Value per share (CAD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    3.99%364.64367.35370.06372.78375.49
    4.99%233.21235.29237.36239.44241.52
    5.99%145.66147.32148.98150.64152.30
    6.99%83.1884.5585.9187.2788.64
    7.99%36.3637.5038.6539.7940.93

    Outlined: this model. Green text: above today's price of 244.31. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year11.2%15.8%+4.6pp
    EBIT margin37.2%46.2%+8.9pp
    Discount rate6.0%4.9%-1.1pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.