DCF Studio

    BNS.TO · TOR · Financial Services

    The Bank of Nova Scotia

    Also onConsensus Drift

    Implied value per share

    CAD -6.45

    Market price

    CAD 131.63

    Implied upside

    -104.9%

    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 33.8x 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 -6.45-104.9%
    Exit multiple
    CAD 76.93-41.6%
    Market price
    CAD 131.63

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    0bn8bn17bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 39.2bnCAD 41.4bnCAD 43.7bnCAD 46.1bnCAD 48.7bn+5.6%
    EBITCAD 12.7bnCAD 13.4bnCAD 14.1bnCAD 14.9bnCAD 15.8bn+5.6%
    NOPATCAD 9.9bnCAD 10.4bnCAD 11.0bnCAD 11.6bnCAD 12.3bn+5.6%
    Add depreciation & amortisationCAD 2.0bnCAD 2.1bnCAD 2.2bnCAD 2.3bnCAD 2.5bn+5.6%
    Less capital expenditureCAD -548.1mCAD -578.8mCAD -611.1mCAD -645.3mCAD -681.4m+5.6%
    Less increase in working capitalCAD 2.0bnCAD 2.2bnCAD 2.3bnCAD 2.4bnCAD 2.5bn-5.6%
    Free cashflow to firmCAD 13.3bnCAD 14.1bnCAD 14.9bnCAD 15.7bnCAD 16.6bn+5.6%
    Discount factor0.97150.91680.86520.81650.7705-
    Present valueCAD 13.0bnCAD 12.9bnCAD 12.9bnCAD 12.8bnCAD 12.8bn-0.3%
    Present Value Of The ForecastCAD 64.3bn

    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
    Beta1.140Reported 1.209, pulled toward 1.0 (Blume)
    Cost of equity9.57%Risk-free + beta x equity risk premium
    Cost of debt5.30%Implied cost of debt of 11.7% 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 160.4bn33.8% of capital
    Total debtCAD 314.9bn66.2% of capital, book value as a proxy
    Tax rate22.1%Effective, capped at statutory
    WACC5.96%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 -6.45

    73% of EV

    Forecast FCFF, final year
    CAD 16.6bn
    Capex at depreciation, working capital in reinvestment
    CAD 13.3bn
    Less reinvestment at g/ROIC (41.9% of NOPAT)
    CAD -5.6bn
    Capitalised
    CAD 7.7bn
    ROIC (WACC floor)
    6.0%
    Terminal value, undiscounted
    CAD 229.1bn
    Terminal value, discounted
    CAD 176.6bn
    Enterprise value
    CAD 240.9bn
    Less net debt
    CAD 248.9bn
    Equity value
    CAD -8.1bn

    Exit at 20.0x EBITDA

    Value per shareCAD 76.93

    81% of EV

    Terminal value, undiscounted
    CAD 364.2bn
    Terminal value, discounted
    CAD 280.6bn
    Enterprise value
    CAD 344.9bn
    Less net debt
    CAD 248.9bn
    Equity value
    CAD 96.0bn

    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%
    3.96%84.2485.3886.5187.6488.77
    4.96%28.9629.8330.6931.5632.42
    5.96%-7.83-7.14-6.45-5.76-5.07
    6.96%-34.10-33.54-32.97-32.40-31.84
    7.96%-53.81-53.34-52.86-52.39-51.91

    Outlined: this model. Green text: above today's price of 131.63. 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 year5.6%17.4%+11.8pp
    EBIT margin32.4%58.9%+26.5pp
    Discount rate6.0%3.4%-2.6pp
    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.