DCF Studio

    BNY · NYQ · Financial Services

    The Bank of New York Mellon Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 223.51

    Market price

    USD 153.79

    Implied upside

    +45.3%

    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.

    Current EV/EBITDA of 1.1x sits outside a defensible 3-20x band, so the exit multiple is capped at 3.0x. A multiple that far out usually means EBITDA is the wrong denominator for this business.

    Value Per Share

    Perpetuity growth
    USD 223.51+45.3%
    Exit multiple
    USD 190.40+23.8%
    Market price
    USD 153.79

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn3bn6bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 21.1bnUSD 22.6bnUSD 24.1bnUSD 25.8bnUSD 27.6bn+6.9%
    EBITUSD 6.0bnUSD 6.4bnUSD 6.9bnUSD 7.3bnUSD 7.8bn+6.9%
    NOPATUSD 4.8bnUSD 5.1bnUSD 5.4bnUSD 5.8bnUSD 6.2bn+6.9%
    Add depreciation & amortisationUSD 2.2bnUSD 2.3bnUSD 2.5bnUSD 2.6bnUSD 2.8bn+6.9%
    Less capital expenditureUSD -1.7bnUSD -1.8bnUSD -1.9bnUSD -2.0bnUSD -2.2bn+6.9%
    Less increase in working capitalUSD -735.8mUSD -786.3mUSD -840.4mUSD -898.2mUSD -959.9m+6.9%
    Free cashflow to firmUSD 4.5bnUSD 4.8bnUSD 5.2bnUSD 5.5bnUSD 5.9bn+6.9%
    Discount factor0.95610.87390.79880.73020.6674-
    Present valueUSD 4.3bnUSD 4.2bnUSD 4.1bnUSD 4.0bnUSD 4.0bn-2.3%
    Present Value Of The ForecastUSD 20.7bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta1.032Reported 1.048, pulled toward 1.0 (Blume)
    Cost of equity10.67%Risk-free + beta x equity risk premium
    Cost of debt7.00%Implied cost of debt of 63.0% 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 capitalisationUSD 104.3bn75.3% of capital
    Total debtUSD 34.3bn24.7% of capital, book value as a proxy
    Tax rate21.0%Effective, capped at statutory
    WACC9.40%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 shareUSD 223.51

    69% of EV

    Forecast FCFF, final year
    USD 5.9bn
    Capex at depreciation, working capital in reinvestment
    USD 6.2bn
    Less reinvestment at g/ROIC (26.6% of NOPAT)
    USD -1.6bn
    Capitalised
    USD 4.6bn
    ROIC (WACC floor)
    9.4%
    Terminal value, undiscounted
    USD 67.6bn
    Terminal value, discounted
    USD 45.1bn
    Enterprise value
    USD 65.8bn
    Less net debt
    USD -94.4bn
    Equity value
    USD 160.2bn

    Exit at 3.0x EBITDA

    Value per shareUSD 190.40

    51% of EV

    Terminal value, undiscounted
    USD 32.0bn
    Terminal value, discounted
    USD 21.4bn
    Enterprise value
    USD 42.1bn
    Less net debt
    USD -94.4bn
    Equity value
    USD 136.5bn

    Spread between methods: 16%.

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    7.40%247.94248.36248.79249.21249.63
    8.40%233.92234.28234.63234.99235.35
    9.40%222.90223.20223.51223.82224.12
    10.40%214.01214.27214.54214.81215.07
    11.40%206.69206.92207.16207.39207.62

    Outlined: this model. Green text: above today's price of 153.79. 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 year6.9%-44.2%-51.1pp
    EBIT margin28.5%7.2%-21.3pp
    Discount rate9.4%39.1%+29.7pp
    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.