DCF Studio

    RY.TO · TOR · Financial Services

    Royal Bank of Canada

    Also onConsensus Drift

    Implied value per share

    CAD 121.08

    Market price

    CAD 284.45

    Implied upside

    -57.4%

    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 29.7x 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 121.08-57.4%
    Exit multiple
    CAD 305.95+7.6%
    Market price
    CAD 284.45

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CAD). Outflows negative.

    0bn23bn45bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCAD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCAD 73.8bnCAD 81.8bnCAD 90.8bnCAD 100.6bnCAD 111.6bn+10.9%
    EBITCAD 27.6bnCAD 30.6bnCAD 33.9bnCAD 37.6bnCAD 41.7bn+10.9%
    NOPATCAD 22.0bnCAD 24.4bnCAD 27.1bnCAD 30.1bnCAD 33.3bn+10.9%
    Add depreciation & amortisationCAD 3.8bnCAD 4.3bnCAD 4.7bnCAD 5.2bnCAD 5.8bn+10.9%
    Less capital expenditureCAD -3.3bnCAD -3.6bnCAD -4.0bnCAD -4.5bnCAD -5.0bn+10.9%
    Less increase in working capitalCAD 7.3bnCAD 8.0bnCAD 8.9bnCAD 9.9bnCAD 11.0bn-10.9%
    Free cashflow to firmCAD 29.9bnCAD 33.1bnCAD 36.7bnCAD 40.7bnCAD 45.2bn+10.9%
    Discount factor0.97120.91610.86410.81510.7688-
    Present valueCAD 29.0bnCAD 30.3bnCAD 31.7bnCAD 33.2bnCAD 34.7bn+4.6%
    Present Value Of The ForecastCAD 159.0bn

    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
    Beta0.943Reported 0.915, pulled toward 1.0 (Blume)
    Cost of equity8.49%Risk-free + beta x equity risk premium
    Cost of debt5.30%Implied cost of debt of 14.0% 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 capitalisationCAD 393.8bn41.9% of capital
    Total debtCAD 545.4bn58.1% of capital, book value as a proxy
    Tax rate20.1%Effective, capped at statutory
    WACC6.02%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 121.08

    75% of EV

    Forecast FCFF, final year
    CAD 45.2bn
    Capex at depreciation, working capital in reinvestment
    CAD 35.9bn
    Less reinvestment at g/ROIC (41.5% of NOPAT)
    CAD -14.9bn
    Capitalised
    CAD 21.0bn
    ROIC (WACC floor)
    6.0%
    Terminal value, undiscounted
    CAD 611.3bn
    Terminal value, discounted
    CAD 470.0bn
    Enterprise value
    CAD 629.0bn
    Less net debt
    CAD 458.1bn
    Equity value
    CAD 170.9bn

    Exit at 20.0x EBITDA

    Value per shareCAD 305.95

    82% of EV

    Terminal value, undiscounted
    CAD 950.8bn
    Terminal value, discounted
    CAD 731.0bn
    Enterprise value
    CAD 889.9bn
    Less net debt
    CAD 458.1bn
    Equity value
    CAD 431.9bn

    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%
    4.02%331.92334.57337.22339.87342.52
    5.02%203.59205.62207.65209.69211.72
    6.02%117.83119.46121.08122.71124.33
    7.02%56.4557.7959.1260.4661.79
    8.02%10.3411.4612.5813.7014.82

    Outlined: this model. Green text: above today's price of 284.45. 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 year10.9%18.0%+7.1pp
    EBIT margin37.4%53.0%+15.6pp
    Discount rate6.0%4.4%-1.6pp
    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.