DCF Studio

    WBC.AX · ASX · Financial Services

    Westpac Banking Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD -8.75

    Market price

    AUD 34.75

    Implied upside

    -125.2%

    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 22.3x 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
    AUD -8.75-125.2%
    Exit multiple
    AUD 17.18-50.6%
    Market price
    AUD 34.75

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (AUD). Outflows negative.

    0bn4bn8bnFY25FY26FY27FY28FY29
    Nominal FCFFDiscounted to todayAUD
    LineFY25FY26FY27FY28FY29CAGR
    RevenueAUD 21.8bnAUD 22.0bnAUD 22.2bnAUD 22.4bnAUD 22.6bn+0.9%
    EBITAUD 9.6bnAUD 9.7bnAUD 9.8bnAUD 9.9bnAUD 10.0bn+0.9%
    NOPATAUD 6.7bnAUD 6.8bnAUD 6.9bnAUD 6.9bnAUD 7.0bn+0.9%
    Add depreciation & amortisationAUD 1.9bnAUD 1.9bnAUD 1.9bnAUD 2.0bnAUD 2.0bn+0.9%
    Less capital expenditureAUD -1.2bnAUD -1.2bnAUD -1.2bnAUD -1.2bnAUD -1.2bn+0.9%
    Less increase in working capitalAUD -192.4mAUD -194.1mAUD -195.8mAUD -197.6mAUD -199.3m+0.9%
    Free cashflow to firmAUD 7.3bnAUD 7.3bnAUD 7.4bnAUD 7.5bnAUD 7.5bn+0.9%
    Discount factor0.96670.90350.84440.78920.7376-
    Present valueAUD 7.0bnAUD 6.6bnAUD 6.2bnAUD 5.9bnAUD 5.6bn-5.7%
    Present Value Of The ForecastAUD 31.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta0.814Reported 0.723, pulled toward 1.0 (Blume)
    Cost of equity10.23%Risk-free + beta x equity risk premium
    Cost of debt7.35%Implied cost of debt of 17.9% 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 capitalisationAUD 118.7bn36.4% of capital
    Total debtAUD 207.2bn63.6% of capital, book value as a proxy
    Tax rate30.0%Effective, capped at statutory
    WACC7.00%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 shareAUD -8.75

    71% of EV

    Forecast FCFF, final year
    AUD 7.5bn
    Capex at depreciation, working capital in reinvestment
    AUD 7.0bn
    Less reinvestment at g/ROIC (35.7% of NOPAT)
    AUD -2.5bn
    Capitalised
    AUD 4.5bn
    ROIC (WACC floor)
    7.0%
    Terminal value, undiscounted
    AUD 102.3bn
    Terminal value, discounted
    AUD 75.5bn
    Enterprise value
    AUD 106.8bn
    Less net debt
    AUD 140.9bn
    Equity value
    AUD -34.1bn

    Exit at 20.0x EBITDA

    Value per shareAUD 17.18

    85% of EV

    Terminal value, undiscounted
    AUD 239.2bn
    Terminal value, discounted
    AUD 176.5bn
    Enterprise value
    AUD 207.8bn
    Less net debt
    AUD 140.9bn
    Equity value
    AUD 66.9bn

    Sensitivity

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

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.00%1.501.641.781.932.07
    6.00%-4.59-4.47-4.36-4.24-4.13
    7.00%-8.94-8.84-8.75-8.65-8.56
    8.00%-12.20-12.12-12.04-11.96-11.88
    9.00%-14.74-14.67-14.61-14.54-14.47

    Outlined: this model. Green text: above today's price of 34.75. 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 year0.9%28.4%+27.5pp
    Discount rate7.0%2.8%-4.2pp
    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.