Royal Bank of Canada (RY:TSE) Fundamental Valuation Report

Fundamental Valuation Report

Royal Bank of Canada(RY:TSE)

Financial Services:Banks-Global

This Report was generated using the valuation tools available on StockCalc.com. For a free 30 day trial click here.

Close Price/Date
$97.82 (CAD) 29/11/2018

Weighted Valuation
$112.89 (CAD)

Overall Rating
Undervalued by 15.4%

Valuation Models Analyst Consensus: $110.88 (CAD)
(in order of importance) Adjusted Book Value: $116.80 (CAD)
Discounted Cash Flow: $111.12 (CAD)
Valuation Methods This company is:
Cash Flow: Undervalued on a Cash Flow Valuation
Comparable Company: Overvalued on a Comparable Valuation
Asset: Undervalued on an Asset Valuation

Company Overview (RY:TSE CAD)

Price 97.82
Range 97.41 – 98.74
52 week 93.62 – 108.05
Open 98.00
Vol / Avg. 2.66M/2.33M
Mkt cap 141.15B
P/E 11.70
Div/yield 3.77/0.04
EPS 8.36
Shares 1.44B
Beta 0.98

Company Description

Royal Bank of Canada is one of the two largest banks in Canada. It is a diversified financial services company, offering personal and commercial banking, wealth-management services, insurance, corporate banking, and capital markets services. The bank is concentrated in Canada, with additional operations in the U.S. and other countries.

Valuation Details

 We have up to 6 valuation points for each company. Details are at the bottom of the report.

Discounted Cash Flow and Sensitivity Analysis for RY:TSE

Using a discounted cash flow model we generated an intrinsic value of $111.12 (CAD) for RY:TSE

Sensitivity Analysis

(showing how changes in the input variables impact the DCF calculation)

RY:TSE Current Values Valuation If Dropped * Valuation If Raised *
Calculated Value: $111.12 1% 5% 1% 5%
WACC (or Ke) 10.33 $129.52 $97.13
Terminal Growth Rate 3.00 $98.90 $127.19
Tax Rate 0.21 $118.65 $103.58
Cash Flow 18,104,671,839 $104.94 $117.30
Capital Expenditures -1,037,000,000 $110.80 $111.43
Long Term Debt 0 $111.12 $111.12

* Changes are absolute: ex WACC from 8% to 7%

Comparables Model

Using similar companies and price based ratios we generated a valuation of $87.03 (CAD) for RY:TSE. We also generated a valuation of $83.02 (CAD) using other metrics and comparables.
The comparable companies were Bank of Montreal (BMO:TSE) and The Toronto-Dominion Bank (TD:TSE).

Company RY:TSE End Date Value
Earnings/Share $8.36 (CAD)
Book Value/Share $49.68 (CAD)
Sales/Share $29.14 (CAD)
Cash Flow/Share $20.52 (CAD)
EBITDA/Share $21.83 (CAD)
Price Based on Comps Adjustment Factor (%)
$107.78 (CAD) -55.5
$84.72 (CAD) 53.1
$93.17 (CAD) 26.6
$112.92 (CAD) -56.0
$0.00 (CAD) -60.2
RY:TSE Ratios Used Average Values BMO:TSE TD:TSE
11.92 PE Ratio 12.89 13.30 12.48
1.93 PB Ratio 1.71 1.55 1.86
3.29 PS Ratio 3.20 2.82 3.57
4.67 PCF Ratio 5.81 6.59 5.03
0.00 EV to EBITDA 0.00 0.00 0.00

Multiples

Using a multiples approach we generated a valuation of  $82.09 (CAD) for RY:TSE

Company RY:TSE End Date Value
Earnings/Share $8.36 (CAD)
Book Value/Share $49.68 (CAD)
Sales/Share $29.14 (CAD)
Cash Flow/Share $20.52 (CAD)
EBITDA/Share $21.83 (CAD)
Price Based on Comps Adjustment Factor
$105.29 (CAD) 0
$104.64 (CAD) 0
$99.23 (CAD) 0
$97.38 (CAD) 0
$3.91 (CAD) 0
Ratios Ratio Average
PE Ratio 12.60
PB Ratio 2.11
PS Ratio 3.40
PCF Ratio 4.75
EV to EBITDA 0.18

Adjusted Book Value versus Historical Price to Book

The average the Price to Book ratio for  RY:TSE for the last 10 years was  2.10

We ran the Adjusted Book Value for  RY:TSE and generated a book value of  $55.51 (CAD)
By multiplying these we get an adjusted valuation of  $116.80 (CAD)

Analyst Data

In the Stockcalc database there are 8 analysts that provide a valuation for RY:TSE. The 8 analysts have a concensus valuation for RY:TSE for 2019 of $110.88 (CAD).

RY:TSE Royal Bank of Canada

Analyst Recommendation
Buy Hold Sell Rating
(of 5)
Guidance As Of
2 5 0 3.7000 Outperform 2018-11-28

Current Price: 97.82 CAD

Analyst Consensus
CAD Millions 2019 2020
Mean EPS 9.03 9.59
# EPS Analysts 8 7
Mean Revenue 44,294.70 46,824.80
# Revenue Analysts 6 4
Mean Target Price 110.88
Mean Cash Flow
Mean EBITDA
Mean Net Income
Mean Debt Outstanding
Mean Tax Rate
Mean Growth Rate
Mean Capital Expenditure

Explanation of Valuation Models

We have up to 6 valuation points for each company in the database.

The Discounted Cash Flow (DCF) valuation is a cash flow model where cash flow projections are discounted back to the present to calculate value per share. DCF is a common valuation technique especially for companies undergoing irregular cash flows such as resource companies (mining, forestry, oil and gas) going though price cycles or smaller companies about to generate cash flow (junior exploration companies, junior pharma, technology firms…).

The Price Comparables valuation is the result of valuing the company we are looking at on the basis of ratios from selected comparable companies: Price to Earnings, Price to Book, Price to Sales, Price to Cash Flow, Enterprise Value (EV) to EBITDA. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

We have included the Other Comparables as a way to value companies that cannot be valued using Earnings based ratios. This technique is very useful for companies still experiencing negative cash flows such as mining exploration firms. We use Cash/Share, Book Value/Share, MarketCap, 1 Year Return, NetPPE as the ratios here. Each of these ratios for the selected comparable companies are averaged and multiplied by the values for the company we are interested in to calculate a value per share for our selected company.

Multiples are similar to Price comparables where we look at current or historic ratios for the company in question to assess what it should be worth today based on those historic ratios. We use the same 5 ratios as in the price comparables and value the company with its historic averages.

With Adjusted Book Value (ABV) we calculate the book value per share for the company based on its balance sheet and multiply that book value per share by its historical price to book ratio to calculate a value per share.

If we have Analyst coverage for the company we use the consensus target price here.

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