The calculations below outline how an intrinsic value for Thomson Reuters is arrived at using the Excess Return Model. This approach is used for finance firms where free cash flow is difficult to estimate.
In the Excess Return Model the value of a firm can be written as the sum of capital invested currently in the firm and the present value of excess returns that the firm expects to make in the future.
The model is sensitive to the Return on Equity of the company versus the Cost of Equity, how these are calculated is detailed below the main calculation.
Note the calculations below are per share.
See our documentation to learn about this calculation.
Excess Returns = (Stable Return on equity – Cost of equity) (Book Value of Equity per share)
$1.17 = (14.74% – 8.43%) * $18.58)
Terminal Value of Excess Returns = Excess Returns / (Cost of Equity - Expected Growth Rate)
$18.62 = $1.17 / (8.43% - 2.13%)
Value of Equity = Book Value per share + Terminal Value of Excess Returns
$37.19 = $18.58 + $18.62Inputs used in model:
Stable EPS = Stable Book Value * Return on Equity
$2.74 = $18.58 * 14.74%
Source: Weighted future Return on Equity estimates from 5 analysts.
Book Value of Equity per Share: $18.58
Source: Weighted future Book Value estimates from 6 analysts.
Expected Growth Rate: 2.13%
Source: Risk Free Rate/ 10 year Government Bond Rate in CAD.
Value per share (USD): $37.19Exchange rate USD/CAD = 1.245
Value per share (CAD): CA$46.29
Current discount (share price of CA$54.22): -17.14%
The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.
Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)
Discount rate = 8.43% = 2.13% + (0.8 * 7.87%)
The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm). Note the market value of equity is used not the book value (CA$38,458,358,994).
Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))
0.632 = 0.543 (1 + (1- 31%) (23.81%))
Levered Beta used in calculation = 0.8
Mr. James C. Smith, also known as Jim, has been the Chief Executive Officer and President of Thomson Corporation (Now Thomson Reuters Corporation) since January 2012. Mr. Smith served as chief operating officer of Thomson Corporation from September 28, 2011 to December 2011 and previously since January 1, 2007. He served as Chief Executive Officer of Professional Division of Thomson Corporation form April 2008 to September 2009 and served as its President of Professional division. He served as Chief Executive Officer of Professional Division at Thomson Reuters UK Limited. He served as Executive Vice President of Thomson Corporation. Mr. Smith served as President and Chief Executive Officer of Thomson Learning’s Academic and Reference/International Group of Thomson Corporation since April 2005. Following the sale of the Newspaper Group in 2000, he joined the Thomson Corporate Office and served as an Executive Vice President of Human Resources and Administration of Thomson Corporation since December 2001. He served as an Executive Vice President of Development and Corporate Affairs of Thomson Corporation since January 2002. He was responsible for Human Resources, Succession Planning, Training and Development, Organizational Development and various administrative activities for Thomson Corporation. He oversaw the Thomson's professional business information segments, including North American legal, tax and accounting, international legal and regulatory, healthcare and scientific. Mr. Smith joined Thomson Newspaper Group in 1987. He has worked for Thomson Corporation for 15 years, primarily in Newspaper Group that sold and held a number of operating positions. He began his career as a Journalist and held several Editorial and General Management positions prior to joining Thomson. He led a number of professional publishing businesses serving the legal, regulatory and academic markets. He has been a Non-Independent Director at Thomson Corporation since January 2012. He has been an Independent Director at Pfizer Inc. since June 26, 2014. Mr. Smith is a member of the International Business Council of the World Economic Forum and the Board of Directors of the Brazil-U.S. Business Council. He also serves on the board of the World Economic Forum’s Partnering Against Corruption Initiative He serves on the International Advisory Boards of British American Business and the Atlantic Council. Mr. Smith holds a BA from Marshall University.
Average tenure and age of the Thomson Reuters management team in years:
Average tenure and age of the Thomson Reuters board of directors in years:
According to my valuation model, Thomson Reuters seems to be fairly priced at around 18% above my intrinsic value, which means if you buy Thomson Reuters today, you’d be paying a relatively fair price for it. … Thomson Reuters’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. … Will you have enough confidence to invest in the company should the price drop below its fair value?Simply Wall St - – Full article
TSX:TRI Intrinsic Value Dec 19th 17 Deriving TRI's True Value The key belief for this model is, the value of the company is how much money it can generate from its current level of equity capital, in excess of the cost of that capital. … The returns in excess of cost of equity is called excess returns: Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share) = (14.01% – 8.43%) * $17.91 = $1.03 Excess Return Per Share is used to calculate the terminal value of TRI, which is how much the business is expected to continue to generate over the upcoming years, in perpetuity. … This is a common component of discounted cash flow models: Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate) = $1.03 / (8.43% – 2.13%) = $16.29 These factors are combined to calculate the true value of TRI's stock: Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share = $17.91 + $16.29 = CA$44.46 Relative to today's price of $56.9, TRI is currently overvalued.Simply Wall St - – Full article
See our latest analysis for TRI Breaking down ROE — the mother of all ratios Return on Equity (ROE) is a measure of TRI’s profit relative to its shareholders’ equity. … Return on Equity = Net Profit ÷ Shareholders Equity ROE is assessed against cost of equity, which is measured using the Capital Asset Pricing Model (CAPM) – but let’s not dive into the details of that today. … This is called the Dupont Formula: Dupont Formula ROE = profit margin × asset turnover × financial leverage ROE = (annual net profit ÷ sales) × (sales ÷ assets) × (assets ÷ shareholders’ equity) ROE = annual net profit ÷ shareholders’ equity TSX:TRI Last Perf Dec 8th 17 Essentially, profit margin shows how much money the company makes after paying for all its expenses.Simply Wall St - – Full article
TRI’s P/E of 29.9x is higher than its industry peers (14.2x), which implies that each dollar of TRI’s earnings is being overvalued by investors. … For example, if you accidentally compared lower growth firms with TRI, then TRI’s P/E would naturally be higher since investors would reward TRI’s higher growth with a higher price. … Alternatively, if you inadvertently compared riskier firms with TRI, TRI’s P/E would again be higher since investors would reward TRI’s lower risk with a higher price as well.Simply Wall St - – Full article
Have you been waiting for Thomson Reuters Corporation's (TSX:TRI) upcoming dividend of CA$0.35 per share? … Check out our latest analysis for Thomson Reuters 5 checks you should do on a dividend stock When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas: Does it pay an annual yield higher than 75% of dividend payers? … Compared to its peers, Thomson Reuters produces a yield of 3.10%, which is high for capital markets stocks but still below the market's top dividend payers.Simply Wall St - – Full article
Thomson Reuters Corporation provides news and information for professional markets worldwide. It operates through three segments: Financial & Risk, Legal, and Tax & Accounting. The company sells electronic content and services to professionals primarily on a subscription basis. The Financial & Risk segment offers critical news, information, and analytics enabling transactions and connecting communities of trading, investment, financial, and corporate professionals. This segment also provides regulatory and operational risk management solutions. The Legal segment offers critical online and print information, decision tools, and software and services to support legal, investigation, business, and government professionals. The Tax & Accounting segment provides integrated tax compliance and accounting information, software, and services for professionals in accounting firms, corporations, law firms, and government. Thomson Reuters Corporation also operates Reuters, which provides real-time multimedia news and information services to newspapers, television and cable networks, radio stations, and Websites. The company was formerly known as The Thomson Corporation and changed its name to Thomson Reuters Corporation in April 2008. Thomson Reuters Corporation was founded in 1799 and is based in Toronto, Canada.
|Name:||Thomson Reuters Corporation|
Thomson Reuters Corporation
333 Bay Street,
Ontario, M5H 2R2,
|Exchange Symbol||Ticker Symbol||Security||Exchange||Country||Currency||Listed on|
|TSX||TRI||Corporation Common Shares||The Toronto Stock Exchange||CA||CAD||06. Jun 1989|
|NYSE||TRI||Corporation Common Shares||New York Stock Exchange||US||USD||06. Jun 1989|
|DB||TOC||Corporation Common Shares||Deutsche Boerse AG||DE||EUR||06. Jun 1989|
|Financial Exchanges and Data|
|Company Analysis updated:||2018/01/19|
|Last estimates confirmation:||2018/01/19|
|Last earnings update:||2017/09/30|
|Last annual earnings update:||2016/12/31|
All dates in UTC. All financial data provided by Standard & Poor’s Capital IQ.
Unless specified all financial data is based on a yearly period but updated quarterly. This is known as Trailing Twelve Month (TTM) or Last Twelve Month (LTM) Data. Learn more here.