Is Julius Baer Group Ltd (VTX:BAER) Worth CHF56.86 Based On Intrinsic Value?

Valuing BAER, a financial stock, can be daunting since these capital market firms generally have cash flows that are impacted by regulations that are not imposed upon other industries. For instance, these businesses must hold a certain level of cash reserves on the books as a safety precaution. Emphasizing elements like book values, with the return and cost of equity, can be useful for assessing BAER’s valuation. Today I’ll take you through how to value BAER in a fairly useful and easy approach.

View our latest analysis for Julius Baer Group

What Model Should You Use?

Let’s keep in mind two things – regulation and type of assets. The regulatory environment in Switzerland is fairly rigorous. Moreover, capital markets usually do not possess substantial portions of tangible assets as part of total assets. So the Excess Returns model is suitable for determining the intrinsic value of BAER rather than the traditional discounted cash flow model, which places emphasis on factors such as depreciation and capex.

SWX:BAER Intrinsic Value Export July 23rd 18
SWX:BAER Intrinsic Value Export July 23rd 18

Deriving BAER’s True Value

The key assumption for this model is that equity value is how much the firm can earn, over and above its cost of equity, given the level of equity it has in the company at the moment. The returns above the cost of equity is known as excess returns:

Excess Return Per Share = (Stable Return On Equity – Cost Of Equity) (Book Value Of Equity Per Share)

= (15.73% – 11.22%) x CHF31.58 = CHF1.42

We use this value to calculate the terminal value of the company, which is how much we expect the company to continue to earn every year, forever. This is a common component of discounted cash flow models:

Terminal Value Per Share = Excess Return Per Share / (Cost of Equity – Expected Growth Rate)

= CHF1.42 / (11.22% – 3.71%) = CHF18.94

Putting this all together, we get the value of BAER’s share:

Value Per Share = Book Value of Equity Per Share + Terminal Value Per Share

= CHF31.58 + CHF18.94 = CHF50.51

This results in an intrinsic value of CHF50.51. Compared to the current share price of CHF56.86, BAER is , at this time, trading in-line with its true value. This means BAER isn’t an attractive buy right now. Pricing is one part of the analysis of your potential investment in BAER. Analyzing fundamental factors are equally important when it comes to determining if BAER has a place in your holdings.

Next Steps:

For capital markets, there are three key aspects you should look at:

  1. Financial health: Does it have a healthy balance sheet? Take a look at our free bank analysis with six simple checks on things like leverage and risk.
  2. Future earnings: What does the market think of BAER going forward? Our analyst growth expectation chart helps visualize BAER’s growth potential over the upcoming years.
  3. Dividends: Most people buy financial stocks for their healthy and stable dividends. Check out whether BAER is a dividend Rockstar with our historical and future dividend analysis.

For more details and sources, take a look at our full calculation on BAER here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at