Valuation of Pacific and Western Bank

Business

Pacific & Western Bank of Canada

Business

November 17, 2014

Executive Summary

Pacific & Western Bank is a small, publicly-traded, schedule 1 bank in Canada. It is highly differentiated from other schedule 1 banks due to its focus on technological innovation within the banking sector and unique product offering. Additionally, Pacific & Western Bank operates as a branchless bank, with all banking activities occurring online.

To gain a better understanding of Pacific & Western Bank, the industry and company itself must be analyzed. The industry analysis will consist of PEST and Porter Five Forces models, along with the identification of industry drivers and their impact on the bank. A company analysis will determine the strengths, weaknesses, opportunities, and threats that Pacific & Western Bank faces along with exploring their recent initial public offering on the Toronto Stock Exchange. The capital structure will then be evaluated significantly.

The financial analysis section will look at an absolute valuation method in order to determine the intrinsic value of a common share of Pacific & Western Bank. The absolute valuation method will use the Residual Income model resulting in a current share price that is slightly overvalued. A sensitivity analysis will also be employed to determine how Pacific & Western Bank will perform under various growth rates. This will allow a recommendation to be made regarding whether Pacific & Western Bank is a good investment. Overall, we recommend holding off investment until Pacific & Western Bank releases numbers that confirm more promising future growth.

Table of Contents

Executive Summary 2

Introduction 4

Industry Analysis 6

PEST Analysis 6

Porter’s Five Forces 9

Industry Drivers 11

Company Analysis 14

SWOT Analysis 14

Initial Public Offering 17

Capital Structure 18

Financial Analysis 21

Absolute Valuation 21

Intrinsic Value 23

Sensitivity Analysis...