The WACC of Bank of N.T. Butterfield & Son Ltd (NTB) is 6.5%.
Range | Selected | |
Cost of equity | 5.6% - 7.7% | 6.65% |
Tax rate | 1.7% - 1.8% | 1.75% |
Cost of debt | 5.0% - 5.0% | 5% |
WACC | 5.5% - 7.4% | 6.5% |
Category | Low | High |
Long-term bond rate | 3.9% | 4.4% |
Equity market risk premium | 4.6% | 5.6% |
Adjusted beta | 0.37 | 0.5 |
Additional risk adjustments | 0.0% | 0.5% |
Cost of equity | 5.6% | 7.7% |
Tax rate | 1.7% | 1.8% |
Debt/Equity ratio | 0.1 | 0.1 |
Cost of debt | 5.0% | 5.0% |
After-tax WACC | 5.5% | 7.4% |
Selected WACC | 6.5% | |
Debt/Equity | Unlevered | |||
Peers | Company Name | ratio | Beta | beta |
NTB | Bank of N.T. Butterfield & Son Ltd | 0.1 | 0.72 | 0.66 |
BAP | Credicorp Ltd | 0.59 | 0.48 | 0.3 |
CIBH | CIB Marine Bancshares Inc | 0.62 | 0.3 | 0.19 |
FINN | First National of Nebraska Inc | 0.52 | 0.1 | 0.06 |
GWB | Great Western Bancorp Inc | 0.12 | 1.1 | 0.98 |
HABK | Hamilton Bancorp Inc | 0.44 | 0 | 0 |
HFBA | HFB Financial Corp | 0.95 | -0.03 | -0.02 |
HTLF | Heartland Financial USA Inc | 0.17 | 1.03 | 0.89 |
LB.TO | Laurentian Bank of Canada | 14.42 | 0.3 | 0.02 |
NA.TO | National Bank of Canada | 0.93 | 0.08 | 0.04 |
Low | High | |
Unlevered beta | 0.06 | 0.23 |
Relevered beta | 0.06 | 0.25 |
Adjusted relevered beta | 0.37 | 0.5 |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for NTB:
cost_of_equity (6.65%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.37) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.