Valuecruncher places a value of $6.70 for each Michael Hill share with a range between $3.98 and $9.66. This is very close to the current share price of $6.82.

Revenue Growth

Revenue Growth has been fairly unstable in the last few periods with growths of 15.56%, 5.15%, and 12.16% in the 03/04, 04/05, and 05/06 periods. We have forecasted revenue growth at 10%, 8% and 6% for the next three periods.

EBIT Margins

In 2004 and 2005 EBIT margins were 9.16% and 9.48%, respectively. EBIT margins have suffered this year dropping to 7.95%. This can be attributed to high gold (and other metals) prices, with record highs seen during the early-to-mid parts of 2006. It is impossible to predict what will happen to metal prices, so we have forecasted EBIT margins of 8% for the next three years. The wide range of values seen in this valuation is due to the price being extremely sensitive to EBIT margins. A change of EBIT margin by 2% will affect the share price by 30% to 40%.

Terminal Growth

Terminal growth is expected to be lower than the historical long-term growth rate. We expect 2%.

Discount Rate (WACC)

The discount rate used in this analysis is 8%, which is adjusted up from PwC’s estimation of 7.6% (sourced from their cost of capital report).

Michael Hill Valuation

Valuecruncher has placed a value of $2.26 per Delegat’s share with a range between $1.39 and $3.23.  The mid-point valuation is very close to the current share price of $2.40.

Revenue Growth

Delegat’s has been experiencing very healthy growth in the last few periods, with growths of 80.80% in the 04/05 period and 47.3% in the 05/06 period. The numbers in Delegat’s March 2006 prospectus (http://www.delegatsgroup.co.nz/pdfs/prospectus.pdf) indicated that growth in the 06/07 period was expected to be around 50%. However, as they exceeded expectations during the 05/06 period, it may be that the growth that was projected to occur in the 06/07 period has come a little bit earlier. We have forecasted revenues to grow at 45% during the 06/07 period, steadily decreasing to 25% in the 08/09 period.

EBIT Margins

The EBIT margins have been growing from 7.28% in 2004 to 16.16% in 2006. The March Prospectus indicated that EBIT margins would grow to 25% in 2007. We can see this as being a real possibility, and have also forecasted EBIT margins to remain at 25%.

Terminal Growth

Terminal growth has been forecasted to be 3%.

Discount Rate (WACC)

The discount rate applied in the analysis is 11%.

Delegat’s Valuation

Valuecruncher has placed a value of $8.50 per share of Ryman Healthcare stock – ranging between $6.20 and $10.99. The current price of $9.70 is in the upper end of our valuation range.

Revenue Growth

The revenue growth for Ryman has been variable over the last three periods, falling from 16.10% in the 03/04 period down to 10.65% in the 04/05 period, and then up to 17.80% in the 05/06 period. We have forecasted an average growth rate of 15% for the next three periods, in line with the goal stated by the management of Ryman in the 2006 annual report to double the size of the company every five years.

EBIT Margins

EBIT margins have been increasing since 2003, rising from 17.9% to 25.04% in 2006. We believe that these margins will remain around 25% for the next three years, translating into an annual compound growth rate of 15% (the same as the outlook stated in the 2006 annual report). Our assumptions for revenue growth and EBIT margins suggest that Ryman Healthcare will continue to be a strong player for at least the next few years.

Terminal Growth

Terminal growth is assumed to be 4%, slightly higher than the long-term economic growth rate, but representative of the stronger growth opportunities available (such as the demographics of an ageing population) for Ryman Healthcare.

Discount rate (WACC)

The discount rate applied is 8%.

Ryman Valuation

According to NZ Herald reports Independent Liquor has been sold to Australian-based private equity firms Pacific Equity Partners and CCMP Capital Asia for NZ$1.26 billion.

Our valuation was a mid-point of NZ$1.034 billion with a range from NZ$698 million to NZ$1.42 billion.  Our analysis of the company (using very limited public information) was probably pretty close.

It is a good result for the estate of the late Michael Erceg.  It does however illustrate the amazing job he did – creating over a billion dollars of value since starting the business in 1987.  New Zealand does not have enough entrepreneurs of his standard – he is missed already.

Valuecruncher places a value of $3.58 on each F&P Healthcare share with a range of $2.92 to $4.30. The current share price is $4.27.

Revenue Growth

Revenue growth has been increasing rapidly from 3.09% in the 03/04 period to 20.36% in the 05/06 period. We have forecasted growth to increase to 30% for the next period, and then decrease to 25% and 20% in the 07/08 and 08/09 periods.

EBIT Margins

EBIT margins have been hovering around 36% for the past four years, ranging between 35.45% and 37.31%. We have forecasted EBIT margins to remain stable at 36% for the next three years.

Terminal Growth

Terminal growth is assumed to be 3%.

Discount Rate (WACC)

The discount rate applied is 10.8% (as stated in the PwC Cost of Capital Report).

Commentary

The current share price of $4.27 is 20% higher than Valuecruncher’s mid-point estimate. Valuecruncher is valuing F&P Healthcare based on their current cash flows. The higher share price reflects investors’ views that there may be valuable options beyond current cash flows available for F&P Healthcare.

FP Heathcare Valuation

Valuecruncher has placed a value of $4.21 on each F&P Appliances shares, with a range between $2.77 and $5.74. The current share price stands at $3.94.

Revenue Growth

F&P have experienced revenue growth rates of 12.43%, 10.66%, and 16.40% for the past three periods, and with the implementation of a wider variety of products and expansion in the US, it is likely that comparatively high growth rate will be seen in the next few years. We have forecasted growth rates of 16%, 14%, and 12% for the 06/07, 07/08, and 08/09 periods, respectively.

EBIT Margin

EBIT margins have decreased from 13.84% in 2004 to 9.08% in 2006. Margins will continue to be pressured by a strong New Zealand dollar and high raw material prices. “Aggressive cost saving strategies” (as stated in the F&P Appliances 2006 annual report) are currently being implemented to ease this pressure. We have projected EBIT margins of 9% for 2007 and 8% for 2008 and 2009. This is slightly higher than the margins currently seen at Whirlpool of around 6%. However, historically, F&P have operated at higher margins than Whirlpool.

Terminal Growth

Terminal growth has been set at 3%.

Discount Rate (WACC)

A discount rate of 10.1% has been applied (sourced from the PwC Cost of Capital Report).

FP Appliances Valuation

Valuecruncher’s mid-point valuation for Qantas is $4.27 per share, with a range between $2.54 and $6.10. The current share price of $5.20 falls within the higher end of the Valuecruncher range.

Revenue Growth

Revenue growth has been declining since 2004 with growth being 10.66% in the 04/05 period and 8.61% in the 05/06 period. We have forecasted growth to be 8%, 7%, and 6% for the next three periods, heading towards terminal growth of 3%.

EBIT Margin

EBIT margins have also been falling since 2004 (9.67%, 8.07%, and 5.32% for 04, 05, and 06, respectively). The projected EBIT margins are 5% for 07 and 08, and 7% in 09. This follows forecasts made in the 2006 Qantas Annual Report, stating that EBIT margins are unlikely to improve in the next two years due to rising fuel costs, but as more efficient operating strategies are put in place, an improvement in margins may be seen after the next two years.

Discount Rate (WACC)

The discount rate used in the analysis is 10.5%, the cost of capital stated in Qantas’ Annual Report.

Commentary

The Qantas share price has recently jumped up to around $5.00 due to an announcement of a possible buyout by Macquarie Bank and Texas Pacific Group, a private equity firm (from a share price pre-announcement of ~$4.20). The mid-point valuation calculated by Valuecruncher is based on Qantas’ current business plan, and is in line with the value of the shares pre-announcement. Analysts have suggested that Qantas should be looking to fetch over $5.50 per share in the event of a buyout.  Valuecruncher will watch with interest if details of how additional value will be created by the buy-out group are released.  Texas Pacific Group has a track record of success with airlines (not many can claim that) and what a higher value business plan for Qantas might look like has ramifications for airlines across the globe, but especially Air New Zealand.

Qantas Valuation

Valuecruncher has placed a value of $1.67 on Air New Zealand shares with a range between $0.88 and $2.51. This is slightly lower than the current share price of $1.74.

Revenue Growth

Revenue growth for Air New Zealand has been improving since 2003, recovering from -3.29% growth in the 03/04 period to growth of 4.59% in the 05/06 period. We assume that growth will continue to increase due to the introduction of new aircraft, an upgrade on existing aircraft, and the introduction of new short-haul flights. We forecast the growth rates to be 6%, 7%, and 8% for the next three periods, heading towards the growth currently seen in Qantas, the comparator.

EBIT Margin

The EBIT margin has declined since 2004 from 6.72% to 3.90% in 2006. In the 2006 analyst call it was stated that fuel prices were the main determinant in the profitability of the company, and with fuel prices only rising, it is unlikely that EBIT margins will improve by much in the near future even if cost saving strategies are put in place. We have estimate EBIT margins to be 4% for the next three years.

Terminal Growth

Terminal growth is assumed to be 3%.

Discount Rate (WACC)

The discount rate used is 11.7% (from the PwC cost of capital report).

Additional Note – The enterprise value of a company is the total market value of equity plus net debt. Net debt is equal to long-term liabilities minus any cash and/or short-term investments. In this analysis, the long-term liabilities not only included long-term borrowing, but also long-term finance lease liabilities.

Air NZ Valuation

Valuecruncher has placed a value of $5.74 per share of Sky TV, with a range of $4.40 to $7.21. The current share price of $5.91 falls marginally outside the mid-point valuation.

Revenue Growth

Revenue growth has been very stable over the past 3 financial periods (12.61%, 11.7%, and 11.5% in the 03/04, 04/05, and 05/06 periods, respectively). However, with Sky TV already present in 42% of households in New Zealand, we have forecasted growth to steadily decline from 11% in the 06/07 period to 9% in the 08/09 period, heading towards terminal growth of 3%.

EBIT Margin

EBIT margins have been rapidly increasing from a low of 7.3% in 2003 to 25.8% in 2006. We have forecasted EBIT margins of 30% for 2007, and 35% for 2008 and 2009 as there is no indication that EBIT growth will stop growing in the next few years. These high margins can be attributed to the continually increasing number of subscribers, but, perhaps more importantly, the decline in churn (the number of people that disconnect from the service). In 2006 churn was at an all time low of 13.6%, down from 15.8% in 2005.

Discount Rate (WACC)

The discount rate used in the analysis is 10% (Sky TV 2006 Annual Report calculates WACC at 9.7%).

Sky TV Valuation

Valuecruncher has placed a value on Blue Sky Meats (NZ) Ltd. of $2.24 per share, with a range of $1.47 to $3.05.  The current value of $2.50 lies very close to the mid-point valuation in our analysis.

The key assumptions that have been used in this analysis reflect static, but stable, market conditions for the next three years.

Revenues Growth

Due to the current dynamics of the industry at the moment, it is hard to see much improvement in revenues growth. The revenues growth for Blue Sky Meats has been 8.5%, -13.8% and 1.17% in the 03/04, 04/05, and 05/06 periods.  We have forecasted the growth to be approximately 3% for the next three years, similar to the growth seen by the comparator AFFCO Holdings (5.4% and 2.42% revenue growth for the 03/04 and 04/05 periods).

EBIT Margins

The EBIT margin of Blue Sky has been declining since 2003, with margins of 7.60%, 6.00%, 7.16% and 2.88% in 03, 04, 05, and 06, respectively. Reasons that can be attributed to this are the high New Zealand Dollar and increase in fuel prices, resulting in historically unfavourable trading conditions. The EBIT margin used in the analysis is 3%, closer to the EBIT margin of AFFCO Holdings. Due to the unusually low EBIT margin the share price is very sensitive to even the smallest changes in the EBIT margin.

Discount Rate (WACC)

The discount rate is assumed to be is 11%. The PwC Cost of Capital Report states that the WACC for AFFCO Holdings is 12.5%. The agriculture industry average is given as 9.6%. We have taken the average of these two figures.

Terminal Growth

The terminal growth is also assumed to be 3%.

Blue Sky Meats Valuation