“We must ensure that our customer service is outstanding, that the cost of capital and exposure gained for our New Zealand companies remain equal to, or better than, anything offered by any overseas exchange, and that participation continues to grow. With a recent Goldman Sachs JBWere analyst report stating that “30% of the 80%capital appreciation (on NZX over the last 3.5 years) is due to a lower risk premium, and with the valuations for NZX listed companies well above the global mean, the conditions for new companies to list are strong across the board”.” NZX Annual Report 2006
http://www.nzx.com/aboutus/publications/

Valuecruncher has performed some sensitivity analysis on the impact of WACC on the valuation. Using a WACC of 11% produces a mid-point valuation of $9.15, this is consistent with the current market price.

 NZX share price closed on 13 March 07 at $9.05.

Valuecruncher does not believe the uncertainty surrounding the forecast revenue and EBIT growth can justify using a WACC of 9.8% (PWC Cost of Capital Report). In a detailed valuation exercise a potential methodology would be to value the NZX’s revenue streams individually with the appropriate WACC. This methodology would allow the valuation to differentiate between the variability of individual opportunities. This detailed approach would require an additional level of information to that contained in the public domain (i.e. annual reports).

Valuecruncher stands by it’s original assumption of a 12% WACC but can appreciate the arguments for a lower value to be used. What the sensitivity analysis does highlight is the impact on the cost of capital assumption on the valuation.