Running The Numbers – Telecom New Zealand (TEL.NZ)
New Zealand’s largest company Telecom New Zealand (TEL.NZ) closed yesterday at NZ$2.23 – TEL.NZ’s lowest closing price since the early 1990’s. We decided to have a look at TEL.NZ with the Valuecruncher interactive tool to place an estimate on the intrinsic value of the company using a discounted cash flow valuation.
Valuecruncher valuation model of TEL.NZ with interactive assumptions
Valuecruncher produces a valuation of NZ$2.41 for TEL.NZ. This is a current valuation (an estimate of intrinsic value) not a target price. This valuation is 8.1% above the current share price of NZ$2.23.
Assumptions
In 2008 (June balance date) TEL.NZ had revenues of NZ$5.673 billion and an EBITD margin (profits) of 32.15%. Reuters aggregates 10 analysts covering TEL.NZ and these have mean estimates of 2009 and 2010 revenues of NZ$5.668 and NZ$5.652 billion respectively. For this analysis we have used revenues of NZ$5.65 billion in 2009, NZ$5.65 billion in 2010 and NZ$5.70 billion in 2011. We have forecast EBITDA margins falling from 31.5% in 2009 to 30.5% in 2011. We have estimated capital expenditure of NZ$1.25 billion in 2009 to a long-term (terminal) number of NZ$1.05 billion. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.
Other Model Assumptions:
Discount Rate: 9.5%. PwC in their New Zealand cost of capital report calculates TEL.NZ WACC at 9.6%.
Terminal Growth Rate: 2.0%. The New Zealand economy has grown at an average rate of 2.6% over the last five-years. We see TEL.NZ growing more slowly than the New Zealand economy moving forward.
Our analysis incorporates the cash and debt on the TEL.NZ balance sheet – Valuecruncher calculates a net debt number.
Based on our analysis and assumptions the current share price looks a slight discount to intrinsic value. Play with our assumptions – what does your analysis say?
Disclosure: None
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