Fletcher Building (FBU.NZ) is New Zealand’s second largest company by market capitalisation. The company is a building materials manufacturer and distributor. FBU.NZ is trading at close to a 52-week low of NZ$6.20. Time to run some numbers.

Valuecruncher valuation model of FBU.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$7.24 for FBU.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 16.8% above the current share price of NZ$6.20.

Assumptions

• Revenue: Reuters aggregates nine analysts covering FBU.NZ and these analysts have mean estimates of 2009 revenues of NZ$7.1 billion. For our analysis we have used NZ$7.0 billion in 2009, NZ$7.25 billion in 2010 and NZ$7.5 billion in 2011.
• Profitability: We have used an EBITDA margin of 12% in 2009 and 2010 rising to 13% in 2011. Reuters has FBU.NZ‘s EBITD margin at 13.02% last year and 14.15% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$250.0 million flat moving forward.
• Discount Rate: 12.0%. The PwC New Zealand cost of capital report has FBU.NZ at a WACC of 13.4% with the wider NZ market at 9.5%. We feel that 13.4% is too high. We believe there is an argument for a discount rate anywhere in the 9-12% range for FBU.NZ.
• Terminal Growth Rate: 3.0%. The New Zealand economy has grown at an average rate of 2.6% over the last five-years. We see FBU.NZ growing broadly in-line with this moving forward.

Our analysis incorporates the cash and debt the FBU.NZ balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None

Tags: FBU, NZX

This entry was posted on Wednesday, October 22nd, 2008 at 6:36 am and is filed under Fletcher Building, NZX. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.