Running The Numbers – Steel & Tube (STU.NZ)
On Friday Australian steelmaker OneSteel terminated their offer for the 49.73% of Steel & Tube Holdings (STU.NZ) that did not already own. The NZ$4.00 a share offer was withdrawn citing the current increased market volatility. The withdrawal of the offer has dropped the STU.NZ share price NZ$0.80 to NZ$2.80. We decided to have a look at STU.NZ with the Valuecruncher interactive tool to place an estimate on the intrinsic value of the company using a discounted cash flow valuation. The objective was to look at the current share price and to determine if the OneSteel offer was fair.
Valuecruncher valuation model of STU.NZ with interactive assumptions
Valuecruncher produces a valuation of NZ$3.40 for STU.NZ. This is a current valuation (an estimate of intrinsic value) not a target price. This valuation is 21.4% above the current share price of NZ$2.80 and 15.0% below the OneSteel offer price of NZ$4.00.
Assumptions
In 2008 (June balance date) STU.NZ had revenues of NZ$503.8 million and an EBITD margin (profits) of 9% (with a five-year average of 12%). Reuters aggregates seven analysts covering STU.NZ and these have mean estimates of 2009 revenues of NZ$504 million. For this analysis we have used revenues of NZ$500 million in 2009, NZ$525 million in 2010 and NZ$550million in 2011. We have forecast EBITDA margins flat at 10% to 2011. We have estimated capital expenditure flat at NZ$8.5 million moving forward. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.
Other Model Assumptions:
Discount Rate: 11%. PwC in their New Zealand cost of capital report calculates STU.NZ WACC at 11.4%.
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 STU.NZ growing broadly in-line moving forward.
Our analysis incorporates the cash and debt on the STU.NZ balance sheet – Valuecruncher calculates a net debt number.
Based on our analysis and assumptions the current share price looks a discount to intrinsic value. In our view the OneSteel offer at NZ$4.00 a share looks very fair. STU.NZ shareholders should be hoping that the offer is revived in the future. Play with our assumptions – what does your analysis say?
Disclosure: None
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