Sumner Redstone is the majority owner of Viacom ($VIA).  Last month Redstone sold US$233 million of $VIA shares.  $VIA appears to be well and truly caught in the current negotiations between Redstone family interests and creditors.  What does this mean for the current valuation of $VIA?  We decided to have a look at the intrinsic value of $VIA.  The ongoing negotiations between Redstone family interests and creditors will impact the stock – but does this present a longer-term opportunity if this situation artificially depresses the share price in the near term?

Valuecruncher valuation model of $VIA with interactive assumptions

Valuecruncher produces a valuation of US$21.22 for $VIA. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 34.5% above the current share price of US$15.78.

Assumptions

• Revenue: Reuters aggregates 17 analysts covering $VIA and these produce mean estimates of 2008 and 2009 revenues of US$14.8 billion and US$15.4 billion respectively. For our analysis we have used US$14.5 billion in 2008, US$14.75 billion in 2009 and US$15.0 billion in 2010.
• Profitability: We have used a flat EBITDA margin of 22.5% to 2010.   Reuters has $VIA’s EBITD margin at 53.7% last year (which looks an anomaly) and averaging 27.8% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of US$300.0 million in 2008 then US$250.0 million per annum moving forward.
• Discount Rate: 11.0%.
• Terminal Growth Rate: 1%.

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

$VIA’s intrinsic value appears to be higher than the current share price.  The various negotiations between the Redstone family interest and creditors will likely impact the stock in the near term.  But if you believe that the company will progress beyond those then the current price represents an opportunity.

Play with our assumptions – what does your analysis say?

Disclosure: None

Fairfax Media ($FXJ.ASX) is an ASX-listed media company. $FXJ.ASX has extensive operat

ions in both the Australian and New Zealand markets. $FXJ.ASX is trading toward the bottom of their 52-week range. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $FXJ.ASX with interactive assumptions

Valuecruncher produces a valuation of A$1.68 for $FXJ.ASX. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 20.0% above the current share price of A$1.40. All of the figures below are in Australian dollars (A$).

Assumptions

• Revenue: Reuters aggregates nine analysts covering $FXJ.ASX and the mean estimates of 2009 and 2010 revenues are A$2.94 billion and A$3.08 billion respectively. For our analysis we have used A$2.85 billion in 2009, A$2.90 billion in 2010 and A$3.0 billion in 2011.
• Profitability: We have used an EBITDA margin of 25.0% in 2009 rising to 26.0% in 2011. Reuters has $FXJ.ASX‘s EBITD margin at 28.5% last year and averaging 26.4% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of A$120.0 million per annum moving forward.
• Discount Rate: 11.0%. We believe a discount rate in the 10-12% range is appropriate. We have chosen the middle of this range.
• Terminal Growth Rate: 1.0%.

Our analysis incorporates the cash and debt on the $FXJ.ASX balance sheet – Valuecruncher calculates a net debt number.

Play with our assumptions – what does your analysis say?

Disclosure: None

We have had a good response to our first Stock Of The Week.

Rakon ($RAK.NZ) has has had a torrid time. $RAK.NZ has been as high as NZ$4.22 in the last year and at NZ$1.03 i

s just above the 52-week low of NZ$1.00 from yesterday.

In late October Valuecruncher put a valuation of NZ$1.99 on $RAK.NZ with the share price at NZ$1.82. With $RAK.NZ now trading 43% below that share price – it was time to revisit the valuation.

In asking you what you thought – we got some really interesting responses. We had valuations ranging from NZ$3.61 to NZ$0.92.

It appears the reason that the price of $RAK.NZ dropped so sharply was the realease of the latest half-year results and guidance on expected future results. This presentation (especially slide 3) gives a good summary of how $RAK.NZ views the near future. This is worse than most comentators expected.

Factoring in this information – what did your analysis say?

Revenue: Our original valuation had revenues rising from NZ$210 million in 2009 to NZ$315 million in 2011. The view from the valuations this week is that looks overly optimistic now. Sam had revenues rising from NZ$160 million in 2009 to NZ$225 million in 2011. Isambard had revenues rising from NZ$140 million in 2009 to NZ$200 million in 2011. Jamess (with the NZ$3.61 valuation) had revenues of NZ$169 million in 2009 rising to NZ$240 million in 2011.

Our Revised Take: Revenues rising from NZ$155 million in 2009 to NZ$225 million in 2011. Interestingly Reuters has the five analysts covering $RAK.NZ giving mean estimates of 2009 and 2010 revenues of NZ$201 million and NZ$257 million respectively (with a low estimate of 2009 of NZ$175 million). You are more pessimistic – and so are we.

Profitability: Our original valuation assumed a flat 15% EBITDA margin. Hmmm – probably not looking at the latest information. We had a range of opinions on profitability (EBITDA margin). Isambard was negative in 2009 rising to 15% in 2011. Tiger was 12% in 2009 rising to 18% in 2011. Sam was 8% in 2009 rising to 12% in 2011.

Our Revised Take: A wide range to consider there. We think 2009 is going to look pretty rough (not negative) but something like an 8% EBITDA margin. 2010 is going to be better at around 11% . This will rise to around 14% in 2011 – still not the 15% we previously projected.

Discount Rate: We have done a post explaining about discount rates and it is a good place to start when thinking about them. PWC issues a cost of capital report for New Zealand that lists discount rates (in the form of WACC). PWC calculates the NZ market WACC at 9.5% – and that feels “about right”. You would expect to see WACC’s (discount rates) as low as 7% for an energy utility and as high as 15% for a research/intellectual property company like Genesis ($GEN.NZ). Within that range – where do you put $RAK.NZ? We used 11% with our previous valuation. Sam uses 12%.

Our Revised Take: 12%. As the post says – “a combination of science and art“.

Terminal Growth Rate: Again we have a post on terminal growth rates. It is a hard concept to get your head around – beyond year three what sort of growth should we be forecasting? The terminal growth post has the following table that is a good guide:

If we calculate the year three growth (using revenues) – in our case: NZ$190 million growing to NZ$225 million. That is a year three growth rate of 18.4%. We need to extend the table – but assuming we use 15% year three growth and assume that the stable on-going growth rate for $RAK.NZ is 4% (assuming the company will long-term grow faster than the New Zealand economy – that averaged 2.6% over the last five-years). This gives a terminal growth rate of 5.0%.

Our Revised Take: 5.0%.

If we bring all of these revised assumptions together we get a new valuation for $RAK.NZ of NZ$1.24 – 24% above the 52-week low of NZ$1.00.

Updated Valuecruncher valuation model of $RAK.NZ with interactive assumptions

$RAK.NZ are already reacting to their challenging situation.

Thank you for your analysis.

Goodman Fielder ($GFF.NZ) is an ASX and cheap priligy online