Running The Numbers – Michael Hill International ($MHI.NZ)
Michael Hill International ($MHI.NZ) is a New Zealand listed jewelry retailer and manufacturer. $MHI.NZ has existing operations in New Zealand, Australia and Canada. $MHI.NZ has recently moved into the US-market. The company’s founder Michael Hill was last week named New Zealand’s 2008 entrepreneur of the year. $MHI.NZ is trading toward the bottom of their 52-week range – $MHI.NZ did a 10:1 stock split in November 2007. How is this in relation to the intrinsic value of the company’s shares?
Valuecruncher valuation model of $MHI.NZ with interactive assumptions
Valuecruncher produces a valuation of NZ$0.88 for $MHI.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 33.3% above the current share price of NZ$0.66.
Assumptions
- Revenue: Reuters aggregates three analysts covering $MHI.NZ and the mean estimates of 2009 revenues are NZ$412.2 million. For our analysis we have used NZ$410.0 million in 2009, NZ$440.0 million in 2010 and NZ$480.0 million in 2011.
- Profitability: We have used a flat EBITDA margin of 12.0% to 2011. Reuters has $MHI.NZ‘s EBITD margin at 13.5% last year and an average of 12.1% over the last five-years.
- Capital Expenditure: We have assumed capital expenditures of NZ$16.0 million per annum moving forward.
- Discount Rate: 10.0%. The PwC New Zealand cost of capital report has $MHI.NZ at a WACC of 7.8% with the wider NZ market at 9.5%. We believe a discount rate in the 8-10% range is appropriate. We have chosen the top of this range to reflect the more difficult current retail trading environment.
- Terminal Growth Rate: 3.0%.
Our analysis incorporates the cash and debt on the $MHI.NZ balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?
Disclosure: None
Tags: MHI