Valuecruncher has placed a value of $0.36 on each AFFCO share, with a range between $0.21 and $0.52. The current share price is $0.37.
With progressively tougher trading conditions and the restructuring of AFFCO over the last few years, revenue growth has continued to slide, decreasing from 5.35% in the 03/04 period to -1.05% in the 05/06 period. For these reasons, it is hard to see any significant improvement in revenue growth over the next few years. Due to the current stagnant nature of the industry, we have forecasted growth to be 1% for the 06/07 period, and 2% for the 07/08 and 08/09 periods.
EBIT margins have been fairly unstable over the past few years at 2.62%, 6.40%, 2.48% and 1.89% from 2003 to 2006, respectively. We have assumed EBIT margins to be 2.5%, in line with the margins seen in 2003 and 2005 where ‘normal’ trading conditions occurred.
Terminal growth is projected to be 3%. We expect that AFFCO will improve its growth once the major restructuring has completed even though revenue growth at the moment is lower than the projected long-term growth.
Discount Rate (WACC)
The discount rate has been set at 12.5% (as stated in the PwC Cost of Capital Report).