Contact Energy (CEN.NZ) is a New Zealand electricity generating and retailing company.  CEN.NZ is New Zealand’s second largest listed company (by market capitalisation).  CEN.NZ is currently undertaking a NZ$3 billion capital expenditure programme.  We decided to have a look at CEN.NZ with the Valuecruncher interactive tool to place an estimate on the intrinsic value of the company using a discounted cash flow valuation.

Valuecruncher valuation model of CEN.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$6.93 for CEN.NZ.  This is a current valuation (an estimate of intrinsic value) not a target price.  This valuation is 1.84% below the current share price of NZ$7.07.

Assumptions

In 2008 (June balance date) CEN.NZ had revenues of NZ$2.76 billion and an EBITD margin (profits) of 20.2%.  Reuters aggregates seven analysts covering CEN.NZ and these have mean estimates of 2009 revenues of NZ$2.487 billion.  For this analysis we have used revenues of NZ$2.485 billion in 2009, NZ$2.565 billion in 2010 and NZ$2.760 billion in 2011.  We have forecast EBITDA margins rising from 24% in 2009 to 26% in 2011.  We have estimated capital expenditure of NZ$600 million in 2009 and NZ$700 million in 2010 then dropping to NZ$475 million in 2011 and NZ$250 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: 10%.  PwC in their New Zealand cost of capital report calculates CEN.NZ WACC at 10.4%.

Terminal Growth Rate: 4.5%.  The New Zealand economy has grown at an average rate of 2.6% over the last five-years.  We see CEN.NZ growing more quickly than the New Zealand economy moving forward.

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

Based on our analysis and assumptions the current share price looks a slight premium to intrinsic value.  Play with our assumptions – what does your analysis say?

Disclosure: None

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