It is the beginning of a new year. Here in New Zealand an annual tradition is the media reporting of brokers views of the top stocks for the coming year. Here is one of the lists. We were not i

nvited to participate this year – maybe next year. We decided to put out our list of our most undervalued and most overvalued NZX stocks – based on valuations done on the Valuecruncher blog. Unlike the lists in the media – our list includes our assumptions.

Valuecruncher Five Most Undervalued (Cheap)

1. Air New Zealand – +34.78%

2. Michael Hill – +31.34%

3. Sky TV – +31.22%

4. Nuplex – +26.19%

5. Rakon – +24.00%

Valuecruncher Five Most Overvalued (Expensive)

1. Mainfreight – -8.84%

2. Auckland International Airport – -7.65%

3. Fletcher Building – -7.29%

4. F&P Healthcare – -6.45%

5. Steel & Tube – -5.56%

Our valuations have been completed since early October 2008. The percentage over or under valuation was based on the share price at the time the valuation was completed. The Valuecruncher interactive model allows you to play with our assumptions. If you disagree with our analysis – change our assumptions and tell us what you think.

Comparing our list with the traditional brokers. Four of the six brokers list Sky TV – which is one of our picks as most undervalued. But also three of the six list F&P Healthcare – while we have it as one of our most overvalued.

We will revisit these valuations as the year progresses.

Disclosure: None

Fisher & Paykel Healthcare ($FPH.NZ) is a New Zealand designer, manufacturer and marketer of health products and systems specialising in respiratory care.  $FPH.NZ recently announced 2009 financial performance could benefit from the falling New Zealand dollar.  The current share price is NZ$3.10.  How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $FPH.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$2.90 for $FPH.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 6.45% below the current share price of NZ$3.10.

Assumptions

• Revenue: Reuters aggregates nine analysts covering $FPH.NZ and these analysts have mean estimates of 2009 and 2010 revenues of NZ$421.7 million and NZ$522.2 million respectively. For our analysis we have used NZ$425.0 million in 2009, NZ$530.0 million in 2010 and NZ$610.0 million in 2011.
• Profitability: We have used an EBITDA margin of 25% in 2009 rising to 27% in 2011. Reuters has $FPH.NZ‘s EBITD margin at 20.6% last year and an average of 30.7% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$21.0 million in 2009 rising to NZ$30.0 million in 2011 then NZ$25.0 million moving forward.
• Discount Rate: 10.0%. The PwC New Zealand cost of capital report has $FPH.NZ at a WACC of 9.7% with the wider NZ market at 9.5%.
• Terminal Growth Rate: 4.25%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Valuecruncher places a value of $3.58 on each F&P Healthcare share with a range of $2.92 to $4.30. The current share price is $4.27.

Revenue Growth

Revenue growth has been increasing rapidly from 3.09% in the 03/04 period to 20.36% in the 05/06 period. We have forecasted growth to increase to 30% for the next period, and then decrease to 25% and 20% in the 07/08 and 08/09 periods.

EBIT Margins

EBIT margins have been hovering around 36% for the past four years, ranging between 35.45% and 37.31%. We have forecasted EBIT margins to remain stable at 36% for the next three years.

Terminal Growth

Terminal growth is assumed to be 3%.

Discount Rate (WACC)

The discount rate applied is 10.8% (as stated in the PwC Cost of Capital Report).

Commentary

The current share price of $4.27 is 20% higher than Valuecruncher’s mid-point estimate. Valuecruncher is valuing F&P Healthcare based on their current cash flows. The higher share price reflects investors’ views that there may be valuable options beyond current cash flows available for F&P Healthcare.

FP Heathcare Valuation