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