Valuecruncher places a value of $7.53 on each Mainfreight share with a valuation range between $5.16 and $10.10. The current share price sits at $8.00.

Key Assumptions

Revenue Growth

Revenue growth has declined rapidly in the last three periods dropping from 58.05% in the 03/04 period to 3.44% in the 05/06 period. We have forecasted revenue growth to rise again as Mainfreight establishes itself in the US market. Our forecast is for revenues to grow by 7.5% in the 06/07 period and 10% in the 07/08 and 08/09 periods.

EBIT Margin

EBIT margins have increased steadily from 2.41% in 2004 to 5.73% in 2006. Because there is no indication that EBIT margins will decrease, we have forecasted these to continue to grow to 7%, 8.5% and 10% in the next three years.

Discount Rate (WACC)

The discount rate as applied is 13.6% (sourced from the September issue of the PwC Cost of Capital report).

Terminal Growth

Terminal growth is assumed to be 3%.

Commentary

The Valuecruncher valuation falls within a very wide range of values that have currently been forecasted by other market analysts. These forecasts range between $6.85 and $9.00 (http://www.stuff.co.nz/3887023a1865.html). We believe that the current share price may be slightly over valued due to Mainfreight’s exceptional performance over the past 18 months, and that the market is, perhaps, speculating on prolonged high performance from the stock. We believe that revenue growth will continue to grow at a steady rate for the next three years and that EBIT margins will increase. The reasons for these assumptions are due to an increase in Mainfreight’s operations in the United States whilst keeping operations in New Zealand.

Mainfreight Valuation