Mainfreight Limited ($MFT.NZ) is a global supply chain logistics provider (a freight company). At Valuecruncher we have previously looked at competitor Freightways ($FRE.NZ). $MFT.NZ is trading toward their 52-week low. How is this in relation to the intrinsic value of the company’s shares?
Valuecruncher produces a valuation of NZ$4.33 for $MFT.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 9.8% below the current share price of NZ$4.80.
- Revenue: Reuters aggregates six analysts covering $MFT.NZ and the mean estimates of 2009 and 2010 revenues are NZ$1.23 billion and NZ$1.36 billion respectively. For our analysis we have used NZ$1.20 billion in 2009, NZ$1.35 billion in 2010 and NZ$1.45 billion in 2011.
- Profitability: We have used an EBITDA margin of 6.5% in 2009 and 2010 rising to 7.0% in 2011. Reuters has $MFT.NZ‘s EBITD margin at 7.0% last year and an average of 6.6% over the last five-years.
- Capital Expenditure: We have assumed capital expenditures of NZ$35.0 million in 2009 then NZ$30.0 million per annum moving forward.
- Discount Rate: 11.0%. The PwC New Zealand cost of capital report lists $MFT.NZ at 12.6% with the wider market at 9.5%. We believe a discount rate in the 10-12% range is appropriate. We have chosen the middle of this range.
- Terminal Growth Rate: 3.0%. The New Zealand economy has grown at an average rate of 2.6% over the last five-years.
Our analysis incorporates the cash and debt on the $MFT.NZ balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?