We have had a good response to our first Stock Of The Week.

Rakon ($RAK.NZ) has has had a torrid time. $RAK.NZ has been as high as NZ$4.22 in the last year and at NZ$1.03 is just above the 52-week low of NZ$1.00 from yesterday.

In late October Valuecruncher put a valuation of NZ$1.99 on $RAK.NZ with the share price at NZ$1.82. With $RAK.NZ now trading 43% below that share price - it was time to revisit the valuation.

In asking you what you thought - we got some really interesting responses. We had valuations ranging from NZ$3.61 to NZ$0.92.

It appears the reason that the price of $RAK.NZ dropped so sharply was the realease of the latest half-year results and guidance on expected future results. This presentation (especially slide 3) gives a good summary of how $RAK.NZ views the near future. This is worse than most comentators expected.

Factoring in this information - what did your analysis say?

Revenue: Our original valuation had revenues rising from NZ$210 million in 2009 to NZ$315 million in 2011. The view from the valuations this week is that looks overly optimistic now. Sam had revenues rising from NZ$160 million in 2009 to NZ$225 million in 2011. Isambard had revenues rising from NZ$140 million in 2009 to NZ$200 million in 2011. Jamess (with the NZ$3.61 valuation) had revenues of NZ$169 million in 2009 rising to NZ$240 million in 2011.

Our Revised Take: Revenues rising from NZ$155 million in 2009 to NZ$225 million in 2011. Interestingly Reuters has the five analysts covering $RAK.NZ giving mean estimates of 2009 and 2010 revenues of NZ$201 million and NZ$257 million respectively (with a low estimate of 2009 of NZ$175 million). You are more pessimistic - and so are we.

Profitability: Our original valuation assumed a flat 15% EBITDA margin. Hmmm - probably not looking at the latest information. We had a range of opinions on profitability (EBITDA margin). Isambard was negative in 2009 rising to 15% in 2011. Tiger was 12% in 2009 rising to 18% in 2011. Sam was 8% in 2009 rising to 12% in 2011.

Our Revised Take: A wide range to consider there. We think 2009 is going to look pretty rough (not negative) but something like an 8% EBITDA margin. 2010 is going to be better at around 11% . This will rise to around 14% in 2011 - still not the 15% we previously projected.

Discount Rate: We have done a post explaining about discount rates and it is a good place to start when thinking about them. PWC issues a cost of capital report for New Zealand that lists discount rates (in the form of WACC). PWC calculates the NZ market WACC at 9.5% - and that feels “about right”. You would expect to see WACC’s (discount rates) as low as 7% for an energy utility and as high as 15% for a research/intellectual property company like Genesis ($GEN.NZ). Within that range - where do you put $RAK.NZ? We used 11% with our previous valuation. Sam uses 12%.

Our Revised Take: 12%. As the post says - “a combination of science and art“.

Terminal Growth Rate: Again we have a post on terminal growth rates. It is a hard concept to get your head around - beyond year three what sort of growth should we be forecasting? The terminal growth post has the following table that is a good guide:

If we calculate the year three growth (using revenues) - in our case: NZ$190 million growing to NZ$225 million. That is a year three growth rate of 18.4%. We need to extend the table - but assuming we use 15% year three growth and assume that the stable on-going growth rate for $RAK.NZ is 4% (assuming the company will long-term grow faster than the New Zealand economy - that averaged 2.6% over the last five-years). This gives a terminal growth rate of 5.0%.

Our Revised Take: 5.0%.

If we bring all of these revised assumptions together we get a new valuation for $RAK.NZ of NZ$1.24 - 24% above the 52-week low of NZ$1.00.

Updated Valuecruncher valuation model of $RAK.NZ with interactive assumptions

$RAK.NZ are already reacting to their challenging situation.

Thank you for your analysis.

Goodman Fielder ($GFF.NZ) is an ASX and NZX listed manufacturer and supplier of consumer food products. $GFF.NZ is trading toward the bottom of their 52-week range. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $GFF.NZ with interactive assumptions

Valuecruncher produces a valuation of A$1.71 for $GFF.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 11.0% above the current share price of A$1.54. All of the figures below are in Australian dollars (A$).

Assumptions

• Revenue: Reuters aggregates seven analysts covering $GFF.NZ and the mean estimates of 2009 revenues are A$2.77 billion. For our analysis we have used A$2.75 billion in 2009, A$2.85 billion in 2010 and A$3.0 billion in 2011.
• Profitability: We have used an EBITDA margin of 14.5% in 2009 rising to 15.5% in 2011. Reuters don’t list an EBITD margin for $GFF.NZ.
• Capital Expenditure: We have assumed capital expenditures of A$90.0 million in 2009, A$120 million in 2010, A$85 million in 2011 and then A$75 million per annum moving forward.
• Discount Rate: 9.0%. The PwC New Zealand cost of capital report does not list $GFF.NZ but has the wider New Zealand market at 9.5%. We believe a discount rate in the 8-10% range is appropriate. We have chosen the middle of this range.
• Terminal Growth Rate: 1.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Skellerup Holdings ($SKL.NZ) is a New Zealand company that develops and distributes technical polymer products for a variety of specialist industrial and agricultural applications. $SKL.NZ closed today at their 52-week low. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $SKL.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$0.89 for $SKL.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 17.1% above the current share price of NZ$0.76.

Assumptions

• Revenue: Reuters aggregates four analysts covering $SKL.NZ and the mean estimate of 2009 revenues is NZ$193.3 million. For our analysis we have used NZ$190.0 million in 2009, NZ$205.0 million in 2010 and NZ$215.0 million in 2011.
• Profitability: We have used an EBITDA margin of 14.0% in 2009 rising to 15% in 2011. Reuters has $SKL.NZ‘s EBITD margin at 16.5% last year and an average of 15.1% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$7.5 million per annum moving forward.
• Discount Rate: 11.0%. The PwC New Zealand cost of capital report does not list $SKL.NZ but has 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: 2.5%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

This week we want to try something new. We want to put some analysis in your hands this week. We are going to try a new feature on the blog - “Stock Of The Week“.

This is how it will work. We are going to identify a stock on Monday (today), provide some information around that stock (but not a valuation) and ask the readers of this blog to complete valuations of the company (using the Valuecruncher valuation tool). On Friday we will look at all the valuations completed for the company and provide our take on the valuation of the company.

Remember - you can be completely anonymous with the analysis. We won’t be making fun of any valuations - we want to hear what people think. We are keen to tap the wisdom of the crowd.

If you are looking for a quick tutorial on how to complete a valuation - here is an example using Microsoft.

Stock Of The Week

We have decided to start with a New Zealand stock this week. Rakon ($RAK.NZ) is a New Zealand-based designer and manufacturer of high-performance frequency control technology. Valuecruncher completed a valuation of the company at the end of October.

Since we completed our valuation the stock has dropped 39% on the back of rough financial results and guidance on future potential financial performance. We thought it was time to get some thoughts from you on what could happen next - and what that means for valuation.

Resources To Assist

Our valuation from the end of October is a good starting point. It gives a view of $RAK.NZ using information from analysts at that time. It is a solid starting point for inputs like discount rates, terminal growth rates and tax. Since that valuation $RAK.NZ has released information about their last six-months of performance and expectations moving forward. This presentation (especially slide 3) gives a good summary of where the company is at today. Some of this information could certainly feed into a new valuation. Finally here is the media take on the $RAK result.

So what do you think? Does the current share price of NZ$1.11 mean the shares look overvalued, undervalued or about right? Complete a valuation - and write some comments on your assumptions. At the end of this week we will review the view of the crowd and add our take.

As always the starting point is the $RAK.NZ company page - Here.

Methven ($MVN.NZ) is a New Zealand company that designs and supplies taps and shower-ware.  $MVN.NZ is trading toward the bottom of their 52-week range. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $MVN.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$1.68 for $MVN.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 18.3% above the current share price of NZ$1.42.

Assumptions

• Revenue: Reuters aggregates four analysts covering $MVN.NZ and the mean estimates of 2009 and 2010 revenues are NZ$142.1 million and NZ$149.8 million respectively. For our analysis we have used NZ$140.0 million in 2009, NZ$145.0 million in 2010 and NZ$150.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 14.0% to 2011. Reuters don’t list an EBITD margin for $MVN.NZ.
• Capital Expenditure: We have assumed capital expenditures of NZ$4.0 million per annum moving forward.
• Discount Rate: 11.0%. The PwC New Zealand cost of capital report does not list $MVN.NZ but has 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%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Valuecruncher recently completed a valuation of Fletcher Building ($FBU.NZ). Since then the company has announced reduced earnings expectations for the 2009 financial year.

When Valuecruncher completed our valuation the $FBU.NZ was trading at NZ$6.20 - and we produced a valuation of NZ$7.24. Today $FBU.NZ closed at NZ$5.56.

With the additional guidance we decided to revisit our valuation.

We kept all our previous assumptions constant but revised our profitability assumptions. Reuters has $FBU.NZ’s EBITD margin at 13.0% last year and an average of 14.2% for the last five-years.

For our analysis we have lowered our 2009 EBITDA margin to 9.0% with 2010 at 11.0% and 2011 at 12.0%.

Revised Valuecruncher valuation model of FBU.NZ with interactive assumptions

This adjustment produces a valuation of NZ$5.98 - 7.6% above the current share price of NZ$5.56.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Michael Hill International ($MHI.NZ) is a New Zealand listed jewelry retailer and manufacturer. $MHI.NZ has existing operations in New Zealand, Australia and Canada. $MHI.NZ has recently moved into the US-market. The company’s founder Michael Hill was last week named New Zealand’s 2008 entrepreneur of the year. $MHI.NZ is trading toward the bottom of their 52-week range - $MHI.NZ did a 10:1 stock split in November 2007. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $MHI.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$0.88 for $MHI.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 33.3% above the current share price of NZ$0.66.

Assumptions

• Revenue: Reuters aggregates three analysts covering $MHI.NZ and the mean estimates of 2009 revenues are NZ$412.2 million. For our analysis we have used NZ$410.0 million in 2009, NZ$440.0 million in 2010 and NZ$480.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 12.0% to 2011. Reuters has $MHI.NZ‘s EBITD margin at 13.5% last year and an average of 12.1% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$16.0 million per annum moving forward.
• Discount Rate: 10.0%. The PwC New Zealand cost of capital report has $MHI.NZ at a WACC of 7.8% with the wider NZ market at 9.5%. We believe a discount rate in the 8-10% range is appropriate. We have chosen the top of this range to reflect the more difficult current retail trading environment.
• Terminal Growth Rate: 3.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Air New Zealand ($AIR.NZ) is an international and domestic airline based in New Zealand. $AIR.NZ is trading toward the bottom of their 52-week range. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $AIR.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$1.24 for $AIR.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 34.8% above the current share price of NZ$0.92.

Assumptions

• Revenue: Reuters aggregates seven analysts covering $AIR.NZ and the mean estimates of 2009 and 2010 revenues are NZ$4.8 billion and NZ$5.0 billion respectively. For our analysis we have used NZ$4.7 billion in 2009, NZ$4.85 billion in 2010 and NZ$5.15 billion in 2011.
• Profitability: We have used a flat EBITDA margin of 12.5% to 2011. Reuters has $AIR.NZ‘s EBITD margin at 14.5% last year and an average of 13.0% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$325.0 million in 2009 rising to NZ$565.0 million in 2011 then NZ$450.0 million per annum moving forward.
• Discount Rate: 9.5%. The PwC New Zealand cost of capital report has $AIR.NZ at a WACC of 9.1% with the wider NZ market at 9.5%.
• Terminal Growth Rate: 2.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Vector ($VCT.NZ) is a New Zealand owner and operator of network infrastructure (electricity, gas and communications). $VCT.NZ is one of the few large New Zealand companies that have successfully navigated the recent New Zealand corporate governance controversies.  $VCT.NZ is trading in the middle of their 52-week range.  How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $VCT.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$1.92 for $VCT.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 4.0% below the current share price of NZ$2.00.

Assumptions

• Revenue: Reuters aggregates seven analysts covering $VCT.NZ and the mean estimates of 2009 revenues are NZ$1.187 billion. For our analysis we have used NZ$1.185 billion in 2009, NZ$1.200 billion in 2010 and NZ$1.215 billion in 2011.
• Profitability: We have used a flat EBITDA margin of 47.0% to 2011. Reuters has $VCT.NZ‘s EBITD margin at 44.7% last year and an average of 49.7% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$205.0 million per annum moving forward.
• Discount Rate: 7.0%. The PwC New Zealand cost of capital report has $VCT.NZ at a WACC of 7.2% with the wider NZ market at 9.5%.
• Terminal Growth Rate: 2.5%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Sky Network Television ($SKT.NZ) is a provider of pay and free-to-air television services in New Zealand.  $SKT.NZ dominates in the New Zealand market.  $SKT.NZ had 720,000 subscribers at the end of 2007 in a country of 1.45 million households. $SKT.NZ is trading toward the bottom of their 52-week range.  How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $SKT.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$5.38 for $SKT.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 34.5% above the current share price of NZ$4.00.

Assumptions

• Revenue: Reuters aggregates seven analysts covering $SKT.NZ and the mean estimates of 2009 revenues are NZ$721.7 million. For our analysis we have used NZ$715.0 million in 2009, NZ$775.0 million in 2010 and NZ$835.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 40% to 2011. Reuters has $SKT.NZ‘s EBITD margin at 39.3% last year and an average of 42.4% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$115.0 million per annum moving forward.
• Discount Rate: 9.5%. The PwC New Zealand cost of capital report has $SKT.NZ at a WACC of 9.1% with the wider NZ market at 9.5%.
• Terminal Growth Rate: 4.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None