PGG Wrightson ($PGW.NZ) is New Zealand’s largest rural services company. The current global financial conditions have temporarily halted the companies strategy of vertically integrating the New Zealand farming value-chain. The current share price is trading toward the bottom of the 52-week range. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $PGW.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$1.96 for $PGW.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 15.3% above the current share price of NZ$1.70.

Assumptions

• Revenue: Reuters aggregates six analysts covering $PGW.NZ and the mean estimates of 2009 revenues are NZ$1.395 billion. For our analysis we have used NZ$1.335 billion in 2009, NZ$1.375 billion in 2010 and NZ$1.425 billion in 2011.
• Profitability: We have used a flat EBITDA margin of 8% to 2011. Reuters has $PGW.NZ‘s EBITD margin at 8.7% last year and an average of 9.1% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$20.0 million in 2009 then NZ$15.0 million per annum moving forward.
• Discount Rate: 8.5%. The PwC New Zealand cost of capital report has $PGW.NZ at a WACC of 7.9% with the wider NZ market at 9.5%.
• Terminal Growth Rate: 3.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None