New Zealand-based children’s clothing company Pumpkin Patch ($PPL.NZ) Inside Tipster – Rebills & High Client Retention Rate
tid=10558410″>announced their half-year result in late February. The company announced a 7% drop in half-year profits – but the share price rose on the news. The reason for this is that market participants expected a larger decrease in profits and had that factored into their valuation models. The better than anticipated result meant the valuation of PPL.NZ was increased and the current share price looked cheap. This resulted in more buyers and a higher share price – you can see the jump in the graph below. With the current share price of $PPL.NZ at NZ$1.05 we decided to have a look at the intrinsic value.
Valuecruncher produces a valuation of NZ$1.07 for $PPL.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 2% above the current share price of NZ$1.05.
- Revenue: Reuters aggregates five analysts covering $PPL.NZ and these analysts have mean estimates of 2009 and 2010 revenues of NZ$422.6 million and NZ$442.9 million respectively. For our analysis we have used NZ$420 million in 2009, NZ$440 million in 2010 and NZ$465 million in 2011.
- Profitability: We have used an EBITDA margin of 9% in 2009 rising to 12% in 2011. Reuters has $PPL.NZ‘s EBITD margin at 10.91% last year with a five-year average of 14.76%.
- Capital Expenditure: We have assumed capital expenditures of NZ$18 million in 2009 rising to NZ$30 million in 2011 and beyond.
- Discount Rate: 11.0%. The PwC New Zealand cost of capital report lists $PPL.NZ with a WACC of 12.9% and the wider New Zealand market at 9.1%. We feel that 12.9% is too high for $PPL.NZ and have used 11.0%.
- Terminal Growth Rate: 4.0%.
Our analysis incorporates the cash and debt the $PPL.NZ balance sheet – Valuecruncher calculates a net debt number.
Play with our assumptions – what does your analysis say?