Ryman Healthcare ($RYM.NZ) is a New Zealand developer, owner and operator of retirement homes.  How is the current share price of NZ$1.51 in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $RYM.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$1.07 for $RYM.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 29.1% below the current share price of NZ$1.51.

Assumptions

• Revenue: Reuters aggregates four analysts covering $RYM.NZ and the mean estimates of 2009 and 2010 revenues are NZ$101.4 million and NZ$116.1 million respectively. For our analysis we have used NZ$100.0 million in 2009, NZ$115.0 million in 2010 and NZ$125.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 22.5% to 2011. Reuters has $RYM.NZ‘s EBITD margin at 21.7% last year and an average of 23.7% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$75.0 million in 2009, NZ$50 million in 2010 then NZ$25.0 million per annum moving forward.  $RYM.NZ is still in an expansion mode and the high current capital expenditures show this.
• Discount Rate: 11.0%. The PwC New Zealand cost of capital report has $RYM.NZ at a WACC of 11.5% with the wider NZ market at 9.5%.
• Terminal Growth Rate: 4.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None

Valuecruncher has placed a value of $8.50 per share of Ryman Healthcare stock – ranging between $6.20 and $10.99. The current price of $9.70 is in the upper end of our valuation range.

Revenue Growth

The revenue growth for Ryman has been variable over the last three periods, falling from 16.10% in the 03/04 period down to 10.65% in the 04/05 period, and then up to 17.80% in the 05/06 period. We have forecasted an average growth rate of 15% for the next three periods, in line with the goal stated by the management of Ryman in the 2006 annual report to double the size of the company every five years.

EBIT Margins

EBIT margins have been increasing since 2003, rising from 17.9% to 25.04% in 2006. We believe that these margins will remain around 25% for the next three years, translating into an annual compound growth rate of 15% (the same as the outlook stated in the 2006 annual report). Our assumptions for revenue growth and EBIT margins suggest that Ryman Healthcare will continue to be a strong player for at least the next few years.

Terminal Growth

Terminal growth is assumed to be 4%, slightly higher than the long-term economic growth rate, but representative of the stronger growth opportunities available (such as the demographics of an ageing population) for Ryman Healthcare.

Discount rate (WACC)

The discount rate applied is 8%.

Ryman Valuation