At Valuecruncher we have just completed our most recent review of NZX companies in our dataset. This involves a review of the assumptions we are using in the valuations. We use consensus analyst estimates as t

he basis of our assumptions. For example – consensus analyst estimates of revenues for New Zealand’s largest listed company Telecom New Zealand ($TEL.NZ). Valuecruncher uses these numbers and our own assessments of other valuation assumptions such as the discount rate and terminal growth rate.

At Valuecruncher we then pull all of these variables together and place a valuation on the shares of the companies in our data-set and provide a recommendation. You can either simply look at our valuations – or for all the experts out there, you can change the assumptions we have used and modify the valuation. Modified valuations can be saved and shared.

With the completion of our monthly review of the companies on the NZX (New Zealand stock exchange) we decided to outline what we at Valuecruncher see as the most undervalued (the best buys).

We should note that you can always find a list of the Valuecruncher buy recommendations for the NZX from the most undervalued using our filters. The following list highlights the top five buys based on the latest review of the valuation assumptions.

Valuecruncher’s Top Five Buys On The NZX – June 2009

Number 1

Rakon ($RAK.NZ) is a New Zealand-based designer and manufacturer of high-performance frequency control technology. Valuecruncher currently values $RAK.NZ at NZ$1.87 – 24% above the current share price.

Valuecruncher Interactive Analyst Report For $RAK.NZ

Number 2

Sky Network Television ($SKT.NZ) is a provider of pay and free-to-air television services in New Zealand. Valuecruncher currently values $SKT.NZ at NZ$5.156 – 22% above the current share price.

Valuecruncher Interactive Analyst Report For $SKT.NZ

Number 3

Sky City ($SKC.NZ) is a New Zealand-listed gaming, hotel and entertainment company. Valuecruncher currently values $SKC.NZ at NZ$3.19 – 20% above the current share price.

Valuecruncher Interactive Analyst Report For $SKC.NZ

Number 4

Methven ($MVN.NZ) is a New Zealand company that designs and supplies taps and shower-ware. Valuecruncher currently values $MVN.NZ at NZ$1.65 – 20% above the current share price.

Valuecruncher Interactive Analyst Report For $MVN.NZ

Number 5

Steel & Tube ($STU.NZ) is a New Zealand-based steel and industrial products company. Valuecruncher currently values $STU.NZ at NZ$3.29 – 13% above the current share price.

Valuecruncher Interactive Analyst Report For $STU.NZ

Those are our top five buys for June 2009. You can also always find a list of the Valuecruncher sell recommendations for the NZX from most overvalued up using our filters.

Disclosure: None

With the launch of our new interactive analyst reports we complete a monthly review of the approximately 750 valuations in our data-set. This inv

olves a review of the assumptions we are using in the valuations. We use consensus analyst estimates as the basis of our assumptions. For example – consensus analyst estimates of revenues for New Zealand’s largest listed company Telecom New Zealand ($TEL.NZ). Valuecruncher uses these numbers and our own assessments of other valuation assumptions such as the discount rate and terminal growth rate.

At Valuecruncher we then pull all of these variables together and place a valuation on the shares of the companies in our data-set and provide a recommendation. You can either simply look at our valuations – or for all the experts out there, you can change the assumptions we have used and modify the valuation. Modified valuations can be saved and shared.

With the completion of our monthly review of the companies on the NZX (New Zealand stock exchange) we decided to outline what we at Valuecruncher see as the most undervalued (the best buys).

We should note that you can always find a list of the Valuecruncher buy recommendations for the NZX from the most undervalued using our filters. The following list highlights the top five buys based on the latest review of the valuation assumptions.

Valuecruncher’s Top Five Buys On The NZX – March 2009

Number 1

Michael Hill International ($MHI.NZ) is a New Zealand-based jewelry retailer and manufacturer. Valuecruncher currently values $MHI.NZ at NZ$0.71 – 39% above the current share price.

Valuecruncher Interactive Analyst Report For $MHI.NZ

Number 2

Sky Network Television ($SKT.NZ) is a provider of pay and free-to-air television services in New Zealand. Valuecruncher currently values $SKT.NZ at NZ$5.06 – 33% above the current share price.

Valuecruncher Interactive Analyst Report For $SKT.NZ

Number 3

Hallenstein Glasson Holdings ($HLG.NZ) is a NZX-listed clothing retailer. Valuecruncher currently values $HLG.NZ at NZ$2.49 – 26% above the current share price.

Valuecruncher Interactive Analyst Report For $HLG.NZ

Number 4

Air New Zealand ($AIR.NZ) is an international and domestic airline based in New Zealand. Valuecruncher currently values $AIR.NZ at NZ$1.11 – 24% above the current share price.

Valuecruncher Interactive Analyst Report For $AIR.NZ

Number 5

Methven ($MVN.NZ) is a New Zealand company that designs and supplies taps and shower-ware. Valuecruncher currently values $MVN.NZ at NZ$1.27 – 18% above the current share price.

Valuecruncher Interactive Analyst Report For $MVN.NZ

Those are our top five buys for March 2009. You can also always find a list of the Valuecruncher sell recommendations for the NZX from most overvalued up using our filters.

Disclosure: None

It is the beginning of a new year. Here in New Zealand an annual tradition is the media reporting of brokers views of the top stocks for the coming year. Here is one of the lists. We were not i

nvited to participate this year – maybe next year. We decided to put out our list of our most undervalued and most overvalued NZX stocks – based on valuations done on the Valuecruncher blog. Unlike the lists in the media – our list includes our assumptions.

Valuecruncher Five Most Undervalued (Cheap)

1. Air New Zealand – +34.78%

2. Michael Hill – +31.34%

3. Sky TV – +31.22%

4. Nuplex – +26.19%

5. Rakon – +24.00%

Valuecruncher Five Most Overvalued (Expensive)

1. Mainfreight – -8.84%

2. Auckland International Airport – -7.65%

3. Fletcher Building – -7.29%

4. F&P Healthcare – -6.45%

5. Steel & Tube – -5.56%

Our valuations have been completed since early October 2008. The percentage over or under valuation was based on the share price at the time the valuation was completed. The Valuecruncher interactive model allows you to play with our assumptions. If you disagree with our analysis – change our assumptions and tell us what you think.

Comparing our list with the traditional brokers. Four of the six brokers list Sky TV – which is one of our picks as most undervalued. But also three of the six list F&P Healthcare – while we have it as one of our most overvalued.

We will revisit these valuations as the year progresses.

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

Valuecruncher has placed a value of $5.74 per share of Sky TV, with a range of $4.40 to $7.21. The current share price of $5.91 falls marginally outside the mid-point valuation.

Revenue Growth

Revenue growth has been very stable over the past 3 financial periods (12.61%, 11.7%, and 11.5% in the 03/04, 04/05, and 05/06 periods, respectively). However, with Sky TV already present in 42% of households in New Zealand, we have forecasted growth to steadily decline from 11% in the 06/07 period to 9% in the 08/09 period, heading towards terminal growth of 3%.

EBIT Margin

EBIT margins have been rapidly increasing from a low of 7.3% in 2003 to 25.8% in 2006. We have forecasted EBIT margins of 30% for 2007, and 35% for 2008 and 2009 as there is no indication that EBIT growth will stop growing in the next few years. These high margins can be attributed to the continually increasing number of subscribers, but, perhaps more importantly, the decline in churn (the number of people that disconnect from the service). In 2006 churn was at an all time low of 13.6%, down from 15.8% in 2005.

Discount Rate (WACC)

The discount rate used in the analysis is 10% (Sky TV 2006 Annual Report calculates WACC at 9.7%).

Sky TV Valuation