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 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 – 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

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 invited 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

On Friday Australian steelmaker OneSteel terminated their offer for the 49.73% of Steel & Tube Holdings (STU.NZ) that did not already own.  The NZ$4.00 a share offer was withdrawn citing the current increased market volatility.  The withdrawal of the offer has dropped the STU.NZ share price NZ$0.80 to NZ$2.80.  We decided to have a look at STU.NZ with the Valuecruncher interactive tool to place an estimate on the intrinsic value of the company using a discounted cash flow valuation.  The objective was to look at the current share price and to determine if the OneSteel offer was fair.

Valuecruncher valuation model of STU.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$3.40 for STU.NZ.  This is a current valuation (an estimate of intrinsic value) not a target price.  This valuation is 21.4% above the current share price of NZ$2.80 and 15.0% below the OneSteel offer price of NZ$4.00.

Assumptions

In 2008 (June balance date) STU.NZ had revenues of NZ$503.8 million and an EBITD margin (profits) of 9% (with a five-year average of 12%).  Reuters aggregates seven analysts covering STU.NZ and these have mean estimates of 2009 revenues of NZ$504 million.  For this analysis we have used revenues of NZ$500 million in 2009, NZ$525 million in 2010 and NZ$550million in 2011.  We have forecast EBITDA margins flat at 10% to 2011.  We have estimated capital expenditure flat at NZ$8.5 million moving forward.  All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.

Other Model Assumptions:

Discount Rate: 11%.  PwC in their New Zealand cost of capital report calculates STU.NZ WACC at 11.4%.

Terminal Growth Rate: 3.0%.  The New Zealand economy has grown at an average rate of 2.6% over the last five-years.  We see STU.NZ growing broadly in-line moving forward.

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

Based on our analysis and assumptions the current share price looks a discount to intrinsic value.  In our view the OneSteel offer at NZ$4.00 a share looks very fair.  STU.NZ shareholders should be hoping that the offer is revived in the future.  Play with our assumptions – what does your analysis say?

Disclosure: None

Valuecruncher has a database of over 1,000 companies on major international exchanges. You can explore, create and share valuations for any of these companies.