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

At Valuecruncher we looked at Michael Hill International ($MHI.NZ) back in November last year.  $MHI.NZ is a New Zealand listed jewelry retailer and manufacturer.  In November 2008 we placed a value on $MHI.NZ of NZ$0.88 per share.  In November $MHI.NZ was trading at NZ$0.66.  $MHI.NZ has continued to track downwards – currently trading at NZ$0.51.  We decided to review our previous valuation and look at the current share price.

Valuecruncher Interactive Analyst Report For $MHI.NZ (New Format)

Valuecruncher produces a valuation of NZ$0.70 for $MHI.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 37.25% above the current share price of NZ$0.51.

Assumptions

• Revenue: Reuters aggregates two analysts covering $MHI.NZ and the mean estimates of 2009 and 2010 revenues are NZ$412.1 million and NZ$426.6 million respectively. For our analysis we have used NZ$410.0 million in 2009, NZ$425.0 million in 2010 and NZ$450.0 million in 2011.  Previously we had revenues of NZ$440.0 million in 2010 and NZ$480.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 11.0% to 2011. Reuters has $MHI.NZ‘s EBITD margin at 10.7% last year and an average of 12.1% over the last five-years.  Previously we used a flat 12.0% EBITDA margin.
• Capital Expenditure: We have assumed capital expenditures of NZ$16.0 million per annum moving forward.  This is the same as our previous analysis.
• Discount Rate: 10.0%. The PwC New Zealand cost of capital report has $MHI.NZ at a WACC of 10.9% with the wider NZ market at 9.1%. Previously we used 10.0% with PwC giving $MHI.NZ a WACC of 7.8%.  We have kept our discount rate at the same level as our previous analysis.  The movement in PwC’s cost of capital report is significant.
• Terminal Growth Rate: 3.0%.  This is the same as our previous analysis.

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

Play with our assumptions – what does your analysis say?

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

Michael Hill International ($MHI.NZ) is a New Zealand listed jewelry retailer and manufacturer. $MHI.NZ has existing operations in New Zealand, Australia and Canada. $MHI.NZ has recently moved into the US-market. The company’s founder Michael Hill was last week named New Zealand’s 2008 entrepreneur of the year. $MHI.NZ is trading toward the bottom of their 52-week range – $MHI.NZ did a 10:1 stock split in November 2007. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $MHI.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$0.88 for $MHI.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 33.3% above the current share price of NZ$0.66.

Assumptions

• Revenue: Reuters aggregates three analysts covering $MHI.NZ and the mean estimates of 2009 revenues are NZ$412.2 million. For our analysis we have used NZ$410.0 million in 2009, NZ$440.0 million in 2010 and NZ$480.0 million in 2011.
• Profitability: We have used a flat EBITDA margin of 12.0% to 2011. Reuters has $MHI.NZ‘s EBITD margin at 13.5% last year and an average of 12.1% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$16.0 million per annum moving forward.
• Discount Rate: 10.0%. The PwC New Zealand cost of capital report has $MHI.NZ at a WACC of 7.8% with the wider NZ market at 9.5%. We believe a discount rate in the 8-10% range is appropriate. We have chosen the top of this range to reflect the more difficult current retail trading environment.
• Terminal Growth Rate: 3.0%.

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

Play with our assumptions – what does your analysis say?

Disclosure: None