NZ Farming Systems Uruguay ($NZS.NZ) is an NZX-listed New Zealand company exporting New Zealand farming methods to Sou

th America (Uruguay initially). $NZS.NZ listed on the NZX in December 2007. The current share price is NZ$0.58 – the 52-week range has been NZ$1.96 to NZ$0.58. The early-stage nature of the $NZS.NZ operation presents challenges for our three year DCF model – because of the steep growth and heavy initial investment. However we can put some numbers together to give an initial view of the intrinsic value of the company’s shares?

Valuecruncher valuation model of $NZS.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$0.57 for $NZS.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 1.7% below the current share price of NZ$0.58.

Assumptions

• Revenue: Reuters has a single analyst covering $NZS.NZ and the estimate of 2009 revenues is NZ$37.6 million. For our analysis we have used NZ$45.0 million in 2009, NZ$75.0 million in 2010 and NZ$100.0 million in 2011.
• Profitability: We have used an EBITDA margin of 0.0% in 2009 rising to 25.0% in 2010 then 35.0% in 2011. Reuters $NZS.NZ EBITD margin analysis is based on the reported losses of last year.
• Capital Expenditure: We have assumed capital expenditures of NZ$90.0 million in 2009 dropping to NZ$25.0 million per annum moving forward.
• Discount Rate: 10.0%. The PwC New Zealand cost of capital report doesn’t cover $NZS.NZ but has an industry WACC for the Agriculture sector of companies that are covered of 8.1% and the wider New Zealand market at 9.1%. We have used a slightly higher figure.
• Terminal Growth Rate: 4.0%. We are projecting significant growth for $NZS.NZ over the next three years. We have used 4.0% as a terminal growth rate – this is a starting number. As $NZS.NZ reports future revenues we will get a better idea of what future growth may look like.

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

Play with our assumptions – what does your analysis say?

Disclosure: None