TrustPower ($TPW.NZ) is an NZX-listed New Zealand electricity generator and retailer. The current share

price is NZ$7.15 – the 52-week range has been NZ$6.69 to NZ$8.70. How is this in relation to the intrinsic value of the company’s shares?

Valuecruncher valuation model of $TPW.NZ with interactive assumptions

Valuecruncher produces a valuation of NZ$6.29 for $TPW.NZ. This is a current valuation (an estimate of intrinsic value using a discounted cash flow model) not a target price. This valuation is 12.0% below the current share price of NZ$7.15.

Assumptions

• Revenue: Reuters aggregates seven analysts covering $TPW.NZ and the mean estimates of 2009 and 2010 revenues are NZ$790.8 million and NZ$783.7 million respectively. For our analysis we have used NZ$790.0 million in 2009, NZ$795.0 million in 2010 and NZ$835.0 million in 2011.
• Profitability: We have used an EBITDA margin of 32.5% in 2009 and 2010 rising to 35.0% in 2011. Reuters has $TPW.NZ‘s EBITD margin at 28.6% last year and an average of 28.0% over the last five-years.
• Capital Expenditure: We have assumed capital expenditures of NZ$110.0 million in 2009 dropping to NZ$75 million in 2010, NZ$65 million in 2011 and then NZ$50 million per annum moving forward.
• Discount Rate: 9.0%. The PwC New Zealand cost of capital report lists $TPW.NZ at 9.8% with the wider market at 9.1%. We have used a slightly lower figure.
• Terminal Growth Rate: 3.0%. The New Zealand economy has grown at an average rate of 2.6% over the last five-years. Our assumption is $TPW.NZ growing slightly above this level.

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

Play with our assumptions – what does your analysis say?

Disclosure: None