New Zealand discount retailer The Warehouse (WHS.NZ) is retreating from an expansion into food retailing in New Zealand. This retreat opens up the opportunity for the two major supermarket chains in New Zealand (both have a 10% stake in WHS.NZ) to move to acquire WHS.NZ. The New Zealand Commerce Commission had prevented an acquisition by either party on anti-competitive grounds. With the retreat from food retailing this should now be no longer an issue. We decided to have a look at WHS.NZ with the Valuecruncher interactive tool to place an estimate on the intrinsic value of the company using a discounted cash flow valuation.
Valuecruncher produces a valuation of NZ$4.11 for WHS.NZ. This is a current valuation (an estimate of intrinsic value) not a target price. This valuation is 16.1% above the current share price of NZ$3.54.
In 2008 (July balance date) WHS.NZ had revenues of NZ$1.735 billion and an EBITDA margin (profits) of 9.25%. Reuters aggregates eight analysts covering WHS.NZ and these have mean estimates of 2009 and 2010 revenues of NZ$1.744 and NZ$1.799 billion respectively. For this analysis we have used revenues of NZ$1.75 billion in 2009, NZ$1.8 billion in 2010 and NZ$1.835 billion in 2011. We have forecast EBITDA margins rising from 9.5% in 2009 to 10.5% in 2011. We have estimated capital expenditure in the NZ$55-60 million range. All of these assumptions can be amended in the Valuecruncher on-line valuation model to adjust the valuation.
Other Model Assumptions:
Our analysis incorporates the cash and debt on the WHS.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. If any of the anticipated potential acquirers of WHS.NZ do make an offer for the company – we would expect it will have to be above of our valuation of NZ$4.11 to have a chance of succeeding. Our analysis is a standalone valuation of WHS.NZ – it does not address any potential synergies from any potential acquirer.
Play with our assumptions – what does your analysis say?