Michael Hill International Limited (MHI)
Discount cash flow analysis
5% margin of safety What's this?
Sensitivity matrix
|
-1% |
Discount Rate % 0% |
1% |
||
|---|---|---|---|---|
| -1% | $0.89 | $0.88 | $0.86 | |
| Terminal Growth% | 0 | $0.90 | $0.88 | $0.87 |
| +1% | $0.90 | $0.89 | $0.87 |
How does a change in discount rate or terminal growth affect valuation?
This table shows the sensitivity of the valuation to two key variables - the discount rate and the terminal growth rate
Valuations and comments
- Valuecruncher created a new valuation of $0.76 (undervalued by 7.04%) - 11 hours ago
- Silas316 created a new valuation of $0.70 (undervalued by 22.81%) - 11 months ago
- square created a new valuation of $0.71 (undervalued by 47.92%) - 11 months ago
- NZXCrunchBlog created a new valuation of $0.70 (undervalued by 40.0%) - 1 year ago
- NZXCrunchBlog created a new valuation of $0.70 (undervalued by 40.0%) - 1 year ago
- NZXCrunchBlog created a new valuation of $0.88 (undervalued by 31.34%) - 1 year ago
- KiwiEMH created a new valuation of $0.91 (undervalued by 33.82%) - 1 year ago
- KiwiEMH created a new valuation of $0.99 (undervalued by 11.24%) - 1 year ago
- KiwiEMH created a new valuation of $0.87 (undervalued by 1.16%) - 1 year ago
Comments
The boring details
| All amounts in millions | Figures |
| Enterprise Value: | 335 |
| Net Debt (Long-term borrowings less cash): | 64 |
| Equity Value: | 256 |
| Number of Shares Outstanding: | 382,000,000 |
| Calculated value per share: | $0.88 |
Enterprise Value is the present value of the post-tax cash flows for a business into the future.
Where:
- C1, C2, C3 - the cash flow in period 1, 2, 3, ...
- r - the discount rate
To capture the cash flows into the future a terminal value is calculated via a perpetuity calculation -
based on the final years forecast post-tax free cash flow.
Where:
- Cn - the cash flow in the final forecast period.
- LTG - the long-term growth rate
- r - the discount rate
- g - the terminal growth rate
The Capital Asset Pricing Model (CAPM) is used to determine the equity component in the discount rate.
Where:
- rt - the risk free rate
- t - the tax rate
- B - the beta of the company
- MRP - the Market Risk Premium
Valuecruncher uses an estimate of Weighted Average Cost of Capital (WACC) to determine the discount rate in the calculation.
This valuation is part of this blog post:
http://blog.valuecruncher.com/2008/11/running-the-numbers-michael-hill-international-mhinz/
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%.