The Warehouse Group Limited (WHS)

Discount cash flow analysis

Buy Undervalued by 41.4%

5% margin of safety What's this?

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How does this work?

This is an interactive analyst report for The Warehouse Group Limited, based on a discounted cash flow valuation approach.

You can modify the assumptions and the valuation will be updated automatically. You can also save and share your valuation.

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Values in $ millions
2007 2008 2009 2010 2011 2012 2013 2014
 
                 
               
 

What will the revenues be in the future?

Growth beyond year three is driven by the terminal growth rate.

Sensitivity matrix

   
-1%
Discount Rate %
0%

1%
  -1% $4.18 $4.11 $4.04
Terminal Growth% 0 $4.20 $4.13 $4.07
  +1% $4.23 $4.16 $4.09

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 $2.07 (overvalued by 29.11%) - 12 months ago
  • Valuecruncher created a new valuation of $2.07 (overvalued by 28.13%) - 1 year ago
  • GordonGekko created a new valuation of $2.84 (undervalued by 6.37%) - over 5 years ago
  • baconboy created a new valuation of $3.41 (overvalued by 10.26%) - over 7 years ago
  • sambling created a new valuation of $5.00 (undervalued by 24.38%) - over 7 years ago
  • sambling created a new valuation of $3.79 (overvalued by 5.25%) - almost 8 years ago
  • GordonGekko created a new valuation of $4.17 (undervalued by 11.5%) - 8 years ago
  • gordonsk created a new valuation of $3.47 (overvalued by 1.14%) - over 8 years ago
  • GordonGekko created a new valuation of $3.47 (undervalued by 0.58%) - over 8 years ago
  • nzvikram created a new valuation of $3.15 (overvalued by 4.83%) - over 8 years ago
  • KiwiEMH created a new valuation of $3.43 (undervalued by 0.88%) - almost 9 years ago
  • KiwiEMH created a new valuation of $3.58 (undervalued by 18.54%) - almost 9 years ago
  • KiwiEMH created a new valuation of $3.69 (undervalued by 12.5%) - 9 years ago
  • KiwiEMH created a new valuation of $3.91 (overvalued by 1.01%) - over 9 years ago
  • TheCrunchBlog created a new valuation of $4.13 (undervalued by 0.73%) - over 9 years ago
  • GordonGekko created a new valuation of $4.61 (undervalued by 2.22%) - over 9 years ago
  • GordonGekko created a new valuation of $5.65 (overvalued by 0.88%) - over 9 years ago

Comments

Understanding The Warehouse (WHS) Valuation

This valuation is part of this blog post:

http://blog.valuecruncher.com/2008/06/understanding-the-warehouse-whs-valuation/

Our assumptions of revenues for the next three years are NZ$1.745 billion in 2008 increasing to NZ$1.825 billion in 2010 – a compound annual growth rate of 2.3% (2008-10). We have projected flat EBITDA margins of 10% to 2010.

We have used a terminal growth rate of 3%. This is based on a New Zealand long-run economy growth rate. If you have a more optimistic or pessimistic view of the growth for WHS this will impact the valuation.

We have used a WACC (discount rate) of 8.5 %. The WACC (discount rate) has a material impact on a discounted cash flow valuation (as does the terminal growth rate). PricewaterhouseCoopers December 2007 cost of capital report gives WHS a calculated WACC of 8.2%.

We used a terminal capital expenditure number of NZ$60 million. In our opinion capital expenditure should stabilise around this number.

By TheCrunchBlog, about 9 years ago

The boring details

All amounts in millions Figures
Enterprise Value: 949
Net Debt (Long-term borrowings less cash): 41
Equity Value: 1,274
Number of Shares Outstanding: 310,000,000
Calculated value per share: $4.13

Enterprise Value is the present value of the post-tax cash flows for a business into the future.


Calcuation of EV

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.


Perpetuity

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.


CAPM model

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.