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    MCY.AX · ASX · Utilities

    Mercury NZ Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 1.78

    Market price

    AUD 5.60

    Implied upside

    -68.2%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · NZD model at 0.8033

    AdjustedSome line items were not reported and have been derived. Each one is labelled in the workings below.
    AdjustedReports in NZD, trades in AUD. Modelled in NZD, converted at the end.
    AdjustedCapital expenditure runs at 14.0% of revenue against depreciation of 11.2%. A perpetuity has to be a steady state, so the terminal year uses maintenance capex at depreciation and then charges the reinvestment terminal growth requires (g/ROIC of NOPAT). The bridge is shown under Terminal Value.

    Value Per Share

    Perpetuity growth
    AUD 1.78-68.2%
    Exit multiple
    AUD 3.64-35.0%
    Market price
    AUD 5.60

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (NZD). Outflows negative.

    0m170m339mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayNZD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueNZD 3.4bnNZD 3.6bnNZD 3.8bnNZD 4.0bnNZD 4.3bn+5.7%
    EBITNZD 482.5mNZD 510.0mNZD 539.1mNZD 569.8mNZD 602.3m+5.7%
    NOPATNZD 349.4mNZD 369.3mNZD 390.4mNZD 412.6mNZD 436.1m+5.7%
    Add depreciation & amortisationNZD 380.3mNZD 402.0mNZD 424.9mNZD 449.1mNZD 474.8m+5.7%
    Less capital expenditureNZD -476.7mNZD -503.9mNZD -532.6mNZD -563.0mNZD -595.1m+5.7%
    Less increase in working capitalNZD 18.8mNZD 19.9mNZD 21.0mNZD 22.2mNZD 23.4m-5.7%
    Free cashflow to firmNZD 271.8mNZD 287.3mNZD 303.6mNZD 320.9mNZD 339.2m+5.7%
    Discount factor0.96430.89660.83360.77510.7207-
    Present valueNZD 262.0mNZD 257.5mNZD 253.1mNZD 248.8mNZD 244.5m-1.7%
    Present Value Of The ForecastNZD 1.3bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.35%Australian Government 10-year (RBA F2)
    Equity risk premium6.00%Market assumption
    Beta0.557Reported 0.339, pulled toward 1.0 (Blume)
    Cost of equity8.69%Risk-free + beta x equity risk premium
    Cost of debt5.35%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationNZD 8.0bn76.3% of capital
    Total debtNZD 2.5bn23.7% of capital, book value as a proxy
    Tax rate27.6%Effective, capped at statutory
    WACC7.55%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareNZD 2.21

    77% of EV

    Forecast FCFF, final year
    NZD 339.2m
    Capex at depreciation, working capital in reinvestment
    NZD 436.1m
    Less reinvestment at g/ROIC (33.1% of NOPAT)
    NZD -144.4m
    Capitalised
    NZD 291.7m
    ROIC (WACC floor)
    7.6%
    Terminal value, undiscounted
    NZD 5.9bn
    Terminal value, discounted
    NZD 4.3bn
    Enterprise value
    NZD 5.5bn
    Less net debt
    NZD 2.4bn
    Equity value
    NZD 3.1bn

    Exit at 9.7x EBITDA

    Value per shareNZD 4.53

    86% of EV

    Terminal value, undiscounted
    NZD 10.5bn
    Terminal value, discounted
    NZD 7.5bn
    Enterprise value
    NZD 8.8bn
    Less net debt
    NZD 2.4bn
    Equity value
    NZD 6.4bn

    Spread between methods: 69%.

    Sensitivity

    Value per share (NZD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.55%3.663.683.703.723.75
    6.55%2.812.832.842.862.88
    7.55%2.182.202.212.232.24
    8.55%1.711.721.731.751.76
    9.55%1.331.341.351.371.38

    Outlined: this model. Green text: above today's price of 6.97. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year5.7%24.7%+19.0pp
    EBIT margin14.2%30.4%+16.2pp
    Discount rate7.6%4.1%-3.5pp
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    Yahoo Finance and RBA data. General information, not advice. Methodology.