DCF Studio

    MEZ.AX · ASX · Utilities

    Meridian Energy Limited

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    AUD 1.83

    Market price

    AUD 4.30

    Implied upside

    -57.4%

    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.

    Value Per Share

    Perpetuity growth
    AUD 1.83-57.4%
    Exit multiple
    AUD 2.95-31.4%
    Market price
    AUD 4.30

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (NZD). Outflows negative.

    0m352m704mFY27FY28FY29FY30FY31
    Nominal FCFFDiscounted to todayNZD
    LineFY27FY28FY29FY30FY31CAGR
    RevenueNZD 4.1bnNZD 4.4bnNZD 4.6bnNZD 4.9bnNZD 5.2bn+6.3%
    EBITNZD 613.1mNZD 652.0mNZD 693.4mNZD 737.3mNZD 784.1m+6.3%
    NOPATNZD 462.3mNZD 491.6mNZD 522.8mNZD 555.9mNZD 591.2m+6.3%
    Add depreciation & amortisationNZD 402.3mNZD 427.8mNZD 455.0mNZD 483.8mNZD 514.5m+6.3%
    Less capital expenditureNZD -285.7mNZD -303.8mNZD -323.1mNZD -343.6mNZD -365.4m+6.3%
    Less increase in working capitalNZD -28.5mNZD -30.3mNZD -32.2mNZD -34.3mNZD -36.5m+6.3%
    Free cashflow to firmNZD 550.4mNZD 585.3mNZD 622.4mNZD 661.9mNZD 703.9m+6.3%
    Discount factor0.96050.88610.81750.75420.6958-
    Present valueNZD 528.6mNZD 518.6mNZD 508.8mNZD 499.2mNZD 489.7m-1.9%
    Present Value Of The ForecastNZD 2.5bn

    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
    Beta0.638Reported 0.459, pulled toward 1.0 (Blume)
    Cost of equity9.17%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 11.4bn84.8% of capital
    Total debtNZD 2.0bn15.2% of capital, book value as a proxy
    Tax rate24.6%Effective, capped at statutory
    WACC8.39%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 2.28

    66% of EV

    Forecast FCFF, final year
    NZD 703.9m
    Capex at depreciation, working capital in reinvestment
    NZD 591.2m
    Less reinvestment at g/ROIC (29.8% of NOPAT)
    NZD -176.1m
    Capitalised
    NZD 415.1m
    ROIC (WACC floor)
    8.4%
    Terminal value, undiscounted
    NZD 7.2bn
    Terminal value, discounted
    NZD 5.0bn
    Enterprise value
    NZD 7.6bn
    Less net debt
    NZD 1.5bn
    Equity value
    NZD 6.0bn

    Exit at 9.6x EBITDA

    Value per shareNZD 3.67

    77% of EV

    Terminal value, undiscounted
    NZD 12.5bn
    Terminal value, discounted
    NZD 8.7bn
    Enterprise value
    NZD 11.3bn
    Less net debt
    NZD 1.5bn
    Equity value
    NZD 9.7bn

    Spread between methods: 47%.

    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%
    6.39%3.113.133.143.153.17
    7.39%2.632.642.652.662.67
    8.39%2.262.272.282.292.30
    9.39%1.971.981.992.002.01
    10.39%1.741.751.751.761.77

    Outlined: this model. Green text: above today's price of 5.35. 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 year6.3%26.4%+20.0pp
    EBIT margin15.0%32.0%+17.0pp
    Discount rate8.4%4.5%-3.9pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.