PwC New Zealand Cost of Capital Report | 1
PwC New Zealand
pwc.co.nz
Report 2022
Cost of Capital
PwC New Zealand Cost of Capital Report | 2
We are pleased to present the latest edition of the
PwC Cost of Capital Report for June 2022, covering
113 companies listed on the NZX.
Increases in interest rates have affected asset prices
in New Zealand. The Ofcial Cash Rate has increased
from a low of 0.25% in March 2020 to 2.00% as at
30June 2022 (and has since increased to 3.5% in
early October).
We have revised our view on the long-term risk-free
rate as at 30 June 2022 to 3.9%, reecting the 10-
year government bond yields as at 30 June 2022.
In relation to our beta calculation:
• We have calculated betas using 5-year monthly
data. Beta is measured at multiple points
through the month to reduce the potential for
spuriousvariations.
• We have used the beta estimates for the business
itself unless the beta was not statistically reliable.
In cases where the company beta could not be
used, we have instead used the relevant sector
average assetbeta.
• The calculated betas reect a formulaic
approach based on the observed share price for
eachcompany.
• In some instances, the beta estimates have been
affected by COVID-19 lockdowns. In keeping
with the mechanical approach, we have not made
anyadjustments.
Growth rates in the cash ows and in the period
beyond the last forecast period, are also critical inputs
to any discounted cash ow model. They should be
considered alongside the weighted average cost
of capital (WACC). In particular, the terminal growth
rate should consider realistic estimates of long-term
nominal growth for the sector and the business.
There have been general upward movements in the
WACC. This largely reects an increase in the risk-free
rate. At the same time, observed EBITDA multiples
have decreased on average from 15.1x to 11.6x.
Note for readers
of this report
The calculated cost of capital and market
multiples have not been adjusted for
factors that may be specic to a company
or a sector, where a degree of commercial
judgement is required. Accordingly the
estimates in this report should be used
withcaution.
Readers could reasonably take a different
view on key assumptions based on the
perceived systematic risk of a company and
its comparable companies.
As many of the calculations are mechanical,
readers are advised to consult the PwC
Deals team if they require a formal estimate
for the WACC or an appropriate multiple
(contact details at the end of this report).
PwC New Zealand Cost of Capital Report | 3
Impact of NZ IFRS 16
The new leasing standard NZ IFRS 16 was implemented
in the New Zealand market for periods starting on
or after 1 January 2019. While most annual reports
available as at 31 December 2019 would have reported
under the previous leasing standard, by 30June 2022 all
NZX companies should be reporting under NZ IFRS 16
(or its Australian equivalent). As part of the new leasing
standard, instead of presenting operating lease costs
as an operating expense, most operating leases are
capitalised and treated as assets (with a corresponding
lease liability). This has an impact on both earnings (with
depreciation and interest replacing lease expense) and
debt (with debt now including the lease liability).
We present below our comparison of the EBITDA
multiples on a post-IFRS 16 basis and on an equivalent
pre-IFRS 16 basis, using the last twelve months data
sourced from S&P Capital IQ.
We observe that calculated EBITDA multiples
have declined for nearly all industries as a result
of implementing NZ IFRS 16. Industries where
companies tend to own rather than lease assets are
relatively unaffected (for example, ports, property
andutilitycompanies).
For the full sample the observed average EBITDA
multiple is 11.6x on a post-IFRS 16 basis versus 12.6x on
a pre-IFRS 16 basis.
12.0x
8.9x
10.3x
15.1x
15.6x
12.5x
15.0x
Agriculture & Fishing
Pre-IFRS 16 Post-IFRS 16
Industrial Products
Consumer
Investment
Media &
Telecommunications
Property
Services
Building Materials &
Construction
Information
Technology
Health & Aged Care
Leisure & Tourism
Ports
Retail
Transport
Utilities
14.8x
8.4x
19.5x
16.9x
9.6x
10.3x
10.9x
12.8x
10.8x
8.0x
9.9x
14.3x
13.9x
11.7x
14.7x
13.0x
7.5x
19.4x
16.7x
7.8x
8.5x
9.2x
12.5x
EBITDA multiples using post-IFRS 16 values (reported) vs equivalent pre-IFRS 16 values
PwC New Zealand Cost of Capital Report | 4
Cost of capital and market multiples
Company NZSE
Code
EBITDA
Multiple
EBIT
Multiple
NPAT
Multiple
Equity
Beta
D / (D+E)
Ratio
WACC Range
Min Max
Agriculture & Fishing
The a2 Milk Company Limited ATM n/m n/m n/m 1.0 0% 10.1%
5.9%
10.1%
Delegat Group Limited DGL 12.1 15.1 20.5 1.0 20% 9.8%
Fonterra Shareholders Fund FSF n/m n/m n/m 0.4 0% 5.9%
Foley Wines Limited FWL 10.0 16.5 22.3 0.7 25% 7.7 %
Livestock Improvement Corporation Limited LIC 5.1 5.9 9.2 0.7 12% 8 .1%
Marlborough Wine Estates Group Limited MWE n/m n/m n/m 0.6 8% 7. 5%
New Zealand King Salmon Investments Limited NZK n/m n/m n/m 1.0 11% 9.8%
PGG Wrightson Limited PGW 7.7 13.0 17.7 0.8 21% 8.7%
Sanford Limited SAN 10.3 25.6 n/m 0.7 23% 8.1%
Seeka Limited SEK 7.0 13.0 11. 3 1.1 45% 9.6%
Synlait Milk Limited SML 28.9 n/m n/m 1.0 24% 9.5%
T&G Global Limited TGG 5.5 12.4 n/m 0.9 29% 8.9%
18% 8.6%
Building Materials & Construction
Fletcher Building Limited FBU 5.7 8.8 11.5 1.0 16% 9.7%
8.2%
11.0%
MHM Automation Limited MHM 9.4 13.3 21.4 1.2 12% 11.0%
Metro Performance Glass Limited MPG 8.2 n/m n/m 0.8 48% 8.2%
Steel & Tube Holdings Limited STU 6.1 9.3 12.1 0.8 15% 8.5%
Ventia Services Group Limited VNT 10.6 24.8 n/m 1.0 22% 8.7%
Vulcan Steel Limited VSL 8.1 9.7 13.4 0.8 12% 8.9%
21% 9.2%
Consumer
Bremworth Limited BRW n/m n/m n/m 0.9 36% 8.9%
8.3%
10.5%
Comvita Limited CVT 10.1 16.8 23.3 0.9 21% 9.3%
Just Life Group Limited JLG 8.4 11.7 13.8 0.8 18% 8.3%
Scales Corporation Limited SCL 8.9 12.4 34.4 0.8 4% 8.8%
Savor Limited SVR 12.3 n/m n/m 1.1 16% 10.5%
19% 9.2%
Financial cost of equity
Australia and New Zealand Banking Group Limited ANZ n/a n/a n/a 0.9 9.6%
8.1%
11.0%
Geneva Finance Limited GFL n/a n/a n/a 0.9 9.5%
Heartland Group Holdings Limited HGH n/a n/a n/a 1.1 11.0%
Harmoney Corp Limited HMY n/a n/a n/a 0.9 9.5%
NZX Limited NZX n/a n/a n/a 1.0 10.0%
Tower Limited TWR n/a n/a n/a 0.7 8.1%
Westpac Banking Corporation WBC n/a n/a n/a 0.8 8.7%
9.5%
Health & Aged Care
AFT Pharmaceuticals Limited AFT 19.2 20.0 32.4 0.7 10% 7.7%
7.7%
15.3%
Arvida Group Limited ARV n/m n/m n/m 1.1 25% 9.9%
BLIS Technologies Limited BLT n/m n/m n/m 1.1 0% 11.4%
Cannasouth Limited CBD n/m n/m n/m 0.9 0% 9.6%
EBOS Group Limited EBO 17.1 21.1 n/m 0.8 9% 8.6%
Fisher & Paykel Healthcare Corporation Limited FPH 19.5 22.8 36.6 0.9 0% 9.6%
Green Cross Health Limited GXH 3.5 5.1 9.0 1.0 12% 10.2%
Oceania Healthcare Limited OCA n/m n/m n/m 1.4 25% 11. 3%
Pacic Edge Limited PEB n/m n/m n/m 1.7 0% 15.3%
Radius Residential Care Limited RAD 13.2 28.4 n/m 1.1 14% 10.3%
Rua Bioscience Limited RUA n/m n/m n/m 0.9 0% 9.6%
Ryman Healthcare Limited RYM n/m n/m n/m 1.3 22% 11.6%
Summerset Group Holdings Limited SUM n/m n/m n/m 1.3 23% 11.3%
Third Age Health Services Limited TAH 13.1 14.2 26.3 0.9 0% 9.6%
10% 10.4%
PwC New Zealand Cost of Capital Report | 5
Company NZSE
Code
EBITDA
Multiple
EBIT
Multiple
NPAT
Multiple
Equity
Beta
D / (D+E)
Ratio
WACC Range
Min Max
Industrial Products
EROAD Limited ERD 15.4 n/m n/m 1.5 6% 13.7%
8.7%
13.7%
ikeGPS Group Limited IKE n/m n/m n/m 0.9 0% 9.7%
Scott Technology Limited SCT 11.0 17. 6 30.3 1.0 4% 9.9%
Skellerup Holdings Limited SKL 15.2 18.4 28.5 0.8 6% 8.7%
Wellington Drive Technologies Limited AOF n/m n/m n/m 1.1 1% 10.6%
3% 10.5%
Information Technology
Gentrack Group Limited GTK n/m n/m n/m 1.0 1% 10.5%
10.5%
15.1%
Pushpay Holdings Limited PPH 18.7 20.8 n/m 1.3 1% 12.6%
Plexure Group Limited PX1 n/m n/m n/m 1.6 0% 15.1%
PaySauce Limited PYS n/m n/m n/m 1.4 0% 13.2%
Rakon Limited RAK 5.4 6.2 10.7 1.1 4% 10.7%
Solution Dynamics Limited SDL 4.3 5.0 15.1 1.4 0% 13.2%
Smartpay Holdings Limited SPY 18.5 n/m n/m 1.9 28% 14.5%
Trade Window Holdings Limited TWL n/m n/m n/m 1.4 0% 13.2%
Vista Group International Limited VGL n/m n/m n/m 1.3 0% 12.8%
4% 12.9%
Investment
Australian Foundation Investment Company Limited AFI n/m 29.7 n/m 0.7 0% 8.4%
6.9%
8.4%
Allied Farmers Limited ALF 6.6 8.2 14.8 0.8 25% 8.0%
ArborGen Holdings Limited ARB 9.2 n/m n/m 0.7 19% 8.1%
Infratil Limited IFT 28.2 n/m n/m 1.0 56% 6.9%
25% 7. 9%
Leisure & Tourism
Millennium & Copthorne Hotels New Zealand Limited MCK 6.1 7.1 17. 5 0.6 2% 7. 6%
7.6%
11.9%
SkyCity Entertainment Group Limited SKC 18.6 n/m n/m 1.2 18% 10.3%
Tourism Holdings Limited THL 14.2 n/m n/m 1.4 21% 11.9%
14% 9.9%
Media & Telecommunications
Chorus Limited CNU 10.6 27.5 n/m 0.8 51% 6.7%
6.7%
9.2%
NZME Limited NZM 5.4 8.5 12.3 1.0 37% 9.2%
SKY Network Television Limited SKT 3.4 7.1 13.1 0.9 16% 8.8%
Spark New Zealand Limited SPK 10.6 16.9 23.8 0.9 15% 8.7%
30% 8.3%
Mining
Chatham Rock Phosphate Limited CRP n/m n/m n/m 0.7 0% 8.3%
8.3%
8.3%
New Zealand Oil & Gas Limited NZO 4.3 7.7 n/m 0.7 0% 8.3%
0% 8.3%
Ports
Auckland International Airport Limited AIA n/m n/m n/m 1.0 16% 9.1%
7.7% 9.1%
Marsden Maritime Holdings Limited MMH 23.6 24.8 37.1 0.8 6% 8.5%
Napier Port Holdings Limited NPH 17.4 25.8 34.0 0.8 6% 8.3%
Port of Tauranga Limited POT 23.3 28.3 n/m 0.7 10% 7.7%
South Port New Zealand Limited SPN 13.2 17.1 24.5 0.8 5% 8.3%
9% 8.4%
Property
Asset Plus Limited APL n/m 23.9 34.5 0.7 27% 7.4%
6.9% 9.0%
Argosy Property Limited ARG n/m 18.9 20.9 1.0 40% 8.2%
CDL Investments New Zealand Limited CDI 5.6 5.6 8.8 0.8 0% 8.8%
Goodman Property Trust GMT n/m 31.8 n/m 0.7 23% 7.4%
Investore Property Limited IPL 19.6 19.6 27.4 0.7 37% 6.9%
Kiwi Property Group Limited KPG n/m 16.3 17.1 1.0 35% 8.2%
New Zealand Rural Land Company Limited NZL n/m n/m n/m 0.8 28% 7.6%
Precinct Properties New Zealand Limited PCT 29.5 31.4 27.4 0.7 31% 6.9%
Property For Industry Limited PFI 21.7 21.8 25.8 0.8 30% 7. 8%
Stride Property Group SPG 9.8 9.8 12.7 1.1 30% 9.0%
Vital Healthcare Property Trust VHP n/m 21.7 29.3 0.8 38%
6.9%
29% 7.7%
PwC New Zealand Cost of Capital Report | 6
Company NZSE
Code
EBITDA
Multiple
EBIT
Multiple
NPAT
Multiple
Equity
Beta
D / (D+E)
Ratio
WACC Range
Min Max
Retail
Briscoe Group Limited BGP 8.2 10.2 15.6 0.8 0% 9.2%
8.1% 13.0%
Cooks Coffee Company Limited CCC n/m n/m n/m 0.8 17% 8 .1%
The Colonial Motor Company Limited CMO 7. 2 8.2 10.8 1.2 27% 10.9%
Hallenstein Glasson Holdings Limited HLG 5.0 9.6 14.6 1.4 0% 13.0%
KMD Brands Limited KMD 7. 3 26.6 n/m 1.4 7% 12.7%
My Food Bag Group Limited MFB 6.5 7.2 11.6 0.9 1% 9.7%
Michael Hill International Limited MHJ 4.3 6.1 11.3 1.2 3% 11.8%
NZ Automotive Investments Limited NZA 8.8 13.2 17. 8 1.0 10% 10.1%
Restaurant Brands New Zealand Limited RBD 13.2 26.4 n/m 1.0 11% 9.7%
Turners Automotive Group Limited TRA 12.0 14.3 12.0 1.1 51% 9.1%
The Warehouse Group Limited WHS 5.5 9.5 11.4 0.7 10% 8.1%
12% 10.2%
Services
Accordant Group Limited AGL 8.6 18.4 29.8 0.8 26% 8.2%
8.2% 10.5%
Evolve Education Group Limited EVO 8.3 13.7 n/m 1.1 17% 10.5%
30% 6.2%
Transport
Air New Zealand Limited AIR n/m n/m n/m 1.5 31% 12.1%
8.3% 12 .1%
Freightways Limited FRE 10.6 15.5 23 .1 1.0 11% 9.8%
Mainfreight Limited MFT 11.0 15.0 23.0 1.0 4% 10.1%
MOVE Logistics Group Limited MOV 6.0 n/m n/m 0.8 39% 8.3%
21% 10.1%
Utilities
Ampol Limited ALD 8.0 11.3 19.7 0.9 14% 8.9%
7.2% 9.4%
Contact Energy Limited CEN 10.8 17.8 26.9 1.0 19% 9.4%
Channel Infrastructure NZ Limited CHI 8.4 n/m n/m 0.8 39% 8.4%
Genesis Energy Limited GNE 10.8 20.5 n/m 0.9 29% 8.0%
Mercury NZ Limited MCY 23.9 n/m n/m 0.9 17% 9.0%
Meridian Energy Limited MEL 18.9 30.9 n/m 0.8 12% 8.4%
Manawa Energy Limited MNW 15.6 18.8 19.9 0.8 24% 7.5%
NZ Windfarms Limited NWF 4.0 5.2 25.9 0.7 14% 7.6%
Vector Limited VCT 12.0 19.9 25.0 0.8 43% 7. 2%
23% 8.3%
How PwC can help
PwC is the leading corporate nance practice in the New Zealand market,
and has completed numerous valuations, cost of capital and other related
assignments spanning large listed companies to minority interests in small,
private businesses.
Our Corporate Finance team has a proven track record across a diverse
range of sectors.
We offer seamless delivery across transaction services, tax and other
professional services. Ourexpertise offers additional credibility for our
clients in the eyes of prospective counter-parties.
Our links to the global network of PwC rms provides relationships
with key global market participants. Our close relationship with our
Australian colleagues ensures a comprehensive understanding of
theAustralasianmarketplace.
Full details of PwC’s Cost of Capital methodology are available at:
https://www.pwc.co.nz/services/mergers-acquisitions-valuations/wacc.html
Contact us
Gareth Galloway
Partner
gareth.a.galloway@pwc.com
Regan Hoult
Partner
regan.b.hoult@pwc.com
Richard Longman
Partner
richard.longman@pwc.com
Wayne Munn
Partner
wayne.r.munn@pwc.com
Craig Armitage
Partner
craig.armitage@pwc.com
Nick McVerry
Partner
nick.m.mcverr[email protected]
Brendon Jones
Executive Director
brendon.v.jones@pwc.com
Andrew Keenan
Director
andrew.j.keena[email protected]om
Rajan Chopara
Executive Director
rajan.x.chopar[email protected]om
pwc.co.nz
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