About Martin Engelbrecht

For the last 18 years Martin Engelbrecht has been a Forest Economist of which he spent 9 years working for South African Forestry Company and the last three  years for himself.  He has a B Econ (University of Stellenbosch), a National Diploma  in Real Estate (Unisa) and an Diploma  in Arbitration (Arbitration Foundation of Southern Africa).

Scope of Assignments

The following types of assessments have been undertaken;

  • Profitability of different species
  • Valuation for Financial Statements in terms of IAS 41 (AC 137)
  • Faustmann Valuation for third party claims
  • Faustmann for sales and/or purchase
  • Calculation of land value for a specific discount rate
  • Discounted Cash Flow Model

Faustmann Explanation

As the Faustmann formula is often used in forestry valuations a detailed explanation has been provided below. The value of a compartment can be determined with great accuracy at the beginning and at the end of the rotation.  The beginning value is the cost
of establishment and the value of a mature compartment is the net salvage value given the log class distribution and market prices.

The problem with the valuation of a compartment is that for the first number of years the compartment has little or no salvage value. To establish a single hectare would cost over
R2 800 per ha. If this were to burn soon after establishment there would be no salvage.

To overcome this problem of not having a market for immature trees one can use the “cost plus interest” approach to determine a cost value for any given year so that the cost value at rotation age is equal to the salvage value.

The Faustmann formula uses the Internal Rate of Return (IRR).  This is the interest rate, which joins the beginning value (cost of establishment) plus all other costs during the rotation to the end value (salvage value). Interest is also paid on the land and capital at the calculated IRR. (click to view a table or graph representation)