Melbourne IT (MLB) & Web Central Group (WCG)

[OneUp]

Not sure I'm entirely surprised at some profit taking, given the great run since November.

Using fairly rudimentary technical analysis (ie putting a 30cm ruler under the graph WCG is trending up at a consistent and predictable 10-15c a month, and whenever it's got away from that steady uptrend, like in early January or last month, it's eventually come back to the line. It's currently sitting right on the line so it looks like it will move north from here, based on the above...and consistently so, until one day it becomes overvalued. But that's some time away IMO.

[Damo79]

Decided its too good to miss at this price. I bought back in today at what I think is a bargain price.

To summarise... They have a market cap of about $54 million at the moment, a half year profit of $2.2 million with very consistent growth of revenue, EBITDA and NPAT continuing. I'd expect a minimum second half NPAT of $3 mil, and perhaps significantly higher. So at a very conservative full year profit after tax of $5 mil, they're now trading at a P/E of about 10. There is a slide (p. 18) in their half-year results presentation that shows the P/E ratios of other similar companies. IIN, for examples, was trading at a P/E of 66. Thats a bit optimistic, but I'm hopeful that WCG should be rated up to a P/E of at least 12-15 after full-year results. So thats a share price of $1.70-$2.20. And this is still at what I would think are conservative projections given previous growth. A problem is the lack of liquidity, but thats not gonna affect a small time gambler (ahem.. invester) like me.

Keep watching

Damo

[Damo79]

quote:The last two customers I have signed up for hosting applications in a data centre already had sites with WCG but they did not choose WCG for the new business.
Theres some competitive info for you :-)

Ack!!!

Thanks for the info KW .

[OneUp]

Thanks KW for the info. Maybe I can prise some more out of you . Like why they chose another company, and which company did they choose. And what kind of customers were these - dedicated (large) or shared server (small)? If they're small customers, no matter, WCG has thousands. It's worth bearing in mind Spicer is concentrating on the higher margin dedicated server customers rather than the no margin shared server customers. At any rate WCG's historic churn rates have been low. If that situation changes it would naturally not be good thing, but two customers is not a trend.

[Damo79]

Here's a question. In their half year results, it says there was $2.5 million of debt retired early. This sounds like the equivalent of me paying extra off my home-loan than I have to. So if they had chosen to stick to basic repayments on that debt, which isn't actually that large, then the reported profit after tax for the period would have been $4.7 million rather than $2.2 million!!!

That's huge considering the current share price. I wonder if the market has taken this into account. Consider if the company had decided to keep the debt levels as they are last half and this current half. Assuming only conservative growth, they would be reporting a full year profit of over $10 million! Current market capitalization is about $52 million. Is there any problem with this logic? It seems this company is way undervalued. Wish I had more money to invest.

Cheers

Damo

Disc. Hold

[Dimebag]

Damo79

I think you will find that the effect of any reduction in borrowings has already been taken into account in the calculation of the profit figures.

Net profit is, by definition, the change in net assets during the period. A reduction in a liability, without a corresponding reduction in assets, will result in an increase in net assets, and will therefore will form part of the profit calculation.

Cheers
Dimebag (none held)

[Damo79]

Dagnabbit! Just when I think I'm getting a good understanding of financial reports, I find I still make stupid mistakes. Thanks for that Dimebag. I think I pretty much just repeated the error that Oneup pointed out to me months ago on this thread when I misreported EBITDA as EBIT. It's all damn confusing. I still struggle when differentiating between the operating cashflow and profits section of financial reports, but I'm slowly learning the ropes.

Regards
Damo

[mark100]

Back in today. Sell side looks to be thinning.
Oneup, do you still hold?

Mark

[OneUp]

Yeah I do. Been a bit sad to watch it slide from $1.60ish to $1.30ish over the last couple of months, but she's still gained 30%+ since December.

[OneUp]

Has been somewhat happier to see it's slow but steady climb back up the ladder. Back up to $1.50 today, presumably on the back of winning the Microsoft 2005 Hosting Service Provider of the Year Award (Asia Pacific). No direct financial impact, but probably helps with marketing, as well as confirming that WCG has a superior service offering.