MBD - Marbletrend Group

[Lizard]

I've been threatening to start a thread on this one for a while, since posting on it on another thread (http://www.sharetrader.co.nz/showthread.php?7794-Woolworths-hardware-venture-which-suppliers-will-be-acquired&p=332002&highlight=mbd#post332002).

This stock is probably still quite cheap at 12 cps. They own 70% of Marbletrends Pty Ltd (and at some stage will probably take out the other 30% minority) and supply bathroomware, especially vanities, toilets, showers etc. They have reported difficulty in keeping up with increase demand from Bunnings etc, so some investment in logistics and inventory.

The accounts are somewhat difficult to interpret - particularly their forecasts, as it is difficult to know when they are referring to Marbletrend Pty and when to Marbletrend Group between their numbers. Given the accounts are fully consolidated, I tend to work on the basis that they will eventually issue 50% more shares to take out the minority when the price is right.

Should they look capable of achieving their aspiration of $100m of sales within 3 years, then they are probably worth about 50cps, but given the risk around that, I think half year might see them through to 15cps. This would be a normalised forward P/E of about 7 by my estimates.

[winner69]

Interesting little company this Liz

As you point out very low market cap, esp relative to it sales base

What did they say about their aspirations of $100m revenues ..... been pretty flat around the $40m mark for a few years now

[Lizard]

The $100m aspiration came from the agm address. For 2011, they are settling for greater than 10% revenue growth (actual 11.3% at end of October).

The big gains this year seem to be in EBIT margin, where they say they are trying to move from 3% last year to 10% this year - sitting 6.5% end of October. However, when I looked, I couldn't figure how they calculated last year's 3%, as I thought was closer to 5%.

[Lizard]

Did not get back to post on this after HY result - was a decent improvement on last year, although still couldn't make sense of it vs their presentation EBIT figures. However, what is good news is that they have now bought out the 30% minority interest, so the accounts should become a far more straightforward proposition.

The purchase of the minority interest was funded by a $2m debt facility and existing cash. The minority interest accounted for $240k of the HY profit, so this seems like a pretty good deal. So working on a forward profit of $1.5m for the overall group, with no increase to shares, the forward PE is 5.5 (at 13.5cps) and EV/EBIT maybe about 5.2 after accounting for extra debt.

I thought they might be strapped for cash after this deal - possibly even require an SPP or rights issue to fund it - but seems they are able to tap debt with relative ease. I don't expect divs, but note they must still be feeling cash-confident, as they have announced a further share buyback to start 13 April. This buyback is for up to 10% of shares - the last one was operated fairly aggressively and put a strong floor under the price.

I think there should be an easy 20-30cps price on these in the next 6 months, so I think it could be worth trying to get some before the buyback kicks in.

[mamos]

Hi Lizard, what are you forecasting FY11 EPS to be assuming 100% ownership for the entire year?

[Lizard]

Hi mamos. I'm working off NPAT $1.5m or 2.6cps for now.

Still cautious on debt though - but presumably they wouldn't go the buyback route if they were cash-strapped.

Btw, also note that the put option will disappear off the liabilities (off-set by actual purchase price), so I think that will give them another $2 - $2.3m in abnormal gains or at least a gain to NTA.

[mamos]

The CEO retiring is this much of a setback?

[Lizard]

Hi mamos. I'm working off NPAT $1.5m or 2.6cps for now.

Still cautious on debt though - but presumably they wouldn't go the buyback route if they were cash-strapped.

Btw, also note that the put option will disappear off the liabilities (off-set by actual purchase price), so I think that will give them another $2 - $2.3m in abnormal gains or at least a gain to NTA.

Although announced NPAT was $1.08m to shareholders, when normalised for the non-controlling interest that is now in-house and for tax, it looks to me like $1.51m. Debt is a little higher than I'd hoped though - they have expanded inventory quite heavily this year and so a bit more impact from working capital than I'd allowed. Outlook was a bit "challenged" with not a sniff of a "well-positioned", but maybe they are saving that for the agm speech.

Looks pretty cheap, with EV/EBIT and P/E both around 5, while the 1cps in divs is turning a 7.7% yield (plus franking) on current 13cps price. However, won't be buying any until the agm provides some indication as to how the current year is playing out and will hold with caution given the margins and debt levels.

[Lizard]

From agm presentations yesterday, I would say NPAT for FY2012 likely to be around $1.8 - $1.9m. Revenue growth might be around 9%, but the bottom line growth will be about $0.4m and will look higher than that without the non-controlling interest adjustments.

That would put them on a forward PE of around 3.9 at 12cps.

Given debt levels, I wouldn't say they could justify a high PE, but I would have thought they get to around 7 by August next year if they can stay on track here.

I sold down half at around 14cps to be almost free carried on entry, as they're pretty vulnerable to recessions and debt crises in general, so not the ideal low-risk business to be in for now... but worth keeping a small punt for the large upside, while staying alert for any change in tone of announcements.

[winner69]

Methinks they'll end up being taken over .... good little bolt on acquisition for the bigger plays in that space

[Lizard]

Half year NPAT of $0.79m, although that comes with below-normal tax level. Sounds as though a few one-off's in there with relation to expansion and growth planning, which could go either way in second half - i.e. provide additional returns or see further drag on profits from increased staffing.

Overall a solid result and probably a good result for what would presumably be a pretty tough environment. Debt didn't come down, but looks manageable. Not sure if they work out cheap enough for take-over by the time debt comes into it - but would hope for cash/debt improvement in second half as inventory levels come off the cyclical high.

Div increased slightly to 0.55cps for the half, so still looking at over 7.8% yield off a share price of 13.5cps - and likely they will try for another increase in the second half.

Overall, doing well, but tough macro-environment will mean a re-rate in PE much beyond the current 5.3 is likely to take a while.

[Joshuatree]

Ebitda for year to june 2012 now expected to be $2,200,000 to $2400,000. And imminent purchase for $2.5 mill of another business. Does that still fit in with your NPAT est Liz?

[Lizard]

Big fall off in EBITDA for second half from first half of $1.6m. Pretty much means no profit in second half.

Not too surprised in this sector at present.

Hard to comment on potential purchase until more details are provided - especially on funding side.

[steve fleming]

Hard to comment on potential purchase until more details are provided - especially on funding side.

Turned out to be a pretty left field acquisition.

Funding the construction and commissioning of a concrete plant????

Am struggling to see the synergies between distributing bathroom products and manufacturing concrete, except that they are both involved in the buidling process, though at different ends of the building cycle.

I would have thought there were a bit more complementary acquisitions available??

[steve fleming]

Turned out to be a pretty left field acquisition.

Funding the construction and commissioning of a concrete plant????

Am struggling to see the synergies between distributing bathroom products and manufacturing concrete, except that they are both involved in the buidling process, though at different ends of the building cycle.

I would have thought there were a bit more complementary acquisitions available??

good to see the directors have come to their sense and are exiting this bizarre investment after 18 months

big fail of an acquisition, am sure someone has done well out of it, but it certainly wasn't MBD shareholders

[Lizard]

am sure someone has done well out of it, but it certainly wasn't MBD shareholders

Forgot about this one... but, yes, it does have the "mates deal" feel to it. Either way, I think MBD is off the trading list for a couple of years until they've had a change of governance or proven this was just a one off genuine mistake...

[winner69]

Lost their way completely didn't they.

Looked promising a few years ago but alas no more.