MPG - Metro Glass

[Leemsip]

Awesome post. Makes me want to get in there and make the changes myself.
Seriously, what are mgmt doing.

I would love to buy this company, but its just hopeless...

[mikeybycrikey]

I have two thoughts on Metro:
Never buy a private equity IPO until the rot is fully and totally exposed
Treat most intangible assets as being worth $0 (as a non-accountant)

I think there is some chance that MPG could be worth something one day. It's a gamble rather than an investment though.

Also, in my opinion the price drop after the announcement from APL wasn't necessarily fatal but did represent the faint light at the end of the tunnel suddenly getting dimmer and further away. One more headwind in an already stormy sea.

I'm very cautiously optimistic about MPG, but expect there is a high possibility of losing all my money if I invest. But price is so low that it could pay off handsomely if it does recover. Kind of like a lottery ticket then.

[Davexl]

I have two thoughts on Metro:
Never buy a private equity IPO until the rot is fully and totally exposed
Treat most intangible assets as being worth $0 (as a non-accountant)

I agree reluctantly quite strongly regarding Private Equity IPO, but admittently wasn't looking for this information specifically at the time.
I disagree with the second point because there are increasingly many companies, even in NZ who have large investments in Intellectual Property, patents, trademarks, specialized methods, designs, custom software etc, particularly high technology companies - but there is a dearth of companies who can value these assets correctly in NZ. Regular Auditors are simply NOT up to the task in evaluating Intangible assets (esp. Goodwill) with any degree of accuracy and the end result is far too subjective in my view and let's them off the hook...

[winner69]

I agree reluctantly quite strongly regarding Private Equity IPO, but admittently wasn't looking for this information specifically at the time.
I disagree with the second point because there are increasingly many companies, even in NZ who have large investments in Intellectual Property, patents, trademarks, specialized methods, designs, custom software etc, particularly high technology companies - but there is a dearth of companies who can value these assets correctly in NZ. Regular Auditors are simply NOT up to the task in evaluating Intangible assets with any degree of accuracy and the end result is far too subjective in my view and let's them off the hook...

The bulk of the intangibles shown in metro accounts (not counting the Oz acquisition) is a wash up of when Metro Performance Glass acquired Metro Glass Holdings as part of IPO. Paid $290m odd for $122m of assets.

Nothing really to do with valuing the sort of items you mentioned above.

If really keen try to make sense of that $170m Group Reorganisation Reserve that shows in Shareholder Equity.

[winner69]

A lot has happened since private equity forked out $350m in 2006 and bought Metro Glass from a few decent guys

Essentially been broke twice since then

Amazingly if you looked at their NZ operations without knowing its share price performance as a public company you’d say it’s a bloody good business - the ‘heart’ of the business remains and it ticks over well, Similar businesses around the world would love to achieve margins they do.

Pity money men got involved and more lately fund managers influenced company direction. Together they have destroyed it

Best if Leemslip bought it (after a lot of the debt has gone and Oz cast off) - he’d have a great company without the big end of town interfering

[Lease]

For holders(including myself), I wish we are good luck that their NZ business are intact. I have analysed their Aussie operation and I have no concern about it. As long as their NZ operation are OK, the SP should recover.

They used to have 50% market share in NZ. If they could achieve such high % of share, don't understand why they are afraid of competition.

[Davexl]

The bulk of the intangibles shown in metro accounts (not counting the Oz acquisition) is a wash up of when Metro Performance Glass acquired Metro Glass Holdings as part of IPO. Paid $290m odd for $122m of assets.

Nothing really to do with valuing the sort of items you mentioned above.

If really keen try to make sense of that $170m Group Reorganisation Reserve that shows in Shareholder Equity.

Both points thankfully taken winner69.

Sorry I meant to emphasize the Goodwill level of Intangible assets not the IP side of things per se. I have edited my earlier post to now include this aspect also.

The letter from the FMA's assessment on Goodwill impairment strongly implied a high level of subjectivity in valuing these Intangible assets, but that they were within acceptable range.

eg. "the assessment of the valuation and impairment of goodwill is necessarily based on certain judgements and estimates"
AND "we do not have reasons to believe that the judgements and estimates that have been made by the Metroglass Board are not supportable."

First I've heard about a $170m Group Reorganisation Reserve that shows in Shareholder Equity. Thanks for bringing it to my attention.

You can clearly see I am no accountant - plenty to learn...

[mikeybycrikey]

I disagree with the second point because there are increasingly many companies, even in NZ who have large investments in Intellectual Property, patents, trademarks, specialized methods, designs, custom software etc, particularly high technology companies.

I think Winner has mostly answered this for me but I'll add a little more.

In the case of Metro, the intangibles are a hangover from the past and I would say probably worthless. They should write them down but probably can't because there would then be no equity in the company.

If a company like Arborgen or PEB is telling you how valuable their patents are, they are worthless. If a company is just getting on and doing the job then there is value.

Xero has spent years building their software. They (probably) don't talk about their intellectual property being valuable. The value is in the customer experience etc, etc.

Although I'm not an accountant or a lawyer so might be talking rubbish. DYOR.

There is definitely value in IP. Crowing about the value of that IP is a big red flag to me though.

I take your point about the auditor although I have no idea how much they can do there. It's an interesting question. Let the buyer beware!

[Davexl]

In the case of Metro, the intangibles are a hangover from the past and I would say probably worthless. They should write them down but probably can't because there would then be no equity in the company.

If a company like Arborgen or PEB is telling you how valuable their patents are, they are worthless. If a company is just getting on and doing the job then there is value.

Xero has spent years building their software. They (probably) don't talk about their intellectual property being valuable. The value is in the customer experience etc, etc.

Although I'm not an accountant or a lawyer so might be talking rubbish. DYOR.

There is definitely value in IP. Crowing about the value of that IP is a big red flag to me though.

I take your point about the auditor although I have no idea how much they can do there. It's an interesting question. Let the buyer beware!

I absolutely agree that there is definitely value in IP - it is real and tangible on the accounts eg Coca-cola, but we in NZ are absolutely Rubbish in valuing Intangibles on the accounts. eg Goodwill and IP. I can think of having only heard of one company (myself recently) who I would trust in valuing IP for instance in a high technology co situation, plus perhaps some of the patent attorneys who are very few in number in NZ. It is a task for specialists only, otherwise only guesstimates are being made. Sorry can't remember the name offhand.

[Beagle]

Just a small point. Its not the auditors job to value IP. The responsibility for ensuring the statement of financial position shows a true and fair view lies with the directors.
Typically the partner in charge of the audit will review the reasonableness or otherwise of the IP and discuss the assumptions made by the directors in valuing same.

In MPG's case IP from the outset was based on growth rates that proved grossly unrealistic and it took the appointment of independent consultants for them to finally concede this was not a growth company at all. I haven't followed the valuation of IP since then or this company in detail because I have no respect for the ongoing B.S. that comes out of management and the directors mouth's.

The only realistic chance I see for shareholders to get a decent return is a takeover and a complete cleanout of management and the board. I think that's unlikely while the Australian operation is losing money as they may be parent company guarantees on leases meaning a surgical annexation of that operation is practically impossible.