MPG - Metro Glass

[percy]

Exactly

Don’t forget private equity owned Metro for some years and the pretty pictures in the presentations were to make things look good well into the future ......they now need to face up to reality

Problem being they have unrealistically raised market expectations ....something that Braid, Cederwall or Waller would never have done eh Percy.

I really think Braid etc know they will always get set backs in business,know how to work through those set backs.and how to keep the business on course to develop in the direction they want,and know progress is never easy,so therefore never make silly projections.

[Balance]

Announcement doesn’t specifically say they are using external consultants .....I would hazard a guess an internal job ith a bit of help of the likes of Infometrics to give them market insights.

Oops - they have used them in the past ....maybe they should come a’calling on bull and winner.

No less than Warren Buffett states that he will rise from the grave if his companies use consultants and put a stop to it!

Defination of a management consultant - an expert who looks at your watch and tells you the time. Presumably because you are too dumb to read the watch?

[cyclist]

May be wrong, but aren't external consultants often used where management know there are hard (unpopular) choices to be made, and management don't want to be seen as the ones that come up with them? (i.e. consultants acting in the role of scapegoat - especially for changes where the workforce is affected).

[TheHunter]

May be wrong, but aren't external consultants often used where management know there are hard (unpopular) choices to be made, and management don't want to be seen as the ones that come up with them? (i.e. consultants acting in the role of scapegoat - especially for changes where the workforce is affected).

Yes, and where an "independent", i.e. unbiased view is required.

[bullfrog]

May be wrong, but aren't external consultants often used where management know there are hard (unpopular) choices to be made, and management don't want to be seen as the ones that come up with them? (i.e. consultants acting in the role of scapegoat - especially for changes where the workforce is affected).

Good point. How many times have you seen a draft report going back to the consultant until it says exactly what the Exec wants it to say. More bias confirmation, and I'll keep paying until it confirms what I already know.

[winner69]

Agree but in my view the hiring of external consultants just like FBU have done is the bigger indictment in as much as they're saying that we don't understand the market but we also don't understand how to make our business perform properly in that market or what changes we need to make to our business model. It also begs another question, why bother trying to expand into Australia when they don't seem to have their domestic operations operating efficiently and effectively ?

I don't understand how these building companies, (and I am talking plural here including FBU and STU as well) can make such a hash of a multi year building boom ?

You are a bit tough on Metro here methinks

Financial performance has been pretty good over the last few years. They have capitalised on the ‘building boom’ and grown profits. Current EBIT margins of 15% is very good in this type of business / industry and others would like to achieve that level of profitability. Of course it can do better but probably not that better

Why Metro is seen as a dog is that unrealistic elevated expectations have not been met. Remember Metro dressed up by private equity to get a good price.

One could say the stupid ones are those who paid 170 at IPO time and those who thought 220 was still good value and those who thought 140 was cheap as a few months ago.

Clearly Metro is really only worth what the market has it today - based on solid financials at the peak of the building cycle.

[winner69]

Back to “as a consequence of significant variations in the timing of both residential and commercial work put in place in New Zealand between Metro Glass’ assumptions and the actual market...'

This is code for our forecasts and aspirational targets for 2020 are a load of ****e

Betcha they are beginning to realise the impact of the real drivers of the building cycle and instead of moaning about them now realise the industry has considerable constraints.

I would hazard a guess that they have realised now is about as it will get. The peak of the current cycle is about now (may have even passed) and the touting of double digit growth no longer applies. Maybe a solid $20m profit is their lot.

I think the market is beginning to realise that. It’s not really about management on a day to day basis, it’s all about market conditions. They are just living with the consequences of not meeting unrealistic expectations that were imposed upon them.





The goodwill of $131m is supported by an assumption that volume growth will be 7.9% pa over next 5 years and 2,8% pa forever after that. (They doubled that growth assumption in f17 from F16). Expect an impairment I would guess.

[t.rexjr]

This is code for our forecasts and aspirational targets for 2020 are a load of ****e

Betcha they are beginning to realise the impact of the real drivers of the building cycle and instead of moaning about them now realise the industry has considerable constraints.

I would hazard a guess that they have realised now is about as good as it will get. The peak of the current cycle is about now (may have even passed) and the touting of double digit growth no longer applies. Maybe a solid $20m profit is their lot.

They would/should have been fully aware before IPO that there was limited true growth left in the NZ model. The continuing up trend of the current cycle made for a 'pretty' prognosis and masked the reality that the sector has capacity constraints and is CYCLICAL. The introduction of the double glazing stds in 2007 enabled huge growth in that cycles down trend. That initial growth converged nicely into the cycles upswing providing the perfect launching pad for an IPO.

[Beagle]

Not too tough Winner just being realistic about it. They only have themselves to blame for investor disillusionment with the 2017 annual report absolutely full of references to growth over the long term, take a longer view..on and on they went on about it in their report.

As you acknowledge the goodwill figure is built upon assumptions of growth that simply don't appear to exist. By their own acknowledgement the market is simply performing at quite a material variance to their own assumptions. The fact that they have to hire external consultants to reassess every aspect of their business model tells me there's a cultural problem that exists within the company based on unrealistic expectations of growth.
Have they learned anything ? I am not sure they have yet. Today's article behind the paywall on NBR is titled "Flat Growth offers chance to reflect" https://www.nbr.co.nz/subscribe/208824

There is no such thing as flat growth. Flat is flat is flat, it needs no further description or adjective, it is what it is. They should be reflecting each and every month based on sales targets achieved and management's monthly accounting result. They seem to imply that growth at normal rates will resume at some stage soon but then hedge their bets by bringing in consultants to double check their expectations which have obviously been wrong. How do you have confidence in their plans and expectations going forward ?

It is a CYCLICAL company presently trading at the PEAK of the cycle. It is trading at a forward PE of 10 at the PEAK of the cycle. Cyclical companies should not trade at a PE of 10 at the peak of the cycle so there is actually an argument for saying this stock which really was a case of lipstick on a pig when floated at the elevated price of $1.70 is still overpriced. The CEO doesn't get it that this company is CYCLICAL and appears to think we're in a brief period of "flat growth". To describe it as such borders on being completely pathetic in my opinion and hints at a rudimentary lack of understanding of economic cycles. No wonder they have to get in outside consultants to show them how to run the place...

As you acknowledged in the poll OCA v MPG, there is no comparison between the growth prospects of the two companies and given the only modest PE premium of OCA there was actually some method in my apparent madness of comparing the two stocks. Why would you bother with MPG when there's obviously questions about the governance / management expertise / goodwill impairment and cyclicality of earnings whereas with OCA you have strong prevailing demographic tailwinds driving ongoing growth and hard assets supporting the SP, (NTA in the 90 cent range from memory).

[TheHunter]

This is code for our forecasts and aspirational targets for 2020 are a load of ****e

Probably true, but also highly likely to be a response to their statement in their last presentation around over resourcing in FY17:

"Activity levels todate have been below our expectations and as we had resourced the business accordingly there will bea need to adapt and pursue efficiency initiatives through the second half of the year".

FY18 guidance still above FY17 so can expect 11cps, good opportunity in FY19 for this to increase as a result of "significant" improvements as a result of FY18 capex. Current divi also expected to be retained for foreseeable future so def a lot of positives in there given current SP.

As per goodwill - non-cash and is all made up anyway... But i doubt with the above points we will see any impairment.