MPG - Metro Glass

[BlackPeter]

Interesting as well to see point 7 on page 15 of the presentation

https://s3-ap-southeast-2.amazonaws....073/264199.pdf

Upgrade key processing capabilities to support growth and meet market demands
– The majority of new equipment will be installed over the 2017 Christmas shut down
– These investments will deliver improvements in capacity, capability, quality, reliability and cost from the start of FY19
– Ensures that Metro Glass’ product offering remains at the forefront of the industry

While I realise that the last upgrade (in November 2016) created some initial havoc (they met the demand, but had to pay for lots of overtime) ... just wondering - why do we assume that this investment would not improve mid and longterm their margins?

[winner69]

Wow I'm always impressed with the level of detail you guys post.

What is the likelihood MPG will be taken off the NZ50?

No idea

Its often good to be kicked out if the nz50 - it's when the NZX says they are a loser - but usually signals the low point for the share price and its up up and away after that indignity.

[winner69]

Interesting as well to see point 7 on page 15 of the presentation

https://s3-ap-southeast-2.amazonaws....073/264199.pdf





While I realise that the last upgrade (in November 2016) created some initial havoc (they met the demand, but had to pay for lots of overtime) ... just wondering - why do we assume that this investment would not improve mid and longterm their margins?

Slide 16 says it all ....no worries

Revenue say +10% pa and better ebitda margin = eps growth close to 20% pa

Cool eh

[BlackPeter]

Wow I'm always impressed with the level of detail you guys post.

What is the likelihood MPG will be taken off the NZ50?

Not sure, I guess this is not totally up to them (but as well how the other companies perform) - however is the impact of joining the NXZ 50 )or any other index) as well as the impact of leaving it frequently overrated. There might be short spikes, but often not even that. Have a look at the HGL chart and try to guess when they dropped off the NZX50 ... from memory they dropped before the exit, but not afterwards ...

[Beagle]

Actually - 4 traders updated their numbers in reaction to the AGM. New target price is now $1.39;

However - even if I take the reduced EPS predictions assuming
10.5 cents for 2018 (my take based on them not improving on 2017 - 4 traders assumes still 11.5 cents), 12.1 cent for 2019 and 12.6 cents for 2020

than forward PE at current SP is 9.9 (well, say 10) and the EPS CAGR since 2012 (where EPS was 4.7 cents) would be 13%.

Putting this into beagles modified Graham's formula, (EPS * 10+g) then I still end up with a value of $2.41 per share ... and if I use the original Graham (8.5+2g), than it would be even $3.62 per share.

Obviously - if all the growth stops immediately (something neither the company nor 4-traders assume, and unlikely in a growing building market), than the share would be currently fair priced (well, PE 10 is actually not too bad on the uptrend of the growth curve).

I can only assume that there is still either something horrible lingering undisclosed in the dark ... or the market grossly overreacted. I assume the latter, but time will tell.

BTW - good news for downgrade counters ... this one was number 3 - i.e. all up from here

Ah yes ... and the new expected peak for the NZ building market is now forecasted for not earlier than 2020 (according to some RNZ report I heard today) ...

To be clear I am assuming no growth whatsoever in EPS in the years ahead until management can prove otherwise. The thing with the hounds modified Graham formula is I need to be confident the EPS growth is highly likely and that is definitely not the case here. Confidence in future EPS growth needs to be built upon a well proven history of past EPS growth before one can even consider using the Graham formula so in my opinion this sort of valuation approach is totally inappropriate in this case. To be honest I think its a very very poor show on management's part that sales have risen so strongly in recent years and there has been zero eps growth. I was hopeful going forward that they could address this. The other thing you should note is that there's no way in the world that all the brokers will have downgraded yet and no way that will all be showing up on 4traders website yet. Usually takes at least 3-4 working days for most analyst changes to show up on there. Suggest you have another look at their figures next weekend and there is likely to be a different set of future profit estimates.

[winner69]

I wonder how flat 'flat' really is

H217 earnings (normalised of course) were DOWN 18% on pcp ....... when revenues were up $35m on pcp ......and that included a full six months of Australia

So maybe the 'flatness' was already signalled .....a start of a trend maybe?

Metro keep changing the format of the tables they use in their presentations (to Confuse punters?) Like the Gross Profit line is missing recently - maybe to hide (OK lets say less obvious) that H217 GM% was only 44% when it's usually well over 50%? Hope it isn't their pricing in a competitive market .....hmmm

[BlackPeter]

To be clear I am assuming no growth whatsoever in EPS in the years ahead until management can prove otherwise. The thing with the hounds modified Graham formula is I need to be confident the EPS growth is highly likely and that is definitely not the case here. Confidence in future EPS growth needs to be built upon a well proven history of past EPS growth before one can even consider using the Graham formula so in my opinion this sort of valuation approach is totally inappropriate in this case. To be honest I think its a very very poor show on management's part that sales have risen so strongly in recent years and there has been zero eps growth. I was hopeful going forward that they could address this. The other thing you should note is that there's no way in the world that all the brokers will have downgraded yet and no way that will all be showing up on 4traders website yet. Usually takes at least 3-4 working days for most analyst changes to show up on there. Suggest you have another look at their figures next weekend and there is likely to be a different set of future profit estimates.

Look Roger, I hear what you are saying and if you don't believe they will have future growth, than this is your opinion. We are all entitled to one.

However - this does not make it right to make wrong statements related to past performance:

year EPS
2012 4.7 cts
2013 4.5 cts
2014 6.5 cts
2015 7.8 cts
2016 11.1 cts
2017 10.5 cts

The early years are pro-forma (from their IPO prospectus, just in case you are wondering.

OK - there is a slight drop back in 2017 (we all know, why), and we obviously don't know whether 2018 will be better than 2017, but I still would not call this a static EPS. Would you ? Really?

[Beagle]

Fair enough BP, I stand corrected...I did say it wasn't going to get the full Beagle work over, (such a small stake for me).

What is your take on what they said at the annual meeting, Sales flat for N.Z. operations or sales flat for the group, (inclusive of Australian operations) ?
It would appear an analyst on a behind the paywall article on NBR has taken a view that sales for the group are flat overall compared to the same period last year ?

Is this what they really said ?

[winner69]

Look Roger, I hear what you are saying and if you don't believe they will have future growth, than this is your opinion. We are all entitled to one.

However - this does not make it right to make wrong statements related to past performance:

year EPS
2012 4.7 cts
2013 4.5 cts
2014 6.5 cts
2015 7.8 cts
2016 11.1 cts
2017 10.5 cts

The early years are pro-forma (from their IPO prospectus, just in case you are wondering.

OK - there is a slight drop back in 2017 (we all know, why), and we obviously don't know whether 2018 will be better than 2017, but I still would not call this a static EPS. Would you ? Really?

BP - 2012 was the bottom of the cycle for Metro

Proforma eps for 2008 is about 10/11 cents .....9 year CAGR is ?

Dangerous to look at half cycles - need to look at a complete cycle

Liquidators report of March 2012 makes interesting reading .....but that's another story

[Beagle]

https://s3-ap-southeast-2.amazonaws....073/264199.pdf

Page 5 clearly says N.Z. sales have been flat, (not group sales).

http://www.sharechat.co.nz/article/3...ed-outlookhtml

Now ready to make my call on valuation.

Anticipating a flat result for FY18 compared to normalized FY17 $21.3m on 185.3m shares = 11.5 cps. I will stick with a PE of 10 at this stage and wait for proof of earnings growth. I think fair value is $1.15. If others want to assume earnings growth in the years ahead that's fair enough and they're absolutely entitled to that opinion and I hope they're right.
Disc: Holding a very small position.