MPG - Metro Glass

[JCM]

Downgrades are one reason for the drop yesterday - I see Forbar did one.

The other issue coming up is the S&P index rebalance on 15 Sep. MPG's stay in NZ50 was borderline last time -
does anyone expect them to stay in the index this time around??
Some of the bigger transactions could be index fund managers adjusting their portfolios before the announcement is out?!?

I'd also be interested to know peoples thoughts on this. How likely is it that MPG would be removed from the NZ50 and what would be the ramifications of this?

Just had a quick play around on a Sunday afternoon...

MPG comes in at no. 88 of 167 listed companies on the NZX in terms of market cap ($209,477,237).

In terms of capitalisation for companies in the NZ50, MPG comes in at no 46 of 48 (only 48 companies in the NZ50 according to Wikipedia??)

MPG is 1 of only 3 companies in the NZ50 in the building sector - FBU, MPG, STU (STU is no 47 of 48 in terms of capitalisation).

What alternative companies in the building sector could replace MPG or STU in the NZ50? It doesn't look like there are many options available in this underperforming sector. Could the NZ50 reduce exposure here?

As some have said, this correction looks overdone. Thankfully sold old at above 140 with a minor profit. However, that doesn't mean I could resist trying to catch a falling knife on Thursday and Friday... Average cost price per share at 116. Bring on the recovery / dead 'possum' bounce

[Beagle]

Beagle's forecast - Net Profit for FY18 ~ $20m ? 185.3m shares on issue gives EPS of 10.8 cps. What PE to ascribe to this company given their track record to date and the fact that its a cyclical building supplies company ?

Jeez if Australia making another $3m/$4m this year that forecast NZ business is a disaster to put it politely - flat but sliding downhill.

Very competitive industry.

Hound probably just having a bad mood day. Had another look at presentation material, what they said was N.Z. sales were flat, not group sales, (important difference I misinterpreted earlier)
That $20m just a real quick back of the envelope Sunday work-up mate. They did say in their ASM presentation that they are still confident of profit growth in FY18 and believed that first half profit for FY18 was on track to match last years good first half profit (which I note was $12.5m normalised).
External advisors looking for efficiencies probably a good thing...got to look to move that 18.3% EDITDA margin up over 20% as they suggested in their page 16 wish list.
Management looking for production efficiencies for FY19 from new technology plant probably offsetting capex funding costs and depreciation (I would hope).
Maybe they can improve on FY17's normalised profit of $21.3m ? I would hope so but my confidence level is best described as only very moderate.
This will remain as a low conviction, very low portfolio allocation for me. You can make a reasonable case as a dividend yield hold 7.6 cps fully imputed, assuming they can maintain that gives (7.6 / 0.72) / 113 = 9.3% gross yield.
I guess the key question is can they grow EPS ? (I think the jury will be out on that question for quite a considerable period of time).

[winner69]

Yes good point on the capex and depreciation Winner. As noted above, this is a very very small part of my portfolio so doesn't warrant the full Beagle work-over and sniff test.
Regarding slide 16 - You tell me on this one mate, full of creative corporate speak or do you believe them ?
Did this weeks ASM effectively amount to an implied profit downgrade ? Is their talk of the need to look for efficiencies in the second half tantamount to admitting their expansionary plans haven't really worked ? Is the Australian acquisition EPS accreative and if not when will it be ?
Do the directors and management truly understand that growth without growth in EPS is useless and unless they're growing the latter they cannot be considered a growth company ?

Bolded question above

We all need aspirations eh

But I would bear in mind that as I said earlier top of cycle in 2008 to current top of cycle (maybe now) revenues have only grown at 3% pa ......and about the same level of profitability. And that's after years of becoming more efficient and more productive etc etc etc

They were lucky they could paint such a rosy financial picture at IPO time from using a starting point at the bottom of the cycle when things were pretty quiet,

Very competitive industry - even for market leaders.

[Beagle]

Bolded question above

We all need aspirations eh

But I would bear in mind that as I said earlier top of cycle in 2008 to current top of cycle (maybe now) revenues have only grown at 3% pa ......and about the same level of profitability. And that's after years of becoming more efficient and more productive etc etc etc

They were lucky they could paint such a rosy financial picture at IPO time from using a starting point at the bottom of the cycle when things were pretty quiet,

Very competitive industry - even for market leaders.

So real inflation adjusted sales growth of only ~ 1% per annum.
Can anyone tell me a good reason why a cyclical building company with virtually no real long term growth should have a PE of higher than 10 because I cannot think of any sound case for a higher PE than my standard cyclical one of 10 (Ben Grahame used 8.5 for no growth companies but long term Govt stock lower than the 4% prevailing at that time so 10 is fair now for a no growth cyclical company in my opinion).

If they can match last year's normalised 21.3m profit, (to be honest I am skeptical about their claims they can still grow it a bit because the tone of and what they said appeared to give them so many out's and caveat's) then we are looking at 21.3m / 185.3m = 11.5 cps for FY18. Put a PE of 10 on that and you have $1.15.

They need to prove they can grow EPS for a SP recovery, in my opinion. I would caution new and inexperienced investors not to expect a quick bounce in the SP with this one.

[winner69]

AGG eps accretive?

Last year 8 months Ebit $3.2m so full year F18 should bet least $5m.

Even if all the interest on extra debt applied to AGG still be eps accretive (no shares issued)

[Beagle]

AGG eps accretive?

Last year 8 months Ebit $3.2m so full year F18 should bet least $5m.

Even if all the interest on extra debt applied to AGG still be eps accretive (no shares issued)

Thanks, good point. Gearing still okay too as long as you believe their intangible assets value.

[winner69]

Thanks, good point. Gearing still okay.

Does raise question whether they paid too much for AGG - heaps of future growth built in to the price

Booked $31m of goodwill relating to this acquisition

[Beagle]

Does raise question whether they paid too much for AGG - heaps of future growth built in to the price

Booked $31m of goodwill relating to this acquisition

Must admit I have been pondering that question myself today. The other question that flows from that is seeing as management obviously have an absolute truck load of work to do with their N.Z. operations actually trying to deliver real EPS gains from recent years strong sales growth (something that appears to have been unachievable to date) doesn't this Australian acquisition suck up a lot of senior management time, energy and resources, things that are desperately needed to make N.Z. operations more profitable ? What is the point of more and more sales growth unless it results in EPS growth ?

[BlackPeter]

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) ...

[Fatboyj]

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

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