THERE’S A PRICE TO PAY
A LOT OF PUNTERS have backed information storage group Metrofile Holdings – the remaining listed remnant of the fizzled MGX Group – as a “dead cert” recovery stock.
They may well be right – but at roughly what price Metrofile represents good value is another question entirely.
Metrofile – while undoubtedly a captive business – has been hamstrung with some serious debt. In the second half of 2006, Metrofile completed a restructuring exercise that saw the debt of R320m in its operating subsidiaries refinanced and re-scheduled over six years.
The group also raised R135m via a rights issue, the proceeds of which were used to settle “holding company” debt. The group also bought out minorities in subsidiary Metrofile (Pty) Limited (in exchange for Metrofile Holdings scrip). OPPORTUNITIES Operating profit of R47m was generated on an impressive margin of 31,5% – not a bad achievement considering turnover was up by almost 10%. • The quality of earnings from Metrofile is good with cash generated from operations bringing R32m into the cash flow statement (after taking working capital into account). RISKS Earnings – reflected as 11,9c/share in the interim results to end-December 2006 – are in fact markedly diluted by the recent rights issue. Taking the 393m shares (instead of the 90m weighted average) in issue into account, earnings would have been 3,5c/share. That puts Metrofile on a forward price:earnings multiple of 18 times – if we assume earnings will double for the full year. Don’t expect dividends for yonks.