THERE’S A PRICE TO PAY

Finweek English Edition - - Companies & markets - MARC HASENFUSS

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.

METRO­FILE HOLD­INGS

Source: I-Net Bridge

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