MTU - M2 Telecommunications Group

[Vesupria]

I could be being a bit simple here...

But, as far as I understand, it works as follows. In normal circumstances a customer enters into a contract with the entity. The company is allowed to amortise this contract over the estimated life span of this contract using the straight-line recognition method, which appears on the P & L as profit .

Another company (in this case MTU) takes over the first company. These contracts are then revalued, and the amortisation can be reset. Which in certain circumstances results in an a difference. This is the intangible asset that you have mentioned?

[craft]

I could be being a bit simple here...

But, as far as I understand, it works as follows. In normal circumstances a customer enters into a contract with the entity. The company is allowed to amortise this contract over the estimated life span of this contract using the straight-line recognition method, which appears on the P & L as profit .

Another company (in this case MTU) takes over the first company. These contracts are then revalued, and the amortisation can be reset. Which in certain circumstances results in an a difference. This is the intangible asset that you have mentioned?

If there was no change of ownership transaction (or bankruptcy in PTGI’s case) these contracts/relationships in question would never be recognised on the balance sheet as an asset and hence not need to be expensed. The business is the same but the accounting profit is different pre/post transaction – you need to normalise for it to get a true economic picture.

[rick62]

SP still getting hammered! This is the record date for the entitlement offer as I understand it.

[skc]

SP still getting hammered! This is the record date for the entitlement offer as I understand it.

The ex-rights was 18 Apr. Record date shouldn't affect the share price much.

A decent intro article on various telcos.

M2 currently refers to their business model as “infrastructure light” as they have relied on network infrastructure of larger Telcos like Telstra to focus on small and medium businesses. As such, they are not in a position to realise any significant cost savings via the new fibre optic network. Although their past performance in terms of fundamentals has been solid, it remains to be seen what impact the NBN will have on their business.

http://www.thebull.com.au/articles/a...of-growth.html

[rick62]

Many thanks for the interesting article skc.
Regards
Rick

[Kipp]

Thats what I was trying to get at - The only way there is no dilution is if the acquisition is EPS accretive and in my entire life I’ve not seen many of those.

time will tell I suppose ...

Yeah, I read the co announcment and my little brain can't make sense of their figures, whcih claim that Primus is +8.6% EPS acquisitive. Primus CY2011 NPAT of 10m, company pays $180m (18x NPAT). And funds with 81m share placement, and $139m of Debt. Surely, they are paying ~7% minimum for the debt - which would have to be ~$9 - 10m in interest per annum. Plus all of the extra shares on issue....

Then comes the question of the "match made in heaven" (as said by Primus CEO). That they operate in different areas, with a different customer base. Ok, great in terms of opportunity - but not so great in terms of synergies I would have thought...
But sorry, I shouldnt really be posting, as I am very light on for research on M2. But the acquistion doesn't seem immediately cheap - but it might include some amazing strategic assets (like the data centres, and the cable networks) which are fair more valuable than I realise, and more than justify the $180m purchase price. (As a shareholder, I would also want to see a -10 - 20% headcount on the primus side, but that is just me being a capitalist bastard

[pavilion103]

The chart looks strong. I was in a few days back. It seems that there is little supply left and has begun to move.

[notting]

Looking strong today, yet has left a gap and is rubbing up against a bit of resistance after a capital raising. Could find it a little hard to go further in the short term.

[pavilion103]

Looking strong today, yet has left a gap and is rubbing up against a bit of resistance after a capital raising. Could find it a little hard to go further in the short term.

Yep. I'm trying to decide where to trail my stop with this one after a nice little run up. But do agree that it may encounter some resistance now.

[robusta]

Yep. I'm trying to decide where to trail my stop with this one after a nice little run up. But do agree that it may encounter some resistance now.

Just made it into the ASX200 it will be interesting to see if the institutions and ETF's buying will move the price in this market.

[craft]

Just made it into the ASX200 it will be interesting to see if the institutions and ETF's buying will move the price in this market.

There was supposed interest by institutional investors in MTU prior to the Primus transaction.

MTU gave the Insto the cold shoulder by doing a rights issue instead of a placement. Meaning the Institutions would have to buy their way in on market. There has been no new institutions appear on the register since the rights issue, so MTU has probably received a bit of a cold shoulder in return.

Inclusion in the ASX200 changes the dynamics again. MTU still appears to have a low institutional representation for what is now a ASX200 company.

[pavilion103]

Interesting price action today.

[notting]

Interesting price action today.

I took profits on Friday and would have got back in with a partial position at 3.32 had it got there! Would have gotten out again at the 3.50 level had I got it.
Just missed, pretty sure it will offer up again but this time may not bounce so quickly, so will probably just whatch.

[robusta]

Interesting article on MTU in the SMH recently.

http://www.smh.com.au/business/m2-ch...629-217yc.html

[robusta]

Interesting price action today.

Interesting today as well, maybe some broker woke up and realised dividend and EPS will be down this year while they bed down Iprimus?

[craft]

Customer contract amortization caused by business acquisition accounting amounts to 5.1Million (FY12) and 12.4Million for (FY13)

Adjusting for this as is economically logical to do results in EPS of 29.8 (FY12) and 36.5 (mid point company forecast FY13)

At $3.50 that is a historical P/E of 11.7 and a forward P/E of 9.6. given the exceptional growth rates of this company to date these superficial numbers certainly don’t look expensive to me yet I hear many people declaring MTU as expensive? It would be interesting to know the foundation of the ‘expensive’ opinion.

[Vesupria]

Back of the envelope I had ROIC increasing from about 28-30% in 2011 to around 35-40% in 2012. That's without adjusting the numbers as above for 2012. I only spent a few minutes to get a ballpark figure so I would not rely on these figures for your own decision making.

The thing that I could never understand (and why I cannot give my opinion of value this company) is beause I do not understand the source of their competitive advantage or whether they are a growing firm, in a currently low-competition, low capital expenditure market that has yet to reach saturation. It seems to me that their returns on incremental capital will start to reduce eventually, but for the moment there is nothing to indicate that this is the case.

There is always something disturbing about companies that have negative tangible assets to this degree as well, especially when they were positive in the prior year. Balance sheet is a bit risky in that respect.

I think it's a stock I need to have a much closer look at at some point.


edit: craft - the discussion we had about accounting goodwill & purchase adjustments on this and the last page makes more sense now after reading back over it. It's amazing how things are put into context through completely unrelated research.

[craft]

There was supposed interest by institutional investors in MTU prior to the Primus transaction.

MTU gave the Insto the cold shoulder by doing a rights issue instead of a placement. Meaning the Institutions would have to buy their way in on market. There has been no new institutions appear on the register since the rights issue, so MTU has probably received a bit of a cold shoulder in return.

Inclusion in the ASX200 changes the dynamics again. MTU still appears to have a low institutional representation for what is now a ASX200 company.

All time high for MTU on Friday – NAB still the only main stream institution to pop up on the register. Interesting to see if a push higher here sees some scrambling.

[robusta]

All time high for MTU on Friday – NAB still the only main stream institution to pop up on the register. Interesting to see if a push higher here sees some scrambling.

Not a mainstream institution but I bet you noticed Hunter Hall hold a bit over 9% of this business. Probably not much liquidity if Perpetual and their mates decide they want to take a substantial position.

[robusta]

Interesting video on MTU

http://www.youtube.com/watch?v=csk2T...2xs8vw&index=9

Hopefully I don't get accused of ramping HHL but their youtube site is well worth a look for value investors.

Good video on Sirtex available on the same site.