March Networks Share Discussion Threads

[mitzis] 07/3/2006 18:38

Panic over there now down 10% probably due to profit taking after the results and the tax situation I,m hoping for a rebound late in the day but this could fall tomorrow in which case I will buy if they fall to 1600p...

Meanwhile Cisco making a takeover of software provider.

[lordcoco] 07/3/2006 18:34

As a guess, a healthy bout of profit taking and nervous selling on the back of the confusion over the tax situation and effect on eps guidance at last results. MNW is a bit of a "hot" stock as far as I can make out on the TSX so is prone to big swings on momentum and sentiment, the share price here more often than not just reflects what's going on over there.

RBC told punters to take profit yet maintained $40 target, so I guess they have set the current trend for the hot money, perhaps accelerated by a jittery day all round for tech stocks. So far everyone else (I think) has upped their guidance, the results were, as usual, excellent and the mid/long term outlook still *very* good, plus Q4 should show very strong now as they intend to recognise their tax losses as a "one-time gain" then (as I understand it) and only have to match Q3 (seasonally weak) to beat their own forecasts, again.

I topped sliced a few with the hope of buying them back at 16/16.50, got close today. Personally I think the downtrend/correction/retrace/whatever will be short lived but wouldn't expect old highs any time soon without a bit more news out. Or maybe if the macro situation changes as March matures the multiples might look a bit lofty, even then though I think the co. will continue to grow apace and they tend to suprise on the upside.

It would be good to hear some bear cases imo, as I'm a bit rose tinted on this one and would appreciate an alternate view, I can/could see the short term one here, but as someone holding March for the long term, what have I/we to fear?

[mitzis] 07/3/2006 18:23

Not too clever on the TSX currently down 8%...I have no idea why the fall.

[umalukka] 07/3/2006 18:00

big mark down again does anyone know why this is happening? am very nervous

[sivadnoj] 07/3/2006 11:01

I don't think there was anything wrong with MNW's results either. Given the choice of the two I think I would rather be in this one. (Of course, it would be nice to be in both!)

[milesy] 07/3/2006 10:35

IND have released a great set of results today.

>M

[mitzis] 07/3/2006 10:27

No idea which way it will go but IND is going up crazy this am so they must be doing something right.

[milesy] 07/3/2006 08:42

Looking at the r/h header chart, price seems to be right on support line joining recent lows...interesting to see which way it goes from here.

>M

[sranmal] 04/3/2006 15:13

Cheers folks!

re. the 2 lawsuits, the 1st one has been settled for a negligible amount, the 2nd (with eWatch IIRC), if not settled, will go to court about Jan 2007 as stated during the webcast.

[sivadnoj] 04/3/2006 14:57

Sunny

The KBC piece you linked to makes a distinction between GAAP eps and cash eps. Presumably GAAP eps reflects the 36% tax charge while cash eps is higher because the brought forward losses are available to offset the tax charge. I think the accounting entries would probably look something like this:

On recognition of the tax losses at the end of FY 06:

Dr Tax Asset (B/S) X
Cr Reserves X
with the full amount of the tax losses available - some $30m.

Then from Q1 07 onwards:

Dr Tax payable (P&L) X
Cr Tax asset X
with the quarterly tax charge based on profits x 36%

The problem becomes one of perception. The KBC piece suggests that investors will use GAAP eps to calculate the pe ratio and as such, the valuation will look (even more) stretched. Using cash eps, however, nothing has changed.

I don't see this as any reason for downgrading forecasts. Its simply an accounting entry with no cash impact. I think its unfortunate that this is threatening to overshadow some excellent numbers and an increase in management guidance based on improved margins. I though I also heard on the cc that the patent action had been settled for an immaterial amount.

regards

[madmix] 03/3/2006 20:24

Ok, they won't actually pay the tax yet, but in Q4'06 they will add the tax losses to the balance sheet as an asset.

They will need to write down this asset by an appropriate amount each quarter - thus this write down will reduce the eps.

[sranmal] 03/3/2006 18:20

Because eps figures are stated after tax!

Yep, I know that, but jondavis stated that March "will not pay any tax on profits until the $30m asset has been exhausted", which shouldn't be until 2008, whereas brokers are assuming that March will pay tax from Q1 2007.

[madmix] 03/3/2006 18:04

So why have 2007 EPS been downgraded or am I being thick (don't understand!)?

Because eps figures are stated after tax! Therefore $1.31 without any tax deduction becomes $0.86 with tax deducted.

However, the flipside is that Q4'06 eps will be unusually high as a result of the one-off gain.

[sranmal] 03/3/2006 17:50

jondavis,

They will not pay any tax on profits until the $30m asset has been exhausted.

So why have 2007 EPS been downgraded or am I being thick (don't understand!)?



• GAAP Taxes Applicable in F2007 and Beyond: March has extensive tax losses and credits, and we expected no taxes to be recorded until late 2008. We learned that the company will record the tax asset in its FQ4/06 results as a one-time gain, and then book accounting taxes at a rate of roughly 36% beginning in F2007. There is no cash impact to the company (no cash tax payments), but accounting expenses will be booked.

• Estimate Revisions: The tax change has a sharp impact on GAAP EPS
estimates. Our F2007E EPS is revised from $1.31 to $0.86, while calendar
2007E EPS drops to $1.06 from $1.60. Again, cash earnings are
essentially unchanged.

They also state.....

We expect Street estimates to all be revised down with the new tax situation, and as a result the aggressive multiples at which MN trades will become more apparent.

.....which flies in the face the two broker target upgrades we've had since these Q3 results, to $43 and $45, with a new broker target of $50 too recently.

[milesy] 03/3/2006 17:15

Aha, think you figured it S.

Thanks
>M

[sivadnoj] 03/3/2006 16:56

I think the tax issue is a simple matter of year end accounting. MNW are now in a position to generate sufficient profits to ensure that accumulated tax losses brought forward are fully realisable. They are therefore recognising this asset on the balance sheet at the year end. If they recognise the asset then they also have to recognise the corresponding liability - hence the tax charge to the P&L from Q1 07 onwards. I think they have brought forward losses of around $90m. At 36% that amounts to a tax asset of approx $30m.

The important point is that in cash/economic terms nothing has changed. They will not pay any tax on profits until the $30m asset has been exhausted. Can't really see anything here to disturb investors other than, perhaps, the recognition of the asset and the related liability was unexpected.

[milesy] 03/3/2006 16:10

Not sure the analysts on the web cast got a clear view of the tax treatment either (management weren't specific)....maybe it was the apparent lack of clarity rather than a definitive view either way that spooked the market.

>M

[sranmal] 03/3/2006 15:43

Today:



Wellington West ups price target to C$45.

BMO ups price target to C$43.

It appears that yesterday's drop was in reaction to March's treatment of their substantial previous tax losses going forward, which I don't really understand.

[flips] 03/3/2006 09:32

Fall doesn't seem to have brought out many buyers. Wonder why.

[sranmal] 02/3/2006 23:49

mitzis - expect this to be marked down at open about £1.50-£2 to match Canada.

lordcoco - couldn't get my round how they'll be treating tax at all, and judging by the questions from analysts afterwards, neither could they.

[lordcoco] 02/3/2006 21:53

Not sure of the implications of the tax issue with March, bit beyond me. RBC have sharply revised down their eps forecasts for 07 as a result but maintained their $40 target??

The co. seemed to say that it would have no effect on profitability, is that profit before tax? And RBC say no effect on cash; cash earnings "essentially unchanged". EPS seems to be knocked back by the level of tax payable from Q1 07 - 36%.

As I understand it March have substantial tax losses and credits with which to offset their tax and were expected not to record taxes until late 08, they have chosen to record these in Q4 as a "one-time gain" and begin booking taxes in Q1 07.

I'm taking that to mean, because the figures are substantial, that they will have a considerable amount of cash bookable in Q4 due to the tax "asset", they said it wasn't reflected in Q4 guidance. If that is the case, as they are already have healthy cash, I'm wondering why they have chosen to do this now and what they have in mind for this "one-time gain"?

[mitzis] 02/3/2006 19:17

Great break-out today and my 2500 to 3000p prediction looks pretty intact.

[sranmal] 02/3/2006 18:32

Main (new) points from webcast:

- Engaged in many opportunities in the transportation sector.

- Commercial / industrial is now the 4th main market (others being retail, finance, transport).

- There was a $2M revenue decline in Q3 (retail) due to seasonal factors which was made up by commercial / industrial orders.

- Looking to expand into Europe, Oz, and Brazil. Only recruiting at the moment.

- Tax losses going forward. Couldn't understand how they were going to play this, and I don't think many of the analysts could either as each asked about again and again! You'll have to listen to the webcast yourself.

- Acquisitions - only looking at opportunities, nothing concrete.

- Expecting minimim yearly growth of 20%, that being the expected market growth rate.

- June 8th for next conference call.

[sranmal] 02/3/2006 17:50

D'Oh! Just listening to the webcast at the moment.