Mereo Biopharma Share Discussion Threads

[momentos] 19/2/2007 19:37

Wonder if 13Matt13 is still around somewhere. Be interested in his comments.

WBJ you should try to dig him out, he deserves to come over and have a little gloat....

We remain full of huge potential for the future (JCC being realised, Ungaro jury-out-but-looking-good, Homebody a good punt, Greenmark, solid returns for years (Est 1987 BTW), Boateng....aarggh nearly over?!?!?

As much as I and perhaps others may have commented on Michael Morris' personality, one thing is for sure, it cant be too bad... JCC loves Marchpole, Hommebody came on board, the Ferragamos liked him (Moda, Ungaro etc.), the Mannings were happy to sell their lifework-business to him.

Hard and demanding taskmaster he may be, but he seems to command respect in the industry.

Succession....? I am sure he has a few demanding lieutenants in the wings. It is not and cannot be a one man show when there are 130 employees.

[momentos] 19/2/2007 18:39

Haha!!

Momentos 1 Professional Analysts 0

Have to look at those "other expenses" down 600k y-o-y again, eh...

Cheers Nap!

[remynapoleon] 19/2/2007 17:49

Gentlemen

Re the discussion yesterday regarding the Real. I was looking at an import deal from Brazil 2005/2006 and all the quotes I was provided with were in US$.

Different commodity, but I have no reason to expect a change of business currency for shoes.

Not terribly important information I but I thought you may like to know.

remynapoleon

[momentos] 19/2/2007 16:58

She's a breakin' oot!

[wbjunior] 19/2/2007 16:21

tick up, buys at 1.33...........................wbj

[wbjunior] 19/2/2007 14:50

Plus market
2/2007 13:27:32 130.15 226 O 29413.90
19/02/2007 12:41:38 130.15 3652 O 475307.80
19/02/2007 11:11:57 130.15 2500 O 325375.00
19/02/2007 11:06:09 130.15 10000 O 1301500.00
19/02/2007 10:01:02 130.15 600 O 78090.00
19/02/2007 09:37:31 130.15 1439 O 187285.85
19/02/2007 09:16:13 130.00 5000 O 650000.00
19/02/2007 08:20:36 130.15 2900 O 377435.00
19/02/2007 08:09:56 130.15 2500 O 325375.00
19/02/2007 08:02:29 130.00 392 O 50960.00

Against 10k buys, so MM want these by the look of things..............wbj

[momentos] 19/2/2007 12:34

NEWS - Circular out!

EGM 7th March 11AM Berners Street.....

[wbjunior] 19/2/2007 10:39

Looks good Momentos we need it to start moving up again to break out of the 1.30 range May get some news on Boateng soon as well, hopefully we can finish him off completely with some nice compensation...........wbj

[momentos] 19/2/2007 10:14

I keep looking at the deal details and I cant help thinking waht a stonking deal it is.

We have worked out the business was valued at about 12m prior to the cash extraction via share buyback. THis gave a PER of about 6 based on arter tax earnings of 2m.

But of that 12m AT LEAST 7m was probably CASH!! The previous owners left years of profit in the business rather than taking it out through divis.

So Marchpole have got a business producing 2m annual profit for about 5m all in!!

[momentos] 19/2/2007 08:57

Argy - Only potential dilution on the horizon is:

1. Conversion of Loan note of £1m to shares 12 months after deal completion (est 3% dilutive).

2. kicking in at Market Cap north of 50m as follows, all at 128.75p (which goes to the company):

50m MCAP 325,000 Shares
55m MCAP 325,000 Shares
60m MCAP 60,000 Shares
70m MCAP 60,000 Shares
80m MCAP 60,000 Shares (not before 21 Feb 2006)
Total 830,000 Shares
Dilutive c 3%

3. Page 55 of the indicates 1,069K outstanding options granted including 2 above. ie. 239K options with other employees (c 0.8% dilutive)

So all in not enough to attribute reduction by the amount required (20%) to dilution effects. And anyway, all of the above are non-exercisable at the moment (bar about 40k - see annual report) so not dilutive!

[wbjunior] 19/2/2007 08:03

Argy my numbers are based on 27.2 million shares and assume 20% growth across the board. Remember Hardman had the revenue for this year way off target so I don't think MPH tell them everything. Just my own estimate and I will give a more detailed forward projection when more information is available. There may be one off costs that are connected with the acquisition and set up cost that we have to take into account yet but in the worse case scenario 20p and 20p+ still make these very cheap with the prospects going forward....................wbj

[argy2] 19/2/2007 07:51

Their figure is a fully diluted one, could that account for the difference or is yours too?

[momentos] 19/2/2007 06:55

Argy - yes they may well be. Very cautious.

At 2.5m PBT (current indicative 2006), say 1.7m after tax, on 27.2m shares thats still 6.25p.

Their figure would be PBT of about 2m.

[argy2] 19/2/2007 06:38

wbj

Your 2008 figs far exceed those of Hardman if I remember rightly....any reason for that?

momentos....Aren't Hardman looking for around extra 5p eps from this acquisition in 2008?

[wbjunior] 18/2/2007 18:31

Momentos I would love to make a projection for this and next year, but with so many unknowns it really is a stab in the dark. But without going into any real detail I would think the EPS for this year will come out at around 22p and with anticipated growth across all labels and the introduction of Greenmark I would be looking for around 29p eps for 2008. Not to concerned as long as they maintain this years eps+ into next year, that would be a great foundation to build on. I value the shares cheap on 10 times earnings so at this years earnings £2.00 is not dear imho...........wbj

[momentos] 18/2/2007 12:09

... And at 2m profit after tax the deal adds about 7.4p EPS. We have 2p coming from JCC perfumes from 1 Jan 2008, so some nice revenue stream diversification.

Dilution effect of the conversion of the 1m loan note to shares is unclear - the conversion price is not provided. Must be about 110p to 120p minimum though (about 3% dilutive).

Marchpole Directors shares options still need 40% plus MCAP rise to kick in...

Long term EPS if Ungaro goes right should be 30p+, but I haven't really worked it out... WBJ is yer man for that!

C'mon wbj, I've dug out all the figures for you now!

[momentos] 18/2/2007 12:00

Thanks Nurdin..

I fleetingly read the Hardman note as it appeared to be mostly RNS re-hash. I missed their comments on the Brazil Real and also on the expected profits in 2006, which mirror mine above!

The change in other expenses does also mirror the profit change, so the Real may not be necessarily the cause. Quite possible the deals are done in USD.

[nurdin] 18/2/2007 11:43

Momentos..if you read the Hardman note it says the drop off in 06 was probably caused by the strength of the Brazilian currency...Greenmark apparently have all their shoes manufactured there.

Havent got the full grasp of the deal yet but am I right in thinking they are paying £3m for a business generating circa £2.5m in profits?

No position yet but getting interested again

PS.OK just read your reference to the TMF post above,Actual price is £12m...still a good deal at 4.8x...or 6x post tax

[momentos] 18/2/2007 11:29

Agree wbj.

One final footnote to those figures: The deal is done on the basis of "Adjusted Profit" (pbt) between 2.3m and 2.7m. The price is increased / reduced outside of these parameters.

This gives an indicative PBT for 2006 of 2.5m (2005: 3.17m, 2004:2.55m). So there is a slight dropaway in 2006 - whether by exceptionals, reduced turnover or otherwise is not clear. 2005 does, though appear to have a lower "Other Expenses" figure (0.46) than previous years (1m+) which seems to explain it.

Pushes the three year PER up a very small amount, but on the surface still looks a good deal on price and other considerations.

[wbjunior] 18/2/2007 11:07

Welcome back Momentos and thanks for the figures on Greenmark, looks ok as far as we know with the information given. The announcement seems to suggest there are more acquisitions and licence deals ahead, hoping for steady move forward with no hicups now....................................wbj
As you say a charge to Goodwill of a few million, but the capital structure of Greenbank fits nicely into the MPH model, with very little capital expenditure on fixed assets providing good cashflow in the future.

[momentos] 18/2/2007 10:52

So of the 8.8m taken out was probably min 5.7m cash (that was a 31 Dec 2005 figure, increased by 2.1m on year before) and 2m debtors vs minimal creditors. Probably 7m+ cash at deal time.

Steady growth, only 15 employees, nothing scary, likely little debt taken on.

Reassuring.

[momentos] 18/2/2007 10:48

Greenmark Historics:
Year 2005 2004 2003 2002 2001
Turnover (UK) 24.57 24.21 18.89 17.56 16.89
Total Turnover 24.57 24.21 18.89 17.56 16.89
Cost of Sales 21.04 20.63 15.91 15.15 14.84
Gross Profit 3.53 3.58 2.98 2.41 2.05
Depreciation .02 .02 .02 .02 .02
Other Expenses .46 1.08 1.49 1.05 .95
Operating Profit NA 2.49 1.48 1.35 1.10
Other Income .15 .05 .02 .01 .01
Interest Payable .06 .00 .00 .01 .03
Exceptional Items .00 NA NA NA NA
Profit/(Loss) Before Taxes 3.17 2.55 1.50 1.35 1.09
Tax Payable / Credit .95 .77 .45 .41 .32
Dividends .05 .67 NA NA NA
Retained Profit/(Loss) 2.16 1.11 1.05 .95 .77


BALANCE SHEET

ASSETS
Fixtures & Fittings .01 .01 .01 .01 .01
Plant & Vehicles .06 .07 .07 .05 .07
Total Tangible Fixed Assets .07 .08 .07 .06 .08
Other Fixed Assets .00 .00 .00 .00 .00
Total Fixed Assets .07 .08 .08 .07 .09
Stocks .79 .73 .69 .46 .27
Total Stocks/Work in Progress .79 .73 .69 .46 .27
Trade Debtors 2.00 2.40 1.38 1.21 1.61
Other Debtors .08 .04 .05 .03 .03
Total Debtors 2.07 2.44 1.43 1.23 1.64
Cash at Bank 5.70 3.58 2.99 2.09 1.29
Total Current Assets 8.56 6.75 5.12 3.78 3.20
Total Assets 8.63 6.83 5.19 3.85 3.28
LIABILITIES and SHAREHOLDERS EQUITY
Trade Creditors .06 .25 .20 .26 .31
Director Loans (Current Liability) .60 .62 .00 NA .17
Accruals/Deferred Income (Current Liability) .17 .06 .43 .20 .46
Social Security/VAT .05 .06 .15 .07 .07
Corporation Tax .53 .77 .45 .41 .32
Total Current Liabilities 1.40 1.76 1.24 .94 1.33
Issued Capital .10 .10 .10 .10 .10
Retained Earnings (BS) 7.13 4.96 3.85 2.80 1.86
Total Shareholders Funds 7.23 5.06 3.95 2.90 1.96
Net Worth 7.23 5.06 3.95 2.90 1.96

CASHFLOW

Operating Activities 3.23 1.68 1.33 1.12 1.06
Return on Investments .15 .05 .02 .01 (.01)
Taxation (1.20) (.45) (.41) (.32) (.12)
Capital Expenditures (.02) (.03) (.03) .00 (.05)
Equity Dividends Paid (.05) (.67) NA NA NA
Net Cash Flow 2.12 .59 .90 .80 .89

[momentos] 18/2/2007 10:19

I see comment on TMF / iii about the deal negative about Greenmark...

I think people are confused because of the structure of the deal. It was probably done for best tax etc efficiency.

If there were 12 shares in Greenmark, Greenmark has effectively bought back 9 of them for about 9m out of its resources. The remaining 3 shares have then been bought by Marchpole. The result is really no different than if Marchpole had bought all 12 shares in the first place. The structure will be for (obscure?) company structuring / tax etc reasons. Hence the headline 3m when the true purchase price is 12m.

The effect of the 9m on the Greenmark balance sheet will be the interesting thing to see, hopefully not adding a large debt. Net assets were 7.2m, 8.8 was paid out, plus 3m more from Marchpole funds. Morris has previously indicated a healthy allergy to debt. Given they are stating a minimal effect on Marchpole assets, the balance sheet must be carrying about 4.6m of goodwill going forward.

Greenmark turnover 2005:24.1m, 2004:23.9m
Greenmark PBT: 2005:3.2m, 2004: 2.5m

At a tax rate of 30%, profit after tax is ave 2m. True purchase price 11.8m, so acquired on PER of about 6. We need to see a bit more history / forecast detail on Greenmark to see if this is a good deal, beyond those achievable from the synergies.

[momentos] 18/2/2007 09:33

Major Holders also updated. This is my current take, any corrections welcome.

Notes:

1. Entry for 'Individual and Private Clients' in Annual Report p15. I have assumed this is the previous Bank of New York Nominees (see prev AR).

2. Difficult to get a handle on Rathbones holding as is a unti trust, but said they were adding in

3. Not sure Squaregain / Waterhouse really count?

MAJOR SHAREHOLDERS (ests)

18.98% Michael Morris

7.2% Michael Morris 1997 Trust

6.3% 'Individuals & Private Clients' (was Bank of NY?) (2006 Ann Rpt p15)

6.68% Barclays PLC

6.14% Man Group

5.19 Rathbones Group (p8 of Rept)

5.02% J C De Castelbajac

4.37% Squaregain (2006 Annual Report p15)

4.15% Gartmore Investment Management (2006 Annual Report p15)

3.68% Santa Lina (Pernod Ricard)

3.02% Waterhouse Securities (2006 Annual Report p15)

Others: 29.27%