Mereo Biopharma Share Discussion Threads

[wbjunior] 21/2/2007 09:46

ok Fozzie, as a clue its over £2+..............................lol

[corrientes] 21/2/2007 09:45

This is my lucky company. Always seem to get my timing right on this one, for once.

[skintvestor] 21/2/2007 09:44

Can`t believe this! Every time I check the price, it`s gone up. How far could this go???

[fozzie] 21/2/2007 09:44

wbj , looking forward to you letting us know when its overpriced, LOL ;o)

[wbjunior] 21/2/2007 09:42

And again what a fab wednesday..................wbj

[momentos] 21/2/2007 09:41

And offer...!

[wbjunior] 21/2/2007 09:36

tick up on bid

[momentos] 21/2/2007 09:26

Well 12k all Buys here, 7k Buys / 1.8k sells on Plus (-20mins) so we still have steady buying pressure.


21/02/2007 09:04:25 145.00 758 O 109910.00
21/02/2007 08:59:38 145.00 1213 O 175885.00
21/02/2007 08:48:03 141.55 1450 O 205247.50
21/02/2007 08:47:15 145.00 4000 O 580000.00
21/02/2007 08:42:33 141.50 400 O 56600.00
21/02/2007 08:30:43 145.00 1000 O 145000.00

My dummy sells have mostly been offered mid price for the last couple of days.

[skintvestor] 21/2/2007 09:23

Just did a dummy trade and no offer price was quoted. Looks like they have no stock to sell!!!

[wbjunior] 21/2/2007 09:21

Agree we just need to keep holding firm and not sell out until the share is overpriced, I will post when we are in that situation.....................wbj

[skintvestor] 21/2/2007 09:17

And another tick up. Could be hitting £1.50 today!!!!!

MMs still short of stock?

[wbjunior] 21/2/2007 08:41

Morning all blue so far, looks like a good day ahead.......................wbj

[momentos] 21/2/2007 08:14

My "Fag Packet" calculations was

Net Asset 31/12/05 7.2m. + Retained profit 2006 2.5m less 30% tax = 1.75m

NAV at 31/12/06 8.95m Taken out by share buyback.

The "going concern" bit they have paid 3m for. If pbt remains at 2.5m pa Marchpole gets its investment back in 18 months. Even if Profit before tax drops to 2m Marchpole gets its money back in just over 2 years. Even if it drops to 1.5m pbt it only takes 5 years.

That is a hell of a good deal for a 20-year established going concern.

[marben100] 21/2/2007 08:09

Not sure on the "No other buyers" bit, a leap of a conclusion. The business was started in 1987 so 20 years would seem like a reasonable time for an exit.

Quite agree. I'll try and take MM aside at the EGM and see if I can get any "inside track" on how this acquisition came about. I suspect that the absence of written customer contracts might put quite a few other buyers off. I am not overly conerned about that myself and I do think MM has done a great deal for us shareholders.

[momentos] 21/2/2007 07:46

It does look a good deal. I think the risks highlighted are exactly the same ones you would state if you did due diligence on Marchpole or any similar company.

Michael Morris is, of course very familiar with Directors emoluments...! Hopefully didn't include a helicopter...

Not sure on the "No other buyers" bit, a leap of a conclusion. The business was started in 1987 so 20 years would seem like a reasonable time for an exit.

[momentos] 21/2/2007 07:08

Thanks Marben for you detailed analysis

[marben100] 20/2/2007 23:58

The eagerly-awaited MPH shareholder circular thumped onto my doormat this morning. At a hefty 45 pages, it's a bit more voluminous than I was expecting. Unfortunately, it's not available on the web. I do intend to attend the EGM and I'll ask why not. On the cover it indicates that copies are available from the Company's registered office – so by telephoning and asking nicely you may be able to obtain a copy. The market seems to like it, anyway, with the shares up a further 7% today. I'll do my best to summarise the key data here.

If you have any further questions, I'll try to answer them if I can find the data in the document, or otherwise I can ask at the EGM.


The Deal

Now we have the full details of the deal. AIUI it falls into four parts. In summary, these result in the Vendors of Greenmark receiving £11.8m and Marchpole acquiring the business with an NTAV of £0 for ~£3m.

Whilst this looks like an excellent deal for Marchpole, I can see that it makes sense for Greenmark's owners too. Again, I will ask about this at the EGM but it looks to me as though Greenmark's owners were looking for an exit. As a private, unlisted company, it can be hard to find a willing buyer. Without the expertise of Greenmark's founders, it is not an attractive proposition for a financial buyer, so I would not be surprised if this is simply a case of no-one else being prepared to improve on Marchpole's offer, even though that offer does not appear overly generous.

The financial side of the deal breaks down into the following components:

1. Share buyback

As at 31 Dec 2005, Greenmark had an NTAV of £7.2m (nearly all of which represents net current assets, including £5.7m of cash). So that Marchpole do not have to pay directly for the acquired assets – a bit of a pointless exercise – Greenmark effected a buyback of all of the shares held by Mrs Manning and Mr Rooley (the Vendor) for a price of £8.8m. Presumably based on management accounts, it has been assumed that the NTAV has risen since the 2005 year-end date to the £8.8m figure – there will be an adjustment to this buyback consideration figure to allow for any discrepancy between the estimated NTAV and that finally agreed.

Hence, the NTAV of the acquired business can be assumed to be zero, breaking down as follows, according to the proforma accounts (based on the end 2005 reference date):



£'000s
Non-current assets 75

Current Assets
Inventories 788
Receivables 2,099

Current Liabilities
Payables (879)
Tax liabilities (525)
Bank Overdrafts and loans (1,475)

Non-Current Liabilities Nil

Net Assets 83



2. Cash consideration & loan notes

Marchpole is paying a cash consideration of £1m on completion of the acquisition. A further payment of £1m is due on the second anniversary of Completion (effected by means of £1m in bank guaranteed loan notes, which will appear as a liability in Marchpole's balance sheet). Interest is payable on these loan notes at HSBC base rate + 2.4%


3. Convertible loan notes

The £1m convertible loan notes will convert into new Marchpole shares on the second anniversary of completion. The number of shares to be issued will be 1m divided by the average MPH share price (in £) averaged over the two years subsequent to completion, taking the share price as the mid-market quote on the last business day of each month for averaging. Interest at HSBC base rate is payable from completion until conversion

If today's mid closing price (141p) is assumed to be the average share price, this would result in the issue of ~709,000 new shares, or 2.6% of the current share capital – not a significant dilution (and will be less if, as we expect, the share price moves forward from here).


Risks

As in a listing document, there is a useful section of the circular detailing risks. A few "interesting" ones caught my eye:

Furthermore, fluctuations in interest rates may have a detrimental impact on the fashion footwear sector. Interest rate rises are often implemented to act as a brake on an overly buoyant economy and will usually have the effect of curbing the consumer retail market and encouraging people to cut back on their expenditure. Recent interest rate rises and further rises in the future may have a material adverse affect on Greenmark's financial results and operational performance.

This risk should, to some extent, be mitigated by Marchpole's international operations, assuming that Greenmark products can be sold internationally and in the absence of global interest rate rises.

Greenmark's business is subject to seasonal peaks. Historically, its most important period of the year in terms of sales has been March and August, reflecting the introduction of Spring/Summer and Autumn/Winter ranges. This can put pressure on Greenmark's supply chain and if suppliers are unable to provide sufficient quantity of merchandise to its customers in a timely manner, product shortfall and the loss of goodwill could result.

Useful to know the peak seasons which, I guess, are similar to those for the rest of Marchpole's business. They mean that a reasonable spread of sales between 1H and 2H can be expected (year end 31st March).

All Greenmark's products are manufactured in Brazil. The long lead times between ordering and delivering (up to two months) can make it difficult to satisfy rapidly Greenmark's customers' changing requirements...

I guess this isn't much different to the rest of the business but will ask at the EGM. Glad to see MPH recognising the following risk (and, I assume, taking action to mitigate it):

...In the current consumer environment, the Directors believe it is critically important for high street retailers to deal in goods that have been ethically produced... Negative publicity resulting from unethical working conditions... might detrimentally impact... the Marchpole group generally.

Whoa... this one's a bit hairy but, I believe, not much different to Michael Morris' own supplier relationships, AIUI:

Greenmark has no written contracts with its suppliers. ... Relationships with suppliers in Brazil have been managed by James Rooley, who is leaving Greenmark as an employee but will remain as a consultant.

Approximately 60% of Greenmark's revenue is generated from four key customers...
This risk is significantly increased in the case of Greenmark as it has no written contracts with its customers...

I'll DEFINITELY be asking about that... and expecting Marchpole to address it (which probably won't be easy). The absence of written contracts helps to explain why MPH was able to pick Greenmark up so cheaply, IMHO!


Greenmark Accounts

For the accountants amongst us, Deloitte and Touche have acted for Marchpole in reviewing Greenmark's accounts and, AIUI, have given an unqualified report.

Greenmark seems to have been run as a pretty tight ship. Average employees for 2003, 2004 and 2005 were 11, 12 and 15 respectively. Not bad for a company with the turnover and profits Momentos has detailed in his earlier post on this thread (and confirmed in the circular, which includes the last 3 years accounts for Greenmark).

One point worth noting, in Note 16 to the accounts:

Greenmark utilises currency derivatives to economically hedge significant future transactions...

At the end of 2005 these stood at just over £2m. Glad to see them hedging against those risks.

Worth noting (as might be expected for a private business) that a large part of the Administrative expensive in 2003 and 2004 comprised director emoluments. Figures as follows in £K:


2003 2004 2005

Gross Profit 2,976 3,578 3,579

Admin expenses (total) 1,495 1,083 462
Of which Directors 824 281 94



Proforma Assets

A proforma statement of net assets is presented, as if the assets of Greenmark as at 31st December 2005 had been combined with those of Marchpole as at 30th September 2006, the Greenmark share buyback had taken place and the consideration paid. This reads as follows (all figures in £'000s):



Non-current assets
Intangible Assets 9,961
Investments 5
Property, Plant & equipment 1,122
======
11,088
------

Current Assets
Inventories 7,938
Trade & other receivables 20,726
Cash & cash equivalents 6,695
======
35,359
------

Current Liabilities
Trade & other payables (10,984)
Current tax liabilities (4,112)
Bank overdrafts and loans (15,371)
Deferred tax liability (80)
======
(30,547)
------

Non-current Liabilities
Deferred tax (369)
Loans (3,965)
=======
(4,334)
-------

Net assets
======
11,566
-------



So Marchpole's proforma NTAV is ~£1.5m following this transaction and we have net bank debt + bonds of £12.7m, against a current market cap. of £38.4m, so gearing of around 30% - an acceptable figure but without any significant asset backing. Of course, 2H07 retained profit for MPH is to be added to the NTAV, which should return us to better territory. NB when the convertible loan notes convert, this will remove £1m of debt but slightly dilute equity, as indicated above.


My conclusions

A good buy by Marchpole, carrying some risks – but what worthwhile enterprise in this world is without risk?

Regards,

Mark

[jamesjoel] 20/2/2007 23:27

From III bulletin board

Marchpole Holdings is one of those companies that looks to be heavily undervalued due to it's intrinsic figures.

Last week I suggested to my co-investors within our investment club to invest in Marchpole. This was at 116p I think. My suggestion was based on it's figures, suggesting a price of 341p was a fair one, and the fact that the growth is fast due to acquisitions. A day later, literally, it increased in price by approx. 13%. How I regretted the fact that they rejected my proposal.

Anyway, if you hold this stock, don't let go. In my mind it still has a very long way to go and I would suggest you're looking at about 250p by the end of 2007, imho.

It's P/E suggests it is heavily under priced compared to others within the industry, high ROCE indicates good management, EPS growth has averaged 70% in the last 3 years, dividend yield of around 3.5% and next year's forecast EPS would indicate that 340p is not so far fetched. Hold on, it's only going to get better.
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[wbjunior] 20/2/2007 22:57

Yes nardelli i believe you will and more, good luck and well done for holding out against all the odds...........................wbj
Just back from snooker and going to bed cu all tomorrow for more of to day please...........wbj

[nardelli] 20/2/2007 22:51

might get my 36p back at this rate

[remynapoleon] 20/2/2007 21:39

momentos re post 518

LOL, as they say.

remynapoleon

[momentos] 20/2/2007 18:36

Well, British Bulls-hit a Hold after trying several Sell-Ifs.

Sound advice as ever: Doh!

"Keep away from short selling as well."

[momentos] 20/2/2007 18:24

WEll he seemed he "topped up" another 150k then 37500 more after hours!

Total 437,500 for £612,500...1.6% of shares. Did you sell your house wbj?