Mereo Biopharma Share Discussion Threads

[dan de lion] 08/9/2007 00:02

Really pleased to see that momentos is still around.

[sensei10] 07/9/2007 23:26

Superb Mark - many thanks

[jason8466] 07/9/2007 23:06

Thanks mark ,

very informative.

Kind regards,

Jason

[wbjunior] 07/9/2007 21:12

momentos
great to see your still around and holding mph, missed your contributions and informed opinion and research. Not had any feedback from Lord Lucan for nearly four weeks but he is holding firm and adding on the dips...................kind regards and hoping you and yours are doing well..................wbj

[polzeath] 07/9/2007 20:24

Good work, Mark, fair play.

[qackers] 07/9/2007 18:18

Thanks again for the follow up Mark. Guess we just have wait for the results to come through.

[cosnova] 07/9/2007 18:15

Mark

full appreciation of your time and energy spent reporting the AGM

[cosnova] 07/9/2007 18:15

Mark

full appreciation of your time and energy spent reporting the AGM

[acs] 07/9/2007 17:46

Thank you Mark,interesting read

[eagle eye3] 07/9/2007 17:33

thanks for the report also

[dan de lion] 07/9/2007 17:27

Thank you for all that info marben.

[marben100] 07/9/2007 17:15

Anything said about further share buybacks or the current share price?

Not discussed explicitly. MM did say that he and other directors "had been buying". As there haven't (yet) been any announcements of director puchases, I'm not sure whether he was referring to the buyback programme or whether we can expect some announcements about director purchases.

We must bear in mind that the company is doing a lot of work to expand the business which will, undoubtedly, require cash (especially if they do intend to make acquisitions). Even though the shares are cheap IMO, buying back shares may not be the best use of MPH's money.

Concerning John Harrison, from his words and body language and that of the board, it is clear to me that there is still a warm relationship between him and the rest of the board. Whilst I did not ask explicitly, I am pretty confident that his departure was genuinely for personal reasons and does not suggest something sinister.

Cheers,

Mark

[money multipier] 07/9/2007 17:14

Likewise - many thanks.

[wbjunior] 07/9/2007 17:00

Mark
Thank you for taking the time to attend the Agm and reporting back your findings. Its a case of hanging on in there by the seem of things, kind regards...........wbj

[qackers] 07/9/2007 16:56

Thank you Mark for taking the time to post such detailed information especially as I was unable to make the meeting.

Reasuring to note that the FD was there and was not pushed out in a rush due to unpublished problems.

Anything said about further share buybacks or the current share price?

[marben100] 07/9/2007 16:33

Sorry for the delay folks but here is my report on the AGM. Hope you feel the wait was worth it.

(I will prefix this report by saying that I started it yesterday, so where it says "today", read it as "yesterday")

Introduction

This was an AGM that I had been looking forward to. With the major shift in MPH, losing its YSL sales, 2007/8 is a key and transitional year for the business. The AGM provided an excellent opportunity to get a better understanding of how this transition was progressing. I am pleased to report that my expectations were fulfilled and the meeting, from my POV, was highly productive.

Marchpole is a "brand management company", despite being classified in the retail sector. It aims to address the luxury end of the spectrum and so, IMHO should be less vulnerable to a consumer spending squeeze than many retailers. What does that mean? Marchpole:

- Licences or buys brands (in the past Yves St Laurent, now JCC, Homebody, Ungaro etc)
- Works with designers to develop products that enhance the brand (mainly apparel, footwear but including accessories like sunglasses)
- Markets the brand
- Subcontracts product manufacture, under Marchpole quality supervision
- Wholesales the products

Marchpole also operates branded "flagship" stores in a number of international locations. These primarily serve the purpose of showcasing the brand.

My chat with Michael Morris reinforces my view that his business style and temperament are a close analogue of Alan Sugar: a no-nonsense guy, who calls a spade a spade – but shrewd and hard working. Like AMS, shareholders also have to expect that MM will "look after no. 1" (evidenced by the rather large bonuses and salary increases the board awarded themselves last year – admittedly in the light of much hard work and good results). If you don't like that style of entrepreneur, then this is not an investment for you and you need not read any further.

At the current share price Marchpole is a "value play", for me, but with strong future growth prospects. Here are the numbers:


MPH
Share price (p) 126/191/98 (current/52 week high/52 week low)
Shares in issue (m) 27.15
Turnover (£m) (1) 71.1
Mkt cap (£m) 34.2
EPS (p) (1) 19.8
P/E 6.4
NTAV (£m) (2) 0.6
NTAV/share (p) 2.1
Net debt/(cash) (£m) (2) 3.7
Dividend (p) 3.75
Yield 3.0%
Year end 31st March

Website:

Notes:
(1) Figures based on Hardman's latest forecast. Go to click on "research" and "sample research" – you'll find reports for numerous companies there, including Marchpole.
(2) Based on latest annual report, which you can download from Marchpole's website, here:


The Meeting

As usual, the meeting was held at Marchpole HQ in Berners Street, in the heart of London's West End fashion district. Marchpole occupies quite a large building there. The location provides a good opportunity to examine the merchandise Marchpole is selling, as good displays are provided in and adjacent to the meeting room.

The meeting was well attended, with most seats being taken. However, AFAICS there were only 3 private shareholders present, the remaining attendees being advisors and employees of Marchpole. We also had John Harrison, retiring FD and John Molloy, newly appointed non-exec, in the audience. At the top table we had: Ronnie Sterling (Non-exec), Raymond Harris (Non-exec), Christopher Phillips (Chairman), Michael Morris ("Executive Deputy Chairman" – in practice he's the CEO and major/founding shareholder) and Harvey Shulman (Non-exec).

Before the meeting, John Molloy introduced himself. He has working for C&A for 20 years and has known MM for a long time. He will be assisting MM with product sourcing. Some biographical details on JM are included in the RNS announcing his appointment, here: JM made the point that MM has been "doing everything himself" recently and really needed a hand.

Christopher Phillips decided to take all questions before voting on the resolutions. I'm afraid I rather monopolised the meeting. Here are my questions and the responses (please note that I don't do shorthand, so my reported responses are my interpretation of what the board was trying to convey, based on notes I took at the time and may not be totally accurate):

Q1. I am concerned that MPH appears to be losing focus as a "brand management" business and that > 50% of 08 turnover is forecast (by Hardman, p6) to come from non-luxury brands. Why have we gone down this route and will this product mix change in the future?

A1. Considerable effort has gone into replacing the lost YSL business. Whilst Greenmark's footwear is generally unbranded, it and other "high street" apparel is sold by "upper end" retailers (Jaeger and Top Shop were mentioned). Work is being done to use Greenmark's expertise to produce footwear under Marchpole brands (JCC was mentioned).

Homebody and Greenmark have not yet fully substituted for the loss of YSL but JCC distribution has increased 2-3 fold. There is a stock overhang (at retailers) resulting from the large YSL orders last year. As a result, Ungaro sales will not yet reflect their true potential.

MPH has taken steps to reduce overheads, which should result in improved profitability. [My note: of course, this could be achieved just by reducing director bonuses!]


Q2. There was no mention of Moda in this morning's statement. It formed < 10% of 06/07 turnover. How is it progressing?

A2. Moda is now running at 10-18% of turnover. Trading in the US has been difficult this year.



Q3. In general business in 06/07 (& all profits) were still chiefly in UK. When do you expect to see profits from international operations?

A3. Now! Overseas operations are currently profitable. The JC-DC brand will be in 250 stores. To give some idea of the impact, jeans under this brand sell for ITRO €150 and tops for €65. MPH earns a 5% royalty and 10% wholesale royalty on sales of these products. Trading in Russia is also strong. MM emphasised that it takes time to build these brands and operations and it will be 2-3 years before the full results of the work being done now can be seen in the figures.


Q4. I understand that we own 51% of Homebody. How are turnover/losses consolidated? How is the minority interest accounted for.

A4. The accounts show the full value of turnover and profits/losses. As Homebody was loss making last year, losses are fully consolidated. When Homebody becomes profitable, a minority interest in the profits will be shown. MM also mentioned that MPH has grown the brand from an initial turnover of £200K to £2.5m now.



Q5. Are orders for Autumn/winter 07/08 (largely) complete now? What is the peak time for spring/summer 08 orders?

A5. Yes, orders for autumn/winter 07/08 are complete (but not fully shipped/billed). The order book for spring summer 08 closes on October 15th. [My note: therefore, by the interims, MPH will have excellent visibility of likely full-year results and will have a pretty good idea by now].


Q6. I have read in the press that we might be acquiring a store chain. I hope that this again would fit with the luxury brands theme and not just be an ordinary high-street retailer. Can you give me any comfort on that concern?

A6. No comment on potential acquisitions! However, any acquisitions considered would not be "downmarket".


Q7. There has been a declining trend in gross margins over the last 3 years. Why has this happened and do you expect this to continue into the future?

A7. MM said that MPH is working hard to improve margins. Margins were reduced due to the high volumes of YSL merchandise sold last year. Improvement can be expected this year.


Q8. Is the fair value adjustment subject to tax?

A8. A notional deferred tax charge was incurred. Unless the acquired business are sold, this charge does not crystallise or have any impact on future years' tax. There is no amortisation of the fair value adjustment.


I felt that MM and the other board members (and John Harrison, answering my financial queries) did their best to answer openly and there was no hint of impatience or irritation with my questioning. I did NOT get the impression that Hardman's figures were likely to be beaten this year – and I had been recently told that MPH would inform the market if they felt they were going to miss the target. However, I did feel that the post-YSL Marchpole is in its early days and that MM is trying to assemble a team that can help him fulfil the company's true potential.

After the questions, the resolutions were voted on. As mentioned in the AGM statement, the "special business" was not dealt with and a separate meeting will be convened to cover this. CP indicated that there had been a clerical error in certain of these resolutions and also that MPH wished to issue a further explanation to shareholders. I await this with interest. [I suspect that this may have something to do with resolution 7 authorising the board to allot shares well in excess of the company's current authorised share capital!]


After the meeting I was able to waylay MM and ask one further key question that I had been hoping to put to him (he is now 61): how much longer do you want to stay with the business? I was surprised by the immediate and clear response: 5 years. There was even a hint that he already had a potential buyer for the business in mind!


My Thoughts (FWLTW)

What makes Marchpole an exciting investment for me is that the market is currently wary of it, for (IMHO) the following reasons:

1. It's classified as a retailer. Investors are wary of retailers ATM, with fears of an impending consumer spending squeeze.
2. There's a lot of uncertainty and fear in the face of losing the YSL licence.
3. Some investors may be concerned about the "Michael Morris" factor

As a result, the company is very lowly rated. I set out below why, on balance, I think these fears will be overcome:

1. By focussing on "high spending" (or HNW) customers and diversifying into international markets not subject to the same pressures as the UK and US, I believe that MPH will be less vulnerable than typcal retailers.
2. Hardman have forecast that, despite the loss of YSL, profitability will be maintained. MPH have good visibility of this year's profits and have given no reason to believe that this forecast will not be met.
3. Whilst I must concur that the P/E should carry some discount to peers, due to dependence on one strong willed individual, this bring advantages as well as disadvantages, when that individual has shown himself to be as talented as MM has. Another thing to bear in mind: minority shareholders include Jean-Charles de Castelbajac (as well as several institutions). Together those minorities control 28% of MPH's share capital, against MM's beneficial and non-beneficial holdings of 24.5%. It would not further MM's interests if they were upset too much (eg with large future bonus payments eating heavily into profits).


A further point worth considering: judging by the answers to my questions, MPH is hardly "firing on all cylinders" yet – and it will be 2-3 years before it does. If, despite this, they are still confident of achieving the 19.8p EPS forecast Hardman have posted (and remember, they have good visibility of the likely outturn at this stage due to long order lead times), this gives some idea of the potential that the business can reach. Note that Hardman's forecast for 08/09 is over 26p and a further substantial increase can be expected in the following year (barring major slip-ups). Given that achieved growth on that scale might prompt a re-rating to a (hardly generous) P/E of 12, that gives an share price target of over 300p for those patient enough to wait.


I have added today, following the AGM announcement. Marchpole remains one of my largest investments.

Regards,

Mark

[eagle eye3] 07/9/2007 14:49

any one have an idea of how much of the divi is put back in through share perchasing

[eagle eye3] 07/9/2007 14:44

white gold

[wbjunior] 07/9/2007 14:42

street are paved with gold I here.lol...........wbj

[eagle eye3] 07/9/2007 14:37

is thre any money in colombia,

[wbjunior] 07/9/2007 14:23

Must admit argy2 it has not stopped the volatility as far as I can see, funny old market this when you have shares trading higher than mph that are making a loss............keep smiling anyway wbj

[argy2] 07/9/2007 14:11

Perhaps it was a mistake to consolidate?

[lex1000] 07/9/2007 13:44

MPH @ 25.6p old money is ridiculous.Time to be buying and accumulating.