Mice Group Share Discussion Threads

[toby tots] 25/11/2006 09:51

A snippet from today's Daily Mail "broker buys".

Oriel Securities says buy at 41p (now 34.25p). Will climb as investors
become familiar with medium-term growth strategy.

[besbury] 23/11/2006 06:07

A snippet from the Times market report.

Mice Group slipped 5½p as otherwise in-line results from the marketing services company showed an unexpected jump in central costs. Evolution Securities, which cut Mice from "buy" to "sell", said that it was worried that the group's growing debts may force the sale of its UK unit or its zoo and aquarium business. Either move would be dilutive to earnings, it said.

[boadicea] 22/11/2006 16:48

Lots of small sells and some larger ones (a few of these are dubious and may be institutional buys). The buys are nearly all large ones so institutions apparently are still taking a favourable longer term view. (The final B-trade is 'neutral' and is possibly passing on what a broker has managed to accumulate at a nice profit.)
Tomorrow may see more selling when peeps read their morning papers.
On balance I'm happy to stick with them at least for H2.

Can anyone hint at the time-scale of their typical order cycle?
If less than 6 months, the increased wip should fructify in H2.

[timben] 22/11/2006 16:29

Axa still seem intrested then

[scburbs] 22/11/2006 14:41

Having read the results again. They do actually indicate that the international division will start to benefit from the investments made in H2. Therefore, international division should return to growth in H2.

"These investments, together with the completion of the restructuring in Germany, are expected to impact results for the second half."

[stemis] 22/11/2006 14:01

It is not clear why they did not issue a profit warning in Sept.

Its not clear to me that they are going to miss the forecast in the market.

The current market forecast PBT is £9.8M.

Assuming interest this year is £4.3M (slightly more than 2 x H1), then they could achieve a PBT of £9.8M by hitting EBIT of £12.81M. That's just 5.3% higher than last year (£12.164M) i.e.EBIT £12.81M
Hedging gain 1.29M
Interest (4.30)M
PBT £9.80MNow you might say that its not fair to include the hedging gain, however I don't know on what basis their forecast was constructed. Excluding the hedging gain they need to do an EBIT of £14.1M, 15.9% higher than last year.

Of course the interim EBIT showed no increase on 2005. But last year H1 accounted for only 29% of FY EBIT, so a little early to call the game over.

Not that I would be surprised to see a downgrade mind you.

[jelfsie] 22/11/2006 13:27

From the finals in May:-

"The consolidation and rationalisation programme that commenced post the fund
raising at the start of the financial year is now largely complete and beginning to deliver results with improvements in cash flow, debt reduction and margins. Underperforming businesses have been restructured, closed or sold, low margin contracts have been renegotiated or cancelled and we have invested in people, technology and activities which will support and drive future growth.

Clear financial objectives are in place and apply across all our operations.
Every business within MICE is committed to achieving them. These objectives are
to generate cash from operations, to use this cash to reduce the Group's
indebtedness and to concentrate on improving margins, with bottom line
profitability a more important measure of success than top line revenue. These
financial objectives will be met by pursuing a business strategy that will
continue to focus the Group's activities within our core areas of the broad
marketing services sector".

END

Scburbs do you work for MEG's PR company?.

It is not clear why they did not issue a profit warning in Sept.

I suppose MEG might eventually come good but the progress they stated was taking place 6 months ago has clearly not happenned. Back to 30p I guess.

[scburbs] 22/11/2006 12:01

Cash outflow has arisen on inventory build up. The receivables and payables part of working capital is broadly neutral.

The inventory increase seems to be in line with the turnover increase. For reference the inventory year end balance tends to be lower than the interim balance so this looks good for a positive H2 effect (in respect of inventory).

For instance last year H1 was £25.6m and YE £22.7m. This is probably because the company has passed through its busy phase and, therefore, inventory requirements are lower by February.

[scburbs] 22/11/2006 10:51

"Taxation for the interim period is charged at 27%, representing the best estimate of the annual effective tax rate expected for the full financial year."

I have checked and tax credit was in last years 4.66p eps so this should be backed out and replaced by 27% tax to get a genuine number to inflate with this years expected H2 growth (or at least the growth I am expecting). I will do the calculation later, but it does look like 5p is toppy due to change in tax position, nonetheless I am sure the calculation will still show MEG to be very cheap.

My H2 forecast had international division flat. This is in practice unlikely as the investment was primarily to support that divisions growth and numerous large contracts in the middle east have been announced.

"This shift towards longer-term contracts has impacted the way in which the
Division delivers work to clients, requiring up-front investment in high
quality, creative and relationship management personnel. This investment is
necessary in order to support the significant development potential of this
Division."

It is, of course, not entirely clear when MEG expect the investment to come to fruition, but the contract wins announced leave some expectation that benefits may start to come through in H2.

[scburbs] 22/11/2006 10:43

salchow, Fair comment. However, the interest number is a large proportion of H1 operating profit, but a much smaller proportion in H2. This means the H2 effect is less marked (i.e. if operating profit is up to £10.5m then a £0.5m increase in interest has a lesser effect). Haven't had time to look at tax yet, will do so now.

[salchow] 22/11/2006 10:40

scburbs - if the profit were stable at 3.5M I would be happy, but I would look at the profit less interest. Last time 3.507M less 1.571M giving 1.936M and this time 3.506M less 2.082M giving only 1.424M. A significant reduction unless I am missing something. Also a bigger tax hit.

[norfolkdumpling2] 22/11/2006 10:25

Why oh why do I persist with this share! It is an annual nightmare of increasing hopes with minor share price improvement and then wallop and another period of stagnation.

Still I am no worse than this time last year when I had mentally written off the whole investment. Might as well stick it out and see what happens.

How long will you be staying this time Chef?

[scburbs] 22/11/2006 10:20

For reference bank facilities are £65m (reduced from £75m at MEG's request at last year end, see annual accounts page 11).

The headroom on facilities is £15.3m or 31% above the current debt level.

[scburbs] 22/11/2006 10:16

MartinC, My above analysis is on profit only. I agree debt is due to working capital as flagged in EVO's September note.

[martinc] 22/11/2006 10:14

But if the debt was all down to one-off costs, they wouldn't be saying this bit would they?

Net debt increased by #5.6m to #49.7m in the period driven primarily by an
increase in working capital We expect this level of activity to continue into the second half with both the debt position and corresponding interest charge increasing further.

I'd be able to overlook this as a one-off set of results, but history tells me to be more cautious.

[scburbs] 22/11/2006 09:52

With operating profit at 6.1m vs 4.4m and profit at 3.5m vs 3.5m it implies that the central costs were 2.6m this half vs 0.9m last year, i.e. an investment of 1.7m. On the assumption that the majority of this is one-offs the H2 growth should materialise. This is what they said on these costs:

"Operating margin decreased to 3.2% (1H06: 3.9%)* as a result of an increase in central costs, largely due to investment in staff and systems and certain
one-off items of expenditure."

It is difficult to tell from the above how much of the 1.7m is one-off and how much in reoccuring. Nonetheless the impact in H2 should be less than H1 due to higher profits.

This is the movement of operating margins at the divisional level

Int 8.8% vs 8.7%
UK 3.9% vs 3.9%
NA 3.8% vs negative

So margins are improving (unless mgmt have moved costs from the division to central which would be highly inappropriate and not in line with their improved accounting).

[scburbs] 22/11/2006 09:38

I think people are failing to appreciate the impact of increasing infrastructure for increased sales. This necessarily has a larger impact on the seasonal downturn period. If you look at the operating profit figures for each division they are well up (except international which is flat).

UK H1 2.1 vs 1.7
Int 3 vs 3
NA 1 vs (0.3)
Overall 6.1 vs 4.4 +38%

Last year split

UK H1 1.7/H2 3.4
Int H1 3/H2 2.8
NA H1 (0.3)/H2 2.5

If you extrapolate the H1 operating profit growth numbers (I will take 38% for the US, i.e. H1 turnover growth) you get the following for H2 this year.

UK 4.25
Int 2.8
NA 3.45
Total 10.5 (last year 8.7) +21%

The fact that some one-off costs have diluted the eps growth in H1 should not significantly impact H2, although some of the staff costs will probably still exist.

As most of the eps is made in H2 things are looking good for a solid c.10% eps growth this year (excluding the FX gains/exceptionals etc.). Given last years number was 4.66p I think 5p is eminently achievable. P/E now very low.

[iandippie] 22/11/2006 09:29

Sold this morning too, at 37. Will keep an eye out for future trading updates and FY results. But for now, I can't see any great upside from here in the short term, and there are far more exciting ISAble prospects out there - like TLD for example...

GL to holders.

[substp] 22/11/2006 09:03

"and as Evolution shifted its stance on the stock to 'sell' from 'buy'.

Over at KBC Peel Hunt, however, Mike Foster reiterated his 'buy' stance on Mice, but pointed out there has been another cash outflow. This, and the absence of a dividend rise, might delay the further re-rating which is due, the analyst cautioned "

[boadicea] 22/11/2006 08:52

erstwhile - What exactly have their bankers said?

[stemis] 22/11/2006 08:48

At least there is little expectation built into the share price so little froth to blow off the price.

If MICE only manage last years EBIT of £12.2M and interest is twice H1, then PBT will be £8M (excluding the one off on hedging arrangements). That's a long way short of the current (?) forecast of £9.8M so is hopefully very prudent. It would still only leave MICE on a forward P/E of 11.5. If the £9.8M still applies then its 9.4.

[besbury] 22/11/2006 08:31

The increased debt is disappointing, even though it is in line with EVO forecast.I have sold some this morning, but will hold my remaining 50k for the time being.