Mice Group Share Discussion Threads

[boadicea] 06/5/2007 21:41

The primary problem of MEG is one of cash flow. The latest trading announcement does nothing to affect the current cash flow and I think SteMis gives the more reasonable overall view of those stated so far.

Unless there has been a large recent increase in the wip factor, the valuation problem is likely to be one of long standing which is now being recognised and corrected. The impact on profits will indeed fall in the year just ended (unless the py accounts are also restated which could reduce the current year effect).
Slightly odd is the "if required" qualification against the downward revaluation of wip. This suggests to me that the matter is in dispute with (?)auditors or banks rather than being purely a matter of company review. A normal valuation statement would, I believe, be the lower of cost or net realisable value. In the case of profitable work contracted for a solvent customer this reduces to cost (without any profit element that MEG formerly included).
The two reasons for valuing work at less than cost would therefore be either the expectation of unprofitability resulting in a loss (e.g. due to a manufacturing cost overrun) or a 'more likely than not' case of a customer defaulting on the contract thereby leaving the supplier with goods of dubious value or unsaleable in the open market.
The process of "deleveraging" the company implies liquidation of assets (a process that has been started in the sale of Sea Life and the property sale/leaseback) or issue of equity - perhaps both.
Now, of course equity holders will be nervous, the more so given the poor cash flow and long credit cycle history of the company. However, the measures being taken are a necessary part of tackling that issue and the market should be able to accommodate any profit effects this produces as a transitory measure.
What the market should justifiably derate the company for is any further deterioration in operating cash flow as this should not be affected by any of the measures which have been taken.

There are many issues with this company. For example, a question I would have about the shortfall in the Sea Life realisation against asset value is whether the company has been depreciating asset values against profit realistically. Property is usually thought of as an appreciating asset, but specialised property, such as a sea life centre, may require significant provision for maintenance and refurbishment. If the company has elected to inflate profit by failing to make sufficient provisions then we have an explanation for both the shortfall in the sale value of an under-maintained asset and the poor conversion of (inflated) profit to cash flow.

Rewriting the balance sheet does not weaken the company - that has already happened - it is just a recognition of this fact and arguably the necessary first step in putting things on a more truthful and sustainable footing.
As StemMis points out, the trading statement did not impinge on the previous assessment of trading beyond the downward revaluation of wip "if required". The reference is to a possible corresponding reduction in profit, not to a resulting loss and there will be no effect on cash flow.

In these circumstances it is irresponsible to parade conjecture as fact.
Of course, it is wise to point out the possible pitfalls of investing in MEG, the most likely imho, being the likelihood of a placing/rights/open issue of equity. However, it is as easy to lose money by unnecessarily panicking out of a share at a bombed-out price as it is to lose it by unwise bargain hunting.
One could have wished for a somewhat more comprehensive statement from the company that narrowed the scope for misinterpretation and possible misrepresentation.

The current gross overvaluation of the pound is having an adverse effect on any British company which incurs cost in sterling to be set against income in foreign currency. The strong pound has already continued for rather longer than I would have thought likely and may yet continue for some time. It will probably correct itself just when expectation of a correction has died - we don't know when, but one day. For MEG that time cannot come too soon.

For those who find this peroration too lengthy, I will summarise -
Bu99er the profit, what's the cash flow?

[scburbs] 06/5/2007 17:29

25.04.07
Cartridge World appoints MICE TMM to drive New Orchestrated Marketing Campaign

20.03.07
MICE creates world's first interactive "dive cage" experience at Oceanarium Bournemouth

26.02.07
ATP appoints MICE Sportcel to develop and implement experiential marketing strategy

[professorsmsmith] 06/5/2007 17:12

The key issue right now is whether the banks will allow the May payroll to go through: within the current capital structure.

Suppliers will be nervous: and will not give credit.

All debtors will be chased: unreasonably, which will cause issues.

New jobs may go elsewhere: clients will not take the risk, especially if the jobs are medium/long term.

Staff morale will be difficult to maintain.

The bank will want an equity solution: but equity will be nervous!

If you haven't been through this: don't criticise!

[thistimenextyear] 06/5/2007 15:36

SteMis >>> well argued posts. Also MEG's SP, now at 9.25p, is the lowest it has ever been during the last 10 years.

[thistimenextyear] 06/5/2007 11:14

Of course it could go the other way like Ashstead (AHT) which fell dramatically to lows of 2.5p as people speculated that the company was going to fold in 2003. A couple of years later the share price was 240p. I say no more.

Obviously very high risk right now and share price is very volatile. However, could shoot back up to 20p+ overnight as quickly as it dropped if things become clearer and things are not as bad as people are wildly guessing.

Not the faint hearted.
TTNY

[joshalexander] 06/5/2007 10:46

SteMIS

Unless you are a Director of the Company, you never really "know".
Most investment is simply "speculation", or hopefully educated speculation.
Of course I have no more idea than you how this will play out, but having seen very similar situations before experience may provide me with some insight.

Warren Buffett's first two rules of investment are always worth keeping in mind.

Rule 1) Preservation of Capital

Rule 2) Always remember Rule Number 1.

My last post of this thread, good luck to any holders of MEG.

[stemis] 06/5/2007 07:58

pbracken,

Working capital needs have seen debt mushroom to around #55m, AFTER the recent sale and property lease-back. The silver lining is that business is booming

And the source for this information?

Wiganer,

I take you point about book values but its why I only mentioned freehold property and trade debtors. Banks attach little security value to plant, WIP or other assets. Assets do indeed deteriorate in a receivership (plus there are other liabilities); one of the reasons banks are loathe to go that way.

As I've said before, I have no problem with people posting supported negative opinions or analysis. I'm sure your posts fall into this category. However others are just widely speculating and have no evidence for their opinions. If they turn out to be true they'll be claiming they knew all the time. If they don't, they'll disappear without comment.

[pbracken] 05/5/2007 20:53

Be careful with MEG.

Working capital needs have seen debt mushroom to around #55m, AFTER the recent sale and property lease-back. The silver lining is that business is booming - but is it profitable? That is what the Review will tell investors, and its findings will dictate the short term movement in the share price.

In the medium term, if MEG can find a buyer for its UK division then one can envisage a recovery in the stock; if it can't, investors will need to buy some wool and knitting needles, because the long haul awaits....

[besbury] 05/5/2007 12:51

Thanks for your candid response Josh. And to, Little Tiny Bill. Lets hope your job and livelyhood are not on the line. All I have to lose is about 10% of the value of my hobby. No big deal really.

[little tiny bill] 05/5/2007 12:11

Besbury, I am not a share holder. Just a lowly employee of Mice watching what's going on and I have to say the doom and gloom is worrying. I hold tight to the fact that it's all speculation.

[joshalexander] 05/5/2007 11:50

Besbury

I do not hold, neither do I have a Short position here.
I traded MEG several times in the late 90's.

My only reason for posting is that I believe many have been far too
optismistic about MEG's prospect of recovery and I see strong echoes of Photobition here, which luckily I never held.
I hope my postings may have saved people some money or least given them pause for some thought. I am more than happy for others to reach a different conclusion on MEG's future.

[wiganer] 05/5/2007 11:40

Thanks Bes- no, am stuck down in Londinium today, so will be biting my nails "watching" on the radio today. Hoping to get to the last day at Sheff U when hopefully we can play out a Germany v Austria type draw to both stay up and stick 2 fingers uop to the FA/Prem!

[besbury] 05/5/2007 11:22

Wiganer.


As I mentioned previously, my intention when enquiring if contributors are current shareholders is in no way intended to be offensive. It sometimes enables one to determine the intended purpose of the contribution. At no time have I suggested that non shareholders do not have an uqual right to be here, in fact I welcome their contributions as it makes the thread come alive with added interest.

If you are going today, enjoy the game. O^O

[wiganer] 05/5/2007 11:05

Besbury
I am not a current shareholder, but have been in the past, and MEG is and has been on my watch list for a while. I am interested in trading MEG again, but I want to be sure I'm not punting on a dead pig. Not sure though why its relevant whether folks are holders or not- I thought the purpose of a BB was to share thoughts. Stemis was certainly not shy of commenting on FWY even when he didn't hold, for instance... :-)

[boadicea] 05/5/2007 11:03

Thank you SteMis for putting into words the thinking behind my rather sarcastic post. There are a number of reasons why the covenants could need renegotiating as the proportion of trade debtors in the equation will have increased compared to other tangible assets, principally property. However, we just don't know and in such circumstances it is irresponsible to cloak speculation as fact.
Of course I agree that the situation is worrying and can reasonably be assumed to be serious, compounded by the lack of any optimistic spin in the RNS - as if the company were preparing us for the worst. It was a bad sign imo when the Sea-life subsidiary was sold for less than book value which may have prompted the banks to look closely at the carrying value of other assets.
The best outcome we can reasonably hope for is a takeover/buyout and second to that would be a rescue placing/offer/rights at something below the current share price
All is speculation until we see the accounts - last year they were issued on the 3rd Wednesday in May. If they are significantly later than this, expectations will deteriorate still further.

[wiganer] 05/5/2007 11:00

StemIs
Good post, but one note of caution. When businesses get in trouble banks rarely accpet "book values". Many years ago I worked briefly in insolvency and when preparing reports for banks it was common to apply big discount factors to the fixed assets, debtors and stock figures in the account- 30, 40 or even 50% "write down" was not uncommon. With MEG themselves already having to do a big stock write down, and having sold Sea Life assets at a discount, the banks will likely be well twitchy about whether there is asset cover from what is left.

[besbury] 05/5/2007 10:43

SteMiS - 5 May'07 - 09:42 - 2205 of 2206

Thanks, SteMis, for your reasoned response to some rather wild speculation regarding the future of MEG.

It would be of interest to know if recent contributors are current shareholdes; and if not, what is their motivation for posting doom and gloom that serves little purpose other than to add to the discomfort of others who do still hold?

I have stated previously that I made reasonable profits from MEG on a number of occasions since 1996. However, it is quite possible I am now about to give it all back, as my average is 22p!

although it is likely that any such adjustment, if required, would have
a material adverse impact on the Group's results for the year ended 28 February
2007. The Board will make a further announcement as soon as the aforementioned
review has been completed

The above snippet from the April 26th statement is pretty ambiguous to say the least. And for obvious reasons there must be considerable urgency in completing the "review". How long can we expect this to take? Maybe we will hear the result along with the prelims later this month?

Since the announcement on April 26th I have written to 3 senior MICE Group people to express my disappointment regarding the content of their recent disclosure. I regret to say I have not had so much as an auto acknowledgement from any of them. I was not expecting anything tangible, as the current closed period would prevent anything significant being disclosed. However, I did at least expect a courteous response.

[jonathanlabrey] 05/5/2007 10:20

Can we change the header to:

MICE GROUP SOON TO BE A QUARTER MILLION POUND COMPANY

[joshalexander] 05/5/2007 10:11

Based on trading successfully for over 17 years.
And most of my decisons during that time have been based on a "best guess" of likely outcomes. Others are more than entitled to reach a different conclusion,
as always DYOR. Suspension looms large here IMO.

[stemis] 05/5/2007 09:59

Based on what?

[joshalexander] 05/5/2007 09:49

I agree, none of us "knows", but I can make an educated guess.
Trading continuing to weaken, suspension within weeks IMO.

[professorsmsmith] 05/5/2007 08:37

It may be speculation: but it is based on bitter experience. I recognise the signs as if it were 6 years ago!

[freaknomad] 04/5/2007 21:36

Wiganer:
Maybe a new thread with a less ridiculous title might be in order?

I couldn't disagree more. The title of this thread is wonderfully ironic. And at times like these investors need to keep their sense of irony and the absurd!