After reviewing this little analysis, you will understand why MB has been eliminated from my top list of winners for this year. The door is now wide open for a new comer.
This review has not been cautioned or reviewed by Mega Brands
The future of the company is now in the hands of the new owners…(if approved by actual shareholders in March) and based upon numbers below MB is NO LONGER part of my picks for 2010. Even if I think they will probably succeed in saving the company, there is no way in my opinion that their stock will be having the expected results to be on my list and here is why.
Originally called Ritvik then Mega Blok, this Quebec company has been a French Canadian company flagship for a long time until they tried to be what they never were: too diversified and they pay the price for it.
The transaction when they bought RoseArt for 350M$ (their value was about 45M$ only) was the start of their descent to hell.
Lawsuits after lawsuits, they ended up at their actual position: worthless.
OK, I am being rude here and they finally found a solution to stay in business and avoid going belly up.
Now, what about the regular shareholders: will they ever get back their investment value???
With the dilution and the possibility of a greater one if everybody was to exercise their warrants, actual shareholder will only get about 6.3% of the company and the balance will be ‘given’ to the creditors.
The impact of this dilution is naturally better than the actual bankruptcy of the company as we have seen in the past many bad stories (IQW Quebecor World ) where even if the company survived all shareholders were eliminated to the profit of creditors.
But this being said will we see MB going into the penny stock or will they emerge?
Let’s see some numbers based upon their last 4 years average:
Year Sales Profit EPS (diluted) Shares (diluted) Value range *
2004 92,3 11,5 0,39 29,33
2005 175,9 20,9 0,61 31,39 21,00
2006 547,3 25,3 0,74 34,18 24,75
2007 524,5 -66,7 -2,82 34,4 11,00
2008 447,5 -458,7 -12,53 36,61 3,50
2009 231,6 32,8 0,61 60,124 0,50 9 months figure
It is easy to see from those numbers that the troubles started a couple of years ago. Do not forget also that 2009 results are including a 1 time event (72M$) and if removed from their operations, they show a deficit of around 40M$
Therefore in 2010 their interest charges will drop significantly by about 35M$ (based on Sedar filings) and litigation fees will disappear almost totally giving them a close to break-even situation.
My concern is the growth rate that I cannot foresee actually and the market reaction. At this moment, I cannot estimate more than the following results
Projected earnings
Year Sales Profit EPS (diluted) Shares (diluted) Value range *
2010 265 15 0,04 335 0,54 No warrant conversion taken into consideration
265 15 0,03 578 0,31 Fully diluted
* Value range is average for the year
I must agree that they have great products and their balance sheet will be greatly enhance but at this time this company stock price is reflecting a value close to their books and until 2011 even if movement in price is great, their situation with the warrants will put a cover on any major stock price increase as it will put great pressure on any possible gains.
In my opinion, the share price will trade for the rest of this year between 0,27 and 0,60 being far from minimum expected of 200% to be on my Stock Star search list. If stock was to fell under 0,30 it MAY do a comeback on this list depending of the reasons behind the drop and that situation has not worsen.
Have a good one
Please: always do your own DD before making any investment decisions and never invest more than you can lose.
Aucun commentaire:
Publier un commentaire