UPDATE on MEGA BRANDS

Q4 is now half completed and orders for Mega Brands must already be almost in (for delivery in Q4) except for some last minute shipping.

When you look at Q3 results you find many interesting points:

1) Their gross profit margin has increased by 10 points

2) Their sales have increase by about 10%

3) Their interest expenses have diminished dramatically

So my expectations for Q4 2010 are the following:

Q4 net sales 115M$

Gross profit 46M$

Net Earnings 13M$

EPS 0,04

If there numbers would be confirmed, it would mean a 2010 EPS of about 0,54 including a one-time item for 140M$. When excluded, EPS would be nil.

But this is not the point as many expenses in 2010 were related to restructuration and does not give justice to MB.

That is one of the reason this company is one of my top pick for 2010 and 2011. It has turned the corner and this company will revive and re-acquaint its old great reputation that has begun with Ritvik, Mega Blok then Mega Brand.

They are a proud company with proud owners that only did one mistake and paid dearly for it.

I expect 2011 to be a great year now that those problems are gone and that confidence is coming back from retail companies allowing for more shelve space.

I think that the true value of this company is a 500M$ annual sales corporation with a 55M to 70M in net earnings giving them a 0,18 to 0,20 EPS. If share value is based as their competitors (between 12 and 14 times earnings) we have in front of us a company that shares should increase to 2,16$ to be conservative and 2,80$ if we are greedy.

So based upon actual price of 0,59 it is a great opportunity.

As usual do not invest more than you can afford to lose and do your own DD before investing.