# First time trader - Multiplex issues!



## Aden_1 (25 May 2005)

Hey all, Great looking forum!

Im 20yo. and dove into the stock market about 2 months ago.
I bout some Multiplex shares (among others), based upon a bunch of different reports i read that they have a great portfolio, they have invested money away from just construction, lots of capital .etc .etc

I read about 5 sources that said BUY. Great oppertunity here.
So i bought while they were at the bottom of their mark. around the 4.25 mark.

Since then. They have slashed in price and are surrently -21% from what i bought them. Im really un sure of what to make of it... 

If anyone can shed some light on what to do, or what to make of this.
Id be very very appreciative. 

Ps. i know you wont give financial advice? im just asking for personal opinions!


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## krisbarry (25 May 2005)

Boom to Bust, it is as simple as that.  Property prices are dropping dramatically, especially in the multiplex's..  Over supply of units/appartments in the big cities has lead to investors leaving the market, thus the prices drop and so does the share price.  Not a wise move to invest in property, or companies within the property market at the moment.

A further note to add would be the crisis in skills shortage.  Skilled labour is hard to find, and the cost of building has risen dramatically over the past few years thus eating into the profits of property developers.

It will only get worse b4 it gets better!

By the way a "Buy" signal doesn't always mean profit.  VLL was a "Buy" from brokers and now look at it. Has gone from $2.90 to 48.5 cents (two profit downgrades), now suspended.  I DO NOT HOLD VLL


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## Aden_1 (25 May 2005)

Thanks for that mate!
So is it a good idea to HOLD and see out the property cricis?
Rather than sell at -21% and forfit so much money!!   

(ps. no recomendation will be taken as financial advice! im jsut asking personal opinions!)

I invested in them also because they do a lot of work in England and the middle east! where business is booming. yet they fall here, because everyone is so scared!??

Thanks very much!


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## It's Snake Pliskin (25 May 2005)

Aden_1 said:
			
		

> Thanks for that mate!
> So is it a good idea to HOLD and see out the property cricis?
> Rather than sell at -21% and forfit so much money!!
> 
> ...




Hello Aden,

I'm sorry that you have learned about the market this way. It is good for you long term though because you now know what it is like to be in a position of facing a large loss. You can learn from this! How you go about mitigating your loss is the tough part though. I can't tell you what to do with your stock holding that is for you to decide. Some people have a rule of letting their holdings fall by 10% before they sell. Some let there holdings fall by 2% of total capital.

Generally, don't take advice! Do your own research and ask yourself questions about each stock. Why are people saying to buy? What's in it for them? 

Get some trading and investing books and READ! Once you've read a few good books, you will be much wiser, but, green on experience. This you can only get by participating in the market, which you have already started doing.

20% of $2000 is not a big loss. 20% of 100,000 is though. Realise what you are getting into before you get into it. If you don't understand it, preserve your capital until you do.

I hope my thoughts have helped.


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## ob1kenobi (26 May 2005)

Snake Pliskin said:
			
		

> Hello Aden,
> 
> I'm sorry that you have learned about the market this way. It is good for you long term though because you now know what it is like to be in a position of facing a large loss. You can learn from this! How you go about mitigating your loss is the tough part though. I can't tell you what to do with your stock holding that is for you to decide. Some people have a rule of letting their holdings fall by 10% before they sell. Some let there holdings fall by 2% of total capital.
> 
> ...




Hello Aden!
I agree with Tina! Some other points that you might not be aware of. If you have bought the stock in time to be eligible for a dividend payment which might carry a franking credit then it might be worth holding awhile longer. To be able to claim the franking credit, you have to have held the stock for 45 days + the day of acquisition + the day of sale. Likewise any loss you make here may be used as a capital gains loss to offset capital gains tax from profitable sales in the future. In short, it may still help you make money but in an indirect way! I only offer that as an insight not as advice. At the end it is your money and your decision. Read and research as much as you can before trading.


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## mime (26 May 2005)

What do they build?

I thought they build major projects like stadiums not general housing so they shouldn't be affected much by the downturn in the property market.


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## DTM (27 May 2005)

Aden_1 said:
			
		

> Thanks for that mate!
> So is it a good idea to HOLD and see out the property cricis?
> Rather than sell at -21% and forfit so much money!!
> 
> ...




Mate, they did a lot of bad work in England so why shouldn't their share price reflect that.

Other worrying thing too is that people in the building and finance industry are saying there's worse news to come.

This is not intended as advice.


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## DTM (28 May 2005)

Nice article about a bad company in the Age today.



> Deconstruction
> May 28, 2005
> 
> 
> ...


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## Jikx (28 May 2005)

Hey, Aden_1 - I'm in the same boat as you! 

Recently started on the sharemarket, and though MXG was a good buy.. now with the market halt, seriously considering that is was a bad mistake. But as others have noted, if you're not in that deep, you can use the loss to claim deductions and what not in the future or hope that everything will stablise in a few years time. I'm hoping for the later.. need the money for a deposit on a home in ~5 years time  :


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## ob1kenobi (28 May 2005)

Jikx said:
			
		

> Hey, Aden_1 - I'm in the same boat as you!
> 
> Recently started on the sharemarket, and though MXG was a good buy.. now with the market halt, seriously considering that is was a bad mistake. But as others have noted, if you're not in that deep, you can use the loss to claim deductions and what not in the future or hope that everything will stablise in a few years time. I'm hoping for the later.. need the money for a deposit on a home in ~5 years time :




Jikx, I hope it works out for you and that you will still have the deposit for a home when you need it. Always be prepared to learn from these experiences. If you have started out without a trading plan, take the time to develop one that is effective for you and then trade to it. Again I hope it works out.


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## Aden_1 (30 May 2005)

Hey Jikx...
Now we are really stuffed arnt we!!!

Ive got 2000 Multiplex shares. About $8k worth. at $4.27
They were a great buy! (or so i read and researched.)
A bunch of magazines and articles suggested a great investment, industry is down, great time to buy in. .etc. etc

Im exactly the same as you.
That 8k is part of my savings for a home deposit.
Ive just bought in to Blusscope steel, and will this week look to buy into something else. (diversify. ill live by that word from now on!)

Im seriously scared at what this out come is.
Im just 20yo. but that was a **** load of hard work and savings.

cut my losses? to late for that.
Just hold on for the next 3-4 years i guess is the only option.
Or! Buy more while they are CRASHING DOWN! lol.

****!


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## DTM (30 May 2005)

Aden_1 said:
			
		

> Hey Jikx...
> Now we are really stuffed arnt we!!!
> 
> Ive got 2000 Multiplex shares. About $8k worth. at $4.27
> ...




I feel for you as my first mistake cost me 10k.  That really hurt, but it helped me become a better investor/trader.

Welcome to the school of hard knocks.  I'm sure you're on your way to making money now.  You just have to start reading some of the threads to get smarter.


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## Investor (30 May 2005)

Aden_1 said:
			
		

> .... Or! Buy more while they are CRASHING DOWN!




Aden 1,

I do not know you and you do not know me ..... but since you are here in this forum, I will say something.

Buy more?????

This is a very sharp falling knife that you are trying to catch.

The Wembley stadium project was undertaken as a fixed price contract in a world of rising costs.

This could be a bottomless pit. To all those "reports" that you relied on for your purchase - I would say, they were not worth the paper they were written on.


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## doitinsteel (30 May 2005)

Will buy 2m at $1.50, although they say restart will be at $2.50 when stock is next traded - no doubt it will freefall below this. But I am apraised of good intel and am aware a number of developers will not allow the builder to free fall. Expect restructure and noisey support. Then sell at 3.00. And no I'm not full of it - a good lesson is to be familiar with the developers and there strategies, and not the builder.  :goodnight


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## Investor (30 May 2005)

From London:

Wembley losses could increase 'significantly'
By Rhys Blakely, Times Online

Multiplex, the Australian construction giant, today announced the resignation of executive chairman John Roberts after revealing losses from its troubled Wembley Stadium project in London may be "significantly" higher than previously thought.

Multiplex sought a halt to trading in its shares in Australia. The stock has lost more than 40 per cent since the start of the year, when it traded at A$5.44. It last traded at A$3.26.

*The Wembley Stadium development has been fraught with difficulties and controversy from its conception more than a decade ago*. Mr Roberts, who founded Multiplex in 1962, is its latest casualty. 

*Multiplex today refused to confirm if the £500 million project in north London would still be completed on schedule by January. But a spokesman said the group expects to meet its contractual obligations which state that the stadium should be ready by April to host the 2006 FA Cup final*.

*In February, Multiplex warned that it would not make a profit on the project. Today the company announced losses on Wembley could exceed £20 million*.

Multiplex said it had requested the suspension because of the possibility of a loss "significantly greater than that which would be covered" by a A$50 million (£20m) indemnity provided by the Roberts family.

The company's board is expected to hold a series of emergency meetings this weekend which analysts believe could could to a profit downgrade when it provides a further update on Monday.

The group said it was undertaking a review of key aspects of its operations to provide, by the end of May, market guidance on earnings for the 2006 fiscal year and also an update on 2005 earnings.

Mr Roberts, whose family is a key shareholder in the group, remains on the board while deputy chairman Allan McDonald, an independent director, becomes non-executive chairman.

Mr Roberts' resignation was announced as Multiplex said it had received an internal report indicating that the margin position on its Wembley Stadium upgrade project "may have deteriorated significantly".

In addition to the departure from the board of Mr Roberts, executive director Noel Henderson has also stepped down.

Multiplex said it hoped to appoint a new independent director, preferably with property experience in Britain.

The Wembley Stadium project has been plagued with contractual disputes and speculation over whether it will be finished on time.

*The project has also been hit by rising costs associated with steel and jobs such as painting and tiling*.


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## Investor (30 May 2005)

Multiplex to lose £45m on Wembley 
By Andrew Ellson, Times Online

*The Australian construction group building the Wembley football stadium today announced it would make a £45 million loss on the flagship project*. 

*Multiplex also pushed back the expected completion date for the stadium by three months to March 2006*, but it stressed it would still be ready in time for next year’s FA Cup Final in May. The projected loss is more than double the £21 million the Roberts family, which founded the firm, had agreed to cover. 

As a result Multiplex has had to make a A$59 million (£24m) pre-tax write-down on the project. The problems at Wembley have also contributed to the group slashing its profits forecast for 2005 to A$170 million (£71m) from A$235 million (£98.2m). 

"The Wembley result is unacceptable and completely overshadows the strong results from other parts of the business," Andrew Roberts, the chief executive, said in a statement. 

The group said productivity levels that had previously been assumed on the project were not currently being achieved. *It added that there still several major risks to the project, including its ability to recover claims against third parties, costs associated with completing the steel work, being able to meet the project’s programme and the weather.*

On Friday the Australian construction giant announced the resignation of executive chairman John Roberts after it was first revealed that losses on the project would be "significantly" higher than previously thought. 

The only previous indication of problems came in in February, when Multiplex warned that it would not make a profit on the project.

The Wembley Stadium development has been fraught with difficulties and controversy from its conception more than a decade ago. Mr Roberts, who founded Multiplex in 1962, is its latest casualty. 

The group said it was undertaking a review of key aspects of its operations to provide, by the end of May, market guidance on earnings for the 2006 fiscal year and also an update on 2005 earnings.

Mr Roberts, whose family own 26 per cent of the group, remains on the board while deputy chairman Allan McDonald, an independent director, becomes non-executive chairman.

The group is involved in a number of projects in the UK, including a site in Stratford, east London, which could become the home of the 2012 Olympic village if the London bid is successful. 

Earlier this month it made profits of £10 million after selling its 12.5 per cent stake in the White City shopping centre development in London. The company’s portfolio also includes Sydney’s Telstra Stadium and Federation Square in Melbourne.

*Multiplex shares have lost more than 40 per cent in value since the start of the year*.


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## Investor (30 May 2005)

*Curse of Wembley strikes again*

Two sports ministers, the chief executive of the FA and the chairman of the stadium development company have all lost their jobs over the continuing saga that is Wembley. But the Multiplex founder's loss is the greatest of all, reports Steven Downes

So, the Curse of Wembley has claimed yet another victim. In Australia today, John Roberts, who founded construction firm Multiplex 43 years ago, was forced to stand down as executive chairman as the company was forced to admit that its losses on the benighted project would be at least £20 million.

Mr Roberts is in good company. 

*The Curse of Wembley might first have been detected in the mid-1990s, affecting Sir Brian Wolfson. During his reign as chairman of Wembley plc, the company which operated the old stadium and owned the site, Sir Brian had to deal with many of the costly business problems one might expect from running a dilapidated sports venue that, instead of being "the Stadium of Legends" of repute, was more often regarded as the stadium of fag-ends*.

But at least the plc managed to sell off the site for £120 million of Lottery cash and Sir Brian got out with his reputation reasonably intact.

Not so Kevin Keegan, whose last match as manager of the England football team was an ignominious defeat against Germany, in the final game played at the old Wembley. 

Sports ministers Chris Smith and Kate Hoey later lost their jobs, largely because they were unable to pull together the disparate interests of the numerous sports bodies who laid claim to a stake in the new National Stadium.

And even when one sports body, the Football Association, took on principle responsibility for the project, its chief executive, Adam Crozier, paid for the move with his job, as his board grew squeamish about the mounting costs.

*It should not be forgotten that the new Wembley was conceived as a multi-sport, multi-purpose 100,000-seater venue which was to be the centrepiece of London’s Olympic bid, and was to have staged its first major event in 2003 with the world athletics championships*.

Ken Bates, the colourful hotelier and property developer and then owner of Chelsea, was the man appointed by the Football Association to head up Wembley National Stadium Ltd once the site had been bought for the nation. 

Mr Bates made short work of kicking out what he saw as expensive elements of the project – such as the running track – and instead introduced schemes for lavish hotel and conference facilities that saw the development price soar at one point to approaching £1 billion. It should be noted that in the time it took to discuss what might be included in the Wembley Stadium redevelopment, the Millennium Stadium in Cardiff was planned, designed and built, and all for £110 million.

It was Mr Bates, during his time in charge, who appointed Multiplex as contractors. It was to be the Australians’ first project of such scale in Europe, although they had built Sydney’s Olympic Stadium. 

*Multiplex clearly got the contract on price, as British contractors shied away from the irksome project and none believed it could be delivered for less than £650 million. Multiplex (who coincidentally at the time had offices at Stamford Bridge, the home of Mr Bates’s Chelsea, where they were building a new stand), said that they could build the new Wembley for just £500 million. There were gasps of disbelief from their rivals*.

Yet even after delivering such a favourable deal, Mr Bates was not immune from the Curse of Wembley, as he soon lost his position with the FA, famously accusing his detractors as he left, saying, "Even Jesus Christ suffered only one Pontius Pilate - I had a whole team of them."

Mr Bates’s Wembley vision was thereafter stripped of some of its more expensive elements, such as the hotel.

But even with the pared down version, today Multiplex was forced to admit that it would not be able to deliver Wembley, at least in terms of cost, as it anticipates a costs overrun of at least £20 million. Whether they deliver the stadium in time for next year's FA Cup final remains moot.

The hit to Multiplex's bottom line saw the company suspend its stock from the Sydney exchange earlier today after seeing its shares lose some 42 per cent of their value so far this year – equivalent to A$2 billion in total.

Poor old Mr Roberts. Not only has his shareholding been hit and his job been lost, but his family has even guaranteed to cover Multiplex’s losses on the project of up to £20 million. *Maybe this was one contract that Multiplex could have done without winning.
*


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## Investor (30 May 2005)

Sydney - Monday - May 30: (RWE Australian Business News) - 
Multiplex Group has revised its forecast aggregated group profit after 
tax and before stapling eliminations for FY2005 to $170 million.

This compares to previous guidance of $235 million, which 
specifically excluded the accounting impact of Multiplex's investment in 
Duelguide.

The forecast result has been affected substantially by the 
Wembley National Stadium project and the accounting impact of 
Multiplex's investment in Duelguide.

This can be reconciled with the earlier guidance as follows:
        * Previous guidance $235m
        * Accounting impact of Duelguide investment (after tax) ($18m)
        * Additional Wembley writedown (after tax and indemnity) ($41m)
        * Other ($6m)
        * Leaving $170m.

Multiplex has made a pre-tax provision on its Wembley National 
Stadium project in the United Kingdom of 24 million pounds ($59
million pre-tax or $41 million after tax), from a previous break-even 
position.

As previously advised, Multiplex completed a detailed review of 
program and costs relating to Wembley National Stadium in February.

Following that review, Multiplex recognised a material increase 
in the expected cost to complete the project and subsequently wrote the 
project back to a break-even position.

At that time, the scheduled completion date was December 2005.

Multiplex has introduced various enhanced risk procedures since 
February, including a process whereby all of its major construction 
contracts (exceeding $100m contract value) are to be subjected to an 
additional internal review on a regular basis.

Most particularly, an internal peer review has been undertaken 
on the Wembley project.

This review has highlighted that the productivity levels that 
had been assumed previously are not currently being achieved.

The peer review has concluded that while Wembley is now expected 
to be completed by the end of March 2006, in time for the FA Cup Final 
to be played in May 2006, the costs associated with completion of this 
program are anticipated to have further increased which is expected to
result in a loss on the project.

Multiplex anticipates being able to commence a staged handover 
of the project to its client in January 2006.

Multiplex estimates the loss in relation to Wembley to be 45 
million pounds ($109 million) excluding the $50 million Roberts Family
indemnity, announced in February 2005.

As a result of the review, Multiplex is now recognising a 
pre-tax provision on the project of 24 million pounds ($59 million 
pre-tax or $41 million after tax) including allowance for receipt of the 
Roberts Family indemnity.

This position assumes no change in the level of claims 
recoveries previously advised.

Multiplex Chief Executive Officer and Managing Director, Mr 
Andrew Roberts, said: "The Wembley result is unacceptable and completely 
overshadows the strong results from all other parts of the business.

"Since February, we have implemented a range of measures to 
isolate and address problems at Wembley including a peer review that has 
just completed, the appointment of new senior management and new risk 
management procedures.

"However, this latest result is extremely disappointing and we 
acknowledge it will take some time to earn back investors' confidence.

"Despite the disappointing revision to our earnings forecasts, 
all other operating divisions within the company and Multiplex Property 
Trust continue to perform at or above expectations.

"We have completed a review of a significant number of major
projects and no material issues have been identified other than 
Wembley," he said.


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## Knobby22 (30 May 2005)

There, you are already a better trader.
If a bad report comes out and the loss is not readily quantifiable - Sell!.
9 times out of 10 you will have done the right thing. 

Secondly, don't read reports from stockbrokers, everyone else has read them first and and you are getting old info and prob. paying too much. Look for companies not in favour at present.

Thirdly, don't catch a falling knife unless you are sure it is a good buy. Otherwise you will cut your capital.


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## Investor (30 May 2005)

From the company's interim report as at 31/12/04:

Current Assets  $1,553 million.
Current Liabilities $1,998 million.

Liquidity position is very poor.

Total Liabilities  $3,342 million.
NTA $2,443 million.

The gearing position is very high risk for a construction company of this size and nature.

In my opinion, the financial risk for equity investment, is very high.

Warning: This post is not investment advice. I do not hold a licence to provide financial advice.


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## DTM (30 May 2005)

Investor said:
			
		

> From the company's interim report as at 31/12/04:
> 
> Current Assets  $1,553 million.
> Current Liabilities $1,998 million.
> ...




And they haven't even quantified how much the final cost for Wembley will be.  Ouch....  Maybe they really don't want to try.

Walter's Construction Group went down and I can see Multiplex heading down the same path.


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## Jikx (30 May 2005)

Aden_1 said:
			
		

> Hey Jikx...
> Now we are really stuffed arnt we!!!
> 
> Ive got 2000 Multiplex shares. About $8k worth. at $4.27
> ...




You've got that right.. but unfortunately you're in a lot deeper than I am. I went in at the 2nd time when all the magazines were going "boohoo this stock is undervalued its a good long term" when it hit the then rock bottom of $3 26. 

Personally I am not selling my parcel, as I only have 600 shares and I am willing to risk it capsizing for the possibility MXG might get back to its feet in a few years time. At the very least the first few panic sells at $1.90 seem a bit rich.. perhaps. Or they might be right on the money.. 

On the other hand, your situation I don't know.. I guess it depends on whether you absolutely need the money and just take the loss (I see bids at around $2 a share) or hold out and risk the lot.  

What can we do but take it as a very expensive lesson - do the research and don't put all your eggs in the same basket. The irony for me is, I'm learning this at uni right now (yes I'm 20 too!) "Diversify = Less risk", and it just proves that nothign wakes you up to the real world like a slap in the face (with chain mail).


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## ob1kenobi (31 May 2005)

Perhaps it also reminds us all of the need to do your own robust analysis before participating in an investment. Reading is a part of this. Certainly diversifying your portfolio and follow stocks in industries you know something about is also a good start. Good luck with it all! I hope it works out!


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## Knobby22 (31 May 2005)

Yea, I agree with Obi.
Don't give up just because you have run into the dark side.


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## Investor (31 May 2005)

In The Australian newspaper today:

Multiplex shares on brink
Paddy Manning
31May05

SHARES in developer Multiplex could sink below $2 today as the company battles to regain market credibility from a second profit downgrade caused by delays and cost overruns on the landmark Wembley Stadium.

Multiplex slashed profit forecasts for 2004-05 by more than a quarter after a $41 million after-tax writedown on the stadium project in London. 
The writedown is after payment of a $50 million indemnity offered in February by the family of Multiplex founder John Roberts, when the company announced writebacks of $68 million and said it would break even on the project. 

Mr Roberts stepped down as executive chairman on Friday, when Multiplex shares went into trading halt at $3.26. *Offers on the stock were sitting at $1.90 last night. * 

Andrew Roberts, Multiplex chief executive and son of John, looked shaken as he fronted media and analysts at a briefing in Sydney last night. "We certainly weren't expecting to be sitting here, in such a short period, and announcing that our indemnity has been called," Mr Roberts said. 

"But obviously we'll be honouring that commitment." 

Multiplex now expects to make a profit after tax of $170 million in 2004-05 -- $65 million or 27 per cent below previous guidance of $235 million. 

Final distributions for the year will be 14c per unit, meaning total distributions will be 29.8c, 3.5c or 10.5 per cent lower than the forecast 33.3c. This is well above forecast earnings per security of 16c 

Delivering what he described as a "very unsatisfactory result", Mr Roberts said the Wembley losses were "directly related to a slippage in program", with a peer review indicating the project would not be completed before the end of March 2006. 

It is unclear whether this will be in time for next year's FA Cup, scheduled for May 13, because the Football Association was last week given a deadline of September to decide if it needed an alternative venue. The project was due to be completed by January 30. 

*Losses on Wembley could be greater than the $41 million writedown announced yesterday, which does not assume payment of up to pound stg. 14 million ($33.5 million) in liquidated damages nor a further pound stg. 3 million per month payable should the program run on beyond March 2006*. 

However, Mr Roberts said the situation with unresolved subcontractor claims by and against Wembley was slightly better than forecast in February, when Multiplex said it needed to negotiate favourable resolution of claims worth pound stg. 45 million to break even. 

Mr Roberts said the peer review process, which had covered all the company's major construction projects, including in the UK and Australia, had found "no additional loss-making projects". 

Multiplex said the balance of cash advanced from its trust to the corporation stood at $770 million -- much larger than assumed by analysts and well above the $413 million reported in the half-year results. 

*Yesterday's guidance also included a surprise writedown of $18 million in accounting losses resulting from the acquisition of UK property joint venture Duelguide, plus $6 million of other losses*. 

Mr Roberts said the underlying economics of the Duelguide deal remained "strong". 

Multiplex forecast 2005-06 earnings of between $200-215 million after applying international accounting standards. 

Mr Roberts again dismissed speculation on a possible break-up of the group, or reprivatisation of the construction division. Industry sources said investment banks were already scouting for buyers for parts of the business. Macquarie Research Equities yesterday canvassed a de-stapling of the company. 

Responding to reports of a rift between himself and his father, Mr Roberts said "I don't think it assists to personalise it".


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## Investor (31 May 2005)

From Robert Gottliebsen (previous founder and editor of BRW):

Legend obscured the reality
31May05

LONDONERS joke that Multiplex was so overextended in Britain that, in negotiations, the Australians sometimes did not know which people in the room were on their side.

Back home, the high-risk techniques of Multiplex to justify a float price of $4.05 will cast a cloud over many local listed property trusts, led by Australia's largest trust, Westfield. 

Although Multiplex used similar accounting techniques to Westfield, it went much further and multiplied the risk process many times. 

*With hindsight, all the Multiplex danger signs were in the prospectus. The Australian Securities and Investments Commission should immediately review the practices Multiplex used to float at $4.05 now the risks are exposed*. 

Clearly, the combination of the Multiplex name and the John Roberts legend obscured the prospectus realities, which we all missed. 

If the Wembley damage can be confined to what was stated yesterday the company will survive -- partly due to the high float price -- but it is paying a dangerously high uncovered dividend. *The risk is that more bad news might emerge*. 

Multiplex floated its units in December 2003 on the basis that a stapled combination of an investment property trust plus a building and development company operation could pay stockholders 31.28 cents a unit to yield an enticing 8.78 per cent on float price. 

The Multiplex trust and the Multiplex company generated a "real" after-tax profit of only 19.7c a share - 11.6c a unit less than the payout.

In simple terms, Multiplex covered the earnings shortfall by "profits" of large internal transactions, which were then capitalised into the value of the properties - exactly what Westfield does on a small scale. Multiplex's "real" profits were only 3.4 per cent of turnover. 

If anything went wrong, the profit could be blown away. Since the float, more equity has been issued, which has helped the company's balance sheet but lifted the level of investor misery. 

After the float, the proportion of "real profits" indicated by the company rose from 19.7c to 23.7c. After Wembley and other writedowns the "real profits" have been reduced from 23.7c to 16c a unit but the internal profits have been slashed from the prospectus level of around 11.9c to only 5.4c a unit, which is not surprising given the risks the trust is taking in financing the construction company. 

Total expected 2004-05 profit is therefore now only 21.4c a unit, or 38 per cent below the prospectus estimate. But distribution is propped at 29.8c, which is down only slightly from the prospectus estimate. The company's prospectus underlines the risks of an uncovered distribution. 

The prospectus shows that Multiplex expected to gain its basic 2004-05 gross income from two sources - $131 million from the company's construction and development arms and $100 million from the investment property trust. 

Prominent in the prospectus was a series of photos of investment buildings and the rentals they reaped. Some may have thought that these were the key profit drivers for the $100 million trust earnings. But I would argue that this was not so. 

Around $60 million of the $100 million trust earnings came from those internal deals. And most of the remainder of the trust income was absorbed in interest. 

So one could argue that the majority of trust earnings, plus all the other activities, came from high-risk construction and development. 

Even the best builders from time to time do things that are stupid. In the case of Multiplex, 72-year-old John Roberts, as chairman, did not exercise enough restraint on his aggressive son and CEO, Andrew. 

Until it went to the UK, the two biggest projects that Multiplex had performed were the $553 million Sydney Olympic stadium and Sydney's $433 million Citigroup Centre. When Multiplex first went into the UK it did the right thing and took on two very small contracts, including a small local grandstand. 

But instead of graduating to the next stage in the UK it had an incredible rush of blood and it took on, not one, but two contracts (White City Shopping Centre and the Wembley Stadium) which were both two or three times bigger than anything Multiplex had attempted in Australia. 

*In the UK, Multiplex's management became stretched beyond belief*. As pointed out in The Australian, Andrew Roberts was also spending time socialising with London society. 

In Australia, subcontractors are accustomed to doing what the builder tells them. *In the UK, subcontractors want to do it their way. It requires a totally new way of managing*. 

*Multiplex at Wembley is now entirely dependent on its new open-ended subcontracting deal. To that add ballooning steel costs and the lingering problems in the conversion from a family company to a public company and you have a nasty situation*. 

*Let us hope that the Australian group can survive it*.


My Comments:

There has been a huge rise in costs of steel, fuel, labour, bricks, cement and concrete. There is potential for more rises. BSL has already booked 30% price rises for some products in July 2005. If price of oil continues rising, just about every other price in the economy will continue rising. 

This is a company "under siege".


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## mime (31 May 2005)

According to the P = A - L rule the company's P is in the negitive. That is not good. I think they will have to do someing fast or they will be in some major trouble.


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## mime (31 May 2005)

Multiplex got hit hard today. I feel for you guys. But everyone on this forum has probably taken a heavy loss before so don't feel too bad for yourselves.


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## malh786 (31 May 2005)

*Re: Multiplex - How to Stop Loss*

Watching the Multiplex drama unfold has me wondering how to best utilise a stop loss in this situation.
Hypothetical situation - say you bought in after the price drop following the White City sale for about $ 3.20  (I had even seen some "buy" recommendations at the time...?)
You set a stop loss at say $ 3.00 in case more bad news does follow.
But what is the best way to trigger a your stop loss when bad news is imminent and the shares go into trading halt?
Do you -
1. - Put in a pre-open sell order way below your SL (say $1.50) to ensure your shares get sold at the opening price?
2. - Sit out the panic sell off at open, wait and see if the price bounces during the day (ie-  today opened at $2.43 but now at about $ 2.56)
3. - Wait a couple of days to see if there is significant rebound (or maybe dead-cat bounce)?
Or is there any other options?


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## markrmau (31 May 2005)

The intraday price action suggests you should hold multiplex at this stage (2.30pm) IMHO. Wait for 3-4pm. If things seem to deteriorate massively, then think of selling.

This is not financial advice etc.


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