First time trader - Multiplex issues!

[DTM]

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.

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.

 

[Jikx]

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

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).

 

[ob1kenobi]

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!

 

[Knobby22]

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

 

[Investor]

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".

 

[Investor]

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".

 

[mime]

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.

 

[mime]

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.

 

[malh786]

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?

 

[markrmau]

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.