MFS - MFS Limited

[robert toms]

I am a holder or both MFS and MPY,that is a disclaimer.
If the article in AFR today on Mfs,its pricipals etc,has any veracity ...the company is in dire straits.The authors claim that the staff are devasated already .
There was no risk management strategy with MFS it seems.
If the company comes out of suspension and trades again it will be unexpected bonus.
They paint a damning picture of King and Adams,virtually a return of the Queensland white shoe brigade....pity the journalists were not wise before the event?

 

[tigerboi]

i am not a subscriber but if there is any afr subscibers online maybe they

could post it for all mfs holders to read,white shoe brigade is about right.

offering high yields with others money,people are still falling for it,were was

king& adams when the 5hit hit the fan???playing polo in europe,until asic &

others start getting fair dinkum this will keep happening,remember this. how

many more of these cnp,mfs are on the brink???reckon there is a lot of bum

covering going on,off market trades to the wife,etc etc,big houses to the

wife & kids then it goes crash bang wallop*&^%$#@! me sir iam broke i am

relying on the good charity of friends to put me up for the night,its a joke

that has to be fixed for good.....tb

 

[Kauri]

Some of the best investment advice I ever got.. from my old father... check the company pedigree and if there is a Q anywhere in its address be carefull.. be very very carefull
Cheers
........Kauri

 

[discman]

There are lots of rumours surrounding MFS. So let’s focus on the fact and work it out.

Share price:
The share price for MFS was around $4.50 at the beginning of the year.
Share price dropped to $3.55 on 11 Jan due to Centro proposal, (and director received margin call to dump 500,000 shares)
Share price dropped to $0.99 on 18 Jan due to Stella and Financial Services de-merger proposal with $550 recapitalising.
The rapid share price drop on 18 Jan was caused by chain reaction:
First hedge funds and shorters were shorting the stock since CNP disaster.
Then sensitive Investors started to dump the shares when de-merger proposal announced.
The low share price triggered the margin call again, so you got millions of shares were forced to sell in just couple of hours by the margin lenders (including the director’s).
Plus the computer at Barcalys – (one of MFS major shareholders) was issuing sell signal. Some of you may not know, Barcalys runs quant-style funds – that is, with a computer rather than a human deciding when to buy and sell. In result, 10.5 million MFS shares were sold (that is 2.18% of the company).
Then follow by small investors, who were scared, and joined the selling force. At the end of the day, the share price closed at $0.99, that is 69% down in single day.

Large shareholder trades:
Former Director Michael Hiscock sold his 500,000 share due to margin call on 11 Jan, (he still hold around 4.5 million shares after resignation)
Merrill Lynch acquired a net 6,447,373 MFS shares between January 9 and 15, increasing from 35,109,585 shares (7.26%) to 41,556,957 shares (8.59%).
Director Paul Manka sold all his 5 million shares due to margin call on 18 Jan.
Barcalys sold 10.5 million shares on 18 Jan (reason explained about)
Former company's CEO Mr King is still the third-largest shareholder and hold over 32 million (6.85%) MFS shares (As far as I know, he only sold half million shares at the beginning of the year.)

Total Debt position: (correct me if I am wrong)
On MFS 2007 annual report page 43 and page 53, it stated the company total debt was $2.2 Billion. To my understanding, the debt related to Stella was placed in current liability as “liability classified as held for sale” in the report, (see in section “Stella – discontinued”, page 51). So compare to the announcement on 23 Jan, it’s in better position (in term of debt) compared to six months ago. However, most of the media reports said "debt blow out of control" and "debt had nearly quadrupled”, looks like they only consider the “Non-current liabilities” as total debt for the company at that time, I wish the media could provide detail explanation to support their side of the story.

Company Value
MFS’s business excluding the Stella was valued at 1.33 billions at the time when CIY offered merge proposal.
Nobody knows the exact value of Stella, the only thing we know is Stella has lots of quality assets and it was making over $100M EBITDA in last 6 months.

Short Term debt and Cash:
The company need to refinance or repay $220M ($150M Fortress loan + other $65M primarily margin loan facilities without a fixed term) by March. It has $136M cash (Excludes client cash of $48 million held in the travel services business).

Here is my opinion:
CIY must had details study on MFS before they came up the proposal, the valuation was considered undervalued by other financial analysts, as usual, if you are the buyer, you want to pay less, especially in this market condition. Although CIY had withdraw the proposal at the end, but the fundamental value of the company shouldn’t change in just couple days. I can understand the reason behind the withdraw, in fact no one on earth will dire to go ahead after you just saw your target company share price drop 69%. So the valuation is quite correct.

Some articles said: “the company revealed loans previously not disclosed, its short-term debt facilities suddenly blowing out from $150 million to $220 million”. It depends on you how to classify the $65 million margin loan facilities. Some of you may have non fixed term margin loans, and then you know they could be as long term as you willing to pay the interests, of course, if you never meet the margin call. Unfortunately the shares market dropped dramatically this month, so the margin loans suddenly had to be covered in this case. I think the margin loan facilities are some how associated with the investments in HFA, BBC & MFT shares, as the company was reported that, it just sold $43.5 million worth of HFA, BBC & MFT shares due to margin call in last couple of days.

After commonwealth bank rejected the $150 million refinance (assume this is the last source), MFS has to sell off partial Stella to cover all the short-term debt, so let’s work it out. You have $220 million debt, on the other hand, you have $136 million cash + another $43.5 million cash from selling of HFA, BBC & MFT shares. Then you don’t need to sell much of the Stella assets to cover the rest, I believe any sells will be in discount price, but can’t really see it’s a fire-sell situation.

In the past, I had seen many large companies went under after their share price crashed, but also seen many of them returned back even stronger. They all seem to share a common rule – profitability.
MFS is profitable company and marking reliable income cash flow, at lesase, this one is commonly agreed so far.

After sperate the fact and rumours

Is MFS really as bad as the media says?
Will the company change its fundamental value after reply the remaining (debt - cash) short term debt?
Is MFS worth less than half billion $ market cap?

That is up to you to decide ….

 

[Prospector]

MFS share price has been dropping consistently since mid December,(December 17 - $5.14) before any Centro announcement - why was that?

 

[discman]

MFS share price has been dropping consistently since mid December,(December 17 - $5.14) before any Centro announcement - why was that?

Mid December was around the peek time for the market, S&P/ASX 200 and AORD were above 6500 then, after that the whole market slowing down, and investors started move away from high leverage company due to sub-prime concern. MFS, BXB, AMP, AFG etc … are just among them.

Honestly, I don’t think MFS share will bounce back to $5 in short term, I feel sorry for you or someone bought the share around that price.
But for around $1 PS, it is a bargain.

 

[9krpm]

Thankyou Discman for some ANALYSIS instead of mere speculation - it's much appreciated.

I think you're right, and it's the ability to do quality analysis (sadly, the press seem incapable of this, but perhaps that's to our advantage ) that makes the difference between making a sound trading/investment decision and just being one of the sheep.

 

[|guanA]

I bought MFS at $1.285 a week or so ago, thanks Discman, your post brings a little relief, the past week has been tough to ride out, and I'm sure its going be hell when they're out of suspension, reading your post makes me just a little bit more confident on my purchase. Fingers crossed.

 

[rgdk]

Thanks also Discman for your summary post. I had considered doing the same also as I have been digging like sh$t to uncover as much information as possible to try to separate the hype from the facts.

I think that your assessment of the status quo is pretty much spot on from what I have read with respect to the numbers as well as with respect to the scurrolous way that the media report them. If we are to believe them then the company is 'on the brink of collapse' or 'doomed'. Yet only around 10% of their debt is up for immediate renewal, something relatively simple to address with the part-sale of Stella.

Furthermore, little analysis is presented with respect to the ongoing profitability of the businesses, which up until recently, were affirmed at EPS of 40 c + and projected to grow. Clearly this will have to be revised downwards on sale of assets, but nothing has been released that i am aware of that indicates that the business cannot actually meet interest cover. The main issue has been, as with Centro, the inability to refinance the $150 million Fortress Facility Loan.

The irony has been that this facility was due for payment in March, but with the share price collapse, a clause in the lending contract has been triggered demanding immediate closure of the debt position. So whilst there was not originally a problem, the ill-timed rights issue, probably aimed at providing the company some financial contingency in the event of future liquidity issues, has actually caused an immediate one. I would guess that this is what has precipitated the recent selling by MFS of its stakes in BBC and HFA.

All I can say is that when the announcement comes of what is happening next, for me and I expect everyone else in the market, the company would be completely irresponsible to not provide a crystal clear picture of:

1) Its debt position and working capital going forward
2) Its ongoing earnings projections
3) Its viability as a going concern

Only then I think will we see some stability in the share price. From what I can see at present, provided that the company can address its immediate debts, its actual business is not performing poorly.

As a final note, I did read that UBS had revised their share price target down from around $6.00 down to $1.59, indicating that they too are treating the forecasters of complete oblivion with some scepticism. Although of course a month ago they were saying MFS was worth $6.00...

Lets all keep posting useful FACTUAL information as it comes to light...

 

[robert toms]

Facts are being revealed all the time about MFS...not new facts,but facts not previously revealed.
Expect nothing and you will not be disappointed !

 

[Prospector]

Facts are being revealed all the time about MFS...not new facts,but facts not previously revealed.
Expect nothing and you will not be disappointed !

A fact not revealed is withholding information. In the Insurance Business, witholding information that could increase the risk of the underwriters of the Policy, automatically invalidates the Policy. It is the same with business. if you are saying there are facts, (even if not new) that contribute to the risk of the business, that are only now being revealed to the market, then they have misled the market. If those facts decrease the risk of the business, then they don't have to reveal them.

So, do these (newly revealed) facts increase or decrease the risk of the business?

 

[CranG]

...The main issue has been, as with Centro, the inability to refinance the $150 million Fortress Facility Loan.

The irony has been that this facility was due for payment in March, but with the share price collapse, a clause in the lending contract has been triggered demanding immediate closure of the debt position.....

rgdk, agree with you completely. However, there is a correction to be made

This is a quite from DJ News Wires

The spokesman also denied some media reports that a A$150 million loan from U.S. hedge fund Fortress Investment Group was on immediate demand, saying the debt is due by the end of March.

"In regards to anything that would trigger an immediate repayment, there hasn't been a breach of that," he said.

Unfortunately, some false information is assumed to be fact; and furthermore folks have been arguing around false information. I've noticed that Reuters and Bloomberg aren't quoting AFR as much, and if they do they will now state that AFR did not mention the source of the information.

AFR have lost credibility in my books. I'll get a second opinion on any of their stories from now on.

 

[robert toms]

I can see that we have some true believers here.
Not to do with facts,but as you may have learned that MFS have stopped redemptions from their Premium Income Fund for 180 days.
I fear that the MFS brand is damaged beyond repair...Who is going to invest with them?
I had 10K with that fund two years ago,but after the dishonest treatment that I received with the HFA float I withdrew that as soon as I was able.
I also covered myself with a sale of some of my shares in MFS.
I never recommended MFS to anyone as I did not completely trust them myself.
However I made the mistake of keeping some because they appeared successful,whatever my personal view of them was.'I was /am a fool Oh Yeah aha'
I sent an email to MPY asking them why they were suspended from trading,but no reply as yet...I thought that they were a stand alone entity on the ASX...but who knows what will be revealed ?
As I said before I am pessimistic in these situations and if you expect nothing you will not be disappointed.
I got into these thru the Breadfree takeover.

 

[Prospector]

So MFS is now suspended for six months. This was on the Television - is it true? Ditto - I got into MFS through Breakfree too, unfortunately.....

 

[robert toms]

They,MFS,stopped redemptions on their flagship Premium Income Fund.
That fund had a minimum investment of 5k...and it is said that some wholesale investors had over $300k.
There was a rush for redemptions...some terms were for a little as three months....and MFS suspended all redemptions for 180 days.Not confidence inspiring to say the least.
I think that the fund had somewhere around 700 million in it.
MFS itself itself is not subject to the 180 days,but....
That was on the News site this morning.

 

[rgdk]

More news filtering out, but predictably the journos have no idea what they are saying with contradictions in fact. I can't believe they are allowed to put out some of this garbage...

From the Courier Mail:

Sources said yesterday the two leading private equity players had each offered more than $1.8 billion for a half share in the group, which includes BreakFree resorts, Peppers hotels and Harvey World Travel.
Both offers are superior to the $1.6 billion CVC Asia Pacific is understood to have put up and had rejected as too low, since MFS had cobbled together the assets over time at a cost of about $1.9 billion.

Ironically, CVC is believed to have been willing to pay $2.2 billion last year but that offer too was knocked back because MFS valued the group then at $2.4 billion, sources said.

Ummm, does MFS value the half share or the entire business at 2.4 billion? 2.4 billion is the correct figure for the whole business. So then 1.8 billion for a half share sounds f%^$ing amazing!! Get the bloody facts right! One can assume that they are looking at 0.9 billion for the half share. Assuming this is right, then that is not too bad given the earlier expectations of its fire sale valuation - see later.

But just to show that the Courier Mail is just being true to form:

As thousands of nervous investors watch from the sidelines, MFS announced yesterday that it had made a paltry $43.5 million profit on the sale of its stake in an aged care company.
MFS – an investment group which owns the BreakFree Hotel chain and Harvey World Travel – is struggling to erase a $1.7 billion debt stemming from the global credit crunch, including $220 million payable within three months.

Courier Mail

Ummm, has the 1.7 billion debt stemmed from the credit crunch? Gee I thought it actually came from buying assets over the past few years... And are they struggling to erase the 1.7 billion debt? No, just a portion of it.


This is an earlier comment regarding the expectations of the Stella sale from the Australian:

But in light of MFS' recent troubles, it is likely the company is less fussy about getting the $900 million it originally wanted for a half share of the business in November.

There is talk MFS will struggle to get even half that price, with its adviser UBS' broking arm already putting a "distressed valuation" of $712 million on the entire Stella business minus debt.

So in the light of the above, getting 900 million would be a positive.

Of course that appears to only be part of the problem now as there has been so much mud slinging at the MFS brand that the value of the funds management business would be severely affected. Not to mention the self fulfilling prophetic effect of the media reporting causing a run on MFS's funds resulting in real distress for the company - hence the 180 day freeze.

So, current assessment is both good and bad, but the real litmus test will be the company's transparency, disclosure and outlook going forward. I think I would be really happy to get $1.50 back in the shorter term....

 

[Prospector]

It seems the worst issue facing MFS is its total loss of reputation. And for a company like this, reputation is everything. Speculation maybe, but it is facing a fire sale, and past valuations are really quite as the vultures come in for the spoil.

Today an Advisor (didnt catch the name) said that Centro would survive, MFS would not. What a fall from grace.

 

[Judd]

And Woosh!, thar she goes.

http://compareshares.com.au/show_news.php?id=456078

MFS Pacific Finance defaults on interest

MFS Pacific Finance has defaulted on interest payments to some of its 12,000 New Zealand investors after its parent company in Queensland refused to continue support.

New Zealanders have $NZ325 million ($A286.52 million) invested in MFS Pacific Finance Ltd, and the Australian company has said it will not (not) provide further financial support.

MFS Pacific is the 14th significant finance company to fail or default on repayments in under two years means and it raises to nearly $2 billion the amount of funds affected, although some of this has since been repaid by the receivers of some of the companies.

A financially-troubled Gold Coast tourism and funds management group, MFS Ltd, controls the NZ operation through a 38.5 percent stake in MFS New Zealand, which holds MFS Pacific as a wholly owned debenture finance company.

more......

 

[robert toms]

I saw an old golf clip on the news with the MFS logo prominent...happier days.
Yes the name is tarnished,beyond redemption, and their funds management business,I believe,is kaput.
The only hope,and I believe a slim hope, is for them to have some assets left over from the fire-sale of Stella etc. Then a severely diminished MFS can trade with a very low capitalisation.
However,I am not holding out any hope.
I hope that MFS has not brought down MPY with it,but I am not confident.
There seems to have been an incestuous relationship between MFS and MPY...and it makes me wonder what the motiviation was in floating these assets.
I did not,of course, receive any answer to my query as to why MPY went into a trading halt at the same time as MFS.
Weeks ago they announced a 12 cent a share dividend for the next year($21million cost)and then shortly after announced a cash for equity dealy with a financier...$29 million raised.
Polo Phil was on the MPY board then,but has since resigned.

 

[Prospector]

MFS are currently sponsoring a women's event in Australia at the moment. So yes, the MFS was prominently displayed on the TV yesterday. Maybe they should have paid more attention to their key business strategies.