MFS - MFS Limited

[Prospector]

No wonder the Directors forgive S8 for their hostile takeover a few years ago (Today's Australian). MFS are now taking over S8 with S8's boards approval!

 

[michael_selway]

No wonder the Directors forgive S8 for their hostile takeover a few years ago (Today's Australian). MFS are now taking over S8 with S8's boards approval!

How high will MFS and SEL go up today?

thx

MS

 

[Prospector]

How high will MFS and SEL go up today?

thx

MS

Its quite bizarre - I was only thinking this morning, before the announcement that I might top up. Now, both shares are 'adjust' - whatever that means.

For S8 the offer values them at 30%+ premium to last traded price, so worth getting in on as the S8 Board have supported MFS offer. For MFS - not too sure really!

 

[michael_selway]

Its quite bizarre - I was only thinking this morning, before the announcement that I might top up. Now, both shares are 'adjust' - whatever that means.

For S8 the offer values them at 30%+ premium to last traded price, so worth getting in on as the S8 Board have supported MFS offer. For MFS - not too sure really!

MFS down on open, i wonder why

thx

MS

 

[scsl]

Hi

did that include any one off sales?

thx

MS

Yes, that $97.4 million figure does include profit on asset related transactions. I apologise for comparing it to the $50-55 million figure - this was the estimate on operating profit.

Not to dull your enthusiam, but i should clear a few things up for people reading your post, eps for 06 was 0.43, almost exactly in line with broker forecasts, also what are you basing your eps future estimates on? You probably need to differentiate between recurring income and profit from transaction income. Frankly, broker estimates for a company like MFS in 08, whose profit is far more sensitive to individual deals than mbl, bnb etc, are stabs in the dark at best.

Otherwise your diagnosis looks pretty good

I got my future EPS estimates from Commsec. The median EPS estimate of three featured brokers is currently 31.5 cents. However, say I had no access to these figures or any analyst reports, I am still able to have a 'guess' as to how MFS will perform in the coming year.

Management's guidance on FY2007 results has said that ordinary earnings (those that exclude profit from asset related transactions) should be at least 30 cents. I have based my estimate of 'at least 35-40 cents' on what I have continually seen in the past with MFS. I think they will continue to deliver more than what they've said. For example, I think MFS can achieve more than the $4 billion in assets under management (they are aiming for) which will ultimately mean more fees/income generated.

As for broker estimates for FY08, I haven't even mentioned anything of this sort. However like you said, I think it is still appropriate to differentiate between operating income and income generated from asset transactions.

From what we've seen today with the merger announcement, one thing's for sure - that these asset transactions won't be one-off, they will be ongoing!

Its quite bizarre - I was only thinking this morning, before the announcement that I might top up. Now, both shares are 'adjust' - whatever that means.

For S8 the offer values them at 30%+ premium to last traded price, so worth getting in on as the S8 Board have supported MFS offer. For MFS - not too sure really!

I think that at this level (about $4.10), MFS is very worth getting into. Not only was the (at one stage) 8% drop a good time to get in, I think it was an overreaction to the announcement. Perhaps the market believes that MFS is overvaluing S8 Ltd.

 

[scsl]

Having read the merger presentation, the following stuck out:

> Substantial synergies and strategic benefits will be realised.
> Through this merger, MFS will be able to extract significant value and EPS accretion from strategic initiatives that will arise.
> This will increase the size of the tourism-focused investment trust that will be listed soon. The "acquisition program [is] not yet declared to be complete".
> This merger of two strong competitors (under the MFS name) will bring MFS even more investors - a great opportunity to cross-sell its many products.
> MFS will be able to grow its financial services initiatives. e.g. financing people's holidays, international money transfers, providing insurance etc will be provided in this differentiated travel model.

Hmmm, I wonder if MacBank or any other large investment banks are scrambling a team together to work on a bid...

 

[Prospector]

Well, I think they have over valued S8. Maybe the market does too!

 

[smoothsatin]

No doubt there will be further price weakness for awhile. Same happened when MFS took over BRK, SEL sellers keep the downward momentum for some time, i think last time for several months from $1.8 to $1.2, but several factors suggest they wont decrease by the same proportion this time, e.g MFS is larger and easier to value. I don't like watching them go down, but reality is MFS is now more valuable, but selling for less than it was last week.

 

[smoothsatin]

2 x change of directors notice, it must be to signal confidence to the market whose initial reaction was poor, they seriously wouldnt need to increase their respective holding by 0.5%!

 

[michael_selway]

2 x change of directors notice, it must be to signal confidence to the market whose initial reaction was poor, they seriously wouldnt need to increase their respective holding by 0.5%!

wow they bought alot

thx

MS

 

[dubiousinfo]

MFS currently trading at $4.14

If you buy SEL at $ 4.43 after takeover & cash of 70c + spec div 15c the entry point is $ 3.58

Plus leaves you exposed to any higher bids (though this seems unlikely)

The risk would be if the take over failed the SP of SEL is going to tank.

 

[michael_selway]

MFS currently trading at $4.14

If you buy SEL at $ 4.43 after takeover & cash of 70c + spec div 15c the entry point is $ 3.58

Plus leaves you exposed to any higher bids (though this seems unlikely)

The risk would be if the take over failed the SP of SEL is going to tank.

SEL keeps tanking, why is that?

Date: 5/9/2006
Author: Anthony Klan
Source: The Australian --- Page: 23
Queensland investment group MFS launched a $A700m takeover bid for S8 on 4 September 2006. At around $A5 a share, the off-market bid was almost 40 per cent above S8's previous close. However, the deal may be blocked by the Australian Competition & Consumer Commission, as it would give MFS control of 13,000 holiday units - about 20 per cent of the management rights sector. S8 has been the subject of investigations into its domestic travel agency business after claims that it charged overly high commissions

MFS - Earnings and Dividends Forecast (cents per share)
2006 2007 2008 2009
EPS 42.6 31.5 41.1 50.0
DPS 29.5 19.0 24.0 29.5

SEL - Earnings and Dividends Forecast (cents per share)
2005 2006 2007 2008
EPS 12.6 20.2 30.5 38.5
DPS 7.5 10.0 14.2 17.9

MFS MFS LIMITED Overnight Price: $3.87
ABN Amro rates the stock as Buy - Initiation of Coverage - The broker sees the stock as having significant growth potential, with success in the S8 (SEL) merger proposal likely to see assets under management increase from around $3bn to $5bn.
It estimates the S8 proposal would add 4% to earnings in FY07, with other attractions of the story being the growing annuity stream and the minimal capex and capital requirements.

Without including S8 in its calculations the broker values MFS at $5.15.

Sector: Diversified Financials.

Target price is $5.15 Current Price is $3.87 Difference:$1.28 - (brackets indicate current price is over target). If MFS meets the ABN Amro target it will return approximately 33% (excluding dividends, fees and charges - negative figures indicate an expected loss).

------------------

Macquarie 25-Aug-06 1 Outperform $5.43 40.3%
The broker has raised its target on the stock by 23c to $5.43 following the result.
The stock is one of the broker’s best small cap picks.

------------------

UBS 24-Aug-06 1 Buy 2 $5.21 34.6%
Following the Outrigger acquisition, the analysts are increasing confident in the stock, and have increased their target by 16c to $5.21.
Deal pipeline seen as healthy.

SEL S8 LIMITED Overnight Price: $4.30
ABN Amro rates the stock as Buy - The broker has retained its rating following the merger proposal as it suggests S8 offers an attractive entry into MFS (MFS).
Additionally the broker notes the company''s profit result of $20.9m was slightly better than guidance, while management indicated earnings in FY07 and FY08 were likely to be $44m and $60m respectively.

Valuation is $6.18.

Sector: Real Estate.

Target price is $5.00 Current Price is $4.30 Difference:$0.70 - (brackets indicate current price is over target). If SEL meets the ABN Amro target it will return approximately 16% (excluding dividends, fees and charges - negative figures indicate an expected loss).


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Credit Suisse rates the stock as Outperform - The analysts see the discussed union with MFS as offering potentially significant benefits, but they need to find out more about the details.
Sector: Real Estate.

Target price is $4.75 Current Price is $4.30 Difference:$0.45 - (brackets indicate current price is over target). If SEL meets the Credit Suisse target it will return approximately 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).


--------------------------------------------------------------------------------

SB Citigroup rates the stock as Downgrade to Hold from Buy, High Risk - Target $4.71 (was $4.95). The broker notes the profit result was a strong one but has been overshadowed by the merger deal with MFS (MFS).
In the broker''s view the deal is likely to succeed and should offer a number of chances for cost savings and economies of scale.

Valuation is $5.50.

Sector: Real Estate.

Target price is $4.71 Current Price is $4.30 Difference:$0.41 - (brackets indicate current price is over target). If SEL meets the SB Citigroup target it will return approximately 10% (excluding dividends, fees and charges - negative figures indicate an expected loss).

 

[scsl]

Thanks for posting that up MS. I've been a strong supporter of MFS since its merger with Breakfree and I have barely read any research reports on them - it's all been my own research. So, it's really great to see the large brokers put such positive valuations/targets on MFS. I definately think these were calculated by using the multiples that are seen (and will be seen in the future) in MacBank, Babcock and Allco Finance.

It's also ironic that MacBank has the most positive target on MFS, seeing as MFS will one day be a more competitive rival.

Also, it's interesting to read that ABN Amro "suggests S8 offers an attractive entry into MFS". Depending on how the S8 sp performs, this may be true.

 

[dubiousinfo]

Providing the deal goes through, buying S8 at its current price of $4.15 gives you an entry to MFS of $3.30.
Think I will get me some of that.

 

[scsl]

Providing the deal goes through, buying S8 at its current price of $4.15 gives you an entry to MFS of $3.30.
Think I will get me some of that.

So just to clarify things, are you saying that by buying S8 at $4.15, you are effectively buying MFS at $3.30?

Oh and is this for both offers that MFS is offering? (As in the one MFS share and $A0.70 in cash or 1.15 MFS shares for one S8 share)

Thanks,
scsl

 

[smoothsatin]

Entry point with sel at $4.15 is 3.50 per mfs. 1 share +70 cents + 15 cents div - not getting 20 cent mfs div (ignoring franking credits).

Note the $4.25 minimum SEL price required for the thing to go ahead. The price will go above again when all the shareholders who dont want mfs shares have sold their holdings.

In terms of ACCC, i believe they are supposed to intervene when a merger/acquisition will have a material effect on market outcomes in markets of national or international importance. IT seems this fails on both fronts? I could be wrong.....

BUY BUY BUY!!!!!!!!!

 

[smoothsatin]

Where to from here, SEL and MFS just closed at the same price....will MFS start buying SEL on market to help support the price? Ot is this temporary and the SEL sellers will be weeded out and prices return to closer to where they were? I am happy with either...

 

[Ken]

will this merger go ahead?

 

[smoothsatin]

I expect it will, both sets of management know it is the best way forward, so it is a formality to go through in one form or another. If you can take a bit of volatility in the mean time it is a good time to buy in. Once all of the SEL holders who don't want a bar of MFS are out (e.g PPT), the SP will float upwards. In 12 months MFS will be at $6+ (providing a soft landing as oppossed to a crash/recession for US and AUST) and we will be better off for the whole experience.

 

[scsl]

Ken, I think the merger will almost definately go ahead.

Seeing as the merger has been given the go ahead by the ACCC, it will only be a matter of time before the merger gains momentum.

After this, don't be surprised to see MFS continue acquiring other assets for its vehicles and trusts - very much in Macquarie Bank style.

MFS is a great buy at under $4. I think if the merger was not announced, the MFS sp would be above $5 by now. Concerns about whether MFS is taking a gamble that S8 had adequately integrated and consolidated the four travel companies it had bought in less than a year and the size of the merger is what's keeping the sp down.