MTU - M2 Group

[tinhat]

Re: MTU - M2 Telecommunications Group

Page 7 of the offer booklet states that the rights will be traded on the ASX from the 18th April to the 4th May. How does this work?

I'm interested in buying entitlement rights. I owned MTU until I got stopped out last year. Never bought back in but I'm impressed with this company.

Interestingly, the M2 website seems to be down for me at the moment.

[edit]

OK I read further on, so stock owners can instruct their broker to put their entitlement (or a portion) onto the market. I assume that the ASX will issue a temporary code for these? Am I right in assuming that people can buy the entitlement rights on the ASX and will then have to write a cheque to the offer manager for the actual amount of the shares ($2.66) or will that be rolled up into the purchase of the entitlements; ie, you buy the entitlement and pay for the share all via the ASX trade?

 

[herzy]

Re: MTU - M2 Telecommunications Group

Maybe not.

Renounceable entitlement offers don’t dilute shareholders because shareholders have the chance to participate in proportion to their current holdings.

There is no shares being sold to the vendors or offered to institutional investors via placement etc.

A current shareholder may be diluted, but only if they sell their entitlements for which they will receive compensation or fail to take any action at all.

I don’t see how people think a renounceable entitlement offer is dilution so I am probably not answering your question at all – If you give me something specific, I will clarify.

Thanks craft, that did actually clarify things! No need to undersell yourself (no pun intended). In a perhaps simplistic view, I saw share dilution as meaning that there were simply more shares (each share represented a slightly smaller percentage of the company than before). While under a renounceable entitlement offer it may be true that there will be more shares, given that shareholders will receive some benefit (either entitlement price, or reduced share price), there will be no capitol loss for the shareholder, even if each individual share may be worth less. Hopefully my understanding of this is correct...

 

[notting]

Re: MTU - M2 Telecommunications Group

If they are using the money raised to buy something that is earnings accretive it is also not delusionary, I mean dilutionary.

 

[skc]

Re: MTU - M2 Telecommunications Group

Page 7 of the offer booklet states that the rights will be traded on the ASX from the 18th April to the 4th May. How does this work?

I'm interested in buying entitlement rights. I owned MTU until I got stopped out last year. Never bought back in but I'm impressed with this company.

Interestingly, the M2 website seems to be down for me at the moment.

[edit]

OK I read further on, so stock owners can instruct their broker to put their entitlement (or a portion) onto the market. I assume that the ASX will issue a temporary code for these? Am I right in assuming that people can buy the entitlement rights on the ASX and will then have to write a cheque to the offer manager for the actual amount of the shares ($2.66) or will that be rolled up into the purchase of the entitlements; ie, you buy the entitlement and pay for the share all via the ASX trade?

You buy the entitlement on market like you do with normal shares, usually the code is simply adding a R to the ASX code (i.e. MTUR). You pay only the price for the rights at the time of purchase.

During the trading period you can buy and sell these rights, again like normal shares.
Anytime before the close of the offer, you can elect to take up these rights by paying the subscription price. The actual process to take up the rights depend on your broker, but I'd imagine they either send you a letter or you call up your broker and tell them you want to subscribe (and have the cash ready).

You can always let your rights lapse if you no longer wish to subscribe after the trading period has ended. You may do that because the share price has fallen below the subscription price, for example.

The use of renounceable rights isn't really a cheaper way to enter the stock, assuming the rights trade at a sensible price. As a general rule, the right would usually trade around the share price minus the subscription price. So the benefit for you is that you has a lower capital outlay initially, and you gain a slight "option-style" value if you no longer wish to buy the share. Offset against that is that risk that, between paying to take up the rights and actually receiving the new shares (and be able to trade them) there's a period where you do not have control to your position.

 

[clinta44]

Re: MTU - M2 Telecommunications Group

If they are using the money raised to buy something that is earnings accretive it is also not delusionary, I mean dilutionary.

Thats what I was trying to get at - The only way there is no dilution is if the acquisition is EPS accretive and in my entire life I’ve not seen many of those.

time will tell I suppose ...

 

[Muschu]

Re: MTU - M2 Telecommunications Group

Thats what I was trying to get at - The only way there is no dilution is if the acquisition is EPS accretive and in my entire life I’ve not seen many of those.

time will tell I suppose ...

MTU is certainly having an OK day today [atm anyway].... Up 4% while XAO up 1.2%. There seem to be pleny of buyers.

 

[craft]

Re: MTU - M2 Telecommunications Group

MTU is certainly having an OK day today [atm anyway].... Up 4% while XAO up 1.2%. There seem to be pleny of buyers.

When you consider it is selling ex-rights today which is worth around 15 cents per share (with the rights selling at 60 cents) then this morning’s jump is even bigger. I sold some of my holdings into it this morning. The rights give me some option’s too either replace or confirm the reduction in exposure by selling the rights.

Ps selling rights before they are allocated in Chess is a pain in the .... It requires a human - how old fashioned.

 

[brianwh]

Re: MTU - M2 Telecommunications Group

If you buy MTU today, do you get the rights option?

 

[tinhat]

Re: MTU - M2 Telecommunications Group

If you buy MTU today, do you get the rights option?

No.

I'm not going to buy in at these prices. Pitty I didn't buy back in at the low in November 2011.

 

[robusta]

Re: MTU - M2 Telecommunications Group

Just a question about the rights issue. They do not appear in my holdings with either of my brokers, (i hold in my SMSF and personal accounts)

I have not filled out the form to trade options I wonder if this makes a difference?

Does anyone know the code for the options?

 

[Klogg]

Re: MTU - M2 Telecommunications Group

Just a question about the rights issue. They do not appear in my holdings with either of my brokers, (i hold in my SMSF and personal accounts)

I have not filled out the form to trade options I wonder if this makes a difference?

Does anyone know the code for the options?

The code should appear as MTUR - or atleast that's what it shows in ComSec. However, they don't appear in my holdings also...

I haven't noticed anything in the documentation I've been sent thus far about the amount I own though - so I guess I have the same question as you on that front robusta.

 

[craft]

Re: MTU - M2 Telecommunications Group

Just a question about the rights issue. They do not appear in my holdings with either of my brokers, (i hold in my SMSF and personal accounts)

I have not filled out the form to trade options I wonder if this makes a difference?

Does anyone know the code for the options?

I was told they should appear in Chess Holdings tomorrow. 2 Days after the EX date which was the 18th. I sold some on Wednesday but had to get Comsec desk to enter the order for me as the online systems stops you due to insufficent chess holdings.

Comsec don't get much good press but I found them very helpful on this occassion. They were happy that entitlements would arrive before T+3 or would sort it for me if they didn't and even hounoured the 0.12% online brokerage rate.

 

[robusta]

Re: MTU - M2 Telecommunications Group

Cheers thank you for that craft.

 

[Ves]

Re: MTU - M2 Telecommunications Group

I don't own MTU, and haven't really planned on buying any. But this acquisition doesn't look all that great on paper.

They're essentially paying $183m for a company that earned a profit of $10.3m. If you can believe the synergies (at $5m a year) that's $15m added to the bottom line. You could argue that this increases their customer base and that they gain infrastructure. Perhaps they can drag some added hidden earnings out of Primus.

My calculations are that equity will be around $185m after this acquisition (I haven't added the DRP back either) and that profit will be around $39m (or $43m will amortisation).

ROE will be around 20% (or 23% if you add back the amortisation costs).

Revenue looks fairly flat and it looks like their NPAT has seen an increase by increasing gross sales margins more than anything over the last two years (did they change their business model?). Cost reduction and synergies are short term earnings drivers in my opinion.

It looks feasible that the higher ROE (mid to high 20s) of the past was due to a high period of business growth and it is becoming harder to sustain as the company grows its revenue base.

Am I missing something?

 

[tinhat]

Re: MTU - M2 Telecommunications Group

Another thing about the acquisition is that Primus has a retail business and MTU have not been in the retail space until now.

 

[Ves]

Re: MTU - M2 Telecommunications Group

Another thing about the acquisition is that Primus has a retail business and MTU have not been in the retail space until now.

I think the main question in regards to this expansion is: Do you think they will be able to win (or even keep) market share against the other (bigger) players?

Double-edged sword in my eyes.

 

[robusta]

Re: MTU - M2 Telecommunications Group

These guy's have sales built into their DNA every business they have aquired has performed well and they manage to do it with Aussie call centers, just my opinion but the retail customer will appreciate this as much as the business customer.

 

[craft]

Re: MTU - M2 Telecommunications Group

I don't own MTU, and haven't really planned on buying any. But this acquisition doesn't look all that great on paper.

They're essentially paying $183m for a company that earned a profit of $10.3m. If you can believe the synergies (at $5m a year) that's $15m added to the bottom line. You could argue that this increases their customer base and that they gain infrastructure. Perhaps they can drag some added hidden earnings out of Primus.

My calculations are that equity will be around $185m after this acquisition (I haven't added the DRP back either) and that profit will be around $39m (or $43m will amortisation).

ROE will be around 20% (or 23% if you add back the amortisation costs).

Revenue looks fairly flat and it looks like their NPAT has seen an increase by increasing gross sales margins more than anything over the last two years (did they change their business model?). Cost reduction and synergies are short term earnings drivers in my opinion.

It looks feasible that the higher ROE (mid to high 20s) of the past was due to a high period of business growth and it is becoming harder to sustain as the company grows its revenue base.

Am I missing something?

Identifiable intangible asset. aka customer contract valuations created from change of control transactions.

You will have to go to the PTGI accounts to dig out the relevant information. Alternatively look at the cash numbers for a generalised picture.

 

[Ves]

Re: MTU - M2 Telecommunications Group

Identifiable intangible asset. aka customer contract valuations created from change of control transactions.

Thanks - I am not 100% sure that I follow. But is this the reason for the difference between NPAT of 10.4m compared to FCF of $15.4m?

Therefore - they receive cash payment in advance of having to recognise revenue on the operating statement?

 

[craft]

Re: MTU - M2 Telecommunications Group

Thanks - I am not 100% sure that I follow. But is this the reason for the difference between NPAT of 10.4m compared to FCF of $15.4m?

Therefore - they receive cash payment in advance of having to recognise revenue on the operating statement?

Transaction accounting creates valuations for customer contracts which have to be amortised.
This is a non cash accounting expense only. You alluded to it when you mentioned the 4 Million amortisation in your first post for customer contracts already on M2’s books from previous purchases.

Primus has similar contracts already on their balance sheet which were created when PTGI emerged from bankruptcy. It’s existence in the Australian operations that M2 are buying is evident in the large difference between EBITDA and EBIT (larger than the Capex spend) and via the cash flow info.

There is no segment breakup in the PTGI accounts for just Australia but they had $99.2 million of amortizable customer relationships in total and Aus represented about 35% of revenue..

The only research report I have seen so far for the combined M2 indicates an non-cash amortisation amount for 2013 of about 20million.