http://www.investegate.co.uk/article.aspx?id=201007190700085154P&fe=1
Some good results from MuBL imv, with profits and eps ahead.Final divi hiked as well.
At current price of 152, with 2010 earnings of 40.3p P/E looks incredibly low.
Hi Fangorn,
I agree, very good results, as I had been expecting due to Carmenfella's diligent research. My holding of these is slightly larger by value than my holding in Soco.
Financial Analysis
Below is an analysis of the figures for the last 6 half-years (FY to March 31st):
| £m | 1H08 | 2H08 | 1H09 | 2H09 | 1H10 | 2H10 |
| Revenue | 28.98 | 51.87 | 34.86 | 108.77 | 78.19 | 116.68 |
| Cost of Sales | -24.01 | -42.18 | -29.29 | -97.10 | -70.01 | -103.20 |
| Gross Profit | 4.97 | 9.69 | 5.57 | 11.67 | 8.18 | 13.48 |
| Gross margin | 17.1% | 18.7% | 16.0% | 10.7% | 10.5% | 11.6% |
| Distribution costs | -0.57 | -0.80 | -0.67 | -1.13 | -0.82 | -1.28 |
| Admin expenses | -2.47 | -4.94 | -2.69 | -4.73 | -4.19 | -5.46 |
| Operating Profit | 1.93 | 3.95 | 2.21 | 5.81 | 3.17 | 6.74 |
| Finance Income | 0.04 | 0.05 | 0.08 | 0.03 | 0.01 | 0.18 |
| Finance Expense | -0.10 | -0.15 | 0.00 | -0.02 | -0.01 | -0.52 |
| Net Finance Cost | -0.06 | -0.10 | 0.08 | 0.01 | 0.00 | -0.34 |
| Pretax Profit | 1.87 | 3.85 | 2.29 | 5.82 | 3.17 | 6.40 |
| Taxation | -0.59 | 0.45 | -0.75 | -1.46 | -0.90 | -2.04 |
| Net Profit | 1.28 | 4.30 | 1.54 | 4.36 | 2.27 | 4.36 |
| HoH Revenue Growth | 20.3% | 109.7% | 124.3% | 7.3% | ||
| HoH Op Pft Growth | 14.5% | 47.1% | 43.4% | 16.0% |
Stockopedia plug: which other website lets me copy & paste a spreadsheet so easily & legibly? :0)
Growth figures relate to equivalent half-years, e.g. 1H10 is compared against 1H09.
Commentary on Figures
Firstly, note the very pronounced seasonality, due to the Chirstmas effect, in the figures. I observe that growth has slowed significantly in 2H10 but good to see margin improvement over the two preceding half years. This is undoubtedly due to the full-year impact of last year's demise of MUBL's largest competitor, EUK - part of the Woolworths group.
It is important to note that the quoted profit is supported by good cash conversion (£6.8m of operating cashflow for the year). The group has net cash of £5.8m, AFTER an acquisition in the the year.
Historic P/E @ 155p is 3.8 and historic yield 4.8%
Why the Lowly Rating?
Whilst we live in times of depressed markets, this rating seems extraordinarily low. As a UK distributor of CDs, DVDs and games, however, the results statement is explicit about a number of factors that concern the market:
The Board has undertaken a strategic review during the year in response to the risks surrounding the long term decline of physical products within the home entertainment market and the increased concentration of revenue with one key customer.
It further acknowledges the current concentration of the business on its major customer, which is presently contracted to September 2011.
[That key customer is Morrison's]
As a distributor, margins are very low.
The business is also heavily dependent on CEO & major shareholder (around 40%, including family interests), Trevor Allan.
These negatives, however, are mitigated by the following positives.
- The market for cheap CDs, DVDs & games which MBL specialises in remains robust, despite a threat from electronic media. It appears that this market may actually benefit from the recession, offering cheap mass entertainment. The volume of data that needs to be downloaded (which is increasing with innovations like HD & 3D) means that it will remain less hassle to buy a cheap disc than to spend a long time downloading. For this reason IMO the stock market is overestimating the short-term threat downloading represents.
- MBL recognises the longer term threat and is adding an electronic distribution arm to its business via the acquisition of GMV and taking a stake in U-explore.
- MBL has a strong, independent chairman in Peter Cowgill, JD Sports' chairman. He is more than capable of acting as a counterweight to Trevor Allan, if and when necessary.
- MBL has shown a strong ability to manage cash and inventories and keep capital requirements modest despite a high turnover & thin margins, as one would expect of a distributor. Managing this even through the downturn, when credit was very hard to obtain is a testament to MBL's strong financial management. Annual stock turn is around 10x (but the year end this is measured against is probably around the minimum stock level throughout the year).
- TA has shown considerable ability to win major new business, with important wins from WH Smith and from Best Buy's new UK operation. With the WH Smith contract only being announced at the end of the last FY and Best Buy's store roll-out only just beginning, these will not have conribtued much in FY10 and may bring further growth in FY11 and beyond.
Another factor leading to the lowly rating is that MBL does not shout about its achievements to the City and its statements have always been conseravative, with borker forecasts consistently being beaten. This is something we might ask MBL's leadership to act upon and achieve some recognition for their hard work.
Conclusions
MBL is priced as a dying business whereas it is currently a growing one and likely to remain so for at least the next FY. I am happy to take a near 5% yield whilst waiting for the story to play out and the market to recognise the achievement.
Now that we're out of MBL's closed period, I hope that a meeting for investors with management will be arranged in the near future. Watch this space!
