Forum Archive Index - May 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

Interesting item on the agenda at the RMG annual meeting on June 15th in Sydney will remind a lot of shareholders of what they have possibly forgotten - a lot of the acquisitions RMG have made look like they still need to be paid for.

 

Item 4 on the agenda is 'Approval of issues of share to vendors' in which shareholders will be asked to approve the issue of another 46 million shares.

 

This will have the effect of diluting the current shareholders holdings by about 2 cents a share - ie if one brought at the current price of 24 cents they will really be worth only 22 cents after June 15th.

 

Such practice is quite common around the world for making acquisitions. In this country ADV paid for the bulk of their acquisitions this way and still have a fair bit to pay off.

 

However many companies have found out that when the issuance of shares is deferred (as in this case) it can put stress on the share price when it comes to actually issuing them - especially when they do not have a solid earning's story to support the issue of the shares

 

RMG have yet to get anywhere near making a profit.

 

To reach earnings of 1 cent per share (after the new shares are issued) RMG will need to make a tax paid profit of nearly $6M ( not EBITDA - but NPAT).

 

With this NPAT figure in mind any current or future shareholder can assess what a reasonable price for RMG is . If (or when) RMG make $6M even at 24 cents the price has an implied PE ratio of 24.

 

I was asked the other day whether BCH or RMG was a better bet. After going through some numbers like this the person decided to go the BCH way - if for no other reason that BCH has a proven earnings record to support it's current price while RMG has yet to earn a $.

 

Since buying BCH the price has gone up quite nicely. I think he made the right decision.

 

Cheers

 

Peter