Forum Archive Index - June 2001

["G Stolwyk" <stolwyk@wave.co.nz>]

Mike,

 

Please refer to my post of June 23, 2001. Readers, please refer to the disclaimer at the end of the page.

 

1. Boards of Directors, Management and staff. 

The business of debt collecting , credit reporting and allied matters is a very sensitive one and the staff need to have a very high standard of ethics and a good education.

 

Therefore, both BCH and CLH spent a lot of time training staff.

 

You can be sure that the standard of selection of management staff is very high! 

 

What else can you expect: Excellent staff will always seek out excellent Companies! 

 

The company culture is promoted from the day, staff are taken on.

 

CLH has been operating for nine years and thus have a highly qualified core of staff and excellent software.

 

They did expand over the last 18 or so months and thus incur a certain amount of staff costs. However, they would have hand picked the new Branches as they had plenty of time to evaluate them. 

 

As explained, RMG in the main consists of " Instant Staff " from the 22 businesses which were " merged " in record time!     

 

2. Accounts.

 

If BCH wants cash - a rare event - then it will " shake the money tree " ( make a placement of shares ).

 

CLH has just been admitted to the 200 share index and this should be positive for the share price.

They can also place shares in record time: CLH is perceived  to be a true Aussie company!

 

RMG's Current assets to current liabilities ratio was an astounding 1 : 2 ( 18.8 mill to 35.4 mill., source: Annual report ).

 

A difficult situation to be in and in my opinion very unattractive to lend money on. A placement based on the current low share price, will require a lot of shares at a possible heavy discount.

 

3. The EBITDA concept used by RMG. ( Please note that the currency used is $ A: It is an Australian company ).

 

Item 3 of my last post referred to a sum of "  $14 mill. before the normal 33% tax rate. The new tax rate will be 30%. If the shareholder wants to earn 1 cent / share profit after this full tax rate, then on 31/12/01, the 

 

EBITDA         will need to be: $ 15.7 mill. # 

Deduct: Interest:                        0.8

            Depreciation:                 1.5

EBTA:                                            13.4 mill.

Deduct:   TAX ( 30% ):                       4.0

               Abnor./ Intang.                   3.6

NPAT ($)                                                  5.8 mill or 1 cent per share ( RMG will have 582 mill. shares ). 

 

# : RMG declared an EBITDA of only $1.3 mill. for the Jan/ March quarter.

 

 Let us assume that for the year up to Dec 31, 2001, the EBITDA will be $ 6 mill.  On that basis, the loss will be $ 1 mill.!

 

This is based on a full tax rate and deduction of $ 3.6 mill. Abn./ Intang. over 20 years.

 

As mentioned in my previous post, the full tax rate will not be paid and RMG may decline to write off the $ 3.6 mill. abnormals.

 

If the combined tax rate and abnormals is entered as $ 1 mill., then the NPAT will only be $ 2.7 mill. or 0.46 cents per share! 

 

4. Will RMG be taken over? 

A foreign company will be interested in a fast growing Australian company with no complications : CLH will fit that category! 

 

It is virtually certain that neither BCH nor CLH will be interested in a takeover of RMG. Instead, both companies may want to establish joint ventures overseas at less cost!

 

Mike, while I like to hold RMG shares, I shall have to wait for much better news from this company!

 

Gerry  

( Holds BCH and CLH ).

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Disclaimer: Readers are not asked to buy, hold or sell any securities, eg. BCH, CLH or RMG. To do so, will be entirely at their own risk.