MPG - Metro Performance Glass

[winner (n)]

NBR speculating that an AGG sale is not universally popular among Metroglass's main shareholders.....Bain, Masfen and Wells hold about 36% between them

Could make things interesting

Sell AGG to reduce debt then what ...... I reckon takeover seems best out for shareholders

[Shareguy]

Have been having a look at this and note the following.

MPG have a debt problem and are currently looking at selling AGG.  As per the attached NZX announcement they paid A$43.1m in 2016 on a cash and debt free basis.  Sales at acquisition date were A$45m with A$8m EBITDA.

https://www.nzx.com/announcements/288268

According to the latest update (attached)

After a successful turnaround, for the 12 months to 31 March 2023 Metroglass expects AGG to deliver revenue of AUD 70.0 million, EBITDA of AUD 11.0 million and EBIT of AUD 6.0 million1.

For the 12 months to 31 March 2024, management forecasts are for AGG to achieve revenue, EBITDA and EBIT of approximately AUD 79.0 million, AUD 11.5 million, AUD 7.5 million1 respectively.

https://www.nzx.com/announcements/409112

According to nzx release below for the financial year ending 31 March 2023 Metroglass expects to achieve a Group EBIT before abnormal items in the range of $11.0 million to $12.0 million vs $5.9 million in FY22. Net debt is expected to be circa $64.0 million, which is an increase year on year, driven primarily by working capital requirements.

https://www.nzx.com/announcements/407328

So current forecast for AGG YEM23 compared to purchase price

FY23F                                    A$70m with EBITDA of A$11.0m
Actual sales at purchase      A$45m with EBITDA of $A8m.

So what's the likely sale price of AGG?  Paid $43.1 in 2016 now has higher sales and improved EBITDA

If AGG sold what is left.  1H23 result has NZ business with

Sales Revenue $100.0m, +14% (1H22: $87.9m)

EBIT $3.6m, -15%

Conclusion, with current market conditions AGG might be a hard sell, even at close to what they paid. My personal opinion is that debt is a huge handbrake and they have left it too late for a CR.  Might be better off from a growth point of view of selling NZ and keeping AGG. I think in its current state it's not investable until clarity on solving its debt problem is known. Even for a gamble I see to many cockroaches for the risk.

Disc, not a holder.

[Ferg]

Nice work.  Sale of AGG at 8x forward EBIT clears the debts which leaves NZ.  Reminds me of the old question: "How do you get a Kiwi into a small business?".

[BlackPeter]

Nice work.  Sale of AGG at 8x forward EBIT clears the debts which leaves NZ.  Reminds me of the old question: "How do you get a Kiwi into a small business?".

To be fair - it always used to be a small business and just has been pumped up by private equity and hype ... but yes, I see what you mean ;

[BlackPeter]

Have been having a look at this and note the following.

MPG have a debt problem and are currently looking at selling AGG.  As per the attached NZX announcement they paid A$43.1m in 2016 on a cash and debt free basis.  Sales at acquisition date were A$45m with A$8m EBITDA.

https://www.nzx.com/announcements/288268

According to the latest update (attached)

After a successful turnaround, for the 12 months to 31 March 2023 Metroglass expects AGG to deliver revenue of AUD 70.0 million, EBITDA of AUD 11.0 million and EBIT of AUD 6.0 million1.

For the 12 months to 31 March 2024, management forecasts are for AGG to achieve revenue, EBITDA and EBIT of approximately AUD 79.0 million, AUD 11.5 million, AUD 7.5 million1 respectively.

https://www.nzx.com/announcements/409112

According to nzx release below for the financial year ending 31 March 2023 Metroglass expects to achieve a Group EBIT before abnormal items in the range of $11.0 million to $12.0 million vs $5.9 million in FY22. Net debt is expected to be circa $64.0 million, which is an increase year on year, driven primarily by working capital requirements.

https://www.nzx.com/announcements/407328

So current forecast for AGG YEM23 compared to purchase price

FY23F                                    A$70m with EBITDA of A$11.0m
Actual sales at purchase      A$45m with EBITDA of $A8m.

So what's the likely sale price of AGG?  Paid $43.1 in 2016 now has higher sales and improved EBITDA

If AGG sold what is left.  1H23 result has NZ business with

Sales Revenue $100.0m, +14% (1H22: $87.9m)

EBIT $3.6m, -15%

Conclusion, with current market conditions AGG might be a hard sell, even at close to what they paid. My personal opinion is that debt is a huge handbrake and they have left it too late for a CR.  Might be better off from a growth point of view of selling NZ and keeping AGG. I think in its current state it's not investable until clarity on solving its debt problem is known. Even for a gamble I see to many cockroaches for the risk.

Disc, not a holder.

Agree - good job.

Not sure though about your comment on the CR. Obviously - it would be painful, but what would be wrong with 2 new shares for one at 10 cents? This would give them some 35 million dollars, enough to bring the debt under control and focus on selling the Australian bit at a fair price.

While the NZ bit currently does not make too much money - they still have an important market position and all the important connections. They have a huge amount of working infrastructure, a trained team and an established logistical network. I can't see how you can not make money with that as soon as the pressure to be a growth company and take over the world (starting as most Kiwis in Australia) is gone ...

[Teitei]

Sp action tells you all you want to know of where MPG is heading imo - banks are in control and AGG is unlikely to fetch enough to make the banks comfortable. 

And no underwriter is likely to take on the challenge of a CR with this company's track record!!!!

[Basil]

Sp action tells you all you want to know of where MPG is heading imo - banks are in control and AGG is unlikely to fetch enough to make the banks comfortable. 

And no underwriter is likely to take on the challenge of a CR with this company's track record!!!!

Agree.  Great analysis by Shareguy but unfortunately the cold reality of the situation is what you can get for a business in what ostensibly amounts to a forced sale situation in a high interest rate recessionary environment and what you pay for it willingly in a low interest rate environment using cheap debt to pay for eps accretive opportunities, can be two vastly different amounts.  I agree that the bank is the one that's really calling the shots here and its all about reducing or eliminating debt.  What they might ostensibly coerce the company to sell their Australian operation at, might be a figure that really sticks in the claw of major shareholders.  I agree 100% with Shareguy's conclusion, extract below.

Conclusion, with current market conditions AGG might be a hard sell, even at close to what they paid. My personal opinion is that debt is a huge handbrake and they have left it too late for a CR.  Might be better off from a growth point of view of selling NZ and keeping AGG. I think in its current state it's not investable until clarity on solving its debt problem is known. Even for a gamble I see to many cockroaches for the risk.

[Shareguy]

Agree - good job.

Not sure though about your comment on the CR. Obviously - it would be painful, but what would be wrong with 2 new shares for one at 10 cents? This would give them some 35 million dollars, enough to bring the debt under control and focus on selling the Australian bit at a fair price.

While the NZ bit currently does not make too much money - they still have an important market position and all the important connections. They have a huge amount of working infrastructure, a trained team and an established logistical network. I can't see how you can not make money with that as soon as the pressure to be a growth company and take over the world (starting as most Kiwis in Australia) is gone ...

Yes understand your thoughts re a CR. I was originally going down that track of 11 or 12 cents. However I can't see institutions or the majority of retail investors going for even that attractive discount when you consider the issues they have. They don't make enough profit and being the largest are getting chipped away by APL. Plus  we are in a declining market. APL have opened a state of the art plant and from all accounts are doing well.

If they can't get a good price for AGG hopefully the larger holders will stump up with some more money.

PS just had 9 panels replaced at our house and have just had them back for a measure for another 2 that have blue haze. And the original build we had over 1/3 replaced some panels 3 times. That's all under warranty.

Hopefully it all works out for them.

[Ferg]

If AGG sold what is left.  1H23 result has NZ business with

Sales Revenue $100.0m, +14% (1H22: $87.9m)

EBIT $3.6m, -15%

I have been looking into the NZ business sales and GP for the past 11 half years and comparing their performance to that of a private business that operates in a very similar industry with which I am familiar.  The entrails are not looking good for MPG.

My initial thought was NZ H2 sales for FY23 could top $100m for the first time since the HY Sep 19 on the basis MPG had shifted from a 53/47 H1/H2 split to a 50/50 split.  But nope.  Their guidance announced 24 Feb 2023 mentioned "Trading to date has been softer than the prior year in New Zealand" - I presume this was for either the 3 months ended Dec 2022 or the 4 months ended Jan 2023 given H1 was +13.8% on the prior year.  Not good.
https://www.nzx.com/announcements/407328

Assuming a -2% decline in H2 (elsewhere had +2% for the same half) that puts MPG NZ sales at $88m for the half and ~$188m for the year (which will be +5.8% YoY).

NZ EBIT H1 was $3.5m.  FYF for MPG is $11.5m EBIT, of which $11m is AGG (per Shareguy's post and links).  That leaves about $1m for NZ for the year, which is a loss of -$2.5m for H2 for NZ.  As I said, the entrails are not looking good.

Further where MPG GP was 50-51% in 2018/2019, they are now sitting around 41-42%.  The private business has a significantly higher GP margin, which has fallen 2-3% over the same time period whilst MPG has fallen around 9%.  Our fall was attributable to FX movements and constraints on price increases in some sales channels.  MPG did not have those same constraints. Ouch.

The real shame here is Metro is synonymous with glass in NZ.  They have a dominant position.  But they are pants at making money.  Whether that is due to the cost of the local environment (think wages plus H&S), spend on ESG initiatives, spend on re-work for which they are well known, poor management or something else remains a mystery wrapped in an enigma.  Meanwhile, we are happy to chip away at their market share.

[winner (n)]

Good stuff there Ferg

Yes Metro NZ performance these days is abysmal ...which is rather sad

The founding guys were glass guys ...knew how to run a glass business. Private equity took it over 15 years and it still fundamentally performed pretty well under them ......except for the mountain of debt they loaded it up with.

Even at IPO time they were making an EBIT margin of 15% plus .......world class and the envy of many in this type of industry, now thecNZ business as you point out is pretty marginal.

But since the IPO it's been all down hill. Some blame that guy Rigby but I feel things go deeper than that and his replacement been pretty useless as well.

All the capex on the new plant hasn't improved the overall situation one bit .....seems to have created more problems / hurdles.

I reckon the hole they've dug themselves over the last few years is so deep they'll never climb out of it. At best they'll struggle on with marginal profits.

Couldn't but help a bit of similarity with Synlait here .......lots of new shiny things and new processes and promises of great growth (new customer for Synlait / new double glazed windows for Metro) and stuff all profitability.

I would think the company you nentioned and the likes of Viridian and place out Cambridge will continue to win at Metro's expense

In days past I worked for what became Metro so I do feel a little sad to current state of affairs.

[Buzz]

In days past I worked for what became Metro so I do feel a little sad to current state of affairs.

So after you left, it all turned to custard? Or did you help to turn it to custard and then left? LOL

[winner (n)]

So after you left, it all turned to custard? Or did you help to turn it to custard and then left? LOL

I said days past ....should have said last century ......I could say I helped set the foundations that made Metro great and grew into something that an outfit paid $350m  for

[Left Field]

There may be life in this dog yet.....Aussie to the rescue.

https://www.nzx.com/announcements/412158

Group Revenue for the year to 31 March 2023 of $263.5 million was 12% higher than the prior year, with New Zealand up 5% and Australia up 32%. Group EBIT2 before significant items rose 100% to $11.8 million. As a result of an $10.0 million impairment charge on New Zealand goodwill,

Statutory NPAT declined to $(10.5) million loss from $(0.5) million in FY22.

Net debt increased from $52.3 million to $60.1 million at 31 March 2023,

[Crackity]

There may be life in this dog yet.....Aussie to the rescue.


Net debt increased from $52.3 million to $60.1 million at 31 March 2023, [/i]

Only if the dog is Old Yeller

[Shareguy]

Very disappointed in this company. Had the Metro guys here today replacing some faulty panels only to be told that one of our corner unit replacements has a scratch inside the panel.  Its just never ending.

At least this time their staff noticed it before it was glued in place.

Certainly can see why they don't make much money.