From a poster on ii24 Sep 2010 13:48
I see that Xcap Securities have initiated coverage of MEC with a 330p price target and a Buy recommendation. In summary the recommendation is based on:
* Strong subscriptions: Xcap believe MEC can maintain subscriptions at 1.3-1.4x production costs and see this ratio increasing as digital subscriptions increase
* An expected recovery in advertising
* Stable salary costs as further headcount reduction offsets 2% pay inflation
* Increased use of paywalls by newspapers generally will change attitudes
* MEC trading at a heavy discount to peers whether looked at on a EV/EBITDA or EV/Sales basis. Xcap attribute much of the discount to Montgomery's "ill-timed acquisition spree". Conclusion is that the discount will fade with time following Montgomery's departure.
Xcap project EBITDA growing steadily to €189m by 2013. Over that time they also have positive FCF projections with a large acceleration in FCF in 2013 (partly reflecting neutral working capital assumptions). This gets Xcap to net debt of only €134m by end-2013.
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I'm not sure that I find the Xcap analysis particularly insightful or the underlying research particularly deep. Also, there is not enough detail in the summary model they present to really guage its effectiveness (it looks a little too optimistic to me regarding FCF). However, they do bring some reasonable data to the table and present this in pretty charts. The bigger positive might simply be the fact that another broker starts to cover the name and the extra publicity/awareness should help the share price over time.
Paliandu
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