Hallgarten has put out another (mostly critical) research report on MIL.
Here is an excerpt:
Compton was seriously flawed entity pre-takeover and it was not just a case of excessive debt. The
assets were suffering serious writedowns under a management that knew the space (and the much
deteriorated pricing environment in Alberta) and then in comes MFC, whose oil & gas credentials remain untested and they tell us that the company is worth $243mn more…. Hmmm… we would not call any of the board of MFC as expert witnesses on the subject of oil & gas. However the cheap seats let up a roar when the writeback came through because the company was delivering on the usual.
The company has rather deftly taken a major write-up on Compton and yet just as deftly not included
the new acquisition’s losses or revenues in its consolidated earnings statement. As we have noted,
losses have been substantial even when one discounts the aspect of Compton’s results related to asset writedowns during FY12. With Compton’s ex-writedown loss of $36mn in the first half of FY12 and MFC’s gain of a mere $25mn in the same period, we can see that consolidation of the net revenues would not have a felicitous outcome for MFC.
Thus for investors there is the challenge of whether to cast one’s lot into this story for the long history of canny deals and dividend flows or to stand back from the opaque nature of the corporation and its
management. In these times of proliferating buying opportunities due to undervaluation, but a queasy
feeling about the way this latest acquisition has been window-dressed, we have resolved to put a
Neutral call on MIL with an expected 12-month price target of US$9.50.
Wow....you'd think working for an investment bank this guy would know acquisition accounting rules. Apparently not. They aren't supposed to consolidate Comptons PnL prior to the acquisition date (that's a big no no). They are required to consolidate as of acquisition date (as of sept 7, which they did) and disclose the combined results (pre acquisition) in the footnotes to give the reader some idea of what the combined results would be. Check footnote 4 bro, it's there.
Wether you agree with the valuation and negative goodwill is one issue. Asking them to consolidate pre acquisition date is absurd.
People also warned that Smith didn't know anything about the cement business.
The 14th of February (if one is to believe previous post on "call for bids") will definitely prove or dis-prove much of the "wisdom" of MFC' s terms of purchase of CML and its assets...
We've done "the numbers" and we still think there's an immanent 3-bagger for MFC's 32 million out-of-pocket on this deal and that when all's said and done, we'll realize the value of a well-mixed, well-poured foundation providing a pretty good stream of ongoing revenues to MFC shareholders and plenty of additional cash for the next "opportunity".