broker report

Received today hope it helps.
emitch half year result was basically in line with our forecasts with an interim net profit of $2.3m, up 102%. It also announced a 0.8 cent interim dividend 75% franked.

Key points from the result include:
* very strong revenue growth from the Australian operations highlighted emitch is continuing to win market share
* slightly disappointing results from The Internet Bureau in New Zealand
* EBITDA in line with forecasts - very strong Australian revenue growth impacted by higher than expected headcount costs
* Net operating cash flow down 31% to $1.2m resulting from $630k increase in income tax payable

emitch 1H07 1H06 % chg Comments
$m $m
Australia 23.5 13.5 75% Exceeded our 58% growth forecast & 49% industry growth in general online
New Zealand 6.0 First full half of contribution, below our expectations
Total Revenue 29.5 13.5 119%
EBITDA 3.2 1.4 129% In line with forecasts, average Australian staff increasing from 19 to 33
Pre Tax Profit 3.3 1.6 105%
NPAT 2.3 1.1 102% In line with our expectations
EPS 1.24 0.64 94%
EBITDA Margin 10.8% 10.4% Margins slightly below expectations with higher staff costs



emitch also released the explanatory memorandum for the acquisition of Mitchell & Partners and pro-forma 2007 forecasts. This provided us with our first detailed review of the Mitchell & Partners business which will most likely lead us to upgrade our revenue forecasts on the back of Mitchell & Partners shifting away from its more traditional media agency business, to include such divisions as Stadia Media which is Australia's largest sports ground marketing and advertising company. However, we were disappointed that forecast EBIT provided on the initial transaction of $11.5m contained interest revenue of $2m - which we will most likely back out of our forecasts. 2007 forecasts for emitch were in line with our forecasts. The explanatory memorandum highlighted the expected rights issue will be a 2:9 at $1.05 (to be confirmed post shareholder meeting on 30 March 2007).

We retain our Buy 2 recommendation and it is unlikely we will make any material change to our $1.81 valuation (against a current share price of $1.465).