fresh macquarie valuation2.98 Event °Wembley: the UK High Court...

fresh macquarie valuation2.98
Event °Wembley: the UK High Court has found that Multiplex Group‘s (MXG) former steelwork contractor Cleveland Bridge (CBUK) was in —repudiatory breach“ of its contract when it left the job in August 2004. It also found that the two had not agreed a final valuation of works, leaving a path for MXG to pursue a damages claim of £35m ($85m). Impact °A positive for MXG in that the claims recovery process is off to a good start. There are a range of companies in MXG‘s sights for Wembley claims recovery, the three principal groups being CBUK, its client the FA, and its design engineer. It has yet to serve a claim on the two latter groups. The aggressive claims approach is a practical solution to a problem project, but it is unlikely to help MXG‘s reputation amongst sub-contractors in the UK.°As reminder as to what was at stake in the High Court: MXG has around A$80œ90m of claims against CBUK, and in return CBUK has about half that level counter-claimed against Multiplex œ the range of impact then to MXG's loss making position on the project is up to $130m. °The claims budget. Our estimate is that the total pre-tax loss on the Wembley project sits at $428m (which includes a $33m provision for the full cap of liquidated damages potential). We understand this includes £50m ($120m) of net claims recovery expected on the job œ that is, if it had not been able to achieve any recovery the total pre-tax loss would have lifted to $548m. °No change to valuation at this point. Our approach to our valuation of$2.98 has been to look at the business‘ FY07 core earnings adjusting for the impact of Wembley. One of the difficulties in assessing group value is the very low visibility within the operational businesses (as opposed to the trust). °Should its claims recovery reach beyond the £50m it is budgeting at Wembley, then additional claims will offset a portion of the $1.8bn of debt weestimate in the corporation component of the stapled œ this would be apositive to our $2.98 valuation. Further, if the liquidated damages provision isn‘t needed, that would also reduce the job‘s loss position. The key positive here is that the group‘s liquidity position, which has prompted a range of asset sales, is likely to be marginally improved through the claims process. Earnings revision

Price catalyst °12-month price target: A$2.98 based on a sum of parts methodology.°Catalyst: back to basics strategy; Wembley completion. Action and recommendation °We maintain our underperform recommendation and target price of $2.98. The asset sale programme is now in full swing, and the size of the group is shrinking as assets are sold to free up liquidity. That is a concern to us, where it involves the high quality trust assets.