Multiplex bows to the banks' demandsEmail Print Normal font...

Multiplex bows to the banks' demands
Email Print Normal font Large font By Elizabeth Knight
May 19, 2006
Page 1 of 2 | Single page
Advertisement

AdvertisementIT WOULD have been a great curtain-raiser for Wembley Stadium. The heart-stopping FA Cup final at the weekend ended with Liverpool snatching victory from West Ham in a penalty shoot-out.

It's hard to ignore the parallels between the battle to win on the soccer field and the shoot-out between Wembley's builder, Multiplex, and its contractors, financiers and shareholders.

It's hard to think of any sizeable company in recent history that has been so marked by mistake, misfortune, mismanagement and misinformation.

A few months before the FA Cup final the company was confident it would be ready for the game to be played at Wembley. Sadly, it was still working on the project when the game was being played at Millennium Stadium in Cardiff.

One of the major investment banks I contacted yesterday has simply given up covering the stock and, with two exceptions, the majority of the big broking firms have a sell recommendation. Two have issued a neutral tag (and one of them is the firm that floated the company).

It isn't any wonder, given the number of times Multiplex has restated its losses on the Wembley project.

Analysts can't make any real assessment of when the bleeding will stop and neither can investors.

Thanks to current legal action and potential additional claims, it will be a long time before the dust settles on this development.

The company cut its earnings forecasts five times last year and at last count the Wembley losses were around $480 million.

Against this backdrop Multiplex announced yesterday that it had agreed to sell a large chunk of its UK development assets to the billionaire Reuben brothers. The company has told us already that it recently breached its banking covenants and risks doing so again next month.

So it's hard to escape the conclusion that its bankers might be applying the blow torch to Multiplex and its founder and major shareholder, John Roberts.

There is probably still a reasonably plump equity cushion between the assets and liabilities but banks don't take kindly to breaches of lending covenants and will want to see a little more cash.

After selling what is effectively half of its UK development pipeline, Multiplex expects to realise some small profit.

Sadly, it won't be enough to allow the company to report a profit this year.

The company says the sale makes the UK development arm stronger by releasing equity that can be applied to its remaining opportunitiesThe sale includes a 45 per cent interest in Sapphire Retail Fund, a 50 per cent interest in Sapphire's manager, R&M, and a one-quarter share in three developments, one in central London, one in Ireland and one in Glasgow.

There is nothing wrong with these developments. The company says the sales allow it to focus on a select number of key projects.

That's one spin. Another is that the Wembley debacle has cost the company so much that it has had to undertake a supervised liquidation. Multiplex's chief executive, Andrew Roberts, may be sitting in head office but John McFarlane from the ANZ is calling the shots.

Multiplex is shrinking. This type of company regularly sells assets but only after they have been developed.

There is no reason for investors to panic about the asset sales that have been announced.

Multiplex is getting a little more than book value, which demonstrates that good assets can still fetch good prices in this market even if the sellers are under pressure. Indeed, some investors might take comfort from the fact that McFarlane has an unofficial hand in the Multiplex strategy. The shares fell yesterday but not by a meaningful amount.

Having been slashed last year, Multiplex shares have risen a couple of per cent this year as some investors punted they may have reached the bottom.

Those punters could be right but investing in this company remains a lottery and it won't be classed as a growth stock any time soon.