target 120c 100pc rise plus dividend

I have run some numbers on the IMD acquisition. What this all means is that IMD is going to have bank debt of around $10million moving forward plus the convertible note with a face value of around $10million as well. Obviosuly the bank debt will drain cash flow in the order of $3million per year, and the note will dilute shares by around 15pc end of 08, but have no drain on cash flow.

The latest acquisition they have not given an indication of revenue, which is strange, only an EBIT figure.

Moving forward I have assumed the following for 06/07:
- Reflex no growth in figures and have used historical estimates provided by company.
- Ditto for Chardec (the latest one).
- Assumed 10% revenue growth in existing businesses and 15% EBIT margin moving forward.
- Assumed bank debt interest of 10pc PA and 8pc for convertible note.
- Also assumed full 30% tax rate, IMD is starting to mature now, and I think it is better to value it on a normalized basis.

What all this means is the following:
Net profit for 06/07 of $12million
EPS of 8.5c
This is 100% normalized net profit growth from 05/06 figures. Pretty impressive really. Risks are that IMD now has around $10million in debt. Will have to run some ratios on it to see what that is like. But things such as interest cover ratio are still very healthy, and I dont think the balance sheet is stretched. In fact I think it is good because it means that the banks will have done their DD on this company and acquisition, and it may add more coverage for the company. IMD is approaching the magical $100million market cap level.

Risks for forecast earnings moving forward:
- Integration risk.
- Foreign exchange risk, now that they have divisions in UK and Sweeden.
Actually these are pretty big risks in my mind, and probably means that the forecast profit figures have to be discounted. The good thing is I havent factored in any growth for any of the acquisitions or synergy benefits etc, which I think there will be lots of. On top of that my forecast growth figures for existing business is pretty light on. So there is heaps of upside left in the forecasts, however because of the above risks these should be discounted.

Pluses:
- Hot sector, servicing the mining drilling sector.

Price targets:
- I think that based on the above figures IMD is a safe trade up to 85c which would place it on a forward PE of 10. However I think as it gets some runs on the board and delivers on forecast earnings, it could trade up to 15, which is a price target of $1.20.

If they can deliver and integrate these latest acquisitions, then IMD will be popping out some very impressive figures and ratios for 06/07.

Net profit growth > 100pc
Return on equity > 30pc
If in addition they can grow the dividend then I think IMD will be a market darling in the next 6 months.