As a long-term shareholder in Mitchell Communications (MCU), and...

As a long-term shareholder in Mitchell Communications (MCU), and a more recent one in SGN, I thought it might be instructive to present some implied see-through valuation for SGN given the recommended MCU takeover price announced today.

Having explicitely modelled financial forecasts for both MCU and SGN, my findings are as follows:

For MCU,
FY10 NPAT = $21.4m (EPS = 7.1cps)[FY09 = 6.6cps]
FY11 NPAT = $25.7m (EPS = 8.5cps)

For SGN:
FY10 NPAT (note December year-end) = $37m (EPS = 10.9cps)[FY09 = 9.7cps]

At the recommended $1.20 takeover price, this places values MCU on a P/E multiple of 16.9x on FY09 earnings, and 14.1x FY10 earnings.

Crudely "calendarising" these mutiples for a December year-end by simply averaging the P/E multiples gives a calendar 2010 P/E of 15.5 times.

Applying this multiple to SGN's FY10 EPS, yields an implied share price of $1.68 for SGN.

Of course I concede that MCU is arguably the better run business with greater underlying structural growth prospects, and also a more robust balance sheet, but even if a discount of 20% was applied, which I think is appropriate, this would still render a comparable valuation of some $1.35/share for SGN.