whats going on with mfs

What's going on with MFS?

Nick Nichols

18Jan08

TWO of MFS Ltd's largest shareholders yesterday reaffirmed their faith in the company, and one even scooped up more shares in the days leading up to a self-imposed trading suspension on Wednesday.

Tony Smith (left) and Chris Scott (right), who both walked away with handsome payouts after selling their respective tourism companies BreakFree and S8 to MFS, say they are dumbfounded by the market savaging meted out to MFS shares.

Mr Smith, who is building a mega-mansion on three beachfront blocks at Hedges Avenue, said yesterday he had even been a buyer of the company's shares in the past week, snaring a further 700,000 shares for a total of $3 million.

"Nothing has changed in the company," said Mr Smith.

MFS shares have been buffeted in the past week by the credit crisis gripping US financial stocks.

The company has also been marked down after bidding for the management rights to 35 unlisted property syndicates of the ailing Centro group and confusion over a move by the Phil Sullivan-led City Pacific's bid to take over the company's financial services business. Continued page 102

MFS shares last closed at $3.18, down from a high of $5.35 last month.

"The shares have been hopelessly oversold," said Mr Scott, who has been living in Singapore for the past year.

"City Pacific and MFS will deliver a combined $400 million net profit this year. What the hell is the market on about?"

Mr Scott said he maintained his faith in the company, although he has been neither a buyer nor a seller of shares since the latest market rout.

Mr Smith yesterday blamed short-selling buy hedge funds for MFS's share price woes, triggered by stop losses amid instability in the broader market.

"The hedge fund guys create this hysteria," he said.

"They know there are stops in place"

Mr Smith described MFS as being 'opportunistic' in making a play for the Centro management rights, but he said the move was a positive for the company.

He equally described as opportunistic the merger proposal by City Pacific.

"It doesn't represent fair value," he said.

Mr Smith said he supported analysts' valuations of $3 a share for MFS's financial services business and $3.50 for Stella.

He said MFS remained on track to deliver a 45c a share dividend in the current year, thanks to the continued strong performance of Stella, delivering a 12 to 13 per cent yield on his latest $3 million investment in the company.

He said the group was heavily undervalued by the market when compared with Flight Centre's forecast earnings for 2008-09.

"Stella's forecast EBITDA (earnings before interest, tax, depreciation and amortisation) for the same period is more than Flight Centre's, but Flight Centre has a market capitalisation of $3 billion today," he said.

Based on Tuesday's closing price of $3.18 a share, MFS has a market capitalisation of $1.54 billion with Stella comprising 60 per cent of the company's business.

Mr Smith said his confidence in MFS was also driven by his faith in the company's management.

"My assessment of Michael King as CEO of MFS is that he would rather die than fail.

"That's the sort of person you want at the head of a company.

"His attention to detail is phenomenal."