By Rudi Filapek-Vandyckm
from online financial news service

FN Arena News

For those who may have missed the event: online advertisement buyer Emitch made a significant purchase last month, agreeing to buy New Zealand’s largest online media buying business, The Internet Bureau, for a total of $7.2m, comprising of $5.5m in cash and 3m shares.

Not only does the transaction establish Emitch as the largest online media buying agency on both sides of the Tasman Sea, the deal is expected to provide a significant boost to the company’s bottom line as well. Despite the strong growth internet related companies such as Emitch are enjoying at the moment, there is simply no room at the leading brokerages in the country to spend any time on that particular spectrum of the local market.

Analysts Mark Southwell-Keely and Danny Goldberg at Select Equities have done the required follow-up enquiries and calculations and their latest update on matters, published earlier this week, fully supports the assumption that Emitch should receive a big boost from acquiring The Internet Bureau, starting in FY07 already.

On Select Equities’ calculations, The Internet Bureau has been acquired at a FY07 PER (price earnings ratio) multiple of 6x while Emitch itself was trading on the local stock market at a FY07 PER of nearly 30x. In plain English this means: the deal can only be strongly EPS accretive.

In order to show the importance and impact of the deal, we let the numbers do the work. Select Equities has, following the announcement of the deal, lifted its FY07 Gross Billings forecast for the company to $59.8m (an increase of 52.7%) while the forecast net profit went up by 49.4% to $5.1m. Dividend per share estimate has now been increased by 53.3% to 2.3c for next year.

Meanwhile, the shares seem to be becoming relatively cheaper by the day. Prior to the acquisition, Emitch shares were trading at circa 30 times projected FY07 EPS. At $0.65 and taking the increased forecasts into account, the PER had fallen to circa 23.5 times. Today, the shares fell in very thin trade to $0.60. The projected dividend yield was 3.5% at $0.65.

If you happen to think that paying 23 times next year’s profit is a bit on the rich side, then consider the projected growth figures for the year. EBITDA (earnings before interest, tax, depreciation and amortisation) is expected to jump by 134.1% in FY07 on top of an expected 91.5% improvement this year.

Net profit is expected to jump by 113.0% in FY07, following an estimated improvement of 71.6% this year.

Peter Fray

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