Australia | Aug 28 2007
By Greg Peel
At the end of last month, Mitchell Communications (MCU) issued a profit guidance upgrade suggesting its previous estimate of $7.3 million would be exceeded by 10%. It was an important upgrade for Mitchell given the new conglomerate had come under a lot of fire. Mitchell is the result of high-flying digital advertisement specialist emitch merging with traditional media player Mitchell Group. Why go backwards? the market had said.
Well the upgrade put the company’s profit guidance at $8.03m but yesterday the company reported a full year result of $9.4m, representing a 267% increase on the previous corresponding period. As the three brokers in the FNArena database covering Mitchell had all adjusted to guidance, their forecasts were exceeded by some 18%. And the growth was not just in emitch’s field of digital media – it was across the board.
UBS reports diversified revenues grew by 56% in the year, driven primarily by inherited Stadia Media. Digital billings grew by 100%, including a 235% growth in digital search billings compared to market growth of 83%. General billings grew by 64% in a market that grew 34%.
It is the resilience of traditional media which has raised the analysts’ eyebrows. There had already been some signs that traditional was not going to roll over and die just yet, but these results are outstanding. They also represent well contained costs.
And there isn’t any end in sight, with all brokers believing the positive outlook is still very much in place. GSJB Were expects Mitchell to continue delivering high teens earnings growth out to FY10, and Merrill Lynch is forecasting a compounded annual profit growth rate of 35% over the same period. All three have upped their EPS forecasts by 5-10% in FY08.
The average target between the three – all of which have a Buy rating – is $1.67 on a $1.60-1.75 range. The shares had started Friday at $1.05, hit $1.25 on Monday morning, and have pulled back to $1.15 at lunchtime today.