jmb- $2...rumour takeover!, page-2

Based on $2.7M NPAT, with only $484K in amortisation of product development costs, $2.00 makes for an expensive stock.

There are 29M shares on "quoted" issue, with a further 15.3M shares in escrow, and a further 1.2M "in the money" options.

That's 45.5M shares (fully diluted).

At today's $1.90 share price, JMB is capitalised at $87M.

This is 32x NPAT, or 28x EBIT, or 24x EBITDA.

Based on 6.3 EPS, the current P/e is 30.2.

That's expensive for a stock which has a $7.3M revenue base (and is capitalised at 12x revenue).

But for the capitalisation of product & development costs (refer, Note 13 @p34 of AR05) of $1.4M and amortisation of $483K of those costs (all but $60K in the 2nd half), the FY05 profit would have been much lower (circa, $2M, +/-10%).

At 1H05, the capitalised Product & Development (P&D) costs were $875K, vs $60K in P&D amortisation charges. Gross P&D for the 1/2 appears to have been $935K, given that $0 P&D charges were recorded on the Balance Sheet at 30/6/4.

In 2H05, P&D costs rose by $525K to $1.4M, and amortisation rose by $423K to $484K.

So, 3 points are obvious:
1/
The change in accounting practices has artificially boosted the bottom line through a one-off timing difference of ~12 month (ie: shift in policy from expensing P&D to capitalising and amortising P&D). This boosted the full year profit by ~$900K (ie: $2.3M adjusted NPBT, vs $3.2M NPBTadjusted profit, actually reported).
2/
Current amortisation charges are actually below the P&D charges:
1H05 = P&D costs of $935K, Amortisation = $60K;
2H05 = P&D costs of $457K, Amortisation = $423K;
FY05 = P&D costs of $1.39M, Amortisation = $480K.
3/
The lifespan of these products is 12-18 months. This suggests much higher amortisation charges to come in FY06.
4/
If P&D costs are decelerating, this suggests that the product /future titles pool has slowed /potentially dried up. If not, this suggests much higher P&D costs being capitalised during FY06. Either way, a substantial increase in amortisation charges during FY06 is on the cards (est. >$1.0M).
5/
Based on current profit, the following profit margins were achieved:
1H05 profit margin (ie: NBPT/Rev) was 37.4%;
2H05 profit margin (ie: NBPT/Rev) was 48.0%;
FY05 profit margin (ie: NBPT/Rev) was 43.5%.
Most of these changes can be explained by reference to the high level of capitalised P&D, the rather slow amortisation charging profile, and the build-up in likely FY06 amortisation charges (ie: deferral of recognition of those costs into FY06).

Any bidder for JMB at $2.00, therefore, would need to be very mindful of what the actual costs profile was, particularly as it relates to lifecycles, P&D capitalisation and amortisation charges.

At $1.90, JMB is quite expensive, and but for other players out there such as Jamdat, ZIO, THQ, etc, JMB would not likely be in the hunt. Indeed, JMB's title collection and turnover threat is minimal compared to the actual leverage, product portfolio and turnover reach of those other majors.

More interestingly, today's dramatic rise in share price has come about due to 4 large pacrels changing hands at $1.70 (112,559; 323,000; 399,000; 160,101). With the 20th largest shareholder holding 294,000 shares, at least 2 of today's traded parcels have come from 1 or more top 20 shareholders.

With Rischmueller (Mecklenburg A/c) already having exited the Top20, and Loucas occupying 6 of the Top20 positions, this leaves 13 unaccounted for positions out of the Top20. Assuming Sound (ie; Quad)and Beconwood have not sold, and ETAB (holding is below 300K) this leaves 10 unaccounted for. So, 2 of the Top20 may have quit their holdings today?

So, who amongst the Top20 are now selling out their positions?

Time, will tell.

IMHO, this is not a takeover scenario in play. More likely, it's an exit strategy in motion.

The CEO has no more shares left to sell which are not themselves escrowed (ie: all of the CEO's remain 3.2M shares are now subject to escrow to late July 2006) - refer ASX disclosure of 23/9).

And, most of the remaining Top20 are firendly to the major shareholder - beconwood.

So, again, this brings about the point - today 1-2 top 20 shareholders have exited (in whole or in part) from JMB.

So, who has exited?