MYOB
Small business software provider MYOB has rejected an unsolicited bid from a private equity firm, saying it was inadequate. The conditional approach may have resulted in a bid at A$1.90 per share, well above the current trading price. MYOB has achieved strong growth in recent years,
aided by an impressive business model. It is the default provider of accounting systems to many small businesses. This has given it a lot of power in its market. Development expenses are high but the profit margin on software when completed is also high, resulting in a steady stream of recurring income. Its products remain vulnerable to the business cycle and, while a severe slowdown is not expected, the company continues to increase its trading base by spreading into overseas markets. Canny investor Guinness Peat Group has a stake, suggesting there is value still to be realised by the business.
MICHAEL HILL INTERNATIONAL
Michael Hill International continues to deliver surprising results in a tough retailing environment. MHI said its profit for the six months to December would be between $19.2 million and $20 million compared with $15.3 million at the same time the previous year. This was achieved through better product mix sourced at lower cost. The stores now stock only Michael Hill brand watches, which were introduced about two years ago. This has turned out to be a big success despite the fact that it competes against branded watches that have been around for decades. The company has about 200 stores in New Zealand, Australia and Canada. It has a history of flat growth followed by sudden leaps in profitability. During the flat years, the company is feverishly working on its inventory and product management. It also has a low risk strategy for expanding worldwide, taking it slow at first and then stepping up the pace.
