Maxima Preliminaries

Maxima's preliminary full year results are out:
http://www.maxima.co.uk/pdfs/maxima/Prelims%20Statement%20Final.pdf

There's been a big increase in profit, but share dilution has left EPS down on last year (19p down to 15p). Adding back in amortization leaves EPS flat on about 25p.

At the current share price I'm hoping Maxima won't issue many more shares to finance acquisitions. Debt was only 1.2 x EBITDA at year end, but a post-balance-sheet acquisition of DXI pushes that up to more like 2 times. I think that still leaves scope for about £10m of extra borrowing - and combined with next year's earnings would hopefully leave room for about £18m worth of acquisitions this year without further dilution.

2008-2009
So... predictions for 2008-2009. Nothing like sticking your neck out.

I'm going to assume about £10m of EBITDA from the business excluding DXI. That's flat on last year.

DXI's EBITDA last year was £1.25m. I'll assume no integration benefits in the first year. I have no idea what DXI's growth prospects are, but I'll assume it remains flat. So that's a contribution of £1.25m to the bottom line.

I'll assume Maxima make a further 3 acquisitions at £6m each, with a similar price / EBITDA multiple to that of DXI. Let's assume the first acquisition contributes 6 month's worth of EBITDA to the bottom line, but the others happen too late in the year. That's an extra £500k.

So for the financial year 2008-2009 I have:
- EBITDA £11.75m.
- Number of shares still 25m.
- Amortization will probably be about £5m.
- Interest payments will be about £1.5m.
- Tax at 30% on £5.25m is about £1.5m.
- Post-tax earnings of £3.75m.

That suggests:
- EPS of 15p. Flat year-on-year. Disappointing.
- Putting back amortization, 35p per-share. An increase of 40%. Tasty.

2009-2010
The EPS number really depends on whether Maxima's acquisitions continue to increase in scale as the company grows. If so, amortization will continue to eat up a large part of the profits. However adding back amortization really does give a more accurate picture, and I could see this hitting 50p.

Value
I think the amortization will continue to cloud the picture for Maxima, but a record of strongly increasing cash flow, and a strong performance throughout a recession could leave Maxima deserving a multiple of, say, 12 on (EPS+amortization). In 2010 that could be 600p, for a 300% gain on my purchase price.

Conclusion
Maxima are definitely on my "buy" list when I have a few more pennies to spare. Probably in November.