Misys PLC MSY LN
December 22, 2008 - 9:27am EST by
gocanucks97
2008 2009
Price: 97.50 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 531 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV (in $M): 0 TEV/EBIT

Sign up for free guest access to view investment idea with a 45 days delay.

Description

I will keep the write-up short. Buying Misys (MSY LN) and shorting Allscripts (MDRX) will create a stub free on equity basis, for two profitable software divisions and at 2x EV/EBITDA and 0.9x EV/maintenance sales. You also have ValueAct who owns 25% of MSY, which should protect/unlock the value for shareholders.

Background: Misys is a UK software firm that had two divisions, finance (Banking, Treasury & Capital Markets), and healthcare. In Oct ’08, the company merged its healthcare division with US Based Allscripts and owns 54.5% of the new company.

Numbers: (MSY intraday, MDRX based on closing price on Friday).

MDRX

$9.49

Shares

152

MDRX Market Cap

$1,442

USD/GBP Exchange Rate

1.4832

MDRX Market Cap in GBP

£973

Misys Shares

£549

Misys stock price

£98

Misys Market Cap

£533

Misys ownership of MDRX

54.5%

Misys's MDRX Holding

£530

54.5% holding

Core banking / TCM

£3

Net Debt

£120

EV

£123

TTM

CY09

CY10

TCM+CB EBITA

54.5

60.5

66.7

Central Cost

-10

-10.0

-10.0

Interest

-10

-10.0

-10.0

PBT

34.5

40.5

46.7

Tax (@ 30%)

-10.4

-12.2

-14.0

Net Income

24.2

28.4

32.7

P/E

0.1

0.1

0.1

EV/EBITDA

2.3

2.0

1.8

Maint Sales

138.3

141.0

144.6

NI on Maint Stream

12.5

14.4

P/E (Maint Stream)

0.2

0.2

EV/Maint Sales

0.9

0.9

0.9

Why the opportunity: After the deal had closed, MDRX went up 90% while MSY went down 15%. It is not clear to me what drove this divergence. I can only speculate that 1) investors may have high hope for MDRX under a new democrat regime under Obama, 2) Russell 2000 index increased MDRX’s weighting. 3) investors were skeptical of the TCM/CB division with all the trouble circling the financials industry. I think 1) and 2) are largely short-term issues that are largely irrelevant once you create the stub. As for 3), I would note current valuation is already discounting an Armageddon case. 44% of the revenue of the TCM/CB division is maintenance revenue. For the last 5 fiscal years, the division had sales of 240M, 245M, 267M, 273M, 301M, and EBITA of 38M, 41M, 38M, 48M, 51M respectively. I will leave the readers to decide how much of a discount multiple Misys's legacy division should get (there are plenty of sell-side reports discussing the impact). Curiously, MYS has 4 buys, 9 holds, 5 sells, while MDRX has 7 buys, 11 Holds and no sells.

 

 

Catalyst

1) Both stocks are pretty liquid, so the valuation gap should eventually close.
2) ValueAct may force some additional corporate action.
    show   sort by    
      Back to top