Mosaic Group's Marketing Success Has Investors Buying Stock
Toronto, Jan. 22 (Bloomberg) -- When Canada's second-largest
bank wanted to offer its gold-card holders bargain phone rates as
an incentive, it also wanted to avoid the nitty-gritty of
becoming a long-distance reseller.
Canadian Imperial Bank of Commerce chose Mosaic Group Inc.,
the 10th-best performer on the Toronto Stock Exchange last year,
to tackle the project. A burgeoning seller of ``non-advertising
marketing services,' Mosaic turned thousands of CIBC Visa
cardholders into satisfied phone customers.
In another project, Mosaic was hired by PepsiCo Inc. to set
up ``Pepsi Challenge' booths where people compared the taste of
Pepsi with Coke. Its largest contract, worth C$50 million ($34.5
million) in revenue a year, is to sell insurance door to door for
Britain's Prudential Plc.
``We are an extension of our clients' sales and marketing
departments,' Mosaic Chief Financial Officer Ben Kaak said in an
interview. ``It's classic outsourcing.'
Contracts like the ones with Pepsi and Prudential doubled
Mosaic's profit in the latest quarter and produced a five-fold
share increase last year. Whether the stock keeps rising will
depend on whether Mosaic can manage an aggressive acquisition
drive and continue dreaming up ways to help clients sell
products.
Mosaic displayed the latter when it successfully pitched the
CIBC card promotion. The company offered to buy long-distance
time from wholesalers and arranged to give CIBC customers 10
percent below the best rate offered by companies like AT&T Corp.
and BCE Inc.'s Bell Canada. Customers get their phone rates reset
each month, always 10 percent below the cheapest competitor.
Mosaic keeps for itself part of the difference between what
it pays for each minute of long distance time and what it charges
cardholders.
Similar Program
In the next six months, Mosaic expects to receive a contract
for a similar program, Kaak said. He said it will be with a
cable, wireless-phone, or satellite-television company.
``Its turning out to be a very profitable business and that
model is easily exportable to new markets,' Kaak said.
Some analysts liken Mosaic to a fledgling Omnicom Group
Inc., the world's biggest advertising firm. The comparison isn't
completely apt, because Mosaic doesn't create ads for television
and magazines.
Both companies are expanding services that include market
research, public relations and designing Web sites. Mosaic's
market value of $760 million is, of course, much smaller than New
York-based Omnicom's $16.84 billion.
Since Mosaic can't hope to train such a diverse labor force,
it uses acquisitions to acquire workers and expertise. For the
Prudential contract, it bought a company that specializes in
selling products to people in their homes.
Mosaic usually pays for the acquisitions with a mix of
shares and cash. Some analysts said they're not concerned about a
drop in the high-flying stock used to finance purchases.
``The underlying theme is that the growth is not solely
dependent on acquisitions: their internal growth is very
strong,' said Scott Fromson, analyst at HSBC Securities Inc.
22 Acquisitions
Mosaic has acquired 22 companies since 1994, of which seven
were acquired in the past year. They're located in Spain, France,
Scandinavia, Ireland and the U.S. In the two years ended Dec. 31,
the number of shares outstanding rose 76 percent.
Sales are expected to rise to C$550 million this year from
about C$400 million in 1999 and C$254.5 million in 1998, said
Kaak, the financial officer. Mosaic will report fourth-quarter
and year-end results on Feb. 23.
Scotia Capital Markets analyst John McIlveen said he expects
Mosaic to keep churning out results like those in the third
quarter, when earnings rose to C$6.25 million, or C$0.09 a share,
from C$3.52 million, or C$0.06, a year earlier. Revenue rose 32
percent to C$116.3 million from C$88.1 million.
Mosaic President Michael Cottman said the company plans to
expand into Asia and Latin America by 2001. Cottman is former
head of the company's European division, which contributes more
than half of Mosaic's revenue.
Mosaic rose C$0.80 to C$15.60 in Toronto trading. |
