MCE - Matrix Composites & Engineering

[grug]

Well, for what it's worth, I thought I'd share my experiences with MCE as a first post.

MCE is my fourth share purchase after an illustrious and lengthy involvement with the share market dating right the way back to May of 2011. I bought at $5.29 at 3:58PM on Monday of this week - the day before the annual report.

It certainly has been an experience watching the share price since.

Admittedly my views on purchasing MCE have been shaped largely by RM, but I really have noone to blame but myself on this one. I was aware that the annual report was imminent, I was even aware of Roger's own comments noting he had not bought in at these prices as he was waiting for further information on cash flow. What it was, in hindsight, was a gamble that a company whose SP had tumbled so far since I was watching it had to be undervalued. I felt sure that a company with a history (all 18 months of it?) of beating expectations would continue to do so, but - again in hindsight - it really was only a feeling.

I had done research on the nature of the company, and calculated both historical intrinsic value on the basis of previous annual reports and then used broker estimates to predict current IV at ~$11.

Really though, all the information was available to me to suggest that such an IV would not be met. Lack of contract announcements was one, previous MCE comments about a high AUD was another:

A number of Matrix’s contracts are or may be expressed in terms of foreign currency. To the extent that such exposures are not hedged, fluctuations in the exchange rate between the contract currency and the Australian dollar may adversely affect Matrix’s revenue in Australian dollar terms.

In particular, as the majority of Matrix’s sales are in USD and the majority of its costs are in AUD, an appreciation of the AUD versus the USD may adversely affect Matrix’s financial performance without hedging.

I note that MCE did hedge a portion of funds - I can't find where I was reading this but I was of the impression it was an amount that this would have likely been used during this FY?

I also rather glaringly appeared to have not factored in the recent equity raising into my calculations!

When all the information in the AR is factored in - information that I should have looked into better before the purchase - I get a IV of $4.61 for 2011 and $6.31 for 2012 (RR @ 14%)

I have mixed feelings about remaining with MCE at the moment. As noted on RM's blog, MCE's 20% revenue target is dependant on them landing ~$120m of new contracts. According to MCE, they're quoting on about ~$500m of new work, and have historically landed about a third of what they quote. On this basis you'd normally view the $120m figure over the next twelve months to be as easy as pie - but the problem is that they haven't landed anything over the last six months.

The establishment of MCE offices in the US certainly suggests that MCE management see opportunities there to improve market share. And it's entirely possible that the Henderson plant offers an ability to improve on revenue without landing many new contracts.

Regardless though, it really does seem like speculation from here on in. Or perhaps as McCoy Pauley put it this morning, an educated bet?

tl;dr - newbie got burnt on this one.

 

[cowboyA]

This is my first post after reading this thread and a number of similar threads on this site.

Seems to me that RM caused a lot of stir with MCE and many people bought in because of him and thought of the stock in terms of his measures. That is, some idea of "INTRINSIC VALUE" (IV).

In the short-term IV has NO bearing on movements. Indeed, MCE now is simply trending and a lot of commentators are trying to relate this to some idea about IV or future prospects or cash flow or pending orders or whatever etc.

Most commentators seem out of place. I personally have no doubt that many new orders will be achieved. Why? Because MCE's business works in cycles (and previously they had little capacity to expand beyond current orders even if the cycle permitted). Also, because while management seems not to have done a great job in informing the market, MCE only missed their forecasts by relatively small factors. However, this has nothing to do with the current price. It may have simply nudged an initial trend - then the trend has a life of its own completely removed from IV.

However, why this stock is so interesting is again the notion of IV. The IV for MCE is, almost unquestionably, well above the current price. But what people fail to realize is that huge numbers of stocks trade consistently, and for years, above any IV. So why IV in this case (whether it moves down or up from where you thought it was last month) has any business in the discussion (or at least to the level it does with MCE) is quite unusual. My suspicion is there are a lot of algorithmic traders (like myself) laughing at this fact and taking advantage by simply noting the trend.

At some point it will bottom out, hover around this bottom for a while, then a new order will be announced, people will rush in and it will rocket up - but only a little - before levelling out again.

Don't expect to see above $5 in a long long time with this (regardless of new orders, IV, cash-flow, blah). It can't trend that way now.

 

[McLovin]

Well, for what it's worth, I thought I'd share my experiences with MCE as a first post.

MCE is my fourth share purchase after an illustrious and lengthy involvement with the share market dating right the way back to May of 2011. I bought at $5.29 at 3:58PM on Monday of this week - the day before the annual report.

It certainly has been an experience watching the share price since.

Admittedly my views on purchasing MCE have been shaped largely by RM, but I really have noone to blame but myself on this one. I was aware that the annual report was imminent, I was even aware of Roger's own comments noting he had not bought in at these prices as he was waiting for further information on cash flow. What it was, in hindsight, was a gamble that a company whose SP had tumbled so far since I was watching it had to be undervalued. I felt sure that a company with a history (all 18 months of it?) of beating expectations would continue to do so, but - again in hindsight - it really was only a feeling.

I had done research on the nature of the company, and calculated both historical intrinsic value on the basis of previous annual reports and then used broker estimates to predict current IV at ~$11.

Really though, all the information was available to me to suggest that such an IV would not be met. Lack of contract announcements was one, previous MCE comments about a high AUD was another:

I note that MCE did hedge a portion of funds - I can't find where I was reading this but I was of the impression it was an amount that this would have likely been used during this FY?

I also rather glaringly appeared to have not factored in the recent equity raising into my calculations!

When all the information in the AR is factored in - information that I should have looked into better before the purchase - I get a IV of $4.61 for 2011 and $6.31 for 2012 (RR @ 14%)

I have mixed feelings about remaining with MCE at the moment. As noted on RM's blog, MCE's 20% revenue target is dependant on them landing ~$120m of new contracts. According to MCE, they're quoting on about ~$500m of new work, and have historically landed about a third of what they quote. On this basis you'd normally view the $120m figure over the next twelve months to be as easy as pie - but the problem is that they haven't landed anything over the last six months.

The establishment of MCE offices in the US certainly suggests that MCE management see opportunities there to improve market share. And it's entirely possible that the Henderson plant offers an ability to improve on revenue without landing many new contracts.

Regardless though, it really does seem like speculation from here on in. Or perhaps as McCoy Pauley put it this morning, an educated bet?

tl;dr - newbie got burnt on this one.

It happens to everyone mate, don't get too down about it. What you need to do is go away and piece together where you went wrong. Look at what your assumptions were back then and why they were incorrect. Learn from your mistakes, so you don't repeat them. The business won't go broke and the nature of contracting is lumpy sales so the world isn't coming to an end. From what you have written I think the most valuable bit of knowledge you have learnt is to always do your own research.

I do think MCE is being punished a bit more than it deserves, but such is life for former stars.

 

[craft]

The IV for MCE is, almost unquestionably, well above the current price. .

How so??????

MCE always has had and always will have earnings risk. If you think you are going to hold it for the long term you must understand the whole business cycle as applicable to the company and value it on cycle averages using robust valuation methods.

The damage that has been done here is not because MCE is a particularly poor company it is just that it was never worth anything like some claimed. Putting the wrong inputs into the wrong formula is a sure way to build an unrealistic anchor as to what a company is really worth.

“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so.”

Mark Twain

 

[skc]

However, why this stock is so interesting is again the notion of IV. The IV for MCE is, almost unquestionably, well above the current price. But what people fail to realize is that huge numbers of stocks trade consistently, and for years, above any IV. So why IV in this case (whether it moves down or up from where you thought it was last month) has any business in the discussion (or at least to the level it does with MCE) is quite unusual. My suspicion is there are a lot of algorithmic traders (like myself) laughing at this fact and taking advantage by simply noting the trend.

The mistake many people make is taking the title "Intrinsic value" as gospel. There is nothing intrinsic in any stock valuation. The value one calculates should be called "Valuation Using Current Information and Assumptions".

That's right. I am going to trademark my methodology as "VUCIA"...

 

[Risk Chaser]

when do the book come out? :

 

[Intrinsic Value]

Well, for what it's worth, I thought I'd share my experiences with MCE as a first post.

MCE is my fourth share purchase after an illustrious and lengthy involvement with the share market dating right the way back to May of 2011. I bought at $5.29 at 3:58PM on Monday of this week - the day before the annual report.

It certainly has been an experience watching the share price since.

Admittedly my views on purchasing MCE have been shaped largely by RM, but I really have noone to blame but myself on this one. I was aware that the annual report was imminent, I was even aware of Roger's own comments noting he had not bought in at these prices as he was waiting for further information on cash flow. What it was, in hindsight, was a gamble that a company whose SP had tumbled so far since I was watching it had to be undervalued. I felt sure that a company with a history (all 18 months of it?) of beating expectations would continue to do so, but - again in hindsight - it really was only a feeling.

I had done research on the nature of the company, and calculated both historical intrinsic value on the basis of previous annual reports and then used broker estimates to predict current IV at ~$11.

Really though, all the information was available to me to suggest that such an IV would not be met. Lack of contract announcements was one, previous MCE comments about a high AUD was another:

I note that MCE did hedge a portion of funds - I can't find where I was reading this but I was of the impression it was an amount that this would have likely been used during this FY?

I also rather glaringly appeared to have not factored in the recent equity raising into my calculations!

When all the information in the AR is factored in - information that I should have looked into better before the purchase - I get a IV of $4.61 for 2011 and $6.31 for 2012 (RR @ 14%)

I have mixed feelings about remaining with MCE at the moment. As noted on RM's blog, MCE's 20% revenue target is dependant on them landing ~$120m of new contracts. According to MCE, they're quoting on about ~$500m of new work, and have historically landed about a third of what they quote. On this basis you'd normally view the $120m figure over the next twelve months to be as easy as pie - but the problem is that they haven't landed anything over the last six months.

The establishment of MCE offices in the US certainly suggests that MCE management see opportunities there to improve market share. And it's entirely possible that the Henderson plant offers an ability to improve on revenue without landing many new contracts.

Regardless though, it really does seem like speculation from here on in. Or perhaps as McCoy Pauley put it this morning, an educated bet?

tl;dr - newbie got burnt on this one.

Don't feel too bad especially if you are holding long term as a few good contract wins will see the share price rise again.

It could be worse there are a lot of people who paid 8dollars for MCE.

MCE have 500 million out in quotes and historically they convert 38percent into contracts so that would give them at least a 20 percent increase in revenue next FY.

 

[cowboyA]

How so??????

Well, as skc says it depends on the calculations but simply look at current market cap (which is now quite low), assets, current order book (forget future orders), debt, cash, profit etc and it is pretty clear that classical notions of IV are above this price. JP has \approx 5.50 or something. I think my colleague was talking about $6-$7 but not sure how he came to this (and don't care to learn how).

However, I think you missed the point of my post (and my prev post was rather rambling I see - not used to posting in these boards). But my point is that trading based on this notion (even the somewhat classical idea) of IV is not going to get you anywhere in a market and with a stock that is not moving based on IV.

Pricing models that move stocks like these are worked out by thinking trades will be closed out in minutes/hours and definitely within the day. Assets, order books etc are not used to price these things in the short-term.

My other problem with all this talk about IV (and again I use this term more classically) is that it drives emotional responses to market movements.

 

[craft]

Well, as skc says it depends on the calculations but simply look at current market cap (which is now quite low), assets, current order book (forget future orders), debt, cash, profit etc and it is pretty clear that classical notions of IV are above this price. JP has \approx 5.50 or something. I think my colleague was talking about $6-$7 but not sure how he came to this (and don't care to learn how).

However, I think you missed the point of my post (and my prev post was rather rambling I see - not used to posting in these boards). But my point is that trading based on this notion (even the somewhat classical idea) of IV is not going to get you anywhere in a market and with a stock that is not moving based on IV.

Pricing models that move stocks like these are worked out by thinking trades will be closed out in minutes/hours and definitely within the day. Assets, order books etc are not used to price these things in the short-term.

My other problem with all this talk about IV (and again I use this term more classically) is that it drives emotional responses to market movements.

I didn’t miss your point. Just curious as to why everybody seems to think MCE is undervalued.

I’m certainly not inspired from a valuation perspective. But then I lack the knowledge to compensate for the lack of earnings visibility that exists in this stock, so would probably not be interested buying from a valuation perspective, at any price.

There are times that I would happily fade the short term trend when we are in what I would consider extreme value teritory for great companies but this is not one of those times for me.

Horses for courses Cowboy.

 

[McLovin]

That's right. I am going to trademark my methodology as "VUCIA"...

Pronounced "vuckya"?

 

[BrightGreenGlow]

I find this funny... not that RogerM had to stick with this stock but for one me PROMOTED so much on the media he only has 1% in MCE from his portfolio. Funny to see all the lemming buy this one and watch it dive.... what a con-job. Anyways best of luck to the sheep who bought in, hope you guys come out okay in the months to come. I wonder how many people bought in while RM was selling?

 

[notting]

Looks like I was a bit more of a sheep than a cow today.
Followed it up and bought.

 

[robusta]

Could not resist buying more @ $4.20 today - had to sell something I did not want to sell but I could not let that price go past.

I hope you feel as good about it tomorrow night!

Let us see how good I feel in 6 months plus.

 

[McCoy Pauley]

Don't feel too bad especially if you are holding long term as a few good contract wins will see the share price rise again.

It could be worse there are a lot of people who paid 8dollars for MCE.

MCE have 500 million out in quotes and historically they convert 38percent into contracts so that would give them at least a 20 percent increase in revenue next FY.

To play devil's advocate, MCE also has not announced a contract win for six months. I'm sceptical that they can convert the $500 million in quotes/tenders into solid revenue growth just at this point in time.

 

[craft]

To play devil's advocate, MCE also has not announced a contract win for six months. I'm sceptical that they can convert the $500 million in quotes/tenders into solid revenue growth just at this point in time.

Revenue growth won’t mean much if you have to drop your margin to win the business.

Have MCE had no orders because the industry is not buying?

Or has MCE not won any orders because they have been under bid?

MCE is a relatively capital intensive business with high fixed costs, as are their competitors. No one wants their capital underutilised, that’s what drives margins down, and it’s also what allows margins to expand when supply is tight because there is generally a lack of will to invest extra capital. Capital intensive niches always tend to have huge ROE swings depending on where you sit in the Demand/Investment dance.

What were the margins achieved by MCE prior to them coming to market? Why do you suppose the existing owners sold down/diluted their interests as they expanded production?

Or is the attraction with MCE that people beleive we will return to a supply squeeze to keep the order books full and the margins high?

Is Henderson the only new supply that has been brought online?

Who understands the demand side? because I sure don't. I assume oil demad is durable but is deep sea going to attract capital over shale, gas, etc etc.?

Looking forward to a MCE investor on fundamental grounds filling in some of these ? for me.

 

[notting]

Have a look at NMS. That might give you an idea. Might be a safer buy at this point given there is less downside risk.

 

[skc]

Who understands the demand side? because I sure don't. I assume oil demad is durable but is deep sea going to attract capital over shale, gas, etc etc.?

Looking forward to a MCE investor on fundamental grounds filling in some of these ? for me.

Some background on the industry size and competitive dynamics from here.

http://www.thebull.com.au/articles/a/20790-broker-buy-for-the-week---mce.html

http://www.matrixap.com.au/files/Austock MCE.pdf

It is pretty evident the market demand is there. MCE is one of only 3 or 4 suppliers of this stuff in the world. I get 3 quotes even if I was just spending $2k on my driveway so I'd expect MCE to get invitation to tender on most if not all projects. The $500m tender book indicates that there is industry demand and MCE is not being excluded.

May be the competitors have improved their products, or may be they undercut on price esp at a time when MCE is busying building Henderson.

I think MCE can go either way from here. I am not confident enough to say they will definitely go back on the growth path and I have no element of faith in my valuation methodology... I will just stick with trading this based on technical and the assumption that someone else knows something better than I do...

Speaking of technical - today's candle looks promising for at least tomorrow.

 

[So_Cynical]

Well, for what it's worth, I thought I'd share my experiences with MCE as a first post.

MCE is my fourth share purchase after an illustrious and lengthy involvement with the share market dating right the way back to May of 2011. I bought at $5.29 at 3:58PM on Monday of this week - the day before the annual report.

It certainly has been an experience watching the share price since.

tl;dr - newbie got burnt on this one.

Its a 50/50 coin toss as to the direction of a stock after entry...you got this wrong ~ big deal, don't beat yourself up about it to bad, whether you come out on top of this investment experience with MCE now depends on your next course of action.

Take note that im a low cost averager not a value investor...most of the times i get my entry's wrong i buy more after a fall of at least 10% though in general i don't like "value" stocks because they tend not to own anything, and i particularly don't like service company's....some of my investments have taken 3 years to come good, time is on the side of the long term punter without leverage, its a massive advantage.

Good luck

 

[Wysiwyg]

I'll be taking the opportunity to top up, I can't see it getting any cheaper.

I'm looking to get back in to MCE do you guys think its bottomed yet or is there still more too go?

Interesting, the share price is moving toward $8.50 - soon it may not even be worth participating in the SPP!

Having said that, I think MCE is currently undervalued and once they release this year's results it will be even more undervalued. Happy holding.

I will not be participating in the SPP, I added 10% to my MCE holdings today @ $8.39 (should have been a little more patient)

This will make five times I have bought MCE first @ $3.96, $3.86, $4.73, $4.64 and now $8.39.

Have not found a reason to sell yet

Jumped back onto MCE today near the low. I'm hoping that its close the end of its pull back from $10 and starts heading north again.

Still "value" buy? Let us know when it's going up hey.

(April posts)

 

[notting]

Speaking of technical - today's candle looks promising for at least tomorrow.

That's what I thought.

Open was a bit of a line ball however.

It was a maiden Roger rally.
I am sure there are plenty of fans just lusting for that experience again having rued the day they did not get more of it when it began it's maiden Roger flight.

Now's their chance to feel it all again.

Getting a bit sentimental.

Love a good wick with a tight exit!