MND - Monadelphous Group

[craft]

I hope not, plenty of evidence of the damage TS's do to portfolios. There is actually a good thread on here somewhere that comes to the conclusion that even for traders they are damaging - let alone investors.

Hi Galumay.

Very important to draw a distinction between a directionally informed and an arbitrary exit when considering that thread.

I reckon that requires and extremley broad definition of a TS, to suggest that Buffett uses them because he sells a company if the fundamentals change sufficiently is a very, very long bow!!

Maybe not so long really - If you are wrong you cut it. - Universal rule really. Just the definition of wrong varies.

The day you can make more money than the most successful investor in history you will be well entitled to suggest he totally drops his strategy and adopts one that is the opposite of everything he believes!

Maybe you missed the last line and wink.

 

[galumay]

Hi Galumay.

Maybe not so long really - If you are wrong you get out - Universal rule really. Just the definition of wrong varies.

I sort of get your point, but I think the accepted meaning of 'trailling stop" is a million miles from deciding a valuation is no longer valid. Buffett might be as poor as you and I had he used "trailling stops" in his investment career!

Maybe you missed the last line and wink.

No, i saw it, hence the lighthearted response, maybe i needed an emoji too!

 

[craft]

I sort of get your point, but I think the accepted meaning of 'trailling stop" is a million miles from deciding a valuation is no longer valid. Buffett might be as poor as you and I had he used "trailling stops" in his investment career!



No, i saw it, hence the lighthearted response, maybe i needed an emoji too!

I see your point also on accepted meaning of 'trailing stop' but beyond what each of us think trailing stop means, their is a similarity. Technical traders have a price based story or script that they follow - trailing stop to them means they get out when reality doesn't confirm their script any longer.

FA has a business performance based story or script that they follow - we also need to exit when reality doesn't confirm with our script.

 

[skc]

I hope the shorters have been scared off. If the price rise is due to stimulus then I want some of the same. Actually this price rise is stimulating enough and the div a bonus.

MND is just about the only stock in the sector that is powering ahead. It has nothing to do with the stimulus.

I don't know the story but I am guessing some combination of short covering, takeover rumour and recent S&P rebalance. And to have all this happens at a time when iron ore and oil are both falling is simply astonishing.

To me the price action says buy, but the relative correlation (as measured against the peers) says sell. If I bought the break of $10 I'd have a much tighter stop.

 

[skc]

MND is just about the only stock in the sector that is powering ahead. It has nothing to do with the stimulus.

Forgot the attachment.

 

[notting]

I was short and getting hurt but was, on this rare occasion reluctant to take the loss. I figured that an idiot with too much money was going for the yeild and causing a short squeeze. So I just doubled up on the short quite close to the top.

Fortunatly I was right. SKC logic regarding this stock which had gone ex was spot on and I felt that as well the above.

The increase in Black Rock’ share holding to more than 20% of the voting power in the Company was a result of index tracking and not an intention to hold more than 20% of the voting power of the Company. Upon becoming aware of the fact that Black Rock’ share holding had reached 20.77% of the voting power of the Company, Black Rock promptly sold shares in the Company to reduce its voting power in the Company to less than 20%

:cuckoo:

 

[McLovin]

Fairly sobering chart in MND's FY results today. Maybe I'm missing something because that chart alone hardly inspires a 5% rally in the stock.



When you marry it up to this, a picture of O&G helping soften the loss of revenue from iron and coal emerges. What happens if that anticipated cut in energy investment plays out?



No surprise the company expects margins to stay under pressure.

 

[notting]

Fairly sobering chart in MND's FY results today. Maybe I'm missing something because that chart alone hardly inspires a 5% rally in the stock.

I'd say value trap hunters were heartened by the affirmation of the 15% fully franked dividend maintained. Then our entire market got smashed by Chinese front running the Chinese brokerage announcements to restart margin finance and short-selling. The volumes indicated big international selling today.

 

[Wysiwyg]

Fairly sobering chart in MND's FY results today. Maybe I'm missing something because that chart alone hardly inspires a 5% rally in the stock.

Agree this news is reflected in the down trending share price but a day range of 5% is common with MND on a trading basis.

 

[skc]

Fairly sobering chart in MND's FY results today. Maybe I'm missing something because that chart alone hardly inspires a 5% rally in the stock.

When you marry it up to this, a picture of O&G helping soften the loss of revenue from iron and coal emerges. What happens if that anticipated cut in energy investment plays out?

No surprise the company expects margins to stay under pressure.

You have to give it credit though.... it's financials are deteriorating much slower than many of its peers.

Nonetheless, I think MND will have a massive revenue hole in the next period or two, that itself and the market knows, although not specifically disclosed. It never really put forward guidance apart from description of the general industry market conditions.

MND is heavily shorted so it almost always rallies on report. But the rally this time barely lasted the morning.

 

[McLovin]

You have to give it credit though.... it's financials are deteriorating much slower than many of its peers.

No argument there. It seems, along with WOR, to be one of the few mining service companies that were beyond the cycle during the boom. I don't think there's any chance of them going bust, but the tide is about to really start running out. Interesting times to watch and learn!

 

[skc]

No argument there. It seems, along with WOR, to be one of the few mining service companies that were beyond the cycle during the boom. I don't think there's any chance of them going bust, but the tide is about to really start running out. Interesting times to watch and learn!

Yes... very interesting to see.

I made that comment thinking this... that management has done great doing what it's supposed to do... i.e. win projects and build them profitably without stuffing up. Picking a company with great track record helps in the downturn of the cycle, but only on a relative basis. It's up to the investor to decide how they'd deal with the cycle. Hopefully I will learn a thing or 2 and be in position to benefit more from the next boom / bust cycle.

Having said all that... most of these engineers have massive operational leverage that a 15% blowout on a $2B project will probably blow them up (or drive them nuts with the ensuing court battle).

 

[McLovin]

I made that comment thinking this... that management has done great doing what it's supposed to do... i.e. win projects and build them profitably without stuffing up. Picking a company with great track record helps in the downturn of the cycle, but only on a relative basis. It's up to the investor to decide how they'd deal with the cycle. Hopefully I will learn a thing or 2 and be in position to benefit more from the next boom / bust cycle.

Yeah. A cyclical company is...cyclical. I still don't think many investors appreciate that the cycle we went through wasn't normal and likely won't be repeated for a very long time (really, was MND actually ever worth more than $20?). And therein lies the rub; where capex is now might still be considered the top (or higher) of a normal cycle, in which case we're along way from the bottom. If you go back to where mining capex was ($ and % of GDP) in 2002/2003 it puts things in perspective a bit better.

So, my rambling aside, I completely agree with your points.

 

[Ves]

There's also the WICET contract dispute in the MMM JV, which I understand would cost them about $130m if they lost the court battle.

At 50% share that is a $65m hit. Post-tax (30%) it's around $0.49 per share. Which isn't insignificant at the current price.

No word about it in the results release, but they were fairly confident recently it wouldn't go against them.

Latest estimates for capex figures seem to point to earnings bottoming out in 2017 or 2018 (as McLovin posted). Could it get even worse than this? However, based on the current estimates I wouldn't be surprised to see EBIT as low as 50m-75m (EBIT margins closer to 5%). Share price of $5 definitely possible on those numbers.

Then there's also contract mispricing risks.... as skc pointed out, the leverage is massive on the contracts these kind of companies undertake.

 

[Rainman]

I am starting to think MND looks attractive below $6.50. But the question is how bad can it get?

That is a quantitative question. You could try to model a range of MND's revenues and operating margins to get an indication of the point at which MND's current "cheapness" begins to look expensive. But MND does not have historical earnings covering a full boom-bust cycle. It is also a different company from what it was at the beginning of the current cycle.

The analysts listed on CommSec have MND's EPS collapsing to 0.841 for FY 2016 and to 0.772 for FY 2017. But even at 0.772 that still puts MND on a current earnings yield of 12.1%. There is quite a margin of safety in that - assuming of course that things don't get too much worse beyond 0.77 per share.

 

[skc]

I am starting to think MND looks attractive below $6.50. But the question is how bad can it get?

That is a quantitative question. You could try to model a range of MND's revenues and operating margins to get an indication of the point at which MND's current "cheapness" begins to look expensive. But MND does not have historical earnings covering a full boom-bust cycle. It is also a different company from what it was at the beginning of the current cycle.

The analysts listed on CommSec have MND's EPS collapsing to 0.841 for FY 2016 and to 0.772 for FY 2017. But even at 0.772 that still puts MND on a current earnings yield of 12.1%. There is quite a margin of safety in that - assuming of course that things don't get too much worse beyond 0.77 per share.

May be you can take a copy of analyst's report for MND 3 years ago and see what EPS was forecasted for FY15... and compare that to what they reported.

That way you can at least have some ideas on whether the forecasts should be relied upon.

 

[Rainman]

May be you can take a copy of analyst's report for MND 3 years ago and see what EPS was forecasted for FY15... and compare that to what they reported...

Yes, the research that I have seen on analysts' forecasts shows that they are rarely accurate: they are invariably too optimistic on the upside and too pessimistic on the downside.

I suppose one needs to ascertain the minimum capex and opex that the mining, oil/gas and utilities sectors require in order to meet projected demand and to remain operational and efficient and then one needs to work out how much of that expenditure MND is reasonably likely to get. Some allowance would need to be made for the players in this space that have dropped and are dropping out of the industry, e.g. Forge, WDS and the many dozens of unlisted companies.

It is not a task that lends itself to mathematical precision - more an attempt to arrive at a level where one can comfortably conclude: "Ok, from here, it might go lower - but not much lower".

 

[skc]

It is not a task that lends itself to mathematical precision - more an attempt to arrive at a level where one can comfortably conclude: "Ok, from here, it might go lower - but not much lower".

Agree. And I highly doubt we are anywhere near that level.

 

[Rainman]

Agree. And I highly doubt we are anywhere near that level.

Really? On what basis?

 

[skc]

Really? On what basis?

I didn't see your post last week. The forecast for resource investments is looking pretty grim. There are various forecasts around but some are pointing to a 2017 number that is ~30% of the 2013 peak.

https://bluenotes.anz.com/posts/2015/02/australias-major-project-spend-in-decline/

MND had revenue of $2.6B in 2013. If it's revenue was to fall in line with total resource investment spend.. revenue could be as low as $800-$1B in two or three years time. It's not unrealistic to expect MND earn <5% NPAT on $1B... which makes it <$40-50m NPAT. Compared that to the current market cap of $600m.

One can make various assumptions about margins (likely down), competitive pressure (likely up), market share (unknown, but any gain would come at the expense of margin), diversification (all players are going for it), additional revenue from maintenance etc. But you can't escape the giant elephant in the room... namely the resource capex cliff that is coming.

The future is uncertain... but conditions for MND can easily get much worse.