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.
But you can't escape the giant elephant in the room... namely the resource capex cliff that is coming.
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.
EBIT margins from the late 90's early noughties. Late 90's is probably the best "normal" margins, so EBIT at ~5%-5.5%.
View attachment 64420
My assumption is they will revert to somewhere around there (margins wise).
EBIT margins from the late 90's early noughties. Late 90's is probably the best "normal" margins, so EBIT at ~5%-5.5%.
View attachment 64420
My assumption is they will revert to somewhere around there.
FWIW, EPS consensus patterns against the above, suggesting that 2017 EPS will pretty much match what it had been in 2007.
EBIT margins from the late 90's early noughties. Late 90's is probably the best "normal" margins, so EBIT at ~5%-5.5%.
I think these EPS numbers are too high. With my guesstimate $50m NPAT, the EPS is $0.54. And my guess is that, it would surprise no one if MND run into trouble with one or more of its projects during the downturn. It's facing some issue with WICET that could wipe away 2 years of profit, and quickly turn a healthy balance sheet into a shaky one.
Market is pricing about 6%.
I'm not sure I really believe in the different company today than it was then story. How much of MND today is really just it being a solider of fortune in the right industry at the right time?
But conversely how realistic is it that the mining industry and the capex that is required to sustain it will revert to more or less the level that it was at prior to the boom?
I was betting it was not possible and that FY 2016 marked the bottom of the cycle. But I could well be wrong.
Curious if you think that's realistic and/or where you think they're heading?
It won't, but no one is suggesting that.
EBIT margins from the late 90's early noughties. Late 90's is probably the best "normal" margins, so EBIT at ~5%-5.5%... My assumption is they will revert to somewhere around there (margins wise).
This stock is not obviously expensive to me on first glance. If anything, my rough guess is that, even with a 13% pa required return (healthy premium to the market, pick a number), there is a meaningful buffer to the cheap side. This is based on consensus free cash flow of 73m in 2017 capitalized with 2.5% perpetuity growth with consensus 2015 and 2016 FCF. You can flex this and still find it hard to say it was categorically expensive.
Aren't you suggesting that when you write that:
MND is not the same company that it was in the late 1990s. My understanding is that it has one of the best reputations among its competitors in this space. My bet is that that will allow it to maintain margins at or around their current levels - along with close attention paid to costs.
So are you saying it had a poor reputation back then?
Otherwise what has changed?
Listening to Skynews YMYC the other night and I heard MND had a potential Mongolian project that would be the largest MND has ever taken on. Googled it but found no information. They have an entity Monadelphous Mongolia LLC that is all I could find. I am positive I heard correctly. Meanwhile trend remains down to around 2009 levels.
But is it possible to have 1.3 billion people coming online and all wanting a western lifestyle - modern apartments, plumbing, cars, roads, bridges and so on - and for all resource demand to revert to more or less where it was prior to China's emergence?
Thanks. Just had a read about that mine and 95% of the workforce are Mongolian and the mine has been running for a few years now so I suppose maintenance/operation contracts are established. My hopes are dashed on anything significant coming out of there for MND because it would have happened in the earlier years. Bit of false hope by the commentator I heard it from.Rio has the huge Oyu Tolgoi copper-gold mine in Mongolia and MND has a good commercial relationship with Rio. MND will have to announce to the market any contract win that it gets.
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