MND - Monadelphous Group

[luutzu]

You guys value it as though you're actually running the business, and the business you're running does not change and adapt, but go with RBA and industry forecasts - for Australia.

From the annual reports and the activities I read from MND, seems like its management have been aware of the mining capex downturn some 3 years before; have made concrete plans and took steps to diversify their businesses. They have already expanded into water/sewage/waste infrastructure before this year's acquisition of WI, which then led to a new contract into NZ - WI acquisition have not added its earnings to the latest report yet.

There's a fair number of new water infrastructure the state and federal gov't is planning right?

MND had planned to expand into Mongolia some 2 years ago, that has yet to bear fruit - could be tough condition, or RIO and the Mongolian gov't were in disputes and they just resolved and greenlight further expansion there... so might be good for MND there soon.

There's SinoStruct that's expanding to serve third parties instead of just MND itself; Expansion into the US growing shale gas/oil industry that's underway; a fair amount of maintenance of a few major LNG projects that's going to need an eye or two on.

WICET disupte... it already won the first round and are now dealing with an appeal right?

So yes, there is a lot that could go wrong for MND but also a fair chance that things might also go right too.

It just won something like nine new projects in the past year, have some extra 30+ contract it's working on... roughly 55/45 construction/maintenance... So will be shrink back to where it was 10 years ago? You can't really say can you?

If you project its future based on what's happening in mining/oil/resources in Australia... yea, it'll shrink. But with $200m in cash, management who have done an amazing job in both project management and delivery as well as foresight... the future might not be so gloomy.

 

[DeepState]

Interesting thoughts Deep.

I wonder how much balance sheet liquidation is baked into that FCF forecast? As the company shrinks it will release a bit of cash that's tied up in WC.

This from Baillieu Holst last month as an example given the figures are in the ball park of consensus for 2017 although bearish to 2018 but factoring in some revival of WC for whatever reason. They are the most bullish for the near term estimates...which is interesting because the title of the report was "Livin' on a Prayer":



Cashflows not being boosted by WC release. Assumptions in the market appear to still be factoring a drain on cash from WC through to 2017.

 

[Rainman]

... From the annual reports and the activities I read from MND, seems like its management have been aware of the mining capex downturn some 3 years before; have made concrete plans and took steps to diversify their businesses. They have already expanded into water/sewage/waste infrastructure before this year's acquisition of WI, which then led to a new contract into NZ - WI acquisition have not added its earnings to the latest report yet.

There's a fair number of new water infrastructure the state and federal gov't is planning right?

MND had planned to expand into Mongolia some 2 years ago, that has yet to bear fruit - could be tough condition, or RIO and the Mongolian gov't were in disputes and they just resolved and greenlight further expansion there... so might be good for MND there soon.

There's SinoStruct that's expanding to serve third parties instead of just MND itself; Expansion into the US growing shale gas/oil industry that's underway; a fair amount of maintenance of a few major LNG projects that's going to need an eye or two on....

No doubt all this is true. But what's it worth to the top line?

 

[luutzu]

No doubt all this is true. But what's it worth to the top line?

A lot or a little, depends on how they pans out and what else comes along. Point is management has not been sitting idle and have not been reckless in their investments and management.

They weren't caught by surprise with their industry downturn... and if you look at their cash position, they've been hoarding it since 2005 or 2006 and kept accumulating to where it's now $200m. So they're very conservative and given what's happening in the industry, better make a massive acquisition soon or else be taken over.

They could have easily gone out and buy companies but their approach works out very well - those they acquire actually add synergies, and the price they paid have been what I think is very reasonable.

So at prices that's around $600m, with $200m in cash and practically little to no debt... earns $105m last year and if you were to project declines so it earns on average half that over next decade starting next year... payback is still only 8 years... if things turn around as its MD is optimistic it is looking up, especially in maintenance; if the oversea ventures bear some fruit... payback could be within 5 years... in the meantime, dividends is 12% [?], say it declines to 6% over next few years that still beats the bank.

But then its market price could still fall much further, and we all want to catch the bottom but yea.

 

[Tom32]

To a point the following will be factored into their price; construction margins throughout construction can turn from positive to negative as soon as there is excess capacity in the market. We are a stubborn lot and will happily keep tendering work and come up with ways we think we can turn in a project cheaper than everyone else. Especially when we use other people's money.

The trouble in a tough market is that the feedback you get on losing bids makes it a fast race to the bottom.

You either give up market share and shrink / stop or do work for no margin. They are onto it with maintanace and to a degree water infrastructure though there isn't many contractors / engineering firms who are not doing one or both of the same. Water because it's another process with infrastructure similar to mines and maintenance because they have the contacts in the miners who trust them.

 

[OPERAKAT]

MND and Shorts.

I have a small position in Monadelphous, I notice that it has been shorted quite heavely. should I be worried?

 

[luutzu]

To a point the following will be factored into their price; construction margins throughout construction can turn from positive to negative as soon as there is excess capacity in the market. We are a stubborn lot and will happily keep tendering work and come up with ways we think we can turn in a project cheaper than everyone else. Especially when we use other people's money.

The trouble in a tough market is that the feedback you get on losing bids makes it a fast race to the bottom.

You either give up market share and shrink / stop or do work for no margin. They are onto it with maintanace and to a degree water infrastructure though there isn't many contractors / engineering firms who are not doing one or both of the same. Water because it's another process with infrastructure similar to mines and maintenance because they have the contacts in the miners who trust them.

All true but I guess we hope for the best given MND's record and proven management. That and maybe MND may have a better reputation and lots of cash on hand to not be pushed around too much... smart operators tend not to want their subbie going bankrupt, would want them to make a reasonable profit. But yea, hope the past records prove a good guide to future operations.

Guess that's also the fun part about investing... find well managed and dominant companies and see what the future holds. Though with the benefit of hindsight have jumped the gun early on this one. Let's hope it's not taken over any time soon.

 

[luutzu]

Re: MND and Shorts.

I have a small position in Monadelphous, I notice that it has been shorted quite heavely. should I be worried?

Depends... I'm not worried When I do, a couple of Tooheys does the trick, hehe.

Its recent JV with Mascaro in Pennsylvania region might add to this or next year's revenue streams - read they're targeting a big Shell gas project and plant there; that project just got approval from EPA so probably in tendering stages at the moment.

Then on top it has won total of $600M in new/extended work so far this FY; some $200Billion of gas/oil projects has or will come online within next few years and MND has done some major construction work for 4 or 5 of them... those stand a good chance of maintenance work continuing for next couple decades.

 

[peter2]

MND is on my reversal watch list. It remains in a weekly down trend but price has started to see some demand recently.

 

[luutzu]

So they just won a $200M+ contract... OK so it runs for 7 years, or about $30M a year... But it's still $200M, adding to a total of $800M new or extended contracts won so far this FY (5 months)... and the share price goes down?

Heard at the annual meeting that they are bidding for new maintenance work on the major LNGs around Australia that's coming online. With strong balance sheet and high reputation, they would at least get a couple. Then there's the new "beach head" JV with Mascaro; potentially new JVs with other companies around the world they're in talks with; SinoStruct bidding for new work in the Americas; expansion into New Zealand etc....

Am I missing something? It's crazy.

btw, John Rubino was pretty funny. Man of few words but those words get to the point. "we don't bid to win jobs, we bid to make money ey".

 

[skc]

So they just won a $200M+ contract... OK so it runs for 7 years, or about $30M a year... But it's still $200M, adding to a total of $800M new or extended contracts won so far this FY (5 months)... and the share price goes down?

Heard at the annual meeting that they are bidding for new maintenance work on the major LNGs around Australia that's coming online. With strong balance sheet and high reputation, they would at least get a couple. Then there's the new "beach head" JV with Mascaro; potentially new JVs with other companies around the world they're in talks with; SinoStruct bidding for new work in the Americas; expansion into New Zealand etc....

Am I missing something? It's crazy.

btw, John Rubino was pretty funny. Man of few words but those words get to the point. "we don't bid to win jobs, we bid to make money ey".

There's a steady amount of revenue in the books being run off every month too... so looking at the wins only produces half the picture. Also, without knowing the margin situation, winning contracts may not translate to increased profits. Just ask NWH - the winner of the massive Roy Hill concrete works a few years back.

As a general observation from my trading... contract wins rarely provide sustained boost to the share price in most mining companies. Commodities all plunged again overnight... that impact overshadows any small wins MND has recorded.

 

[luutzu]

There's a steady amount of revenue in the books being run off every month too... so looking at the wins only produces half the picture. Also, without knowing the margin situation, winning contracts may not translate to increased profits. Just ask NWH - the winner of the massive Roy Hill concrete works a few years back.

As a general observation from my trading... contract wins rarely provide sustained boost to the share price in most mining companies. Commodities all plunged again overnight... that impact overshadows any small wins MND has recorded.

True what you say, but MND hasn't seem to lose money on their contracts though. I mean it's a cyclical industry so they can't grow their revenues in a downturn... best we could hope for is a strong balance sheet and good control of margins.

Construction is where the risk of loss is highest and they've managed their margins and project deliveries pretty well from what I see. In maintenance the chance of loss are much much lower. But yea, condition may be too tough and their eyes might not be on the ball but they seem to be a sensible team taking cautious approach.

Interesting to see how these pan out over next couple years.

 

[Wysiwyg]

Announced NPAT down 38%, dividend slashed and price jumps 8%. Oh it's the new contracts secured.

 

[notting]

Announced NPAT down 38%, dividend slashed and price jumps 8%. Oh it's the new contracts secured.

The mining boom is back on Iron Ore was up 6% last night! Don't you know anything? jeez

 

[luutzu]

The mining boom is back on Iron Ore was up 6% last night! Don't you know anything? jeez

MND acquires (some of ?) EVO Access Pty. Ltd.

Probably bought a major or all of the company seeing how one of EVO's directors wore MND's polo on their facebook.

Strange how this news is not broadcast and I only saw it from reading MND's latest Appendix 3.

 

[Wysiwyg]

MND acquires (some of ?) EVO Access Pty. Ltd..

That is a niche business and only so because the need for this sort of work is not common. Elevated work platforms and scaffolding are the preferred access methods.

 

[galumay]

That is a niche business and only so because the need for this sort of work is not common. Elevated work platforms and scaffolding are the preferred access methods.

Mono's and other similar contractors have their own EWP's and Scaffies, but increasingly rope access is the preferred method from a workplace safety aspect.

I suspect there will be a fair bit of this sort of consolidation in the mining services sector, companies like Mono's can pick what are, as you say niche businesses, that are directley related to their core business, cheaply due to the overall downturn. Saves have to build their own rope access capacity from scratch - something that their clients will increasingly be demanding.

 

[luutzu]

That is a niche business and only so because the need for this sort of work is not common. Elevated work platforms and scaffolding are the preferred access methods.

I think platforms and scaffolding are preferred when under construction. Once completed it seem that this kind of rope access is the preferred way to inspect and do minor repairs. Particularly useful on those smoke stacks and offshore rigs.

But yes, a niche business. Always minor steps with these guys. I like. Like better if they could put some of those $200M to some major acquisition at current period in the cycle.

 

[luutzu]

I think platforms and scaffolding are preferred when under construction. Once completed it seem that this kind of rope access is the preferred way to inspect and do minor repairs. Particularly useful on those smoke stacks and offshore rigs.

But yes, a niche business. Always minor steps with these guys. I like. Like better if they could put some of those $200M to some major acquisition at current period in the cycle.

They own EVO now. Woo hoo

"I'm happy to announce that Evo Access is now a fully owned subsidiary of Monadelphous Group. Thanks to everyone that has supported us over the years, I truly couldn't have done it without you. Shout out to the fam for sticking by in tough times. Goes to show that working your a** off all the time does eventually have benefits.
What does it mean for Evo? We'll continue to offer a superior product in training and operations under Evo's management. Now with the corporate backing of Mono's it's far from being the end... it's just the beginning"

-- EVO Access FaceBook account 29th April 2016

 

[Wysiwyg]

They own EVO now. Woo hoo

They might want to look at Neptune Marine Services so they have underwater maintenance covered as well. (Just joking in present time but NMS was a flyer back in the resource expansion period.)