MND - Monadelphous Group

[luutzu]

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.)

I will

I did thought maybe they ought to take out MMA Offshore. But guess they weren't really listening to what I have to say.

 

[Rainman]

This turned out to be a satisfactory investment for me in the end. But I am out now.

I started building a position in MND in the last quarter of 2015 between the $6.40 to $5.70 range which turned out to be the bottom - one of the rare occasions when my bottom-feeding really was along the bottom. But MND is starting to look a little "toppy" for me now.

 

[ReXXar]

What's happening with this stock?? Its up 40% since a few months ago, today it pops almost 4% and no announcements, I noticed MND tends to behave this way, pop around 3% on random days even without any announcements?? Is there some insider trading or something??

 

[luutzu]

What's happening with this stock?? Its up 40% since a few months ago, today it pops almost 4% and no announcements, I noticed MND tends to behave this way, pop around 3% on random days even without any announcements?? Is there some insider trading or something??

It's a good business with able management, strong cash and competitive position... and is about to get a whole lot better.

Rio's Toyu Olgoi [?] expansion should see MND cashing in a few major contracts there. There's water and waste infrastructures; expansion into NZ, the US; winning the new Windfarm job with JV Zenviron [not yet announced for some reason].

Quite a few things going on and about to bear fruit.

 

[ReXXar]

It's a good business with able management, strong cash and competitive position... and is about to get a whole lot better.

Rio's Toyu Olgoi [?] expansion should see MND cashing in a few major contracts there. There's water and waste infrastructures; expansion into NZ, the US; winning the new Windfarm job with JV Zenviron [not yet announced for some reason].

Quite a few things going on and about to bear fruit.

Hmm, good points. What potential risks do you see? At what point does it become too expensive?

 

[luutzu]

Hmm, good points. What potential risks do you see? At what point does it become too expensive?

I jumped in with both feet at $15.60 so ahem....

Managed to averaged down to about $12 so personally, $30 is alright by me.

In the short term - next year or two... hard to say. Share price might crash again to $8 or $9 like it tend to once it reach current level.

In the longer term, this one is a keeper for me. I like what its management has been doing and while I got in way way, way too early at first... with dividend reinvestment and longer term holding, even at those prices it might end alright.

Would I buy it now... depends if you see any other opportunity. There probably are and I'd probably wait for it to drop lower.


In term of risks...

Its planned expansion into the US's Bakken Oil fields/fracking might not go smoothly given the protests. So might not grow that aspect of its piping business.

Though its JV there are currently more for the chemical plant construction, so that should still go ahead and do well.

Its SinoStruct fabrication into the US and S.Americas seems to be onto a good start from what Rob said at the AGM [no, we're not on first term basis, I just like to feel special].

Infrastructure, particularly water, is picking up pace... both here in Aus. and in NZ.

There's also the renewable with ZEM Energy [?] - i.e. Zenviron.... there's some, from memory, $17B in approved renewable projects in Aus. to be completed by 2020-2022. They should win at least some of that being who they are and what's in their bank account.

Waste is also a potentially massive area for MND. Its 30% in Anaeco and the recent transaction with China's XEPT waste company should see some massive opportunity in the waste/plant construction business both here, China and S.E. Asia. That's XEPT's plan when they take a majority stake in ANQ recently.


So yea, hard to say whether one should get in now or wait for a price retreat. But definitely worth a real close look.

 

[ReXXar]

I jumped in with both feet at $15.60 so ahem....

Managed to averaged down to about $12 so personally, $30 is alright by me.

In the short term - next year or two... hard to say. Share price might crash again to $8 or $9 like it tend to once it reach current level.

In the longer term, this one is a keeper for me. I like what its management has been doing and while I got in way way, way too early at first... with dividend reinvestment and longer term holding, even at those prices it might end alright.

Would I buy it now... depends if you see any other opportunity. There probably are and I'd probably wait for it to drop lower.


In term of risks...

Its planned expansion into the US's Bakken Oil fields/fracking might not go smoothly given the protests. So might not grow that aspect of its piping business.

Though its JV there are currently more for the chemical plant construction, so that should still go ahead and do well.

Its SinoStruct fabrication into the US and S.Americas seems to be onto a good start from what Rob said at the AGM [no, we're not on first term basis, I just like to feel special].

Infrastructure, particularly water, is picking up pace... both here in Aus. and in NZ.

There's also the renewable with ZEM Energy [?] - i.e. Zenviron.... there's some, from memory, $17B in approved renewable projects in Aus. to be completed by 2020-2022. They should win at least some of that being who they are and what's in their bank account.

Waste is also a potentially massive area for MND. Its 30% in Anaeco and the recent transaction with China's XEPT waste company should see some massive opportunity in the waste/plant construction business both here, China and S.E. Asia. That's XEPT's plan when they take a majority stake in ANQ recently.


So yea, hard to say whether one should get in now or wait for a price retreat. But definitely worth a real close look.

Good analysis.. yes it is hard to value this company due to the volatile nature of winning new contracts through a cyclical industry, I definitely agree with you MND is a long-term stock, I haven't kept pace with what's happening with the resource industry, but cyclical stocks usually pick up just before it hits bottom, so perhaps this is a signal that the resource crash is coming to an end/has come to an end. If so, there's no reason why not hold on to this stock for several years to come if management keep up what they're doing. I like how they're able to quickly switch to maintenance contracts during a cyclical downturn and I definitely agree their venture into renewables and overseas markets is huge plus. So I guess the only significant risk I see is management, if they start selling their holdings or sudden change of management it might be a warning sign..

I'm glad you held on to your position after it hit rock bottom, I guess with dividends you'll be coming out about even now, you don't use stop loss?

 

[galumay]

I hold MND but I wouldnt be under any illusions about a turnaround in the end of the mining boom, its gone and finished, but there will be consolidation and there is still work that the miners and prooducers will always use contractors for and the well managed, low debt businesses like MND will survive. Margins will be much lower going forward, but I still think they will do ok.

 

[luutzu]

Good analysis.. yes it is hard to value this company due to the volatile nature of winning new contracts through a cyclical industry, I definitely agree with you MND is a long-term stock, I haven't kept pace with what's happening with the resource industry, but cyclical stocks usually pick up just before it hits bottom, so perhaps this is a signal that the resource crash is coming to an end/has come to an end. If so, there's no reason why not hold on to this stock for several years to come if management keep up what they're doing. I like how they're able to quickly switch to maintenance contracts during a cyclical downturn and I definitely agree their venture into renewables and overseas markets is huge plus. So I guess the only significant risk I see is management, if they start selling their holdings or sudden change of management it might be a warning sign..

I'm glad you held on to your position after it hit rock bottom, I guess with dividends you'll be coming out about even now, you don't use stop loss?

I haven't looked closely at management buy/sell. But from scanning the news releases, it does not seem like they've been buying or selling.

I'm somewhat surprised they have not been buying, but then put that down to it either being within the market sensitive period or around the financial reports update. They do tend to release a few (small) project wins together. Smart way to not give away their bid to competitors.

Yea I missed loading up a couple of times when it was in the mid 5s and 6s. Was either sucking my thumb, got greedy and thought it'd go lower, then missed its massive gain, then buy something else. Usual story I guess.

But the dividend reinvestments have done very well so yea.

Don't do stop loss because I got a big ego that and fear that I could jump out then miss the boat as it rises. Happened a couple of times before and so thought it's not worth it. In hindsight, would have been worth it on a few of my stocks but hard to predict that. I mean take S32. More than halved its price earlier this year and pretty much triple at current prices. No way I could predict that kind of jump.

 

[luutzu]

I hold MND but I wouldnt be under any illusions about a turnaround in the end of the mining boom, its gone and finished, but there will be consolidation and there is still work that the miners and prooducers will always use contractors for and the well managed, low debt businesses like MND will survive. Margins will be much lower going forward, but I still think they will do ok.

Yea the mining boom would be at least a few years away. But as Rexxar was saying, they did managed to win enough maintenance after the construction to be quite acceptable given the bust.

Yea I am also hoping/thinking that they're going to make some major acquisition soon. Sector is ripe for consolidation. Though these guys seem to have that slowly-slowly approach. Very cautious and tend to establish beachheads, as the MD say through JV or make minor acquisition where they can really leverage the new company's skills and contacts to boost the skills and potential work from existing resources.

They bought some rope access company last year. Hardly mention the dam thing. But after digging around, they probably spent maybe a couple million on it. Peanuts really. But then they use the new subsidiary's training centre and skilled personnel... train up their staff all over the place; then offer non-conventional access in bidding for maintenance jobs.

They've done similar leveraging on pretty much all of their acquisitions... and that's a great thing to see.

So hoping that with all that cash they've been hoarding the past two years, they're about to make a "transformative" acquisition soon.

 

[Rainman]

I hold MND but I wouldnt be under any illusions about a turnaround in the end of the mining boom, its gone and finished, but there will be consolidation and there is still work that the miners and prooducers will always use contractors for and the well managed, low debt businesses like MND will survive. Margins will be much lower going forward, but I still think they will do ok.

Agree. The easy money in MND has been made.

 

[ReXXar]

I noticed something curious about MND today, was just messing around with my spreadsheet, looking at last 10 years of data, 2 things jumped out:

1) Their capex/cash flow went from a steady trend from 65% in 2012 down to 1% in 2016
2) Their operating working capital as percentage of assets also underwent a steady trend from -21% in 2008 to +24% in 2016, likewise their cash conversion cycle went from negative in 2009 to 38 days in 2016

I'm not sure the reason for this, has anybody else noticed this?

 

[luutzu]

I noticed something curious about MND today, was just messing around with my spreadsheet, looking at last 10 years of data, 2 things jumped out:

1) Their capex/cash flow went from a steady trend from 65% in 2012 down to 1% in 2016
2) Their operating working capital as percentage of assets also underwent a steady trend from -21% in 2008 to +24% in 2016, likewise their cash conversion cycle went from negative in 2009 to 38 days in 2016

I'm not sure the reason for this, has anybody else noticed this?

To 2014:
From 2012 to 2014, their net capex went from $33.68M to $5.08M. So this could explain your question 1, drastic decrease in capex/cash flow. Though I use net operating cash flow in the chart.

If we compare its net capex to net op.cash, the decline from 2012 isn't so drastic. But note the orange line - net op cash b4 interests to both net capex & interests... picks up towards 2008 level. Indicating good management.

WORKING CAPITAL

Net working capital has been increasing, and the details would show that most of it is cash.
With the current ratio (red line) trending up ( I don't see MND ever having a negative working capital).

take the above, note the increasing current ratio, combine with its capital structure (see below) where CA (dark blue) kept rising with NCA (red) making a smaller proportion of total assets while long and short debt both drops... business was slowing down (obviously in hindsight and on the chart) but in proportion to its cap structure. All the while NWC increases.

CASH CONVERSION CYCLE

Cash conversion cycle was very good during the good times due to good sales/inventory turnovers, taking a longer time to pay others. Sales has slowed and debtors are more on top of wanting their pay paid on time, i.e. from some 75 days between pay to about 40 days in 2014.



That's only to 2014 in the quickLook analysis, 2015 in the detailed and 2016 haven't bothered since I already know . You can download from the DangInvestor's Research Exchange your own copy then update the rest.

 

[ReXXar]

Nice charts, you find it a good program? I still don't quite know why, sure capex/cash flow decreased due to decrease in capex but why is that, when MND gets a new contract to build something, from what I understand and correct me if I'm wrong, they're basically a consultancy company, so for any construction projects they don't own the assets, the assets belong to the clients, so why did we see those huge capex numbers 5 years before then steadily decreasing to almost nothing now, unless they also bought many construction machinery that they need for construction and stopped buying ever since??

also, what is this "net op cash b4 interests to both net capex & interests"?? I don't understand this

Regards to the second chart, yes working capital has consistently increased year on year, once again? why is this so from MND's business point of view?? As far as I know this is not really a good thing. Also you said that CA is rising, while NCA is decreasing as a proportion of total assets, that means CL is rising faster than CA, is this what you mean when you said the business is slowing down?

for the cash conversion cycle, that basically correlate directly working capital, as working capital increases cash conversion cycle also increase, which is a bad thing I think. The cash cycle was negative in 2009, which means MND was able to collect their receivable way faster than paying to their supplier, and since then it steadily increased, as both receivable and payable days increased, with payables days rising faster than receivable days hence the increase in cash cycle, once again, why is this so?? Is MND delaying payments to their own suppliers due to their own customers delaying payments? And if so why are all their customers delaying payments, is this some kind of industry thing?

 

[galumay]

Its typical of the cycle of mining services companies that operate in a cyclical commodity based sector. Capex is high in the boom times as they gear up, earth moving equipment, cranes, drilling rigs, and all the Capex associated with expanding workforce and worload.

As the boom came to a close obviously Capex dropped as the work stopped rolling in and costs needed to be reduced, employee numbers dropped, no new equipment was bought and some was sold off.

I havent bothered to look at the cash cycle stuff as generally its not a metric i consider in valuation, but I would assume its also related to the nature of the business and sector.

 

[luutzu]

Nice charts, you find it a good program? I still don't quite know why, sure capex/cash flow decreased due to decrease in capex but why is that, when MND gets a new contract to build something, from what I understand and correct me if I'm wrong, they're basically a consultancy company, so for any construction projects they don't own the assets, the assets belong to the clients, so why did we see those huge capex numbers 5 years before then steadily decreasing to almost nothing now, unless they also bought many construction machinery that they need for construction and stopped buying ever since??

Yes I do find DangInvestor an awesome business analysis and valuation program, there is nothing like it in the world. And that's not just because I wrote it from scratch but because it is really that awesome

Just added the 2015 and 2016 data...

From above chart, Net Capex is defined as cash spent (outflow) on PPE after deducting cash received from sales and disposal of PPE (inflow). So the negative Net Capex meant MND sold more PPE than spent on new ones.

Such definition assumes a whole lot of stuff that only honest and responsible management would do. That is, whatever amount is needed to maintain and expand PPE to keep it running smoothly are actually spent in cash getting it done. That whatever is claimed as depreciation etc., are for tax purposes only. So it's not a perfect definition but note that is is part of the quickLook analysis module and also where users get to define what they meant by capex. i.e. does capex include opex and anything that is a PPE... or capex is only "capex" required to maintain their own operation's PPE. Such definition can be quite important depending on the business you're looking at.

Anyway, MND actually have a negative CAPEX over the past 3 years. i.e. it was getting rid of its machineries more than buying/leasing new ones. So the ratio of capex to net op. cash flow does not really indicate much for MND over recent years.

Capex are MND's properties, plant and equipment... they're not the assets of their client's project. They're what MND spent on PPE to get the job done. So they buy(sell or lease) PPE and this number goes up or down depending on project wins. Note too that MND lease a lot of their PE rather than owning them inhouse.

But yes, MND does not own the assets they're hired to construct. The high Capex in other years were due to them needing to spent more on capex to get the tools, the recent negative capex show they're getting rid of PPE overall (less work) but still buying, not completely stopped.

I guess it's an example of how important it is to look at the detail rather than just the resultant ratio.

also, what is this "net op cash b4 interests to both net capex & interests"?? I don't understand this

As with other series in that chart, I was trying to see how well the company's operating cash flow manage against the cash capex and interest during the year.

So net op cash b4 interests to net capex plus interests simply compare the kind of margin the company's net cash from operation could pay for these two crucial expenses (pay the bankers and maintain the machinery).

So for 2013, net op. cash could cover interests and net capEx 8.32 times. Flip that and both expenses consumes 12% of MND's net cash earnings. i.e. the remaining 88% can pay dividends.

But note that for 2013, the Blue and the Red bars could not equal to the stacked Green (dividend) and capex and interest. i.e. cash from operation alone could not cover dividends and the other two expenses.

You'd not want a business that show this kind of pattern over the years. But again, it depends... and MND have plenty of cash at the bank, so a single year isn't too bad... that and give this is the start of its industry's downturn.

Note too that net op.cashflow more than cover all these expenses the previous three years... so business, while smaller, more than covers dividends and etc. Indicating good management not playing the share market price game by sensibly managing its cash position.

It's one of the very important charts that after you get use to it, can tell a heck of a lot about the business.

Regards to the second chart, yes working capital has consistently increased year on year, once again? why is this so from MND's business point of view?? As far as I know this is not really a good thing. Also you said that CA is rising, while NCA is decreasing as a proportion of total assets, that means CL is rising faster than CA, is this what you mean when you said the business is slowing down?

NWC is defined as Current Assets minus Current Liabilities.

MND's NWC has risen again in 2016.

Though a positive and rising NWC is generally a good thing to see, whether this is reasonable and good or not depends... we'd need to look at the detail in its Balance Sheet (Fin.Position).

So it could be a bad thing since you don't want a lazy balance sheet where management aren't making good use of cash beside putting them at the bank. But then you don't want them to not be able to pay liabilities that are due within the year either.

For industrial companies, particularly one experiencing a marked downturn, you'd want it to have a lot of cash (or assets that is expected to be turn into cash within the year). This would allow the business to survive and maybe start to acquire struggling competitor or new businesses on the cheap. Something MND has managed to do very well... though they still have yet to make a big acquisition so far. That could be a good thing, maybe too cautious but yea, I like how they think.

Also you said that CA is rising, while NCA is decreasing as a proportion of total assets, that means CL is rising faster than CA, is this what you mean when you said the business is slowing down?

Business slows down because the revenues are down

While the accounting equation of Assets = Liabilities + Equity might give the impression of what you said there about CL rising faster than CA... If that's the case it's, to me, just coincidental. And you can't figure if they're related from CA and NCA rising and falling.

For MND, its CA rises mean its still earning money (and storing up the cash) while selling off its NCA (the PPE being sold probably play a major part in that).

To see if CL rises faster than CA... best to look at the Current Ratio (i.e. CA over CL).

See how the current ratio (purple line) rises? It mean that the change in CA is always higher than the change in CL (for years where CRatio rises).

If you refer back to the Capital Structure chart, CA generally rises while CL decreases.

for the cash conversion cycle, that basically correlate directly working capital, as working capital increases cash conversion cycle also increase, which is a bad thing I think. The cash cycle was negative in 2009, which means MND was able to collect their receivable way faster than paying to their supplier, and since then it steadily increased, as both receivable and payable days increased, with payables days rising faster than receivable days hence the increase in cash cycle, once again, why is this so?? Is MND delaying payments to their own suppliers due to their own customers delaying payments? And if so why are all their customers delaying payments, is this some kind of industry thing?

From DangInvestor's note:

... “cash cycle”, or “net operating cycle”, measure how many days it takes for the company to convert its assets into cash flow. That is, it looks at how many days, on average, does every company dollar is tied up in production, marketing and other sales processes before it returns as cash to the company....

Cash Cycle = Receivables Collection Period + Inventory Processing Period – Payables Payment Period.

So Cash Cycle depends on 3 factors, not just the working capital.

Then yes, increasing CC is bad but we should also look at which of the above three factors contribute to the increase. You can see this in the chart next to the CCC chart earlier:

MND has been able to have a negative CC from 2007 to 2012 mainly due to it paying others later while its sales was great and it was good at collecting its pay from clients.

The last few years reverses this, but with the exception of last year 2016, MND has historically pay its due faster than collecting its due. Mainly due to big clients, and you got to play nice with those guys perhaps.

But the CC is not just paying and collecting, it's also getting the work done (inventory) quicker or not. This seem to play a big role in the increases in its CC than the other factor. So why? Maybe the projects it had won (they consider this their inventory) are delayed... delayed by clients who's short on cash perhaps.

You can see how big inventory turnover affect CC by seeing above how erratic the Inventory Turnover (light blue) line moves compare to the generally stable Payables and Receivables Turnovers.

But yea, when it took MND longer to collect, they also take a bit longer to pay too. Seems all normal except for the great few years where it managed to pay slower.

 

[peter2]

Attractive low sized risk, trend continuation setup on MND. There's nothing to stop price going to 15.00.

 

[luutzu]

Attractive low sized risk, trend continuation setup on MND. There's nothing to stop price going to 15.00.
View attachment 70320

All its ducks seems to have been lining up. With any luck, we might see a major acquisition with all that cash.

Zen Engery is working with Santos to try and save SA out of its blackouts. I think MND has a JV with Zen and are working together on a new Wind Farm project. The Market probably assumes that this JV will also take part in the SA work as well.

Within 2 weeks, one of MND's other diversification strategy might see a major Chinese waste operator taking a 55% stake - with MND controlling 30%. Both sides have all agreed and the holdup seem to have been the new Chinese rule to control capital flight.

If that goes ahead, MND will soon be seriously expanding its Waste Management business across China, Asia and ANZ.

I bought in too early though, dam it.

 

[Porper]

Looking good technically.

Rounding Bottom pattern aligns with the 50-61.8% projection.

Only headwind is bearish divergence on 2 time frames.

Looks like a 5 wave structure down from major highs so may struggle to get up through the target area longer term.

I hold.

 

[peter2]

MND is approaching the initial chart target of 15.00. There's going to be some people very happy to sell at 15.00 after holding onto losses for three years.