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
View attachment 69742
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.
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).
View attachment 69743
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.
View attachment 69746
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.
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).
View attachment 69750
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.
From DangInvestor's note:
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:
View attachment 69751
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.
I still hold, MND are the pick of the mining services sector IMO, they are well managed and have coped with the end of the construction phase of the so called mining boom well. PE is a next to useless metric IMO, FCF is much more important from a valuation point of view.
Is there more downside to the financial numbers or are we at the bottom like the share price is predicting?
Hey sorry for late reply, I haven't been on this site for very long time, I'll look into your post and get back to you. You still holding on to MND? I'm still holding since last September and with dividend reinvestment its up almost 80%, I noticed 5 brokers have a sell rating, looking at PE its definitely overvalued but FCF multiple is a whole different story. What are your thoughts??
They had very strong cashflow in the H1 report and revenue decline has slowed on a half-on-half basis. And as has been for some time, strong balance sheet and no operational stuff up.
Interesting to read back some of the posts in the last 2-3 years and that the financial performance of the company has largely played out... lower revenue, EBIT margin and EPS have all come to bear.
But of course the share price is well off the bottom. In fact it's some 200% higher than the low ~$5 achieved in early 2016. Although it is also around the same share price in much of mid 2013 to 2014. The dividends since 2013 has made holding since that time somewhat bearable.... but it's not something to write home about. Timing is important in terms of total return...
Where to from here? Is there more downside to the financial numbers or are we at the bottom like the share price is predicting? The FCF metric based on FY16 of ~$75m is ~6.55% yield on market cap less cash - so it is neither a bargain or grossly expensive (Noting however that H1 FY17 FCF was already $72m but it feels like a one-off working capital release somewhere rather than the norm).
Let's see what's in store in the full year numbers.
Congrats on the gain.
I recently offloaded some of MND at $13.40s. But that's so I can buy more of Sirtex at $11.65. Still hold a fairly large chunk of it. You know, cutting the flowers while watering the weed with the stuff I didn't offload
MND is one of the best companies out there. Current prices, based on current known operations, would put its current share price at the "reasonable" range - not a bargain, not overpriced. BUT....
The companies efforts over the past three years to expand and diversify is about to bear fruit, so there is a lot more upside.
So there's its SinoStruct - gas well heads, pipes and other fabrication business in China - expansion into the Americas is going pretty well. Its JV - Monaro - in the US was last heard tendering for a major chemical/gas plant in Pennsylvania [?]; Its office in Mongolia next to RIO/Mongolian copper should pick up a few major contracts as the disputes between them two was settled last year.
Then there's all those recent project wins in its traditional businesses in Australia; The new Sapphire windfarm in NSW with its JV - Zenviron? A possible finalisation with China's XEPT - waste management to acquire debt Anaeco owe to it, giving MND 30% ownership and a ticket to China's [and AsiaPacific] waste management market. There's also the Water Infrastructure acquisition that's been winning a fair number of smaller projects across ANZ.
Then there's rumour that it's about to make some sizeable acquisition of a civil infrastructure firm. I mean MND has some $220M in cash just sitting there for over 3 years now. With new projects bringing in the cash in coming quarters and years, with management been saying for some time that they're actively looking for opportunities... could be company-changing [in a good way] acquisition coming up.
So no idea how the share price will do, might go down, might just stay as the market has fully priced in those possibilities I've read and repeated above. But for the longer term, MND is one of those rare gem I can own and sleep well at night.
I did try to time buying more of MND when it was in the $6 then $5 range. Missed the order by a few ten cents each time... So yea, smart move trying to bottom feed.
Great analysis.. here's something I never understood which I hope people care to explain here..
How the heck do all those brokers value a company like MND?? From what I understand they're using DCF to arrive at some valuation using future cashflow from existing contracts, but for a company like MND they're constantly tendering for new contracts, nobody, and I mean NOBODY (including management themselves) know how many contracts they will get in the future, hence the management don't put out any earnings forecasts.
I wasn't exactly trying to bottom feed, it just seemed cheap at the time for a quality company and momentum was building. On a side note why you invested in Sirtex? I also glanced over this a while back, think gave it a pass due to lack of growth potential as its primary product failed the test for early stage cancer treatment.
Most companies are valued on the basis that it has perpetual value... i.e. it'd exist for a long long time to come. However, no company has customers that are perpetual (except may be cemetery), so the problem you've stated is not unique to MND or the contractor industry.
What investors/analysts do are trying to forecast using a range of factors... past performances, industry trends, competitive dynamics, management ambition, balance sheet strength etc etc. Much of these are qualitative as much as quantitative, so forecasting is more art than science. So that's why one should always read someone else's research with a grain of salt and make sure the underlying assumptions are understood and robust.
And that's why contract win announcements don't usually move the share price a great deal... because most of those are already in the valuation model to replace the ever depleting work-on-hand.
I did tried after averaging down at $12, then $10.70... then a massive purchase, big to me anyway, at $7.50... then the bastard just kept on going to $6 then $5.50s so I thought I better be smarter and wait for zero
----------
Sirtex didn't really failed its few latest major research. I mean it didn't meet the Overall Survival end point beyond other drug/treatments... but it did not do any worst either. Would be great if it were to extend patients life... both for them and for shareholders too of course. But the results, as far as I can see them, isn't as bad as the market or the headlines suggests.
For one, the patients quality of life improves quite significantly with SIRT. If the other drug don't significantly beat SRX's on OS, but SRX beat it on QOL... that's SIRT extending people's life really isn't it? Imagine living bearably the last few months of your life... that's a miracle when the alternative is sickness from side effects etc.
Then there's the Right Sided [?] colon cancer where SIRT perform really well against whatever its competitor was offering. That and it seem that SIRT is complimentary to Chemo too... So if cost is not much of an issue, the latest research on just that alone would open new application of its existing business.
But when I value SRX, I didn't take into account all the potential positives from their studies. I just simply based it on its already existing business. And there are lots of room for growth there... heaps.
It has only penetrated 2%to 3% of its existing market. It has just started into China and Japan... where growth last year was above 10%.
No debt, crazy profit margin, potentials from both R&D as well as existing market... Anywhere under $16 was a real bargain... $20 being fair value I reckon. So to get a handful at $11.65, and a few for the kids at $11.35... quite lucky.
I still hold, MND are the pick of the mining services sector IMO, they are well managed and have coped with the end of the construction phase of the so called mining boom well. PE is a next to useless metric IMO, FCF is much more important from a valuation point of view.
Its useless in my view because on of the factors is price.
Price is important, you want it cheap.
But MND is a low growth company so I would want to buy at a PE of say 11.
CSL on the other hand is a bargain at a PE of 20.
You do a really amazing in-depth analysis of MND and Sirtex, where do you get all this info?? You just look this stuff up yourself through Google and come to your own conclusion or work with other people?? You trade full-time?? This must take awfully a lot time..
You created DangInvestor?? You mean DangCorp is your company??
Do you mean the future growth rate? How would you know how many contracts they will win/lose in the future?
If you're talking about past growth rate, latest half year FCF exceeded entire FY2016 FCF by 340%.
Not that I'm defending this stock in anyway, I do agree there are more bargains elsewhere.
Do you mean the future growth rate? How would you know how many contracts they will win/lose in the future?
If you're talking about past growth rate, latest half year FCF exceeded entire FY2016 FCF by 340%.
Not that I'm defending this stock in anyway, I do agree there are more bargains elsewhere.
All the information you'd need to analyse a company you can find from their annual reports and website. Now and then some news site might point to some latest development the company doesn't want release yet, but they generally just repeat what's been released publicly by the company.
Yea I generally study companies myself. Using DangInvestor and Google. On one other company I'm currently discussing with another smarter guy but yea, no one can really make investment decision for you so it's helpful but at the same time useless to work with others.
I mean it'd be good to work with others just that you'd want someone with no social skills so they'd laugh at you when they need to. Just who needs friends like that anyway. It's good to bounce ideas around but it could be distracting.
I design and code all of DangInvestor's core modules. The other, "non-important" bits, like hardware, URL and stuff I had my smarter brothers done for me. They don't have much respect for this useless investing business, hehe, so are busy working at real important work that affect actual corporations.
I personally followed Ben Graham's rule of thumb, short hand, valuation formula and it generally work pretty well.
In general, don't invest in companies where its PE is above 22 times. Others might think that PE ratio is useless because of the price... that's not true.
Graham's rule, and this is one of those with "all things being equal" caveat... is
V = E *(8.5 + 2g)
where V is the company's value, E is its earning power [or, in his example, the latest company's reported earning if you are interested in trying to figure out what the professional analysts are thinking]... and g is the expected growth in earnings over the next 7 to 10 years. [or the sales growth if you want to know what the smart money is thinking, again].
So at PE, or VE in this case, of 22... anual growth over next decade should not exceed 6% to 7% p.a.
I know, it's too simple etc. But it does work out pretty well on both current and historical companies I've looked at.
So while it might not be genius-level DCF forecasting, it does a pretty dam good job at knowing what' the marke tis expecting given the price it's asking. Understand the business well enough so that you can decide whether they are too optimistic or too pessimistic... and decide how long you are willing to wait for it to work out. A couple of years, a decade...
best to find quality businesses, then you can be a bit off on the price but it'll work out pretty well... all because that's what good businesses tend to do. Buffett said that.
---------
You're on to what I think is a great point about investing in businesses. That who could really know whether the company will win or lose a tender; know if one or two of its projects/product fail or succeed. No one knows... So find businesses where tolerance for a few failures are fine... don't price/value too close for comfort.
Smart monies, it appears, are moving towards robotics, AI and other algorithm to time stocks and the market. It might do wonders for those old fashioned investors who's clueless about these high-tech stuff. All one need is an alternate source of income other than stocks, patience and an ego big enough to never admit you're wrong
So you did programming for them, that's great. My best friend in high school is a programmer specialising in web scraping, he studied AI at Oxford and now works at a hedge fund in New York. He puts all his money in an index fund though, not good at stock picking. I'll sign up to your program, how does the program access all the financials, does the ASX website shares APIs for all the companies' financials??
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?