MND - Monadelphous Group

[luutzu]

I find Graham's rules too rigid, bear in mind he made developed his system after the crash of 1929, when stocks trading below NTA were everywhere, the market has changed since then.

Nothing wrong with high PE stocks, ever heard of Gary Pilgrim?? I think for 10 straight years his refund returned 40%+ He was buying stocks with very high PEs, above 50 and 60, what he focused on was growth rate in earnings. This is why PE should always be viewed in conjunction with growth rate, and not by itself.

Regarding smart money moving to algorithm trading, this doesn't effect value investors. It will cause the market to be more volatile, but in the long-term, as Graham said, its a weighting machine.

Yea, robots and algo will cause more volatility, and so would benefit value investors in general.

The way Graham personally invested might be too rigid and cautious, but pretty much everything that can be said of investing he had said it. Both on growth and value.

As Buffett often repeat a Graham's adage: growth is part of value. So when an investor buy into a business, they expect it to continuing growing - that's what a good business does. But how much can it grow, at what rate on average over the years. Most quality, financially established businesses just cannot grow at more than 7%p.a. for a decade. Maybe there's a few that can do that if given enough time and enough luck... just that it might not be sensible to bet on that.

For companies with PE above 30, there might be companies that grow at such expected rate... at 30 times that's about 10% a year for adecade, at 60 times it's 25.75% a year.

If an established business, heck, if any business, could compound its earnings at such rate, it'll soon enough take over the world. So while it's possible to achieve that... any disappointment will see the share price, and possibly the business, crashing.

 

[ReXXar]

Those are momentum investors, they continuously rotate into growth stocks which exhibits growth rate exceeding their PEs, and exit once after there is positive earnings surprise, they would not hold a stock for more than few weeks or months, let alone a decade.

Regarding Buffett, be careful with his quotes, most individual investors follow everything he says to the letter, Buffett has also changed his strategy, when he was younger he was flipping stocks all the time, as he got older and managed more money, he have no choice but to buy out whole companies due to the size of his fund and transaction cost, this actually lowered his return.

Having said that, I remember you said somewhere in an earlier post you don't use stop loss and just wait it out until the stock rebounds, I've seen stocks that fell from 15x to 5x earnings with excellent growth trading sideways for years, its unbelievable how low a stock can get and how long it can stay there until momentum builds up again, I hope you won't experience that. I've seen a stock trading at 0.5x FCF for over ten years with cash per share more than share price itself. It's dangerous to assume time will fix everything, after all in the long run we're all dead anyway. On a side note, I'm going to spend less time on this board, I need to work on my system.

 

[galumay]

Its a bit hard to tell who you are replying to when you dont use quotes, ReXXar. But if you are continuing to reply to me regarding PE ratios, I am well aware there are many who see something meaningful in them. I dont, price is not a useful input IMO.

I dont use stop losses, I can give you plenty of examples contrary to yours, where a stop loss would have forced you to sell at a loss and you would have missed very large profits when the the share price later went up strongly. Dont assume my strategy for investing doesnt work just because it doesnt fit your world view.

 

[Knobby22]

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.

MNDs income is lumpy, in competition with other businesses and relies on growth of the economy.
No real fences. So you shouldn't pay too high a PE for it. It has come back but that's because it went backwards. Not saying you shouldn't own medium term but not a company that will just keep growing strongly forever.

 

[skc]

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.

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

MND released their FY17 report on Tuesday and the stock has rallied strongly for the last 2 sessions. I was interested to look back at some of the posts made in August 2015, after the FY15 report. Overall, the numbers presented by MND certainly headed in the same direction as my forecast. NPAT is $57.5m which is a bit over half of of that reported in FY15. NPAT margin is 4.54%, on revenue of $1.27B (management has done well growing the maintenance business).

What is not envisaged however is how much the market is looking forward to the next upswing. I can only guess that's why MND is somehow trading at some 25.5x earning. That is a multiple for a company with steady reliable growth. From a trading perspective, what I said below certainly turned out to be correct. But fundamentally.. it just feels a bit rich.

I am gudessing the time to buy is when the market cap has turned up while the profit is still falling.

 

[galumay]

skc, I agree its looking pretty fully valued at the moment, I think that there is some pricing in of just how well managed MND is, the success of their transition out of the construction boom and their transitioning of the business to a broader base.

I think I have said before, from an inside point of view they were always one of the best positioned to survive the cyclic events in the industry, I certainly paid too much for them when I first took a position, but I held on largely for the reasons described above, and now my patience has been rewarded.

Its been a pretty constant stream of positive events for MND this year, I suspect that it would only take one small negative event to cause a substantial drop in price - for the exact reason you mention - Mr Market looks to be factoring in a continuing favourable environment.

 

[notting]

Appeared to complete it's short squeeze on 23 Aug
Now it would need some fundamental buying to keep it going.
The fundamentals aren't really stacking up at this level!

 

[Value Hunter]

This is a classic case of a cyclical company, where Ben Graham's thinking to use the last 10 years average earnings per share should be applied as an analytical tool for the earnings figure in the valuation (combined with a view of the future of course).

 

[luutzu]

Appeared to complete it's short squeeze on 23 Aug
Now it would need some fundamental buying to keep it going.
The fundamentals aren't really stacking up at this level!

The market might be pricing in that "upswing" as skc said... Since I'm not told what part of MND's business they're expecting to swing up, if it were to include an optimistic view of all of MND's new ventures since the mining collapse, the current $15 is undervaluing all that potential.

I mean there's the water infrastructure in ANZ, the potential of finally entering into waste management. There's the gas and chemical plant and piping/engineering work in the states; the potential to get some of that planned $1trillion infrastructure spent the yanks have been talking about all these years to replace their crumbling infrastructure.

The fabrication works... the Rio Tinto mine in Mongolia they've been chasing and starting to win a job package so far.

So there's all these seedlings they've sown since the mining bust. Then a potential for the upswing in mining and offshore gas/oil works. Then there's the rumoured acquisition of a sizeable civil engineering company.

One of those company that if it keep on doing what it's been, it's to hold for life.

 

[Miner]

How is MND going forward ?
$110 M contract only a week back.
A new announcement - see attached
24 Nov - Director sells 1/3 of the holding 1 million shares in one day. Desperate financial need or something else ? Not to that volume overnight. Market will see tomorrow. DNH but will watch

 

[luutzu]

How is MND going forward ?
$110 M contract only a week back.
A new announcement - see attached
24 Nov - Director sells 1/3 of the holding 1 million shares in one day. Desperate financial need or something else ? Not to that volume overnight. Market will see tomorrow. DNH but will watch

I own a fair bit of MND so could be biased... But the prices the directors sold at did have what I'd reckon is a couple of years forward pricing priced into them. So if I need the cash I'd sell too.

I think a different director recently bought some $30K at the $16 to $17 mark.

I don't see anything fundamentally wrong or weak with the company. In fact, it's looking like it'll report a fairly impressive half and final year coming up. Things are looking very good for them.

 

[Miner]

Good point of course. But do I compare $30 K vs $17 M ? It is almost like giving tips to bar tender after spending (actually earning) $17 M .
Let us see what pans with MND in next 4 weeks. I am not holding but would check temptation if goes below $14.

 

[luutzu]

Good point of course. But do I compare $30 K vs $17 M ? It is almost like giving tips to bar tender after spending (actually earning) $17 M .
Let us see what pans with MND in next 4 weeks. I am not holding but would check temptation if goes below $14.

Rubino was a top10 shareholder in Immuno [therpeutics?] a couple of years back. Maybe he made a massive capital loss there and this wouldn't be a bad time to sell those MND stocks he might have bought during its 20s some years back?

It's hard to know why a Chairman/Director sells. Rubino pretty much founded MND and made it to what it is today. So it is a bit of a worried seeing him halving his holdings.

But yea, I can't see anything wrong with MND future prospects. I put its price at $16 a couple of years back and it'd be some $20 over next couple of years. Maybe a bit higher... depends on how its other prospects turn out.

Its waste management venture [in Anaeco] looks to be stuffed. But there's Water Infrastructure; Renewables; it's looking to get/acquire a civil/infrastructure company soon... Australia is getting into that infrastructure business to hopefully prevent a full blown crisis when property goes to heck soon enough.

The rising costs of energy/oil should make renewables tempting.

Then there's RIO's work in Mongolia it's winning and are tendering for a couple more packages. The potential for new work as recent bust mean capex/opex was on hold and the wheels need more grease and deposits need new fields...

 

[peter2]

The MND chart has got me interested. Price has fallen with the market and has found support at it's prior BO level ($15 -$16). The daily chart shows an ascending triangle with the BO level at $16. The volume indicators OBV and TMF are rising, indicating accumulation. The initial target would be the old high at 18.50. This provides an acceptable RR for short term trading opportunity.

Since the prior move down was impulsive and the current price movement corrective. It's possible that any BO might be short lived. In the case that this price movement remains corrective I'll be taking some profit at 17 to lock in a BE result.

 

[peter2]

My last BO-HR trade in MND fell apart after re-testing the BO level. Price is now at an interesting level being an equal swing low. If price falls below 14.40 MND goes into the bin. All is not forlorn yet. If we see a little "spring" (doji, tweezers) to get rid of the last sellers (others like me) at this level then that would be very interesting.

@luutzu What's happening? The chart indicates that all is not well with MND.

 

[luutzu]

My last BO-HR trade in MND fell apart after re-testing the BO level. Price is now at an interesting level being an equal swing low. If price falls below 14.40 MND goes into the bin. All is not forlorn yet. If we see a little "spring" (doji, tweezers) to get rid of the last sellers (others like me) at this level then that would be very interesting.

@luutzu What's happening? The chart indicates that all is not well with MND.

View attachment 87560

No idea. Only guesses and wishful thinking

Did google news search but came up with nothing the past week.

So guessing that either it's about to do that major acquisition it's been scouring the world for, and some in the market know how stupid that is.

Or, there are players pushing the price down enough to then make a takeover offer for MND.

With over $200M in cash, market cap about $1.31... good reputation, well managed, practically zero debt... with the macro environment looking positive on many fronts. Good candidate I reckon.

Its JV and syndicate just won another wind farm project today.

 

[peter2]

Thanks for the update. I'll keep an eye on MND for a failed break-down setup (spring).

 

[peter2]

Today's price action was ugly. It opened below my support line and closed lower.
MND is demoted and dumped into a reversal watch list, but I'll need to see immediate buying and a higher low on the daily chart before getting interested again.

 

[luutzu]

Today's price action was ugly. It opened below my support line and closed lower.
MND is demoted and dumped into a reversal watch list, but I'll need to see immediate buying and a higher low on the daily chart before getting interested again.

View attachment 87621

Strange. There's no news, that I know of, and somehow it just get hammered. And looking like it'll get lower for a bit more while yet.

Comparing MND to WorleyParsons... MND is a far superior company. Yet WOR's share price is steady while MND drops. Maybe the fact that MND haven't been awarded that many projects lately as compare to WOR.

Gotta get work but only at a decent price though. Else you'll just be working and losing money... something not to do.

But yea, still holding. Hoping it gets a lot more depressing.

 

[tinhat]

I'm popping this one on the watchlist. Solid company. It's been in a downtrend all year. But why this company? The sector overall has been bullish, yes? Has MND been front-running the rest of the sector? Technically, it looks like it is headed down to the 50% retracement level ($12.60) from the bull run of Dec 2015 (low $5.32) to Nov 2017 (high $19.81)