MND - Monadelphous Group

[skc]

Great discussion here.

I thought I'd post up some charts on a group of companies for better visibility. Comparison is difficult as many mining services companies listed over the last several years. I've included those that had data since at least 2007, probably forgot a few.

I'll add a chart for market cap as well.

Companies included: MND, LYL, RCR, SWK, NWH, BYL, WDS, SDM, MRM, EHL, ASL

While revenue and ebit are still historically high, and will possibly fall much further, market cap has already fallen to 2007 levels.

Thanks for the charts, KTP. You seem to be holding back your interpretation of the bolded observation...? In deed, your observation is best summarised as PE compression.

P.S. On the list of companies, I would have used MND, DOW, BKN, CDD, WOR, ALQ, RCR, MAH, NWH, EHL, ASL, BLY, TSE, DCG, FWD. I also would have used EV in lieu of market cap. But a great way to analyse the situation nonetheless.

P.P.S. For those who keep saying "MND is the best comapny in the industry and they will survive and thrive when the cycle turns"... the approach to profit from such "tallest dwarf" conclusion might be to buy MND and short one or several weak companies in the same sector to benefit from the relative performance.

 

[KnowThePast]

Thanks for the charts, KTP. You seem to be holding back your interpretation of the bolded observation...? In deed, your observation is best summarised as PE compression.

As you know, my portfolio has a few stocks in this sector, so this may be slightly biased.

I make two assumptions in my view of the future:
1. The industry is cyclical, and what is currently going down, will eventually start going back up.
2. Cutting through the cyclicality, demand is growing over the long term. An average of 5%/year is a figure I recall from somewhere.

Based on that, I would think that the fair value of these stocks would be:
(Value before boom) + (average annual growth) - (time factor until next upturn).

On top of that, picking right/wrong companies can substantially change performance in a concentrated portfolio, as it does in any other industry.

And so, I believe that the sector is now at, or below fair value. I have bought a few that I though were substantially under, so far it looks like I was too early.

P.S. On the list of companies, I would have used MND, DOW, BKN, CDD, WOR, ALQ, RCR, MAH, NWH, EHL, ASL, BLY, TSE, DCG, FWD. I also would have used EV in lieu of market cap. But a great way to analyse the situation nonetheless.

Your wish is my command.
I didn't have data from 2007 for all of these, so I've ran it on these: MND, DOW, BKN, WOR, RCR, NWH, EHL, ASL, TSE, DCG, FWD. The picture is even worse for them, with market cap dropping to 2006 levels. I've encluded EV for your viewing pleasure.

P.P.S. For those who keep saying "MND is the best comapny in the industry and they will survive and thrive when the cycle turns"... the approach to profit from such "tallest dwarf" conclusion might be to buy MND and short one or several weak companies in the same sector to benefit from the relative performance.

That would definitely be the way to go, if you were confident about your pick. I am sticking to safety in numbers.

 

[luutzu]

As you know, my portfolio has a few stocks in this sector, so this may be slightly biased.

I make two assumptions in my view of the future:
1. The industry is cyclical, and what is currently going down, will eventually start going back up.
2. Cutting through the cyclicality, demand is growing over the long term. An average of 5%/year is a figure I recall from somewhere.

Based on that, I would think that the fair value of these stocks would be:
(Value before boom) + (average annual growth) - (time factor until next upturn).

On top of that, picking right/wrong companies can substantially change performance in a concentrated portfolio, as it does in any other industry.

And so, I believe that the sector is now at, or below fair value. I have bought a few that I though were substantially under, so far it looks like I was too early.


Your wish is my command.
I didn't have data from 2007 for all of these, so I've ran it on these: MND, DOW, BKN, WOR, RCR, NWH, EHL, ASL, TSE, DCG, FWD. The picture is even worse for them, with market cap dropping to 2006 levels. I've encluded EV for your viewing pleasure.

View attachment 60417View attachment 60418View attachment 60419



That would definitely be the way to go, if you were confident about your pick. I am sticking to safety in numbers.

This is why investment by committee often fail.

Your 3rd chart - value vs market cap - could be wrong. From pure guess, but it's unlikely that market value could be consistently below enterprise value like that. Possible, but might not be likely, not to that extend.

 

[KnowThePast]

This is why investment by committee often fail.

And why is that exactly?

This is why investment by committee often fail.

What does that have to do with what I posted?

Your 3rd chart - value vs market cap - could be wrong. From pure guess, but it's unlikely that market value could be consistently below enterprise value like that. Possible, but might not be likely, not to that extend.

Well spotted. This surprised me as well, so I double checked to see if it was right. I think it is, but I offer no guarantees

 

[luutzu]

And why is that exactly?



What does that have to do with what I posted?



Well spotted. This surprised me as well, so I double checked to see if it was right. I think it is, but I offer no guarantees

Why? Because each person have their own opinion and conviction, and I imagine that it's the boss and the boss's friends opinions that will win the day... that or the group reach a compromise, a consensus... that then lead to the junior of the team to not bother to do much work or much independent thinking because it's risky, who would want to stick their neck out and be wrong.

Some good charts there.

Is the Revenue chart to $3 Billion? or 3,000 billion?

I remember MND's revenue in 2013 being 2.2 billion.

Hope you don't mind my nitpicking, thought might be helpful.

 

[McLovin]

This is why investment by committee often fail.

Your 3rd chart - value vs market cap - could be wrong. From pure guess, but it's unlikely that market value could be consistently below enterprise value like that. Possible, but might not be likely, not to that extend.

I don't think you understand what enterprise value is. It will almost always be higher than market cap because it's the value of equity + the book value of debt - cash.

Nice charts KTP. One suggestion, it would really help if you used commas in those big numbers.

 

[KnowThePast]

Why? Because each person have their own opinion and conviction, and I imagine that it's the boss and the boss's friends opinions that will win the day... that or the group reach a compromise, a consensus... that then lead to the junior of the team to not bother to do much work or much independent thinking because it's risky, who would want to stick their neck out and be wrong.

Agreed, but only if there is a person in a group that truly does have a better than average judgement. Groupthink brings down good individuals but improves the poor ones.

I've just posted the data for previous years. I lean more towards being data driven and making decisions that have both data and theory supporting them. But that's another topic.

Some good charts there.

Thanks!

Is the Revenue chart to $3 Billion? or 3,000 billion?

I remember MND's revenue in 2013 being 2.2 billion.

$30bn. This kind of analysis can be very wrong if there is a stock that makes up a large part of the revenue, as the chart will then mainly show the data for that stock, with others contributing relatively little.

Hope you don't mind my nitpicking, thought might be helpful.

Definitely helpful. I develop this software in my own time with no dedicated testing team, so this is the second best thing.

 

[KnowThePast]

I don't think you understand what enterprise value is. It will almost always be higher than market cap because it's the value of equity + the book value of debt - cash.

Nice charts KTP. One suggestion, it would really help if you used commas in those big numbers.

Thanks McLovin,

Funny how you do not notice such obvious and trivial to make improvements on software that you develop and use yourself until someone points it out. Done in about 2 sec, next time I post charts, they should be a little easier to read

 

[luutzu]

I don't think you understand what enterprise value is. It will almost always be higher than market cap because it's the value of equity + the book value of debt - cash.

Nice charts KTP. One suggestion, it would really help if you used commas in those big numbers.

yea true. I was assuming it's the estimated value vs market price.

 

[luutzu]

Agreed, but only if there is a person in a group that truly does have a better than average judgement. Groupthink brings down good individuals but improves the poor ones.

I've just posted the data for previous years. I lean more towards being data driven and making decisions that have both data and theory supporting them. But that's another topic.

...


Definitely helpful. I develop this software in my own time with no dedicated testing team, so this is the second best thing.

You meant 'fundamental data', a lot of things are also considered 'data', hehe.

What are you writing this software with? What platform?


Maybe use "Million or Billion" on your Y-axis...
Maybe a constant line indicating the average or median of the group's could be useful on that chart.

---

Real developers don't need test team or business analysts.

 

[KnowThePast]

You meant 'fundamental data', a lot of things are also considered 'data', hehe.

Hey, there's price in there, and a chart. I am now a chartist

What are you writing this software with? What platform?

C++, C# and SQL Server.

Maybe use "Million or Billion" on your Y-axis...
Maybe a constant line indicating the average or median of the group's could be useful on that chart.

Good ideas, thanks.

Real developers don't need test team or business analysts.

A joke I often use myself. I also like to tell testers that there wouldn't be any bugs in the software if they didn't keep testing it.

I've been priviledged in the past to work on 2 outstanding teams, ones where we achieved great things. Both in a smaller companies where we've developed software only big boys do, and were way ahead of them. An absolutely perfect blend of individuals and what we achieved as a team could never have been done if any one of us was taken out.

Many subsequent jobs later, I realise how lucky I was to have such experience, let alone two. I now understand that few developers get to experience this, even after a lifetime of coding.

An average corporate team could easily be replaced by a single "right" developer, but there's more to it. And having a second pair of eyes is always a good thing too.

It's Sunday evening, working week starts tomorrow morning with several useless meetings lined up in a row. I needed to rant, apologies to everyone.

 

[McCoy Pauley]

Fallen through $10/share this morning. I'm no technical trader but I imagine that crashing through double digits will be particularly bearish.

 

[skc]

Fallen through $10/share this morning. I'm no technical trader but I imagine that crashing through double digits will be particularly bearish.

Another day, another day of carnage in the mining services space.

NWH has problems getting paid at Roy Hill and MND have heaps of work there so a negative readthru for them.

 

[skc]

Your wish is my command.
I didn't have data from 2007 for all of these, so I've ran it on these: MND, DOW, BKN, WOR, RCR, NWH, EHL, ASL, TSE, DCG, FWD. The picture is even worse for them, with market cap dropping to 2006 levels. I've encluded EV for your viewing pleasure.

Thanks for your efforts! The numbers surprised me as I'd imgaine the profits to have fallen a bit more than what hte chart is shwoing.

Thanks for the charts, KTP. You seem to be holding back your interpretation of the bolded observation...? In deed, your observation is best summarised as PE compression.

I guess what I am trying to say is... you've identified a gap between actual profit reduction vs market cap reduction. To close such gap there are 2 possibilities... profits can keep falling or market cap can go back up. The market is saying the former... you don't disagree but you think the market cap line will head back up as well.

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

 

[herzy]

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

I don't understand this comment (although the rest was a useful summary)

Wouldn't you ideally buy when profits plateau / start to increase but share price is still low?

I suppose that probably wouldn't happen, assuming a vaguely efficient and foreseeing market.

Are you trying to avoid catching a falling knife?

 

[KnowThePast]

Thanks for your efforts! The numbers surprised me as I'd imgaine the profits to have fallen a bit more than what hte chart is shwoing.

These are last reported profits. Estimated earnings for 2015 would be quite a bit lower.

I guess what I am trying to say is... you've identified a gap between actual profit reduction vs market cap reduction. To close such gap there are 2 possibilities... profits can keep falling or market cap can go back up. The market is saying the former... you don't disagree but you think the market cap line will head back up as well.

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

My investment approach is somewhat different and this gap is not what I base my decision on. I buy cheap, beaten down stocks on a statistical filter, without much thought to what the future is likely to be. This analysis is more of a check that I am not buying into an anomaly. A dirty check that I am not buying at boom time prices.

I now expect to wait 3+ years to find out if I am right.

Your approach is probably better, but I don't have the experience or judgement to make such calls, so I stick to automated strategies (for now).

NWH annoncement today hurts, I was silly enought to average down into it at $0.76.

 

[skc]

I don't understand this comment (although the rest was a useful summary)

Wouldn't you ideally buy when profits plateau / start to increase but share price is still low?

I suppose that probably wouldn't happen, assuming a vaguely efficient and foreseeing market.

Are you trying to avoid catching a falling knife?

Plateau = an area of fairly level high ground. I assume you meant "Basing".

The market as a whole has some sort of hive-mind intelligence which somehow able to predict turning points ahead of the actual turning points. For example, stock market will trend up before the low in economic indicators are printed. The profit figures used in those charts are lagging (what happened in the last 6 months), while share price is forward looking. So a rising market cap chart indicates that the bottom is in sight, although the actual bottom of the earnings may still be half a period away.

That's the theory anyway!

My investment approach is somewhat different and this gap is not what I base my decision on. I buy cheap, beaten down stocks on a statistical filter, without much thought to what the future is likely to be. This analysis is more of a check that I am not buying into an anomaly. A dirty check that I am not buying at boom time prices.

I now expect to wait 3+ years to find out if I am right.

Your approach is probably better, but I don't have the experience or judgement to make such calls, so I stick to automated strategies (for now).

The bold part I don't get... from a rational being as yourself.

In 3 years time I don't know if you will be ahead or not. But I am pretty sure that there are plenty more opportunities to enter this sector (should one chooses to do so) in the next 3 years at lower prices. I am really impatient at holding stocks when the price is down. I want to limit paper loss as much as possible - it's much easier to hold and make rational decisions with a stock that is in the green. So I need a different approach that adapts to my weakness.

 

[KnowThePast]

The bold part I don't get... from a rational being as yourself.

In 3 years time I don't know if you will be ahead or not. But I am pretty sure that there are plenty more opportunities to enter this sector (should one chooses to do so) in the next 3 years at lower prices. I am really impatient at holding stocks when the price is down. I want to limit paper loss as much as possible - it's much easier to hold and make rational decisions with a stock that is in the green. So I need a different approach that adapts to my weakness.

Finding something that works with my weaknesses - absolutely.

For me, I feel more calm and rational when I have a proven set of data to work off. Make predictions of the future does not fit this mindset.

Also, everyone is already making predictions about the future and trying to factor it into the price. If one does it, you need to be confident of doing it better than majority, if it is to be of any use.

I prefer to look for pockets of inefficiencies where the crowd psychology tends to miscalculate the odds on a somewhat regular basis.

 

[luutzu]

Hey, there's price in there, and a chart. I am now a chartist

C++, C# and SQL Server.

Good ideas, thanks.


A joke I often use myself. I also like to tell testers that there wouldn't be any bugs in the software if they didn't keep testing it.

I've been priviledged in the past to work on 2 outstanding teams, ones where we achieved great things. Both in a smaller companies where we've developed software only big boys do, and were way ahead of them. An absolutely perfect blend of individuals and what we achieved as a team could never have been done if any one of us was taken out.

Many subsequent jobs later, I realise how lucky I was to have such experience, let alone two. I now understand that few developers get to experience this, even after a lifetime of coding.

An average corporate team could easily be replaced by a single "right" developer, but there's more to it. And having a second pair of eyes is always a good thing too.

It's Sunday evening, working week starts tomorrow morning with several useless meetings lined up in a row. I needed to rant, apologies to everyone.

C# and SQL... you don't muck around ey? Good stuff. Web or Windows based?

 

[luutzu]

Finding something that works with my weaknesses - absolutely.

For me, I feel more calm and rational when I have a proven set of data to work off. Make predictions of the future does not fit this mindset.

Also, everyone is already making predictions about the future and trying to factor it into the price. If one does it, you need to be confident of doing it better than majority, if it is to be of any use.

I prefer to look for pockets of inefficiencies where the crowd psychology tends to miscalculate the odds on a somewhat regular basis.

Nothing is sounder than making decisions from what we can see and can do. It might not be the "right" way or the best way, but I think it's better to play the game in ways we understand rather than with skills we don't have and others are already good at.