Hot Features
Premium
Trade smarter, not harder: Unleash your inner pro with our toolkit and live discussions.
MS International (LSE:MSI) operates in three distinct markets,
1.Defence – selling naval guns, etc. around the world;
2.Forgings – making forks for fork-lift trucks;
3.Petrol Station Superstructures – making petrol station forecourts, etc.
(See my Newsletters dated 18.7.15 – 15.7.15 for background)
Since my July purchase at 186p the shares rose to 220p, but the half-year results announcement today has sent them down to 210p to sell and 217p to buy.
The question is whether the news is so bad that a fall is justified, or has Mr Market thrown a tantrum because the recovery is not happening at the pace he expected.
A brief review of the investment case in July
Average earnings per share over ten years was 19.9p. With the share at 186p the cyclically-adjusted price to earnings ratio was 9.3, significantly below the market average.
Admittedly, eps of only 8.2p in 2015 was poor relative to the ten-year average, but then dps was 8p, giving a yield of 4.3p. The dividend did not seem under threat because it had no debt and cash of £17m. That is a lot of cash for company with a MCap of £31m. The absence of debts helps reassure on the stability criteria as well.
Piotroski factor analysis showed little reason for concern about financial distress.
The directors have decades of experience running this company, and are down to earth engineering types, with a long term focus.
The fact that the business has three divisions is a strength (assuming that the managers have long familiarity with these industrial sectors, which they have). Each of the business is to varying degrees subject to cyclicality (business cycle, or the “cycle” of politically-driven defence spending) but the non-synchronicity of the ups and downs means that the Group has greater stability than if it was dependent on one sector alone.
Returns on tangible net assets excluding cash were between 28% pa and 56% pa over the past 5 years.
Cash flow is strong.
Dangers
A peril for the Defence division, which used……. To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
