I bought MS International, LSE:MSI, a good old-fashioned British engineer, for my Modified price earnings ratio portfolio almost exactly two years ago. Since then the shares have hardly budged (up from 186p to 195p), but at least it has paid 8p of dividends.
The value hidden here is still to become clear to Mr Market; it often takes two or three years for a company to move from being a neglected under-priced share to a reinvigorated riser.
The recent publication of the annual results is a good time to consider the merits of this investment, whether it is still good value and therefore worth buying some more.
(Previous Newsletters on MS International: 9th – 15th July 2015, 1st Dec 2015, 23rd and 24th June 2016, 19th July 2016)
Why I bought in 2015
- ten-year cyclically-adjusted price-earnings ratio of under 10, significantly less than the London market;
- no serious signs of financial distress;
- a very large amount of cash, worth half of market capitalisation, which is now £32.2m;
- a very high return on capital employed, and;
- a high annual cash flow after paying for increases in working capital, long-term assets and tax.
On the qualitative side, it had good business prospects; managers that are both competent and with high integrity with regard to generating returns for all shareholders, and; a business that will be reasonably stable both operationally and financially.
I’ll expand on each of these in turn, and update to 2017.
Cyclically adjusted price earnings ratio
Its average annual earnings per share over the decade to 2015 was 19.9p, putting it on a cyclically-adjusted price-earnings ratio, CAPE, of 9.3 (186p/19.9p), significantly below the average for the market at the time of my purchase.
I’ve now added the last two years of numbers to obtain a CAPE based on 12 years of earnings.
Earnings per share |
Dividend | Profit after tax
£m |
Number of shares, m |
|
2006 |
15p |
2.78p |
2.50 |
|
2007 |
18.2p |
3.6p |
3.02 |
|
2008 |
22p |
4.5p | 3.93 |
18.45 |
2009 |
19.5p |
4.5p | 3.52 |
18.4 |
2010 |
13.3p |
4.5p | 2.39 |
18.4 |
2011 |
30.6p |
6.5p | 5.50 |
18.4 |
2012 |
34.8p |
8p | 6.31 |
18.2 |
2013 |
22.5p |
8p |
4.08 |
18.2 |
2014 |
14.6p |
8p | 2.57 |
17.6 |
2015 |
8.2p |
8p | 1.35 |
16.75 |
2016 |
9.6p |
8p | 1.58 |
16.5 |
2017 |
9.1p |
8p | 1.50 |
16.5 |
Average |
18.1p |
With average EPS at 18.1p the CAPE is 195p/18.1p = 10.8. This is higher than it was is 2015 but still significantly below the CAPE for the UK market as a whole of around 15.
This makes me sit up and pay attention. If MSI satisfies………………………………….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