MS International – Is it still cheap?

PUBLISHED: Jul 03 2018 @ 05:32 | Comments (0) |

I bought MS International (LSE:MSI) shares in July 2015 at 186p for my Modified price-earnings ratio portfolio. Since then it’s paid 19.25p in dividends with another 6.5p due next month. With the shares at £2.25 – £2.38 (market capitalisation £37m – £39m) it has produced a 35% return in three years. I also bought some for the 2017 Modified price-earnings ratio portfolio in November at 184p. The question now is whether to sell, leave as it is, or buy some more.

(Previous posts: 8^th – 15^th July 2015, 1^st Dec 2015, 23^rd – 24^th June 2016, 19^th July 2016, 14^th – 16^th July 2017, 14^th Nov 2017, 7^th – 9^th Dec 2017)

Let’s start by looking at the cyclically adjusted price earnings ratio

	Earnings per share	Dividend	Profit after tax £m	Number of shares, m
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
2018	20.5p	8.25p	3.39	16.5

With the average eps of 18.27p over ten years and the current share price at 238p the company stands on a cyclically-adjusted price-earnings ratio of 13, pretty close to the market average. So, it is no longer particularly cheap on this metric (but nor is it expensive).

It also stands on a market-average dividend yield of 8.25p/238p = 3.5%.

The four divisions

MS International is a dyed in the wool, no nonsense Yorkshire-headquartered engineering company. It is run by people who have been engineers and managers for decades, and who learnt their trade working at MSI.

There is a strong emphasis on long-term relationships with customers, built on a reputation for quality and innovation. It sells all over the world, and manufactures in Brazil and the USA, but its main bases are in the UK.

Defence

The Defence division mostly makes naval guns and sells to 16 countries, with 250 systems in place. It also services those guns. Return on capital employed is respectable, averaging 17.5% over 8 years, but worries were raised in 2014 and 2015:

£m	Revenue	Operating profit	Capex	Assets minus liabilities
2011	32.6	5.4	0.0	16.6
2012	29.9	6.6	0.1	15.8
2013	28.0	2.9	0.1	16.7
2014	19.4	0.9	0.1	14.4
2015	17.0	-0.2	0.1	14.1
2016	21.9	2.0	0.2	14.2
2017	20.8	1.8	0.2	12.2
2018	21.9	2.6	0.02	21.5
Average		2.75		15.7
Average operating profit divided by net assets	2.75/15.7 = 17.5%

In the year to 28^th April 2

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