MS International financial risks

PUBLISHED: Jul 04 2018 @ 02:31 | Comments (0) |

Today I want to look firstly at the make-up of MS International’s (LSE:MSI) balance sheet, secondly at the consistency of its cash flow and finally at its vulnerability to financial distress using Piotroski analysis.

The balance sheet

The 3.5% dividend yield is backed by a very strong balance sheet with over £15.87m in cash and no debt. This is for a company with a market capitalisation of £39m at a share price of £2.38.

There is a small pension liability, but that will disappear when discount rates used to calculate pension liabilities mean-revert. The defined benefit pension members ceased to accumulate that type of benefit way back, in 1997. Between 1997 and 2007 it was a defined contribution scheme, and since 2007 the company defined contribution scheme has been administered by a UK pension provider.

£m	Extracts from balance sheet 30^th April 2018
Cash	15,866
Inventories	11,666
Receivables	14,617
Other current assets	1,241
Total current assets	43,390
Minus current liabilities	-28,695
Minus non-current liabilities	-1,625
Current assets minus all liabilities except pension deficit	13,070
Pension liability	-6,421
Current assets minus all liabilities	6,649
Freehold property	17,180

I think we can conclude from the data that MS International has an extraordinarily strong balance sheet. Almost half of market capitalisation is covered by cash, and it has no debt. The only large liability is payables at £28m, which is easily supported by trading cash flow and receivables.

Cash flow generation

The regularity of positive cash flow supports the picture of a stable background for the dividend and for growth. The figures in the table show a solid generation of cash flow even after paying for increases in working capital and capital expenditure:

	Cash generated from operating activities after deducting net additions to working capital and property, plant and equipment, and after deducting tax
2011	£4.9m
2012	£1.7m
2013	£5.1m

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