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MS International’s (LSE:MSI) directors have done a very good job of diversifying from guns and forks. In 2010 they paid £3.53m to buy the second half of the Petrol Station Superstructures business they did not own. And in 2015 they paid €3.4m (£2.6m) for a company which was to become their Branding Division. Both divisions have generated strong profits and return on assets confirming that senior managers have demonstrated their ability to both see a strategic opportunity and to manage acquired businesses within the Group.
Petrol Station Superstructures Division
The directors claim this to be “without doubt the leading specialist in the design, manufacture and installation of forecourt structures throughout Europe”.
In addition, the division undertakes alterations, refurbishments, maintenance and damage repair services (a 24/7 call out service in the event of damage to canopies).
Superstructures is managed from operational bases in the UK (Doncaster), Poland and The Netherlands. They hold a key asset: “the most comprehensive reference library of original drawings and structural calculations for thousands of petrol stations…..leads to prompt response, instant specification, minimising downtime, disruption and expensive intrusive site surveys and multiple site visits.”
Petrol Station Superstructures figures
| £m | Revenue | Operating profit | Capex | Assets minus liabilities | Operating profit/net assets | |||||
| 2011 | 9.0 | 0.6 | 0.2 | 1.8 | 33% | |||||
| 2012 | 10.6 | 1.1 | 1.9 | 1.3 | 85% | |||||
| 2013 | 12.2 | 1.5 | 0.7 | 1.4 | 107% | |||||
| 2014 | 13.6 | 1.7 | 0.1 | 2.6 | 65% | |||||
| 2015 | 13.4 | 0.7 | 0.2 | 3.2 | 22% | |||||
| 2016 | 10.8 | 0.3 | 0.5 | 7.1 | 4% | |||||
| 2017 | 13.8 | 1.0 | 0.3 | 5.7 | 18% | |||||
| 2018 | 12.4 | 0.02 | 0.1 | 6.9 | 0% | |||||
| 2019 | 16.3 | 2.1 | 0.2 | 6.4 | 33% | |||||
| Average 41% |
The average figure for operating profit as a percentage of yearend net assets devoted to the division is a very impressive 41%. But returns are volatile.
The lower revenue and profits in 2018 is put down to a hiatus in forecourt construction and refurbishment “owing to a notable change in the market it principally serves. Until relatively recently, many of the division’s major customers had been global oil companies but they have accelerated the divestment of their company owned petrol filling station estates, with ownership passing to both large and small independent dealer/retailers. Accordingly, construction of new sites and the refurbishment and expansion of existing facilities are passing through a state of limbo as numerous sale and purchase transactions continue to dominate the attention of the sector’s active participants.” (2018 Report).
As predicted, once the hiatus period was over, profits bounced back in 2018/19, “driven by the structural transformation of traditional ‘petrol filling station’ sites, that were once almost exclusively selling fuel, into ones that are distinct, local convenience stores and multiple food outlets with ample car parking – that also serve fuel.” (2019 Report)
Petrol station structures require the supplier to have knowledge beyond that for constructing conventional buildings. For example, the flammable liquids or the presence of overhead cables requires great care in the design and erection. Thus, an incumbent supplier such as MSI with a reputation and long experience has a competitive advantage.
As well as supplying the metalwork above your head when you are filling your car they build bespoke design forecourt shops, car wash buildings and non-forecourt structures such as those at car dealerships, ports, airports or retail parks.
Examples:
- Canopy constructed at the Royal Bank of Scotland headquarters in Gogarburn.
- Installation of the canopy over a charging point for plug-in electric & hybrid cars at Shell Derby. The canopy covers the Shell Recharge machine and adjacent car parking bay and uses solar panels as the roof covering. Shell is understood to be very pleased with the outcome and is considering further projects.
- For The Box Factory (manufacturers of corrugated packaging): a canopy to provide a covered goods area adjacent their production facility in Leamington Spa.
Superstructures Industry Analysis
In this section I’m asking if this industry is likely to achieve high rates of return on capital employed given the relative power of the industry players vis-à-vis potential new entrants, intra-industry rivals, substitute products/services, customers, and suppliers.
- Threat of entry to the industry? The costs of entry are relatively low, in terms of equipment etc., required, but the incumbents have the advantages of name recognition and relationships with petrol station companies. Establishing a reputation will take time and money for a potential new rival. MSI has some degree of differentiation and therefore some pricing power through its database and knowledge of this particular type of design and construction.
- Rivalry in the industry? The return on net assets figures for the Superstructures division suggests that competition is not too hot – the main problem is the ebbs and flows of customer budgets for this type of capex. If it is true that customers have few alternative suppliers to turn too then the oligopolistic suppliers of superstructures can avoid excessive price competition.
- Substitute products? It is difficult to imagine potential substitutes being created to take away petrol stations completely in the next decade or two. But the advent of electric vehicles brings with it the………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
