MS International - A valuation using return on net tangible assets

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MS International (LSE:MSI) has a very strong balance sheet and decent profits history.  But what about the relationship between the two?  Given the large amount of net assets devoted to the operating business, does it generate a good rate of return on the money invested?

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With a Warren Buffett-style investment I expect to hold “forever”.  In the long run a share will not generate a good rate of return for the shareholder if the rate of return on assets used within the business is poor.

We are looking for double-figure percentage return at the very least. Preferably high teens or twenties.

Over a long period the rate of return on assets determines the rate of return on shares held.

£’000s  Year end April   2020   2019   2018   2017   2016  
INCOME STATEMENT
Profit after tax -2,491 3,812 3,386 1,498 1,584
Amortisation charge this year for accounting goodwill following acquisitions 271 0 0 0 0
Exceptional items distorting profits (positive or negative) 0 1,198 0 0 0
Profit for shareholders -2,221 5,010 3,386 1,498 1,584
CURRENT ASSETS AND LIABILITIES
Inventories 15,857 12,624 11,666 10,145 7,043
Receivables 4,589 7,044 14,617 11,393 8,996
Cash needed for operations (assumed) 1,000 1,000 1,000 1,000 1,000
Other current assets 1,494 1,818 1,241 1,142 902
Payables -24,679 -25,375 -28,052 -25,464 -15,253
Short-term debt 0 0 0 -0 -0
Other current liabilities -501 -895 -643 -123 -154
Working capital for operations -2,240 -3,784 -171 -1,907 2,534
Surplus cash (assumed) 15,125 21,886 14,866 14,210 11,758
NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment 20,111 20,426 20,766 19,099 15,955
Goodwill in BS 2,772 2,764 2,780 2,749 2,700
Previously written-off acquired goodwill – add back 271 0 0 0 0
Other acquired intangible assets in BS 0 0 0 0 0
Previously written-off other acquired intangibles – add back 0 0 0 0 0
Long-term debt 0 0 0 0 0
Other non-current liabilities 1,214 0 0 0 0
Net non-current assets for operations 24,368 23,190 23,546 21,848 18,655
OTHER ITEMS TO CONSIDER
Defined benefit pension deficit 8,586 6,802 6,421 7,485 7,644
Internally generated intangible assets capitalised to BS 1,368 1,719 2,113 2,552 2,971
Investments (in shares, bonds, etc.) 0 0 0 0 0
Operating lease non-cancellable commitments n/a 921 993 998 1,138
Preference share capital 0 0 0 0 0
Minority interests in profit 0 0 0 0 0
Minority interests in net assets 0 0 0 0 0

Return on net tangible assets, RONTA = Profit for shareholders ÷ Average net tangible assets over the year (beginning BS and end BS averaged).

£’000s   2020    2019   2018   2017   2016   2015
Profit -2,221 5,010 3,386 1,498 1,584 1,353
WC – averaged -3,012 -1,978 -1039 314 1,544 1,625
Net non-current assets – averaged 23,779 23,368 22,697 20,252 17,641 16,904
Totals to Net tang. assets – averaged 20,767 21,390 21,658 20,566 19,185 18,529
RONTA   -10.7%   23.4%   15.6%   7.3%   8.3%   7.3%
£’000s 2014   2013   2012
Profit 2,574 4,420 6,310
WC – averaged 3,791 5,156 3,837
Net non-current assets – averaged 16,500 15,851 15,230
Totals to Net tang. assets – averaged 20,291 21,007 18,067
RONTA 12.7%   21%   34.9%

The average RONTA over seven years is 13.3%.  This period had some goo

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