Hot Features
Premium
Register for streaming realtime charts, analysis tools, and prices.
If you’re looking for a rapid recovery in turnover and profits for MS International (LSE:MSI) then look away now.
If, however, you want to buy into a company with sound fundamentals through business cycles, run by talented managers, then you might find the news from yesterday’s AGM interesting.
(Earlier Newsletters on MSI: 8th – 15th July 2015, 1st Dec 2015, 23rd – 24th June 2016)
The atmosphere
The first point to note is how welcoming the Board members were to interested and engaged shareholders. They made a special effort to chat with shareholders before and after the formal meeting, and were willing to answer some probing questions in the meeting.
You may think this is standard practice for AGMs. It should be, but I find that many directors consider small shareholders a bit of a nuisance and the AGM as a legal requirement to be endured for as short a time as possible.
Despite the Board holding over 50% of the shares, I gain the distinct impression that these northern engineers, (a) really love the business they are in – most of the Board have been there for over 30 years; (b) are trying to do their best for ALL shareholders; and (c) care greatly about the long term future of the business and their team members (I met two middle managers: one had been there 20 years, the other 10 years. Both said the bosses treated staff very well and are genuinely interested in their welfare.)
The top team
Another shareholder asked a question about the age of members of the Board given that the majority are past the normal retirement age.
The convincing reply was that, in their kind of business, experience counts. For example, knowledge of how defence ministries work, and relationships, are vital for selling naval guns.
I must say, intellectually they seemed a fit bunch, and I commented how Warren Buffett (85) and Charlie Munger (92) like to keep hold of experienced managers in their seventies and eighties for Berkshire Hathaway companies. I even used the line “You can’t teach a new dog old tricks”.
The older guys at MSI have seen downturns in MoD orders come and go, seen fork sales decline and recover time after time, and seen petrol retailers hold-off on orders for a period, many times before.
They know how to get through recessions by focusing on continuous improvement of the product and the service they offer customers. If they keep their focus there, then profits will flow through eventually.
The Defence business
I asked a very probing question on what might hold the defence business back, was it the current low defence budgets or was it that competition was taking away business? I was taken aback by the forthright answer: There is little competition for the specialised guns they make for navies.
What, not even USA competing companies? I asked.
No, came the reply. MSI produces the best, and navies want the best. There is some competition from an Israeli company, but many countries will not purchase from them.
This may explain the high rates of return on capital employed in this division over the past six years, averaging 19% – see Newsletter dated 24th June 2016.
The main………..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
