MS International’s return on net tangible assets, RONTA, over six years

PUBLISHED: 14 Nov 2017 @ 12:42 | Comments (0) |

I bought MS International (LSE:MSI) in 2015 for my Modified cyclically adjusted price earnings ratio portfolio because:

The ten-year cyclically adjusted price earnings ratio, CAPE, was 9.3, only two-thirds that of the typical share.
Its Piotroski financial robustness tests give it a score of 5 out of 9, so financial distress was unlikely.
The Petrol Station Superstructure building division is a market leader in Europe.
The gun systems (sitting on the deck of naval ships) have little competition.
Admittedly, the Forging (forks) division and the Petrol Station Branding division have yet to show their metal, but that could come.
The managers are very experienced engineers and managers of this business, showing aptitude and decency

(See earlier Newsletters for background, dated 8^th – 15^th July 2015, 1^st Dec 2015, 23^rd – 24^th June 2016, 19^th July 2016).

When I bought I was not armed with a measure for return on net tangible assets, RONTA to allow me to estimate earnings power. This is the focus of this Newsletter (see the last two Newsletters for the rationale behind using this metric).

First we need the profit after tax attributable to shareholders and the capital used to generate that return – see table of data extracted from the company’s annual reports.

£’000s Year end April	2017	2016	2015
INCOME STATEMENT
Profit after tax	1,498	1,584	1,353
Amortisation charge this year for accounting goodwill following acquisitions	0	0	0
Exceptional items distorting profits (positive or negative)	0	0	0
Profit for shareholders	1,498	1,584	1,353


CURRENT ASSETS AND LIABILITIES
Inventories	10,145	7,043	8,464
Receivables	11,393	8,996	9,454
Cash needed for operations (assumed)	1,000	1,000	1,000
Other current assets	1,142	902	630
Payables	-25,464	-15,253	-18,994
Short-term debt	-0	-0	-0
Other current liabilities	-123	-154	-0
Working capital for operations	-1907	2,534	554

Surplus cash (assumed)	14,210	11,758	16,148

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	19,099	15,955	14,563
Goodwill in BS	2,749	2,700	2,064
Previously written-off acquired goodwill – add back	0	0	0
Other acquired intangible assets in BS	0	0	0
Previously written-off other acquired intangibles – add back	0	0	0
Long-term debt	0	0	0
Other non-current liabilities	0	0	0
Net non-current assets for operations	21,848	18,655	16,627

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	7,485	7,644	6,877
Internally generated intangible assets capitalised to BS	2,552	2,971	1,754
Investments (in shares, bonds, etc.)	0	0	0
Operating lease non-cancellable commitments	998	1,138	198
Preference share capital	0	0	0
Minority interests in profit	0	0	0
Minority interests in net assets	0	0	0

£’000s Year end April	2014	2013	2012	2011
INCOME STATEMENT
Profit after tax	2,574	4,420	6,310	5,505
Amortisation charge this year for accounting goodwill following acquisitions	0	0	0	0
Exceptional items distorting profits (positive or negative)	0	0	0	0
Profit for shareholders	2,574	4,420	6,310	5,505


CURRENT ASSETS AND LIABILITIES
Inventories	8,162	6,536	7,824	7,099
Receivables	8,260	13,065	12,208	12,482
Cash needed for operations (assumed)	1,000	1,000	1,000	1,000
Other current assets	498	520	604	1,887
Payables	-15,225	-16,143	-14,995	-19,405
Short-term debt	-0	-0	-0	-0
Other current liabilities	-0	-91	-1217	-814
Working capital for operations	2,695	4,887	5424	2,249

Surplus cash (assumed)	13,286	12,447	9,037	8,877

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	15,127	13,755	13,818	12,514
Goodwill in BS	2,064	2,064	2,064	2,064
Previously written-off acquired goodwill – add back	0	0	0	0
Other acquired intangible assets in BS	0	0	0	0
Previously written-off other acquired intangibles – add back	0	0	0	0
Long-term debt	0	0	0	0
Other non-current liabilities	0	0	0	0
Net non-current assets for operations	17,181	15,819	15,882	14,578

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	5,889	6,766	4,167	1,819
Internally generated intangible assets capitalised to BS	2,071	2,387	2,738	3,096
Investments (in shares, bonds, etc.)	0	0	0	0
Operating lease non-cancellable commitments	199	211	220	205
Preference share capital	0	0	0	0
Minority interests in profit	0	0	0	0
Minority interests in net assets	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).

Return on tangible assets, RONA = Profit for shareholders ÷ Average net assets over the year (includes internally generated intangible assets capitalised)

£’000s	2017	2016	2015	2014	2013	2012
Profit for shareholders	1,498	1,584	1,353	2,574	4,420	6,310

Working capital for operations – averaged	314	1,544	1,625	3,791	5,156	3,837
Net non-current assets for operations – averaged	20,252	17,641	16,904	16,500	15,851	15,230
Net tangible assets – averaged	20,566	19,185	18,529	20,291	21,007	18,067
RONTA	7.3%	8.3%	7.3%	12.7%	21%	34.9%
Internally generated intangible assets capitalised – averaged
Net assets – averaged
RONA

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