MS International - A valuation using return on net tangible assets

PUBLISHED: 22 Oct 2019 @ 10:11 | Comments (0) |

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?

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 money put into net assets determines the rate of return on shares held.

£’000s Year end April	2019	2018	2017	2016
INCOME STATEMENT
Profit after tax	3,812	3,386	1,498	1,584
Amortisation charge this year for accounting goodwill following acquisitions	0	0	0	0
Exceptional items distorting profits (positive or negative)	1,198	0	0	0
Profit for shareholders	5,010	3,386	1,498	1,584


CURRENT ASSETS AND LIABILITIES
Inventories	12,624	11,666	10,145	7,043
Receivables	7,044	14,617	11,393	8,996
Cash needed for operations (assumed)	1,000	1,000	1,000	1,000
Other current assets	1,818	1,241	1,142	902
Payables	-25,375	-28,052	-25,464	-15,253
Short-term debt	0	0	-0	-0
Other current liabilities	-895	-643	-123	-154
Working capital for operations	-3,784	-171	-1,907	2,534

Surplus cash (assumed)	21,886	14,866	14,210	11,758

NON-CURRENT ASSETS AND LIABILITIES
Property, Plant and Equipment	20,426	20,766	19,099	15,955
Goodwill in BS	2,764	2,780	2,749	2,700
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	23,190	23,546	21,848	18,655

OTHER ITEMS TO CONSIDER
Defined benefit pension deficit	6,802	6,421	7,485	7,644
Internally generated intangible assets capitalised to BS	1,719	2,113	2,552	2,971
Investments (in shares, bonds, etc.)	0	0	0	0
Operating lease non-cancellable commitments	921	993	998	1,138
Preference share capital	0	0	0	0
Minority interests in profit	0	0	0	0
Minority interests in net assets	0	0	0	0

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