Management Resource Solu... Share Discussion Threads

[smoggyg] 30/11/2018 13:04

Well said trout. Very tight real spread here today,5.599p to sell 5.76p to buy,now all we need is the good news that we know is coming,imo. :)

[troutisout] 30/11/2018 11:54

Luck, Judgement, timing, patience, doggedness probably a bit of all of them in differing amounts.
Ultimately when picking a share, research it, question it constantly and if you are still happy, back your judgement.

I first invested in MRS back in the first months of this year, it has dropped quite a bit since then but have averaged in my buys each month. Still underwater here but still happy to keep adding. My investment success of 2018 had a large overhang that cleared just as some larger investors started to buy in, together with MMs being short on stock a huge short squeeze ensued.

I had hoped that would happen here, but the sellers have dropped their sells in over a long time and the traders add to them. They will one day clear and an upward trajectory will happen.

[the big fella] 30/11/2018 11:26

Trout stick with it then as you are clearly doing something right.

[letmepass] 30/11/2018 11:21

Sold a few here for MOS

[smoggyg] 30/11/2018 10:58

Victor Lanarkian,do you have trouble understanding 'imo'? Senile? I will not be apologising for expressing my opinion.

[troutisout] 30/11/2018 10:25

TBF,

I became a portfolio millionaire this year for 3 days........

[lanarkian] 30/11/2018 09:55

Oh dear SmoggyG. I am an investor, not a two-bit gambler Let us see where we are on New Year's Day. If the price is in double figures, I shall apologise for doubting you and I will take my profit. It will be interesting to see if you apologise to the rest of us if double figures has not been accomplished by then.

[the big fella] 30/11/2018 09:52

This time next year Rodney we will be millionaires.

[lanarkian] 30/11/2018 09:11

I really hope that you are right. thehitman1. For once, it would be the triumph of hope over experience.

[the big fella] 30/11/2018 09:00

That wasn't HoneyG was it?

[thehitman1] 30/11/2018 08:48

My very reliable source tells me, news soon and double digits immediately afterwards.

[smoggyg] 30/11/2018 08:25

I agree F3rdinand,the share price is only this low due to the likes of Bachmann and Morffew selling consistently but fundamentals will out,they always do. I will top up as funds allow while the share price is low but it won't be for a month or so now by which time MRS may have re-rated to levels that more reflect its true value.

[f3rdinand] 30/11/2018 07:39

I can only think we are at these levels again is because investors don't believe the audited final results will be as good as forecast (due to the company's history)If the 2pps financials are confirmed those that think it won't spark interest and confidence are off their rocker! I've been using the low price to buy another 250k over the last few days as I feel this has to re-rate towards fair value on confirmation of said profits

[smoggyg] 30/11/2018 07:24

Worth reading again,my thanks to the author.//////Management Resource Solutions (MRS) – Dig a single digit PE that is growing
Michael TaylorNovember 5, 2018 8:42 am 0
Management Resource Solutions (MRS) is a UK listed company operating in the Hunter Valley in Australia, offering maintenance support, mining services, and labour hire. It has seen many a drama, including a long suspension, several board bust-ups, board changes, a deeply discounted placing, and a revolving door of sellers. Despite this I believe, should its debt be refinanced, that there is significant scope for a re-rate.

Opportunity

MRS consists of Bachmann Plant Hire and MRS Services Group (formally Subzero). The company is on track for 2p earnings per share and this is set to grow. With a share price of 6.5p this gives the company a current year PE of just above 3, which is either priced to fail or screamingly cheap!

MRS will never achieve a PE like the FANGs, but could easily trade at 10x earnings given other support services group ratings. A revolving door of sellers has created an artificially depressed price and therefore there is (in my opinion) scope for a re-rate through the earnings cycle, but also as the market re-rates it on a more traditional PE for the sector and earnings prospects.

MRS Service Group (MRSSG)

MRSSG predominantly provides coal industry support services in the Hunter valley in New South Wales (Australia). No contract with MRSSG is bigger than 25% of revenues, which means the company is not dependent on any single customer. The contracts are not just single contracts but they are a multitude of contracts within a client contract. The pricing framework is agreed upon upfront, and once it starts work is often added as and when needed due to the nature of the industry. Some work may be mine work, some work might be vehicle repair, equipment repair etc, all different sectors within the industry. This is why we do not see huge contracts announced with their clients BHP, Rio, Yancoal, Glencore, because a framework is agreed rather than a specific contract. We did see recently an additional contract with Glencore for rehabilitation works.

As long as MRS is on the PSL (Preferred Supplier List) and the company produces good quality work and delivers, it will continue to receive more work. Work is initially agreed upon, and then more work is piled on top additionally. Plenty of client machinery that has been mothballed is now being refurbished due to the miners working flat out, and so there are plenty of large one-off contracts for this. Though these are, of course, not sustainable, this then translates into recurring maintenance revenue. More equipment online simply means more work.

An example of a new business stream is buying pre-cut patented buckets (these buckets are huge, big enough to fit a small house into!) and MRS welding them together. This is a completely new revenue stream that did not exist a year ago. Plenty of low margin business has been discontinued but only if it doesn’t add value to the bigger picture. MRS will literally replace windshields for Glencore (GLEN), which means they are doing the same work that Autoglass do in the UK. This is very low margin but if Glencore want something doing it makes sense to respond – they are a large customer and a FTSE 100 company. A good working relationship is necessary.

Bachmann Plant Hire (BPH)

Bachmann Plant Hire works within the civil construction industry as bulk earthworks specialists. They are the providers of wet plant hire solutions and have over fifty years of service in the civil construction industry. BPH has room for growth in a new strategy of securing opportunities in remote and challenging locations; this means less competition and higher bargaining power on pricing. Currently BPH is operating with a 17% net profit margin and is likely to continue to grow. This is because of the Ipswich Economic Development Plan 2016 to 2031, an initiative driven by the local government, which will require 500 new residential homes every month in order to achieve this plan, meaning there will be no shortage of work should the government keep pressing on.

Recent accelerated bookbuild and turnaround

One of the warning signs that I previously highlighted was that management did not own any shares. They were not incentivised to act as owners and this was shown in the recent placing which was done at the very bottom of the range (6.5p) to allow management and the board in at a lower price than in the previous months’ trading range. One of the advantages was that this did provide some cash for the company, and finally aligned the board with shareholders. The full 14 million shares (£910,000) were taken up by the board, employees, and contractors which is a strong show of confidence in the company.

The swing in MRS’s fortunes are there to be seen in the HY results. From an AUD$4 million loss the company delivered a half year profit of AUD$ 2.5 million net profit after tax, equating to £1.4 million. This is ~0.7p EPS and the company released a trading update recently stating that 2p EPS was on target. The £3.4m expected NPAT versus the company’s £12.8 million market cap at 6.5p puts the company trading on a PE of slightly above 3. I am not aware of a company that is trading on such a low earnings multiple and growing – such PE ratios are usually value traps, where the share price is falling faster than profits!

Competition

There are several slightly smaller companies that are competition but the competitive advantage is that MRS has a big shed, which means a lot of work can be done indoors as opposed to outdoors. This makes a difference in the quality of the welding; doing it inside is better than in a dusty environment. A tent can be used but inside is much more practical given the huge size of some of the trucks, diggers, etc. being repaired. Local competitor Austin Engineering closed its Muswellbrook Upper Hunter facility and also provided an influx of labour; one of the challenges of recruiting more employees is the remoteness of the location and so with the competitor closing this had two positive effects.

The shed

The shed was bought by MRS for $3.0m which was satisfied in cash on completion. Further finance was arranged in order to complete outstanding work in order to bring the shed to its full potential. MRS had bid for the shed and winning was the best possible outcome – there was a lot of work that needed doing on the shed and so they were able to submit a competitive bid. As owners, they are now able to complete necessary work at a lower cost and the money pocketed can be spent elsewhere. Owning the shed provides the company with an asset, lower costs, and no future worries over tenancy agreements.

With regards to the shed, a quarter of the space has been cleared and the rest used more efficiently and this has enabled 50% more work to be done in the same shed.

Debt and cost savings

One of the reasons for MRS’s lowly rating is likely to be its debt. The Hermes facility is 18-20% interest including charges – they are the lenders of last resort, so this is very expensive as at the time the company did not have much of a choice (source: previous NED, confirmed at AGM by Chairman). A review of the debt is on the agenda and would significantly de-risk the company and free up a lot of cash.

Another concern was that maintenance capex was being delayed and so a cash call would come in the future – the company invested $AUD2.4m in existing and additional plant and equipment from June to December 2017 of which all was funded through free cash flow. Trade receivables are likely to stay high as the blue chips tend to pay between 45-60 days and so also not of a concern.

The majority of cost savings have been done and which will continue to show benefits each year; for example rentals have been replaced with leases – this is cheaper and saves on future expenditure too. The fat has been trimmed resulting in a much leaner and streamlined business.

Conclusion

MRS is not without risk – if the company is unable to pay off its debts then clearly it could have serious problems. However, with several operational updates showing good progress, a new and invested board, and a growing macroeconomic environment, I believe MRS offers substantial upside with much of the downside priced in.

[smoggyg] 30/11/2018 06:20

LUFC5,results are out some time in December and it is Dec tomorrow! The forward looking statement should be good and if we get a divi that will be a surprise. If the day traders arrive then the share price could rise very fast indeed,I have seen what their appearance can do on other shares. With hindsight I guess a lot of PIs will look back at todays price and say to themselves 'If only I had bought when the share price was under 6p'.

[sm0ggyg] 29/11/2018 23:29

This is up there with Nevile Chamberlains 'peace in our time' prediction, or Michael Fish's 'there is no hurricane' prediction.

[lufc5] 29/11/2018 20:47

The graph from circa 9p looks bloody awful. It will take quite a lot of time to recover imho. Even buying at this share price aint a sure fire win. Ya just gotta hold.....

[thehitman1] 29/11/2018 14:48

You first smoggy.

[smoggyg] 29/11/2018 12:27

5.584p to buy TBF fill your boots.

[smoggyg] 29/11/2018 12:25

TBF just wants the share price lower to buy in Jagzoil. Fundamentals will out here,it is just a matter of time.

[the big fella] 29/11/2018 12:03

What does your instinct tell you about those last 2 trades. Mine tells me there are large holders happy to dump at these levels. Its a bit like swimming against the tide.

[the big fella] 29/11/2018 11:12

Are you any relationship to Honey G? I will buy when I believe I have an excellent chance of selling them for a profit.

[smoggyg] 29/11/2018 10:57

10:34:04 5.8900 4,100 O 5.6000 6.2000 Sell 0 157,717
10:31:57 5.8900 30,000 O 5.6000 6.2000 Sell 0 153,617
09:30:46 5.6200 17,794 O 5.6000 6.2000 Sell 0 123,617
08:27:04 5.6200 83,955 O 5.6000 6.2000 Sell 0 105,823
08:01:54 5.8900 21,868 O 5.6000 6.2000 Sell ////// The 5.89p 'sells' are buys. :)