Ms Share Discussion Threads

[eezymunny] 29/9/2021 13:33

Thanks illiswilgig

The accounting notes say defence revenue is only recognised on delivery, or "finished and held for delivery". Cash flow a different matter as you say, with pre-payments, escrow etc. It´ll be very interesting to look at the interims. I think there´s a chance they´ll produce a knock-out number but goodness, it´s a tricky one.

Any idea how much a gun of this type sells for? I´ve hunted far and wide but find precious little. I´ve seen numbers in the $10-25m range but I´m struggling to tie that in with anything in the accounts...it may be a fraction of that.

[illiswilgig] 29/9/2021 13:25

Hi Eezymunny,

Good question.

I don't have specific knowledge of MSI's defence division nor these contracts but I have worked with defence contracts with the USAF and NASA.

I am asuming that the setup is something like a standard defence contract - with project milestones and reviews. Payments in advance are made into escrow (in this case) and called off with customer approval at each stage. Deliveries will be important milestones but they will be proceeded by interface and design sign-off and long lead orders, particularly where subcntractor lead times affect deliveries which can knock on up the line - which can be just as important to the client.

I can't predict the rate at which the company will take turnover and profit on the project(s) - and simply assumed the same turnover and profit as H2 FY21.

It will be very interesting to find out what they have achieved.

Another couple of points in the back of my mind

[1] They had a baseload of business already - probably small quantities of cheaper versions at lower margins. Plus a continuous line in spares and maintenance.
[2] They will have a limited capacity to manufacture - they might be close to it. Increasing capacity will take time. Previous highest 5monthly result from defence was 17.7m, 2.8m operating profit and operating margin 16% - not far behind the recent H2. Which adds to my feeling that the last H2 may have been at capacity.
[3] They will have been spending a lot on winning the project. A lot of proposal, negotiation team inclluding legal and contract costs, design modifications and sales and marketing spend - which now gets reversed as the team moves onto project work? That would all have been lost and sunk costs in the event that the contract had not been won - but now it has landed a lot of their resource is making money booking to the project rather than losing it? A smart FD is probably also rebooking some of the proposal technical costs gradually.
[4] I think there was a mention in the notes to the accounts of the amount expected to be called down from escrow within the next 6 months?? I've not got time at the moment to check back.

I can't predict figures for any of that. Plus there are the other three divisions so I just kept it simple and used the same figures as H2 ish.

There is some downside risk if the project hits a problem and turnover/profit is delayed - but there is also upside risk as productivity and margin increase and capacity starts to expand. Could be either way - but on balance I think there is some risk to the upside for this division???

I could well be biased there - I would be delighted to see them succeed exporting to the US military, so much stuff seems to flow the other way! And its good for my bottom line as well - so I am trying not to get ahead of myself on this,

Hope this helps?


cheers

[eezymunny] 29/9/2021 10:02

illiswilgig24

What are you basing your forecasts on for defence? There was a huge turnaround in revenue/profitability from H1 to H2 last year in the defence division, yet they say they only delivered one of the 15 naval guns that they have received orders for in H2.

[illiswilgig] 27/9/2021 13:56

Thanks Norbert - very interesting and useful. Looked like an attractive stand - assuming the US roll out continues the chances of sales across the gulf and asia will be hugely enhanced. At least that's the way it normally goes......

cheers

[norbert colon] 27/9/2021 11:44

They are on the Mk38 Mod 4 prototype programme (planned to replace the Mod 3). BAE have supplied the Mod 3 in the past but I'm not sure if as sole supplier.The clip notes that the Mod 4 is planned be rolled out initially on the DDG (Guided Missile Destroyers) initially. All looking good so far....

[profdoc] 27/9/2021 11:17

Thanks Norbert - Seahawk to be fitted on all US Navy surface ships sounds very good to me.

[norbert colon] 27/9/2021 11:07

https://www.youtube.com/watch?v=7m9wkllH7IQ4m 55s onward - brief but useful.

[playful] 13/7/2021 17:59

It’s a possibility but not sure at the moment... I’ll message you if I’m going.

Don’t forget you’ll need to email [e-mail] to confirm attendance.

[cockerhoop] 13/7/2021 16:33

Are you heading to the AGM Stuart?

[playful] 13/7/2021 16:11

We are doing well !

[norbert colon] 02/7/2021 18:12

I'm thinking defence this year will top the previous best year - just need the others to come good!

[cockerhoop] 02/7/2021 17:51

If (for fun) you took the best result from each of the operating subsidiaries over the last 10 years it would equate to 56p EPS :-)

[norbert colon] 01/7/2021 21:11

Having run my ruler crudely over the likely "considerably reduced costs" at Corp Branding I think this could equate to circa GBP 1m at the operating level (perhaps more) meaning min 4p EPS so 32-34p EPS looks very achievable. Forecasting anything with MSI as you note can be a fools game, however!

[cockerhoop] 01/7/2021 17:27

I'd be interested in your divisional breakdown for 2022 and the rationale behind it.

I've been an occasional holder here from 2008 yet I find it very difficult to predict how the individual divisions perform from period to period- ie excellent performance from Defence & Forgings in H2 but increased H2 losses (compared to H1) at Superstructures and Branding (perhaps skewed by generous Dutch furlough payments in H1?)

[illiswilgig] 01/7/2021 16:50

I've revisited my forecast for the current year FY22 and raised my target from 31p eps to 35p eps. Just continuing at the FY21 H2 run-rate would achieve 28p eps so its not a huge hike to 35p

This should be achieved mainly by reducing losses at Superstructures and Corporate Branding. I am not forecasting that these divisions break into profit - so there is some upside potential there. However MSI does have something of a track record for finding the odd banana-skin and slipping up with one or more divisio and I remain conservative with my forecasts, despite the growth potential at Defence.

Which puts the shares on around 6x my FY22 forecast. I am not aware of any broker or analyst forecasts with which to compare my figures.

Adjusting for the cash mountain of 23m puts it on less than 2x EV for 35p eps.

Still trading at close (1.1x) book value which limits the downside? This still looks wrongly priced to me, so I've bought a few more.

cheers

[norbert colon] 24/6/2021 10:29

For anyone that hasn't spotted it in the results, the AGM is on 29th July in Warmsworth, Doncaster.

[profdoc] 24/6/2021 10:23

Thanks Norbert - it's good to see optimism regarding forecourts even as carbon fuels decline in importance.

[norbert colon] 23/6/2021 17:03

https://forecourttrader.co.uk/latest-news/christie-and-co-reports-strong-demand-for-forecourt-assets-coming-to-the-market-this-year/657358.article

[sharetips] 23/6/2021 09:08

tipped in cityconfidential this morning - www.cityconfidential.co.uk

[sharetips] 23/6/2021 09:08

tipped in cityconfidential this morning - www.cityconfidential.co.uk

[cjohn] 22/6/2021 09:55

I'm very happy with the results and even more so with the outlook.

These were being given away at close to net cash at the end of last year, and net cash has now swollen to £23.5m against mcap of around £32m at current share price of 200p.

You are right, wardy, that the corporate culture is low-key, cautious and avoids over-promising.

[wardy007] 22/6/2021 09:04

Lovely stuff :o)) MSI have been buying in their shares since the price was 35p - another 300% from here would do me fine!

As I said before, this management knows how to maximise value and manages the company properly without a hint of exuberance. They don't waste a penny on a NOMAD, PR etc, they know their job and their niche markets and can see where the company's going.

A perfect "lock away in your ISA" stock imo (I don't bother with a pension anymore or it'd go in there too!).

[playful] 22/6/2021 08:34

Very pleased with progress and of course that all important dividend.