Thought I would add to a list, at opportune times, of stocks that service miners in some way. These are stocks of companies that have been totally coining it during the resources boom, become way over-priced, but are now returning to value. They might come into discounted range and be buys again in anticipation of a return of confidence by investors for resources. Meantime they both currently pay good fully franked dividends that are probably sustainable whatever happens in the near future years. Both Mineral Resources and Campbell Bros are priced at close to current intrinsic value - all figures from Skaffold Mineral Resources (MIN) today's close $9.19 A1 stock priced at a 9% discount at Monday's close of $8.71 Forecasts: Financial year: FY12, FY13, FY14 Earnings: 0.97, 1.23, 1.41 Dividends: 0.48, 0.59, 0.68 Campbell Bros (CPB) today's close $53.62 A2 stock priced at a 0% discount at Monday's close of $50.53 Forecasts: Financial year: FY13, FY14, FY15 (Fin Yrs for CPB end at Dec 31) Earnings: 3.90, 4.31, 4.27 Dividends: 2.58, 2.87, 2.87
Codan Ltd (CDA) Added some of these today and yesterday. Designers, makers and distributors of the famed Minelab metal detector products. Codan has a couple of other divisions as well as Minelab. I'm whacking it into this thread because one of its other divisions is Minetec Communications (google it - I'm running out of allowable links for the post) and that is mine services At $1.34, trading on P/E of roughly 9 and fully franked yield of 7% based on expected FY12 earnings and payout. Currently A1 stock in the Skaffold universe and trading at a discount of 18% to intrinsic value at yesterday's close of $1.38. Illiquid, and that might be critical when/if there is another market downleg. The chart looks like it could go either way to me, as the price bars are occurring in a narrowing range (like a triangle). In a better stock market climate I would love the chart, but not with the vibes around now. http://codan.com.au/ http://www.minelab.com/
Forge Group Ltd (FGE) today's close $4.69 A2 stock priced at a 52% discount to intrinsic value at yesterday's price of $4.79 Forecasts: Financial year: FY12, FY13, FY14 Earnings: 0.58, 0.62, 0.67 Dividends: 0.14, 0.15, 0.16 With FGE I'm always hung up on old prices FGE double topped at $7 in Apr 2011 and Mar 2012 FGE lows in Aug/Sept 2011 were $4. So now I'm thinking I should wait until $4 is revisited I spotted the chart of FGE back in 2 Nov 2009 and posted on the company in another stock oriented forum. The share price then was $1.58. I didn't buy, purely because of how much the stock had already risen. Well it consolidated for a month or two around there, broke out and rose another dollar, did a couple more little rises and consolidations, then a sort of classic 3 month consolidation that might qualify as a cup & handle continuation pattern, broke out from that and relentlessly proceeded to more than double - from $3 to $7 in eight months. Paying big dividends all the way. I have tried to learn from that - you can buy late into healthy uptrends, you don't have to buy at significant lows or bottoms. Now here I am wondering if I'll get the opportunity to buy the stock at $4 in a less positive economic context. In 2009 I went back over the FGE threads on that other forum and two other posters had been pointing it out back in July 2007 - one of them called himself 'the prophit', lol. Then the prophit was there again, doughtily posting and pointing it out at the very depth of the GFC, Feb 2009, and saying it had an laughable P/E of 1 at a share price of 19c and that earnings guidance looked solid
Thought I'd add this cautionary comment from Roger Montgomery on Forge (FGE). The caution extends to all mining servicing companies, but the quality ones could still enter irresistible bargain territory for the patient if the market overreacts to macro issues as it did during the GFC. http://blog.rogermontgomery.com/ "This brings us back to Decmil, Forge and investing. I bought both of these businesses in the Montgomery [Private] Fund near its inception. Forge is a business that has a significant exposure to second-tier miners, especially those expanding their iron ore operations. Decmil, on the other hand, has around 43% of its business exposed to resources and the balance to oil & gas. While plenty of work is still forecast to be in the pipeline for mining services companies, there are also plenty of companies trying to win it. If we are at the peak of the current capex cycle, this is as good as it gets in terms of margins for mining services businesses and also workloads. With that in mind, and coupled with prices increasing to levels I deem attractive for what are businesses with high operating leverage, I have decided to read the writing on the wall and position our investments in a more conservative manner. I sold our Forge holding some weeks ago and also scaled back our holding of Decmil. It is possible I am early to leave the party the band is still playing. But the mining industry is bracing for a pullback in investment spending, as the biggest companies reassess their capital expenditure plans amid escalating costs and an uncertain growth outlook. I anticipate that analysts will revise their earnings forecasts lower for 2013 and beyond. The valuations I look at in Skaffold will also fall, I expect, as those earnings revisions are fed through. Of course, I could also be completely wrong but I reckon the big mining companies' historical predilections for over-paying for acquisitions (another reason I have been loath to invest) may just revisit them. The combination of a contracting market and high operating leverage means I simply prefer the safety of cash. Better to be confident of a good return than hopeful of a great one." This article was first published on May 16, 2012
Another cautionary article on the Mining Services stocks. Along the lines that they are cyclical, have seen the best times, and are not true growth stocks - in that they are reliant on boom conditions, not organic growth for acceleration of earnings. He takes Monodelphous (MND) as an example, where a slowing of earnings will result not only in a lowering of share price to reflect that, but also in an extra lowering. The Price to Earnings ratio (P/E) that the market is prepared to pay will contract. Just to labour that point: say simplistically, the market is willing to pay a share price multiple (P/E) for MND of 20 for $1 of earnings for the current FY. A P/E multiple of 20 is higher than is paid for the mining services sector of say 10, or the market generally of 12. This is because the market expects the earnings to grow well for MND in the forecastable future. Say the market loses this belief, and there is a guidance downgrade or an earnings surprise to the downside, the market will now not only price the stock on the new earnings expectation, but it will also shave off the growth part of the P/E. If it expects now only 75c in the current FY it might only pay a P/E of 15 or 10 on that earnings of 75c instead of 20. That's the double whammy for a growth stock that he's talking about. In short, a growth stock falls much harder than an ordinary stock when expectations deflate. Read more: http://www.theage.com.au/money/resources-a-postmortem-20120608-2016u.html Nathan Bell June 9, 2012 Avoid mining services "Some parts of the resources sector are less attractive than others. In particular, mining services stocks are to be avoided. These are almost universally terrible businesses. With no barriers to entry, high cyclicality and wage inflation eroding profits, the boom masks how risky the sector is. Take Monadelphous, for example. The share price has had an incredible run, rising from less than $2 in 2004 to more than $20 today. Profits have rocketed; earnings per share have grown from 11 in 2004 to $1.09 last year. It's tempting to credit the company with achieving stupendous success. Monadelphous is a good business. It's the pick of the sector and deserves kudos for performance. Profits, however, have been driven by record levels of mining investment, not organic growth. This is a cyclical business masquerading as a growth stock. Investors have fallen for the ruse - it currently trades on a price-to-earnings (PER) ratio of more than 20. Should mining projects be cancelled - and make no mistake, that will happen if commodity prices fall - growth will evaporate. This will mean not only falling profits, but lower PERs as well - a double whammy that will ensure the stock falls swift and far. And that's the best in the sector. Lower-quality peers would be hit even harder. Those that have taken on debt would face a mortal threat." Looking at the longer term monthly chart of MND, it makes me feel wary of a long term buy: - It hasn't broken the uptrend since the GFC yet and is looking healthy in that respect, but look how the rallies have got shorter. There are 3 rallies since the GFC low of 15 mths, 9 mths, and then 6 mths. Conversely, the consolidations look to be getting longer. - The momentum indicators are reflecting this with a flattening out that is not confirming the last higher high in the share price. - The number of rallies - three - is in itself cautionary, as a lot of bull runs have 5 phases: three rallies and two retraces. - The biggest volume in the 5 year duration is just recently in May, and it is negative volume. The Skaffold system is not particularly cautioning on Monodelphous (MND), seeing it as only 12% over-priced for the current FY, and seeing earnings growth ahead in FY13 and FY14 that will raise the intrinsic value above the current price. Monodelphous is rated as an A1 business.
My Mine Services watchlist all getting flogged today. A lot of these recently reported strong results for the HY or FY. If you believe the Skaffold valuation system quite a few are well undervalued by market. Not a target of mine, but Boart Longyear (BLY) reported a record HY profit, but downgraded its outlook and is down 34% Thu 30 Aug 2012 2:29 PM Sydney time Code Name MND MONADELPHOUS GROUP FPO IMD IMDEX LIMITED FPO SWK SWICK MINING FPO BLY BOART LONGYEAR FPO ASL AUSDRILL LIMITED FPO FWD FLEETWOOD CORP FPO NWH NRW HOLDINGS LIMITED FPO MIN MINERAL RESOURCES. FPO GNG GR ENGINEERING LTD FPO MLD MACA LIMITED FPO SDM SEDGMAN LIMITED FPO FGE FORGE GROUP LIMITED FPO CLO CLOUGH LIMITED FPO CDD CARDNO LIMITED FPO MAH MACMAHON HOLDINGS FPO WOR WORLEYPARSONS LTD FPO RCR RCR TOMLINSON FPO DLS DRILLSEARCH ENERGY FPO WDS WDS LIMITED FPO RQL RESOURCE EQUIP LTD FPO PRG PROGRAMMED FPO EHL EMECO HOLDINGS FPO LCM LOGICAMMS LIMITED FPO MIO MICLYN EXP OFFSHR FPO XRF XRF SCIENTIFIC FPO STS STRUCTURAL SYSTEMS FPO ALQ ALS LTD FPO
Risked a nibble on these - Segman Ltd (SDM) Goes ex div tomorrow. Pick up 3 strong divs in 13 months type primitive concept, lol Reported excellent FY12 results, however is specialist in coal handling facilities called CHPPs. Risky time for coal projects? Rated as A1 stock by Skaffold, undervalued, but earnings flat in near future years according to their analysts. Bit of a punt - sucked in by it being 4% down today, and being the last chance to pick up this half's div. Was tempted also by Imdex (IMD), down 15% today, still cum div, Skaffold says A1 and 46% undervalued by market before today's drop. Drilling fluids and down hole instrumentation.
This sector has crashed so hard you wonder if all the bad news hasn't already been discounted into the prices. Everything except a general market crash, let alone a full blown deflationary depression. My sampling in SDM and NFK have been losing buys so far, but I'm still finding the sector tantalizing. As just one example of how bad the sector is, I have included a monthly chart of Mineral Resources (MIN) showing that its current downtrend ranks with the GFC crash. In terms of nominal price though the stock could lose 2/3rds from here to meet the 2009 low. Not that I'm backing MIN - management looks highly dodgy (three directors sold off massive multi-million dollar parcels right at the top in Feb/Mar) Most have had a strong bounce back today, and the one I'm now stalking, Imdex (IMD), is up 5%. I really like these little industrial companies that claim technological world class innovation, have R&D budgets, and concretely prove themselves by growing eps and paying divs. Mineral Resources (MIN) Mthly
A red faces thread revived. Noticed that Logicamms (LCM) announced a new substantial shareholder yesterday, Forager Funds. Relating to this one of their people was on 'The Business' this week, saying not only is the fund finding contrarian value in some miners and mining services companies, but that some overseas interests are sniffing round the same tree. Make of it what you will - some would still be saying they are 'value traps' but Forager reckons there are value prospects in this sector because there has been sustained gloom and no interest. "I'm more excited about the opportunities at home. Gareth and I had lunch with a couple of small deep-value fund managers in London last Friday. All they wanted to talk about was Australian mining services stocks. They have the whole world to work in, yet are currently adding significant exposure to Australia. Just as the Australians start heading offshore. Funny that." https://www.foragerfunds.com/bristlemouth/international-ship-has-already-sailed# http://www.abc.net.au/news/2015-06-08/in-the-studio-with-steve-johnson/6530426 Monthly chart's getting a bit interesting to watch, as are some others like MIN and MND. Speculative obviously [imgz=http://forums.silverstackers.com/uploads/1893_lcm_monthly.gif][/imgz]
