Beagle, you should see EBIT margin has recovered in 2019 from low in 2018. And just let you know MPG NZ EBIT margin has been further recovered to 15.73% at 1H 2020.
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Thats putting it politely, the chart is a disaster. For three years this keeps finding new lows. This is a monthly chart, the moving average lines are 4 month and 10 month (roughly same as 200 daily moving average). It will be intriguing to see whether the brave value investors are correct picking the low price for entry/top-up or whether the chart ends up showing a further decline into oblivion.
Have a look and see if you'd buy into this right now :scared:
...and 15% ebit Margin is world class. Many similar industries around the world would be over the moon if they achieved this margin
NZ operations are not as useless / hopeless / broken / munted as most make out
Pity the money men stuffed it and no wonder the market perception of metro is what is (as per baabaa’s chart)
Takes a lot to reverse that sentiment ...and not just good financials.
Really enjoying the factual discussion guys.
Feel like everyone's points/concerns are valid to different degrees. But what it boiled down to for me is will MPG be around in 5 years? Will it be earning within spitting distance of what we see today?
It is currently priced like all the worst case scenarios are true. If they tighten up the Aus operation, minimise losses to the new competitor and keep paying down debt I am happy to hold a part of the business long term.
Feel sorry for people who bought in earlier and suffered some losses but I am more than happy to accumulate around the current prices and put them in the bottom draw.
I foresee a REALLY big problem with your analysis in that your assumption of 14% EBIT margin is fundamentally flawed.
There are two extremely important key flaws.
1. And this is by FAR the most important. For most manufacturing operations the cost of raw materials is actually quite low as a percentage of sales.
Most of the cost is in the operation is in the cost of the plant itself and human resources costs.
I don't know the industry well enough to know what this is but even if the cost of raw materials was as much as 50%, (and I would think it would be considerably lower than this) of sales and all other costs stayed the same, (and you be a brave man to back management to reduce human resources and other costs appropriately in line with sales reductions because I wouldn't), then if sales reduce by $44m as per your worked example the only cost to reduce are going to be the direct costs to manufacture that glass, (the raw materials and energy costs), so we would see if my guess at 50% is somewhere near the mark that costs would reduce by just $22m, so there would be $44m - $22m = $22m less EBIT and the company is running at a loss. To be crystal clear here, what I am saying is that the various plants and human resources required to run them will not run as efficiently and will sit idle at times and all other head office, plant and machinery, management, leases, motor vehicle and other administrative costs will stay the same plus an assumed inflation rate of about 1.5%, so they will go up in dollar terms !
2. Other companies do not simply take market share with no impact on pricing in the sector. (Witness how when JetStar started in the regions AIR's regional pricing had to come down to the point where although they never admitted it, they were probably struggling to make money out of the regions JetStar operated in).
If we assume just 5% price pressure overall that's another $8-9m in lost EBIT plus the $22m above, call it $30m less EBIT.
Its a REALLY tough industry. It doesn't take much for an operation that was profitable to start making losses. Someone on here needs to have a long hard look at this using the Australian operations as a valuable guide. They bought operations that were profitable and had considerable potential. It didn't take much in terms of pricing pressure and loss of business for that operation to be losing considerable money. That is your very best guide to what could happen to their N.Z. operations, someone needs to study what happened to the Australian operations very closely and learn some very valuable lessons.
I really do think this new competitor poses a very serious existential threat to MPG. MPG are very weak financially, still with far to much debt, limping badly carrying an Australian operation which itself is in a fight for its survival and are about to face a threat of serious margin pressure and loss of business.
The balance sheet is fundamentally flawed with vast amounts of fictitious intangible assets and net tangible assets are only 8 cents per share...and it wouldn't surprise me if that's where the share price is headed.
The analogy of the Titanic steaming at full speed through a field of icebergs is a very good one here. Really, with the way this company has been governed and managed in the past you'd be a very brave investor to back the captain to steer the ship around them.
Technical analysis, (the share price chart), is telling you the company is in a fight for its survival, because it is !
I think the bank knows this and although to the best of my knowledge the company hasn't admitted it, I think the company is "under instructions" from its bank to get the debt down because they want to lower their risk.
So with this grim view where do I think the share price is headed in the foreseeable future ?
Have a look at the share price chart that Baa Baa kindly posted yesterday. I would extrapolate from that and think over time the share price simply grinds lower and lower.
Be careful how much you punt on this one folks. The boat is already taking on water from the iceberg they hit in Australia, do you really want to back management to avoid hitting further iceberg's with their previous track record or is it more likely they hit a big iceberg while meddling around repositioning the deck chairs ?
Disc: I have no shares in MPG and do not hold a short position in them.
Your argument is valid but I can't agree. If sales were down, labour cost would be surely come down and other costs as well. This is the way of running business. I understand MPG will face big challenges but thanks to the recovering property market and now construction activities are much stronger, thus I don't think MPG won't survive.
TA means nothing to me. When I bought THL at 66C in 2009, the chart was very similar to the one MPG is now. And then you know what happened to THL in later years.
Labour costs only come down if management are adept and quick enough to reduce them in a timely and appropriate manner. Other costs are likely to keep increasing.
THL a very different company and had the skills of a very sharp man with Rob Campbell at the peak of his career at the time. (I think he's gone beyond his level of technical competence now with the American operations). Surely you are not suggesting that the current management are remotely in the same league as Rob Campbell ?
Ignoring TA is a very risky business. I only do this when I have a compelling belief in the fundamental's of the company and at least a satisfactory level of confidence in management. Neither of these situations is present in MPG as far as I am concerned.
I'd be very interested to see someone post some detailed analysis of what went wrong with their Australian operations, how much sales and margins declined before they started losing money. Some VERY BIG clues to MPG's future lie in a detailed analysis of this. (I don't have the inclination to do this on the weekend but if I'm extremely bored next week and if nobody else does it, I might run the abacus over it in due course).