Originally Posted by
Ferg
Agree 100%. I too am experiencing delays with trades and they are all talking about how busy they are. We are still seeing a boom in indoor renovations and outdoor spaces, including glass fencing. So what is the issue at MPG? They mentioned retrofit was up slightly, and I get they are withdrawing from the low margin construction work....
Anyhoo......an analysis of their numbers:
NZ Commercial sales -21% is part of a strategic withdrawal
NZ Residential sales -21% is higher than just COVID losses. 4 weeks lockdown in the reporting period would account for maybe -15% YoY, but there was no bounce back, as mentioned above, and seen in other industries.
NZ Retrofit +2% (the YoY momentum on this would be circa +20% once you take out sales lost due to lockdown, which is more like it but still lagging other industries)
Aust residential +2.5% which is good
NZ GP at 48.7% is down on prior half year of 52.9% and down on FY20 of 51.6%. This is not good and is likely a reflection of discounting in light of new competition.
Aust GP at 26.3% is up on prior half year of 21.5% and up on FY 20 of 21.4%. This is good, but Aust sales are outnumbered by NZ sales by 3:1.
Expenses fell by a lower % than the fall in sales %, before the inclusion of the COVID subsidy of $6.1m. This is to be expected given fixed costs are by their nature fixed, and shows companies such as MPG were incurring losses during the lockdown. The subsidy resulted in EBIT falling by 12% which is slightly lower than the fall in sales of 14.4% and when combined with the $951k gain on sale of the MV fleet, resulted in a respectable NPBT.
No real reduction in interest costs in light of falling interest rates, and the $1.5m loss in the cash flow hedge reserve shows the down side of fixed interest rate policies (swings and roundabouts, win some lose some). So MPG is unlikely to see any major benefit of reduced interest rates in the short term, although reduced debt levels will help somewhat.
Cash looks healthy, debtor days are creeping up (could be a point in time issue), and inventory looks ok but there was talk of increasing safety stock which will see stock levels increase. I have seen similar where we are importing ex Asia - shipping delays and cancellations are resulting in increased holdings of stock locally to cover unforeseen events. Liquidity looks good, net debt vs equity is looking better at 62% (down from 87%). NTA is 12.4c per share, up from 8.5c at last year end. FCF is 9.7c per share, up on prior half year of 6.2C and looking good vs FY20 of 8.5c. Although the current FCF rate cannot be maintained into 2H21 given the impending increase in stock and signalled resumption of capex.
In summary a lot of the financial ratios and indicators are heading in the right direction. However, the two biggest issues to be resolved have the most financial impact, being the lack of growth in NZ residential sales and the lower margin on NZ sales. If these can be resolved, in conjunction with continued debt repayment, then IMO a resumption of dividends will be on the cards, if not late 2021 then 2022. However, I suspect some investment is needed in their sales team and/or strategy to fix the NZ sales and margin issue - I'm not seeing them cash in on the "support local" trend.