What is the stock?
Mastermyne Group Limited (MYE).
How long have you held the stock?
Our new Eley Griffiths Group Emerging Companies Fund initiated a position in early August 2017. We are back on the register following many years absence.
What do you like about it?
The coal industry is gradually returning to good health following a lengthy period of privation. Mastermyne’s FY17 result highlighted the company’s improving operating performance in the second half and preparedness for a significant uptick in revenues. The group has always enjoyed the support of tier one mining groups and now that development and expansion studies are being tendered, it is obvious the group’s order book will start to fill nicely through FY18. Fleet utilisation is now at 80% + and they will be enjoying their first taste of fixed cost leverage in many years. Mastermyne is now armed with a recharged balance sheet and is at the beginning of an earnings upgrade cycle. It is a classic stock for our new fund.
How is it better than its competitors?
It survived the punishing coal industry 4-year down trend for one thing, unlike some of its competitors. Its reputation among the major mining groups appears first rate, and being a listed public company will dictate high levels of compliance and corporate governance, perhaps absent in unlisted players.
What do you like about its management?
Board and management control ~ 20% of the share register and the executive ranks are replete with ‘seasoned heads’. Technically sound, they have experienced several coal price cycles and are personally aligned with public shareholders in the vagaries of the operating business. Astutely, they have restructured their funding facilities and raised $6m via a placement to professional investors in September, giving them flexibility in bidding for new work.
What is your target price?
We don’t set share price targets as stockmarket investing is a game of relativities between price and growth and both are ever changing.
At what point would you sell it?
When we perceive peak cycle conditions are being discounted in the share price or when we start to see forward orders wane and the tender pipeline thin out. A collapse in the coal mining industry, starting with a sustained pullback in the coal price would likely see us exit the register. Simply, for as long as the stock remains in earnings upgrade then it is likely to continue performing.
How much has it added (subtracted) to your overall portfolio over the last 12 months?
The stock is up circa 40% from our entry price.
Where do you see value?
As always, value will be determined by where the share price is versus our view of the medium-term earnings momentum. We tend not to telegraph this to prying eyes!
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.