Sunday, 10 January 2016

Mountfield Group #MOGP

Mountfield Group Plc

What does it do?

Basically they are two businesses currently. Connaught Access Flooring Limited and Mountfield Building Group Limited.

The groups combined activities comprise the following:

  • Design and installation of environmentally controlled Data Centres.
  • Builderswork packages on commercial IT facility buildings.
  • Installation of specialist Access Flooring to Data Centres, disaster recovery centres and commercial office buildings.
  • Fitting out and refurbishment of commercial office buildings, hospitals and education facilities.
  • Design & Build projects
  • Specialist bespoke hard flooring finishes including timber, stone and ceramics.
  • Principal Contracting
  • Site assembly for residential and commercial developments.

Background reading from El1te again (must read folks)

This was from Aug 14 when the SP was 2.6p. El1te felt at that stage it wasn't a BUY and shockingly the man was right again as the SP is half that now. However it gives an extremely good synopsis of the MOGP up to that point. I'll just take the story forward.

Year Ending 2014 Results

Revenue 2014 = £11.8mill (2013 £12.3mill)
Operating Profit 2014 = £74k (2013 £844k)
Pretty terrible performance

"2014 was a year during which the Group's results disappointed, primarily due to the poor results from Mountfield Building Group Limited ("MBG") which lost £587,211 in that year" - not exactly great

"In summary, as a result of the Review MBG will now concentrate primarily on construction contracts where its contractual relationship is made directly with the client and the Board is satisfied that the risk profile and margins are satisfactorily robust. The Board is satisfied that it was the collapse of margins on three particular subcontract contracts that were undertaken in 2014 coupled with the high level of overhead costs that MBG had taken on in order to service them that caused the substantial decline in MBG's profitability in that year" - The launched a strategic review and the first thing to go was any subcontracting for smaller margins that may turn into losses if cost spiral.

"The Strategic Review (which was led by Adrian Sainsbury and on which he worked with Conor O'Mahony, the Group's CFO) highlighted the areas in which MBG had performed most successfully,  the excessive overhead it had carried and the impact it had had on its operating margins. As a result of the Review the types of contracts that MBG now takes on has been changed and its annual overhead costs are being reduced by approximately 40%" - Nice cost cutting, makes you wonder why it wasn't done before.

"The performance of Connaught Access Flooring Limited ("Connaught") has remained strong and its business continues to expand with the highlight of 2014 being the winning of a £5m contract to supply and install flooring for a major new office HQ in the City of London. The greater part of the work for that contract will be undertaken in 2015. The Review concluded that little change was needed to Connaught's overhead structure and its manner of business. However, the wider debate as to the range of services that the Group should be able to offer has resulted in Chief Executive, Andy Collins, (now Group Chief Executive) beginning the approaches and discussions that, it is hoped will lead to Connaught being awarded contracts in new areas of business in 2015" - the shite performance does seem limited to MBG which is reassuring.

Results to half year 30th June 2015

    Gross profit of £1.1m (2014: £0.8m) on revenue of £7.3m (£5.6m)
·     Mountfield Building Group Limited ("Mountfield") revenues increased by 55% to £3.4m.
·     Connaught Access Flooring Limited ("Connaught") revenues increased by 15% to £3.9m
·     Cash generated in operations was £113k against cash used in operations of £430k in the corresponding period of 2014.
·     Administrative expenses decreased to £0.80m (£0.82m) with those for Mountfield having been halved.
·     Group's secured order book for 2015 currently £13.5m with additional contracts being negotiated.

I think its worth reading the CEO statement from these results carefully...

The first half of the year saw an increase in the unaudited pre-tax profits of the Group from £4k to £245k represents a pleasing recovery for the Group from its performance in 2014. The Board believes that  the recovery in the first half of the year demonstrates the continued strength of the business of Connaught Access Flooring Limited ("CAF") and also an indication that the substantial strategic changes and cost reduction exercise put in place by the Board in that period are bearing fruit and will produce increasing profitability in future periods.

That CAF's operating profit has reduced from £546k (2014) to £321k, is indicative only of the drawdown times for its current substantial contract in the City of London and the Board expects that at the year-end its performance will exceed that achieved in 2014. Its secured pipeline for 2015 currently stands at £7.5m with further contracts awaiting negotiation.

The Board is pleased with the manner in which CAF has adopted one of the key conclusions of the recent Strategic Review - that it should extend its business strategy beyond seeking substantial contracts for the supply and installation of raised access flooring.  It has already developed a sustainable new income stream for its business and there are strong indications that it will succeed in developing another that will have even greater significance for the Group.

The first was CAF's decision to open a new division that will concentrate on the lower value but strong margin flooring contracts that it had previously not pursued. The results have already been impressive and the Company is forecasting that in 2015, its first year, the division is likely to contribute around £1.6m to the Company's turnover.

The Board is particularly excited by the potential for the Group of CAF's other new strategy - that of seeking to replicate its position as an industry lead player in the raised access flooring sector in another key sector of the fit-out market - the supply and installation of specialist partitioning for commercial buildings, including data centres. After a series of discussions with lead suppliers, it has begun negotiations with main contractors with whom it already has strong links and is optimistic that these will result in increased turnover for CAF.

We have referred previously to the need for substantial strategic changes that were highlighted by the problems encountered last year by the Group's construction arm Mountfield Building Group Limited ("MBG") on its contracts for the provision of builders work packages. At the beginning of this year the Board decided that the benefits from undertaking such contracts were outweighed by the commercial risks and the high level of operating costs.

By concentrating on those contracts where it is the main contractor and being more selective in its approach to potential business MBG has over the last six months been able to almost halve its operating costs and thereby make a suitable contribution to the Group's profitability.

The improvement in the performance of MBG during the half-year (an operating profit of £46k against a loss of £413k in the same period of 2014) does not fully reflect the benefits that will flow in a full year from the cost reductions. In addition the Company's profit during the period would have been greater had not resources been utilised in completing two legacy builders work type contracts.

Whilst applying its new criteria to work selection MBG has been able to secure contracts with a value of approximately £6m for 2015 and is currently negotiating others that would (in whole or in part) accrue for the benefit of the Group in 2015. The contracts won include four where it has acted in its preferred role as main contractor.

Comms with the Company (Nov 2015)

"I can tell you that the the Group's board of directors are satisfied with the progress the Group is making following the Strategic Review (referred to earlier this year) and that it believes that the benefits of that review will be are already being seen"

"The board acknowledges that it has not been particularly active in keeping its shareholders and the market updated on the development of its business and I hope you will notice an improvement in this area shortly"

"We do plan to issue a trading statement for 2015, probably in January and we expect to publish our results for the year next May/June"

"I am able to tell you that our brokers (WH Ireland) last commented that the Group should look to make a NPBT in the region of £500k in the current year but I cannot of course comment further on that"

Reason why I'm buying

1) Big fall in SP and oversold
2) A fairly safe swing to profit with broker modestly hoping for £500k pre tax profit. I would be disappointed if it was only that.
3) Large contracts that need to play out to be realised on the balance sheet and weren't quite in half one 2015 results
4) Trading update in Jan that should be very bullish


So im not looking to fall in love with this share. I think a 100% rise could happen but am fairly sure a 50% rise will happen this Jan in and around the update. Its my El1te Trader Jan Buy call and I hope to finish up the table!!

Sorry this was a bit shite. Next one will be better, promise.

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