The Mono’s result was a miss across the board, relative to expectation. Profits at $47m, relative to $54m expected, but really at all points the outcomes fell short of consensus.
The actual outcomes themselves were strong in an absolute sense, with full year revenues, earnings, and profits all up materially.
Engineering enjoyed some of the best revenues seen for years on the back of strong iron ore project demand, and the backlog of work to be done associated with COVID related delays. Maintenance revenues fell, impacted by deferred oil and gas works, however that should continue to lift over time with presently high oil prices.
However, margins fell. Mono’s management went to great lengths to warn the market of the COVID induced disruption to sourcing skilled workers. Firstly, there’s the closed international borders, which makes sourcing talent from overseas impossible, and secondly there’s the effectively closed WA border. MND source a significant amount of their WA based project workforce, from other states, who fly in and fly out.
That impacts margins in several ways. Firstly, productivity suffers, as the labour mix isn’t quite right (e.g. right person for the right job isn’t available) and secondly, time to complete extends (as there isn’t a person at all, available for the job, which impacts all downstream work).
However, there were plenty of positives, and here we view the result as much more acceptable than the market currently seems to think.
Firstly, cashflow generation was excellent. MND’s is a capital light business, and we think the cashflows are reflective of what the earnings should be.
Secondly, the company remains in a net cash position. That is vital for securing additional work, and removes any overhang about fiscal sustainability.
Thirdly, the valuations remain quite reasonable. Cheap on a variety of frames.
Fourthly, the COVID related impacts will pass. Borders will open, and sourcing talent will become easier. That should permit an improvement to margins.
Fifth, the outlook for capex and maintenance programmes remains robust. Mind you, MND’s have put out some variant of this graph each year for as long as I can remember (and I’ve covered MND for 15 years now) so perhaps rather than using it as a basis for enthusiasm, it is more a guide to suggest that energy/oil and gas capex and maintenance profiles have likely reached a cycle bottom, and thus provides some modest narrative support.
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