Marshalls Plc (MSLH) Business, competition, growth prospects
Posted: July 23rd, 2019, 3:11 pm
Hi,
I've been doing some more research on MSLH. One of the reasons being that back over here I was wondering whether to topslice them when they were 585p (we bought two holdings in 2018, one in March @449p and one in December @421p, both prices including stamp+fees). We didn't topslice, and they are now at about 645p after hitting a high of about 690ish earlier this summer.
I thought I'd do some more research to see I can understand the SP has grown by about 48% over the last year or so, why it got there, and what is next. Firstly I did the numbers and figured out a range of valuations, using discount rates ranging between 7.8% - 9.4% and with the following models:
Using discounted cash flows, 400p-550p
Earnings power values, 380p-450p
Compounding earnings, 400p-680p (I cobbled these method up using a couple of books) [**]
Broker targets (I still don't really understand WTH these mean) 530p-620p over the last few months.
Simply Wall Street's DCF gives 566p
So at, recently, 645-690p seems a little on the high side.
Given the above, and the abstract nature of the numbers, so I decided to look at their competition. That was tough to find anyone who do exactly what Marshalls do (which is cutting, casting of stone and ceramic/concrete based construction materials + have own delivery fleet). In the UK I found
LON:IBST (ibstock UK) PE11 Mkt cap 990M
LON:MBH (Michelmersh brick) PE12 Mkt cap 83M
LON:FORT (forterra) PE10 Mkt cap 550M
MSLHs at 650p at PE 21.5 - 24.7 at forecast and previous earnings respectively. Mkt Cap 1.3B
I also took a look at one or two foreign outfits, which could be similar:
CEMEX:NYSE (American) (PE 12) Mkt Cap 5B
LON:CRH Multinational (PE 13.31-17) Mkt cap 26B
Wienerberger AG (Austrian) (PE 18.65) Mkt Cap 2.5B
Anyway looking at the firms excluding Marshalls the average PE for these firms is 13.2. It's easy to conclude to recent PE would suggest over valuation. I'm not too sure what it should be for this firm, though given levels of profitability (ROE 19.5%, ROCE inc. leases 15.5%), +100% cash conversion, good dividend cover and minimal leverage and gearing, then perhaps PE of 18-20 is reasonable.
(Although CRH are listed on the LSE, I looked briefly at their AR2018, and about 8% of their revenue is in the UK, and much of that in supply of aggregates, rather than exclusively paving/drainage stuff.)
Anyway, after comparing figures I tried to suss out why their valuation seems particularly strong. Next post.
Matt
[*] Another reason for my research I'm also house-sitting while wife+kids+mother-in-law are in Dorset, and it's too good to spend all day outside
[**] It uses RoE and retention ratio to estimate dividend cash flow and terminal book value
I've been doing some more research on MSLH. One of the reasons being that back over here I was wondering whether to topslice them when they were 585p (we bought two holdings in 2018, one in March @449p and one in December @421p, both prices including stamp+fees). We didn't topslice, and they are now at about 645p after hitting a high of about 690ish earlier this summer.
I thought I'd do some more research to see I can understand the SP has grown by about 48% over the last year or so, why it got there, and what is next. Firstly I did the numbers and figured out a range of valuations, using discount rates ranging between 7.8% - 9.4% and with the following models:
Using discounted cash flows, 400p-550p
Earnings power values, 380p-450p
Compounding earnings, 400p-680p (I cobbled these method up using a couple of books) [**]
Broker targets (I still don't really understand WTH these mean) 530p-620p over the last few months.
Simply Wall Street's DCF gives 566p
So at, recently, 645-690p seems a little on the high side.
Given the above, and the abstract nature of the numbers, so I decided to look at their competition. That was tough to find anyone who do exactly what Marshalls do (which is cutting, casting of stone and ceramic/concrete based construction materials + have own delivery fleet). In the UK I found
LON:IBST (ibstock UK) PE11 Mkt cap 990M
LON:MBH (Michelmersh brick) PE12 Mkt cap 83M
LON:FORT (forterra) PE10 Mkt cap 550M
MSLHs at 650p at PE 21.5 - 24.7 at forecast and previous earnings respectively. Mkt Cap 1.3B
I also took a look at one or two foreign outfits, which could be similar:
CEMEX:NYSE (American) (PE 12) Mkt Cap 5B
LON:CRH Multinational (PE 13.31-17) Mkt cap 26B
Wienerberger AG (Austrian) (PE 18.65) Mkt Cap 2.5B
Anyway looking at the firms excluding Marshalls the average PE for these firms is 13.2. It's easy to conclude to recent PE would suggest over valuation. I'm not too sure what it should be for this firm, though given levels of profitability (ROE 19.5%, ROCE inc. leases 15.5%), +100% cash conversion, good dividend cover and minimal leverage and gearing, then perhaps PE of 18-20 is reasonable.
(Although CRH are listed on the LSE, I looked briefly at their AR2018, and about 8% of their revenue is in the UK, and much of that in supply of aggregates, rather than exclusively paving/drainage stuff.)
Anyway, after comparing figures I tried to suss out why their valuation seems particularly strong. Next post.
Matt
[*] Another reason for my research I'm also house-sitting while wife+kids+mother-in-law are in Dorset, and it's too good to spend all day outside
[**] It uses RoE and retention ratio to estimate dividend cash flow and terminal book value