As investment counters go, Marshall Monteagle Plc* (MMP) is not a JSE counter that springs to mind when looking to add diversity.
MMP has flown below the radar — not openly engaging investors or offering particularly insightful financial reporting.
The share is rather illiquid with 58% of the roughly 36-million shares in issue held by Lyndwood Nominees. Roughly 60% of the company sits in the hands of three shareholders.
There’s nothing fancy about MMP. It’s a well-run import and distribution business with property investments on the side and some investments.
But its track record has been mercurial with a generous 243c/share returned via dividends to shareholders over the past five years.
But there is a cautious air in the latest annual report with chair Alistair Barclay sounding a warning on distributions. He said over the past 10 years MMP had hiked dividend payments each year to shareholders with the investment portfolio and property portfolio increasing in value.
However, he pointed out the income from these investments, in the form of dividends and net rentals, had not kept up with these increased values.
MMP’s trading investments had produced good results and substantial physical growth. But Barclay stressed the West had artificially low interest rates over the past 10 years, and that this seemed to be coming to an end. The US dollar had also strengthened against most currencies in which MMP traded.
And here’s his clincher: "I am sure all stakeholders understand that in uncertain times, it is necessary that we maintain liquidity with minimal borrowings by retaining a good deal of our annual earnings."
Notwithstanding a more conservative dividend policy, MMP remains a worthwhile rand hedge opportunity.
The year to end-September results showed a net asset value (NAV) of $2.25 a share — or more than R30 a share. Revenue was up 23% to $417m (or 20% in constant currency terms) with pretax profits up 56% to $16.2m (53% on a constant currency basis).
Headline earnings came in 66% higher at 20.9c a share (or 286c a share). MMP is offering a discount of 33% of what is probably a conservative NAV, and trading on a modest earnings multiple of about seven times and a useful yield of 2.7%.
The quality of MMP’s earnings is good, with $15.6m generated in cash flow, and $13.2m on a net basis. The balance sheet is also stout with net current assets at $43m.
While MMP appears solid on its fundamentals, the annual report does show some critical breakdowns.
The standout statistic is that almost 60% of revenue is generated from a single client in the core import and distribution hub. This client represented $246m of turnover, a marked increase on last year’s $147m. One could argue the extra business with this client was the main reason for the big jump in MMP’s turnover.
Whether the same level of business is expected next year is not clear. The concentration in revenue generation is a risk.
The bulk of the import and distribution business — which revolves around tools, food and household goods — is based in SA with locally generated revenues of $331m. About $85m of the revenue line is generated outside SA, and the bulk of this ($80m) stems from Europe.
Overall, MMP — with a track record of profitability and dividend flows — probably deserves the benefit of the doubt. The share is cheap if MMP can maintain profits and sustain dividends.
* The writer holds (a few) shares in MMP
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