Resilience & Weakness
Molins are a small manufacturing company I first hinted at back in August and which have more or less flatlined since then. On an operational note, though, the company have released two reports - both of which positive - so as it was interestingly cheap then, it becomes even more so now after a confirmed upward trend in performance. An overview of the company, then, and probably the first key point regarding their potential resilience; Molins provide 'high performance machinery and instrumentation' and 'services and support' for consumer products. Importantly, by my calculations, at least 65% of their revenues are generated from the tobacco industry - somewhat of a safe haven in times of uncertain consumer demand. That certainly piqued my interest, as few of my shares could be regarded as particularly 'resilient' to the wider economy!
In terms of the company's headline metrics, it looks cheap by the three key ones important to me; forward earnings, historic earnings, and assets. Historic earnings weren't just a blip, either, with net profits coming in at even stronger levels pre-crisis, barring a restructuring in 2006 which saw a large loss (even pre-exceptionals, as my statistics always are). Revenue hasn't slumped hugely in the recession for a firm involved in capex, no doubt because of their tobacco links, but operating profits have continued to be squeezed, which is slightly more worrying. Fortunately, Molins' half year report seems to report a reversal of that trend, with more higher margin work filling their books. Finally, the strong dividend is also a positive from my point of view, as I increasingly focus on dividend payments as a way of differentiating between companies who are willing or otherwise to put their money where their mouth is and signal a commitment to shareholders.
Cash flows have also remained strong over the last few years, which is always good to see. Their own capex has been relatively restrained, with only the gyrations of working capital (payables/receivables) shooting the cash flow figures up and down. It's this background that has left an £18.4m market cap company with £12m of cash and relatively little 'debt'; £5.7m of term debt, to be precise. (more…)