Anyone got any thoughts on Morgan Sindall (MGNS)? Share price has gone backwards last 3 months ....

31st Jan '18 by weycome45

20 comments 5617 reads

I hold this stock and it has baffled me as it has posted several trading announcements saying it will beat forecasts but share price has sunk 11% . Only thing I can see is working capital has gone down to just over a million : any relevance ?

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Weycome45

Premium Member

20 comments

gus 1065

31st Jan '18

I suspect a large part of it is a case of being tarred with the Carillion (LON:CLLN) brush due to the general industrial sector they’re in - notwithstanding the recent RNS saying they have minimal exposure. If you look at the recent price chart, the biggest daily fall (about 90p) came on Jan 14/15, the day the plug was pulled on Carillion (LON:CLLN) . Today’s news on Capita (albeit a pretty distant cousin) possibly didn’t help either.

If you’re comfortable with the specifics of the company, it could be a decent buying opportunity.

Gus.

willhampson

31st Jan '18

I agree with Gus; its likely the Carillion (LON:CLLN) link (both in terms of exposure and just by virtue of the same industry). It's clear that Morgan Sindall (LON:MGNS) has a far cleaner balance sheet and, I believe, no debt, so it can be readily be distinguished from Carillion.

My concern, however, and why I have never pulled the plug on this share, is that it shares the same horrible operating margin (sub 2%). Construction projects by their nature are often delayed and can very easily go over budget (just look at the nightmare Lamprell (LON:LAM) has got itself into), which would cause quite a nasty reaction to the share price here. However, I've been wrong so far and it seems well-managed, but just not for me. All the best.

wattanut

31st Jan '18

I read earlier today that the government could rescind planning permission on land that isn’t being developed.

They are trying to encourage house builders to speed up their rate of building houses. Some construction companies have been criticised for sitting on land banks and developing the sites in their own time, all the while there is a housing shortage going on in some parts of the country.

I was stopped out a couple of weeks ago on this share, but I think I will be back in when the dust settles.

TangoDoc

31st Jan '18

I am interested in the notion that problems with Carillion (LON:CLLN), or, for that matter, any specific company has a deleterious effect on others in the same sector. It is slightly scary to consider that our fellow investors are incapable of making intelligently crafted judgements about individual firms but would neurotically abandon the entire sector because of one bad apple. We do have the fundamentals to compare, don't we?
Logically, you might think, the collapse of a competitor, particularly one who hogged government cash cow projects by underquoting at ludicrously low levels, would actually improve the lot of the survivors. It has, in addition, been suggested that some sluggishness in the construction industry was caused by a lack of skilled craftsmen. Well, there are a few looking for new jobs right now, which has to be an advantage to the rest of the building industry and might also keep some wage inflation down for a year or so.

gus 1065

31st Jan '18

Fair comment TangoDoc, although I think part of the investor sensitivity is not so much a crude assumption that all Industrial contractors are bad apples but rather that Carillion (LON:CLLN) appeared (at least a year or so ago) to be in reasonable fettle and that it only became apparent after the fact that the accounts and management statements were not a true reflection of the underlying risk exposures in the business. Given such a bad experience, one can understand investor reluctance to bite on any apples in the same barrel even if at face value analysis suggests Carillion (LON:CLLN) ‘s problems were unique.

Gus.

weycome45

1st Feb '18

Thanks guys but I've sold them today ! Couldn't take any more pain after 3 months and they hit my rigid human stop loss this morning of 14% backwards in 3 months ! Thats my get out figure and once crossed in the past its never been pretty !

vik2001

1st Feb '18

theres a general pullback going on in the markets, so nothing is looking good at the moment.
im just wondering what safe hedges are there to play in these kind of markets to help protect/cushion the portfolio a little?

JamesS

1st Feb '18

A director announced on 29/01/18 he was stepping down in May
"Morgan Sindall Group plc announces that, after eight years of service,Simon Gulliford has notified the Board of his intention to step down as a non-executive director at the annual general meeting on 4 May 2018 in order to pursue other opportunities"
But its a Non-Exec director and therefore has little bearing on the company so this shouldnt have caused a large reaction???

In addition there has been a notification on the holding of the company on 30/01/18, J Hambro now owns 11.05% (im assuming this an increase from whatever it was previously and therefore required this form to be filled in) but again i cant see why this would effect the share price.

So I dont think either of the above announcements would/should of had an effect. I believe the fall is likely due to association with Carillion and possibly Capita (although I dont know if they have any dealings with Capita) and the thin operating margin of MGNS
However a cynical part of me thinks, considering the timing soon after year end somehow performance data for December/the year has leaked.

Disclosure: I hold

Howard Adams

1st Feb '18

Hi

I exited Morgan Sindall (LON:MGNS) 20/01/18 after testing it against Minervini's eight trend analysis tests.

Although at that time it passed most of them it failed on the is SP > 50MA. This alerted me to the notion it might be transitioning out of a Phase 2 (growth trend) and into the Phase 3.

Minervini's advice is to exit at this point and seek out other places for your investing capital.

This concern along with the very slim Operating Margin and the rather slim EPS forecast prompted my exit action.

This was almost the first time I had used these 8 trend tests as a health checker and I'm pleased with the outcome. I might have been lucky but I will certainly practice using them as both buy tests as well as health check tests.

Regards
Howard

lightningtiger

1st Feb '18

Having hit the stop loss it had to be sold in spite of being under valued. Both 50 & 200 MA's are in negative territory. Because it has declined more than 10% it would have caused lots of automatic sells which drives the price down even further. Hambro could have picked up the shares a bit early in my opinion as the shares are still falling again today. Until the share price starts to rise again and the MA's get back into positive ground, this sector is currently not one of the best to be in.
Hopefully it should spring back again, but it certainly is not doing it right now.

JamesS

1st Feb '18

Agreed as in I should have sold once it had fallen more than 8% from the high (my personal stop loss)

Richard Vasey

1st Feb '18

Howard,

I too am reading Minervini and have reached the eight trend analysis piece. You make a fair point in relation to Morgan Sindall (LON:MGNS) and it's failure of the SP > 50MA criteria

However, rightly or wrongly, I gained the impression that the stage 2 referred to was generally in relation to potential superperformance stocks. IMHO, Morgan Sindall (LON:MGNS) is more of a turnaround under good management. It's P/E ratio is relatively modest.
Time will tell but I have been taking the view that it's the Carillion (LON:CLLN) fiasco which has done most of the damage here.
Anyway, I hold and am hanging on. A lot of star stocks (Stockopedia rates Morgan Sindall (LON:MGNS) at 93) are falling just now and they haven't all just become poor stocks. Figures will be released later this month.

Richard.

weycome45

2nd Feb '18

They are another 5% down today friday so for the moment I've called it right but only time will tell ?

willhampson

2nd Feb '18

While the slide doesn't surprise me (for the reasons I stated earlier), its looking increasingly likely that someone knows something; perhaps the exposure to Carillion (LON:CLLN) is larger than they originally envisaged.

The Phoenix

2nd Feb '18

I wonder if Carillion (LON:CLLN) could be a bit of a Bear Stearn's moment and a lot of connected companies don't yet know the true damage done to them. I sold out yesterday with low margins only takes one big knock to cause major damage to all good work done previously.

Merlotman

3rd Feb '18

Like others on this thread I have been struggling to understand why Morgan Sindall (LON:MGNS) has fallen so sharply in the last month. Whilst of course there is always the chance that upcoming full year earnings could disappoint I do not believe that MGNS can be compared with Carillion (LON:CLLN) which is what perhaps some in the market are doing. There are a number of differences of which I think these are the three are most instructive:
1 Revenue recognition. Of course MGNS like CLLN, reports thin margins on its construction business but critical to the outcome is how each company recognises revenue and income on its contracts. My understanding is that the revenue recognised (as assessed by the management) on these long term construction projects in progress is included within trade debtors as “amounts owed by customers under construction contracts”. At the end of 2016 the figure for CLLN (net of amounts owed to customers) was £537m having increased from £324m the previous year. This appears to represent a whopping 28% of total construction revenues (up from 20% in 2015). The equivalent figures for MGNS were 5% and 6% respectively. Although the two companies are not strictly comparable as it will depend on the average contract length in each case I think the trend in both cases is instructive.
2 Capital structure. CLLN had a big goodwill and intangibles figure. This is not always a red flag but in CLLNs case reflected the fact that it had grown by acquisition (with all the problems of bringing together legacy reporting systems) and had probably overpaid. At the end of 2016 NTAs were minus £968. MGNS also carries goodwill but its NTAs at the end of 2016 were in positive territory. More importantly CLLN reported year end net debt to be £219m and average net debt of £586m. Their stated financing costs of £45.7m suggests that average gross debt may have been in excess of £750m and no doubt there were a few spikes above this during the year so it is no wonder the banks lost patience. Contrast this with MGNS which had a year end cash position of £21m and average daily net cash of £25m
3 Trend. The key metrics discussed above deteriorated for CLLN during the first half of 2017, they could no longer window dress the problems and the rest is history. Meanwhile MGNS reported increased profit; increased cash and a slight decrease in the net amounts owed by customers under construction contracts between H1 2017 versus H1 2016.
Please DYOR but I hold MGNS and hope to still be holding them post the 2017 earnings announcement.

JamesS

22nd Feb '18

Considering the good results out this morning, would anyone else have expected a bigger rise today?

JollyBiologist

22nd Feb '18

Maybe, but the market overall was down today so it would have been swimming against the tide.

GTrader

22nd Feb '18

Thanks for the note, I have been looking at improvements to my exit strategy and the 50MA is a good add.

JamesS

20th Mar '18

Standard Life Aberdeen increases its holding from 11.98% to 12.08% and the share price falls by 5%?

A point to top up the holding because i see no other explanation for the fall? Or does anyone else have further information?

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Anyone got any thoughts on Morgan Sindall (MGNS)? Share price has gone backwards last 3 months ....

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Weycome45

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