MCE - Matrix Composites and Engineering

[mark100]

MCE listed in Nov 09 at $1 and has shown very high profit growth.

From their web page:
"Matrix Composites & Engineering is a leading Australian manufacturer of critical engineered products for the offshore, subsea, mining and defence industries. The company specialises in the design, application and manufacturing of products based on advanced composite materials, engineering plastics and elastomers and designs and manufactures high performance products through its oil & gas, mineral & industrial and advanced materials businesses."

Today they released their FY10 results. NPAT rose by a factor of 6 and beat the prospectus forecast by 140%. Even more bullish is the statement saying their current order book underwrites a doubling of revenue for next year.

FY10 reported EPS were 31c but if you use the number of shares on issue at the end of FY10 it comes in at 26cps. If they can maintain margins its not hard to see EPS next year coming in at 50c. At todays closing price of $3.16 thats a potential forward PE of 6.3x. The annoucements released today certainy seem very bullish. They also have a net cash position at present.

As MCE becomes more well known in the market its not hard to see their forward PE moving up to around 10 (assuming they deliver again)

I hold a few as of today after watching them for way too long

[Huang Chung]

You always seem to find some interesting little stocks, Mark. I'm fully committed at the mo, but will do a bit of homework.

West Coast offshore O&G should be huge in the next decade.

[mark100]

MCE just keeps on running. I only really got half of what I wanted and wanted to buy more sub $3.20. I don't like chasing stocks that have run hard quickly. I see the AFR mentioned JP Morgan had initiated coverage this week with a $4 target. Personally, I think a 12 month target of $5 is achievable if they meet their revenue forecast but I would like some heat to come out of the share price before buying any more

[percy]

MCE just keeps on running. I only really got half of what I wanted and wanted to buy more sub $3.20. I don't like chasing stocks that have run hard quickly. I see the AFR mentioned JP Morgan had initiated coverage this week with a $4 target. Personally, I think a 12 month target of $5 is achievable if they meet their revenue forecast but I would like some heat to come out of the share price before buying any more

Sorry I missed this thread.I unfortunately do not hold.Running hot.They only seem to come back after I have brought.!!!! Have on watch list.

[Lizard]

Hi Mark,

I just had a bit of a look at MCE and it is obviously in quite an exciting growth phase. I came up with fair buying up to $4.11 in my calcs (which attempt to take into account future funding requirements).

The biggest hurdle I can see is getting through the build and commission of the new plant. From what I can see on a quick read, they have spent about $27m so far on a $60m project. They have $39m in funding facilities available to them, so appears they should have enough between funding and cashflows to complete. Initial rise in interest expense but the forward orders seem to be there. (Even if it does make me recall ION)

I also note that they are talking about doubling revenue this year and citing the $188m order book, but that last years order book was $136m, so it didn't all transfer to revenue within 12 months. However, presuming they can get to $190m revenue, I would guess about $31-$32m NPAT - about 45cps?

[Lizard]

Just keeps on running, eh? Good pick anyway Mark. Looks like it will run too hot for me to touch. Will watch with interest.

[mark100]

Hi Liz, agree with your analysis. But it's also too hot for me now and I am out today. I'll look for a pullback. As you say, they still have execuation risks around getting the new facility up and running

[mark100]

This is going crazy. Up 8% at $4.30 now. I sold way too early

[Lizard]

Yes, something weird there - up 10% on no news today. Course of trades looks a bit like a tip sheet buy interspersed with a few bots?

[David Hardman]

IMHO is jumped on Roger Montgomery talking about it on "Your Money, Your Call" (tv show on pay TV in Australia)

He rated it as his top buy the night before the big spike.

He writes a good "value investing" blog. He's widely followed.

http://blog.rogermontgomery.com/899/

[Lizard]

I confess that I was a bit too cautious on this one earlier. Has come through on a good result. Cashflow looks weak, but largely because there were $35m of advance payments going into the year that had to be unwound. Forecast for 20% revenue growth makes this look good buying below $6.

[drworm]

I'm a bit unsure about this one myself. In fact I sold my holdings this morning preferring to sit on the sidelines here.

A few things caught my attention.
- 2nd half of the year wasn't too flash. Revenues were similar to first half but NPAT was down so margins shrank. NPAT margin from 20.9% to 15.1%.
- Warned of some margin pressure due to "competitive pressures" and AUD strength
- Order book $110m. Same time last year was $180m. Seems risky if they're expecting 20% revenue growth.

If the second half margins is the new trend, FY12 will see flat NPAT even if they hit their 20% revenue growth. I need to see some evidence of improvement myself.

[mark100]

Agree drworm. And after the capital raising, flat NPAT would mean lower EPS. I sold this too early around a year ago but the share price got well overcooked in my view with all the hype particularly from the Montgomery sheep.

With some more market weakness I may get a chance to get back in at a fair price. Where that is I'm not sure yet but it would be nice if it started with a 3. That is unlikely but under $4.50 would be nice

[Lizard]

Yes, good points. I was a bit quick of the market looking at that result.

Still think they are interesting and will go through the figures a bit more closely - seems the market will give me a bit of time to make up my mind anyway!

[Sauce]

The reduced order book of 110m is of concern. It appears they have had a slow down in secured riser buoyancy orders.

According to Heath Andrews of Austock, their historical win rate of tenders is ~38%. With a tender book of 500m in theory that should provide a lot of confidence for growth in secured orders. But why is the current order book down so much when they had 400m in the tender book at the half year.

A tone of short term negativity in the outlook and mention of competitive pressures are alarm bells.

I agree with you Mark, it could be a buying opportunity, but there are some puzzles worth solving first.

[drillfix]

A tone of short term negativity in the outlook and mention of competitive pressures are alarm bells.

I agree with you Mark, it could be a buying opportunity, but there are some puzzles worth solving first.

Alarm bells and the horrific chart in total downtrend.

Dont know much about MCE however whilst falling down like this would make me inclined to either reduce or pass on any trading except it could be worth the odd scalp here and there but timing would be imperative rather to a buy and hope method. imo

[Sauce]

Hi Drilly,

It appears the MCE chart has gone pear shaped. I never thought that saying could be so literal.

Regards

Sauce

[soulman]

Agree drworm. And after the capital raising, flat NPAT would mean lower EPS. I sold this too early around a year ago but the share price got well overcooked in my view with all the hype particularly from the Montgomery sheep.

With some more market weakness I may get a chance to get back in at a fair price. Where that is I'm not sure yet but it would be nice if it started with a 3. That is unlikely but under $4.50 would be nice

I think a $3 in front is possible Mark but then who knows. Like Drill said, the trend is down and if Mr P is still around, he would said wait till the trend changed. Below $4.50 is definitely on the cards tomorrow.

[Joshuatree]

Contrarywise i bought yesterday.Really like their products and the growing demand globally for them, also their new products and new plant increasing productivity and efficiencies. Im hoping im near a bottom . I See value here med term.

[mark100]

I don't intend on buying MCE while its trending down soulman! But under $4.50 would possibly be good value if the trend had changed. After yesterdays result however I think the market might need to see the interim result or get some more guidance in the coming months before it gets comfortable with the earnings outlook again

[soulman]

Definitely Mark. No point getting them while the outlook seems uncertain. There is plenty of other great company in the same sector with better performance and better div yield.

Joshuatree, it seems you might be catching a falling knife here but hey who knows. I have done a few bad trades myself lately as well.

[Joshuatree]

Yes soulman ,bugger; a falling cutlass. Note to self "Ask fellow sharetraders where resources ,website(incredible charts?) for learning basic charting so i can time my entry and exits." May be some big holders who have been bailing ou, big vols last 2 days.

[mark100]

Roger the dodger has gone a bit cold and now claims his holdings of MCE were less than 1%. Yet I seem to remember him promoting MCE numerous times via numerous media. Maybe he reduced his holdings to 1% after he pumped up the price. A shame he moderated some of my comments although he partly addressed a point I was making and that is all his sheep think they have a magical formula that spits out an Intrinsic Value and it is gospel. That doesn't work if the inputs you're using don't come in as forecast!

[soulman]

Yep, as in other word, don't trust anyone. Did you look at FWD result lately Mark. I have taken a position.

[Joshuatree]

MCE finished at $4.47 up re 26c phew. That threat to give Roger concrete gumboots is working, the comeback is ON,yeah!! But was it worth it ,those falling cutlasses nearly took my arms off:)

[Sauce]

Hi Joshuatree

I was a buyer today - market served up an opportunity this morning that was too good to wait around for. I think its a very reasonable bet at levels seen today.

Still much to clarify. Senior management are off doing roadshows with analysts until next week so I won't get answers as quickly - pisses me off that the analysts get access to management without shareholder participation. Many companies are doing webcasts of their conference calls and analyst briefings these days, I will point this out to Matrix also.

Regards,

Sauce

[Sauce]

Roger the dodger has gone a bit cold and now claims his holdings of MCE were less than 1%. Yet I seem to remember him promoting MCE numerous times via numerous media. Maybe he reduced his holdings to 1% after he pumped up the price. A shame he moderated some of my comments although he partly addressed a point I was making and that is all his sheep think they have a magical formula that spits out an Intrinsic Value and it is gospel. That doesn't work if the inputs you're using don't come in as forecast!

Hi Mark

Aside from Rodger and his love nest over there at the blog, if you feel like being cynical what about director selling shares at around $9 just three months ago. The reason:

"in an effort to increase liquidity in the
secondary market of Matrix shares""

Hmm.

Regards,

Sauce

[Joshuatree]

Great contrary entry Sauce In the interests of impeccable timing (which you have) can you share whether charting helped you today with your timing of.entry. I need to upskill myself on some BASIC T/A fast. Or was it vol based or both;timing is everything.cheers

[Sauce]

Hi JT

I don't have impeccable timing, I have made many mistakes during this downturn - although I strongly suspect they won't turn out to be mistakes in the long run.

I don't use TA. Just happy to buy good companies that I think I know something about how they will look in the future.

Matrix may well be much lower in a week, but I won't care. I will care however, if they don't secure any significant orders in the next six months.

Regards,

Sauce

[soulman]

Based on TA, MCE was oversold this morning, down as low as a tasty $3.89. I missed the opportunity but glad you got some Sauce. Well done. LT, MCE could be still on a downwards trend.

[percy]

Hi Mark

Aside from Rodger and his love nest over there at the blog, if you feel like being cynical what about director selling shares at around $9 just three months ago. The reason:

"in an effort to increase liquidity in the
secondary market of Matrix shares""

Hmm.

Regards,

Sauce
it certainly did improve the liguidity.Timely?

[Sauce]

Based on TA, MCE was oversold this morning, down as low as a tasty $3.89. I missed the opportunity but glad you got some Sauce. Well done. LT, MCE could be still on a downwards trend.

Hi Soulman
Thanks. Although since I am not interested in a quick trade, we won't know if it's well done or not for a long time, regardless of what the share price does. My purchase is ultimately a bet that MCE will be a much bigger business than it is now in 5 or 10 years time.
Cheers
Sauce

[Sauce]

it certainly did improve the liguidity.Timely?

Haha, it was indeed.

[mark100]

The disaster continues. Revenue forecast downgrade, write-downs, margin pressure, breakeven half year result forecast after write-downs. Best to stand aside here until things stabilise. There are plenty of examples where companies have done big expansions that never pay off. MCE have some work to do to prove that won't happen to them

[soulman]

Definitely Mark. Never buy downtrending stocks is my rule and MCE was always trouble when it fall from the high $9 to $4 and now $3. All in one year. Makes $3 looks attractive Mark.

[drillfix]

Good rule there soulman,

Although the problem is not just buying a down trending stock. Its then Holding that down-trending stock.

As you know, many can benefit from buying the dips which some of us in these markets recently have nearly been forced to do, just to get a trade in or opportunity filled as we say.

Fortunately this is why intraday can save you from the long term pain of fundamental belief, however for those other readers, dont get me wrong here, I am not against the fundamentals, I am only speaking momentarily only, and whilst being a trader, why buy and hold something at $7.00 something when not long after you discover you can buy twice as much for half of what you originally paid.

Had I still held my fundamental beliefs, I think the box with the TA signals would signal when I would have exited with a final stop being the last break of a support and the EMA crossing also signalling higher probability of more downside to come thus time to end future pain as shown in the chart.


MCE daily and intraday >>> http://www.imageurlhost.com/images/te8mhdgibre0bsxa81e_MCD-Intraday.png


Also shown on the daily is the OBV negative divergence which has been drawn and weakening continually.
Williams %R short term again shows oversold, but an remain this way for any period of unknown time.
The lower lows and lower highs marked on the chart.

Apologies to holders of this stock as this post is not intended to have a dig at you, its only to demonstrate the technicals and why the technicals should also play a part of some longer term positions, IMO.

Good luck to all, and keep and eye on the OBV line breaking upward of its decline for potential reversal.

Cheers~!

[soulman]

Judging by the volume today in MCE, I think a fall into $2.50 is possible in the future. There were nice swing trade in MCE Drill, judging by the bounce from the low $3's to $4's in early Oct. Hence, for traders, we can dodge and manipulated gains from these demise. Good risk and money management needed and a flexible professional maneuvering. Although, me like Mark, better to stand aside.

Isn't MND a way better play with $133 mil net cash position and a 5% FF yield???

[drillfix]

Actually, you saved me from mentioning that target soulman, as when I expanded my IB daily and threw a support line in there, I too also technically get a $2.50 as a type of crash landing support zone.

With regards to MND, I haven't really looked at that stock (or at least I cant remember atm..lol) but no matter what the stock, will always look at any opportunity should and if it presents itself. Problem is though, is keeping the finger on the pulse with so many stocks.

[mark100]

This stock is nothing but a disaster at present. If the product is as good as claimed there will be a good buying opportunity at some stage, maybe after the interim for FY13, as they claim FY13 will be better but I reckon you would want confirmation via their FY13 interim before you bought in.

Right now I wouldn't go near it. I can only hope Roger the Dodger still holds some on his personal account

[soulman]

It's a shocker ain't it Mark, and yet the SP seems to recover as the days wears out.

[percy]

Has the turn around started?