Management Resource Solutions (MRS) – Guidance confirmed

Management Resource Solutions (MRS) – Guidance confirmed

I previously covered MRS here. The shares have come off a little bit since then, in part due to a big seller (latest share price 4.7p, market cap £9 million).

The company gave a half year update and full year earnings guidance today which the market has responded well to, as many were left wondering why no forward guidance had been given in the full year results a few weeks ago.

Earnings

The company expects to report revenue for FY 2019 of AUD $73 – 75 million, compared to last year’s turnover of $69.1 million. Last year’s EPS was missed due to slight dilution which went to management, employees, and contractors, and this year the company is putting numbers of 2.6p to 3p into the market.

Given the current mid-price of 4.7p, this means the company is trading below 2x earnings, and if earnings growth would continue into FY 2020, the forward P/E could be not far off from 1.

What’s the catch?

There are a couple of issues here to be wary of. The debt MRS carries is high with high interest too, and managing it is a priority:

“Management continues to work towards completion of the debt restructuring. This is progressing well and a further announcement will be made in due course. This will ensure MRS has the most efficient interest rates available and should contribute significantly to the strong FY19 profit performance.”

It is a common theme that many AIM companies promise everything and deliver nothing and so until this is complete I would expect many investors to be on the sidelines, waiting for investment case to be derisked further.

The Nomad situation is a potential problem, too. As Northland and SP Angel are merging, only one of the entities will be allowed to carry a Nominated Adviser license, and so SP Angel will take the licence. There are common directors with John Zorbas who is Chief Executive Officer of URU Metals, and also Non-executive Chairman of MRS. This is not allowed and so MRS is very close to appointing a new Nomad (according to Northland’s CEO).

Outlook

The outlook for MRS is positive, with revenues growing and margin growth expected. This is in part due to Bachmann Plant Hire’s growing specialist services and with the debt restructuring the business will be able to release more cash from its operations.

Investment has been seen in the business with the purchase of new equipment and with the company’s strong relationship with some of the world’s biggest mining companies this growth looks set to continue. A few years ago MRS looked finished and done for bust; this turnaround has been remarkable and whilst there is a seller around is available at a bargain price.

 

The author currently holds a long position in MRS.

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