MCON reported revenue up 11%, operating profit up 9%, and EPS up 12%

Companies: Mincon Group

Mincon Group (AIM: MCON), the engineering company specializing in rock drilling tools, reported a solid set of Interim Results this morning with Revenue up 11%, Operating Profit up 9% and EPS up 12% compared to H1 2015. CEO Joe Purcell strikes a muted tone however calling the results satisfactory:

"These are relatively satisfactory numbers against the backdrop of the cyclically depressed volumes and margins in some of the sectors we service." 

Mincon achieved an H1 revenue of €36.3 million (up 11%) which is a solid achievement in an industry that has been decimated by commodity prices and the consequent material reductions in customer investment budgets. Profit before tax rose to €5.0 million  (H1 2015 €4.5 million).

Mincon's margins in H1 2016 are consistent with H1 2015 and show a company that is in good health. Gross margins were 41%, operating margins 13.5% and earnings 11.2%. This is a healthy set of margins that appear stable even in these markets.

Mincon is sitting on a Net Cash position of €33.8m (down €5.0m from end 2015). Acquisitions definitely appear to be a focus but Management but only at the right price:

"We have been active in approaching potential acquisition targets, but we did not see value for the Group in the terms that were being sought by vendors.

...Through the cycle we have seen Private Equity owned companies being withdrawn from sale and refinanced, and other companies seeking unrealistic prices even while their sales and profits fall.

...Nevertheless there are fine companies in the sector, worth acquiring"

As a consequence Mincon appears to be biding its time for a sensibly priced acquisition and is focusing on its organic growth:

"We have elected to invest primarily in organic growth rather than exhaust our resources by buying that which we could competitively make ourselves." 

The shares are down a third on a 3 year view and have opened down 5% today.

Outlook statement from Mincon:

"We are seeing growth in our sales, which we believe is due to increased market share rather than a general improvement in our target markets. Having said that, there are improvements in some commodity prices and certain end-markets appear to be beginning to return to growth. This should lead on to a recovery in the exploration businesses in due course and then across the mining sector. We believe that the underlying tone is improving, even if this is anecdotal rather than observable. 

We continue to engage in dialogue with potential acquisitions and investments, but in some cases, the asking price is not supported by the earnings, and others have withdrawn to work through the down-turn in private. Nevertheless there are fine companies in the sector, worth acquiring, and we are actively continuing to identify and engage with those that we believe would add more than they would cost, and which would continue to fill out our geographic footprint, and our product and service offering."

The information contained within this post is based on personal experience and opinion and should not be considered as a recommendation to trade nor financial advice.