Full-year results from the Human Screen

An unlevered after tax earnings yield of 19% seems ludicrously cheap for a potential hidden champion like MS International.

Highlights

• Adjusted operating profit up 39%
• Return on tangible assets: 20%
• Adjusted net profit of ''6.5m compared to net cash flow of ''4 (''1.5m after net capital expenditure)
• Net cash up 2% at ''10m, ''6m after deducting pension deficit (lease obligations not known)
• Per-share dividend up 18%

The Human Screen comments:

The Human Screen finds itself in something of a blind share appraisal challenge as MS International does not appear to have a website on which it publishes annual reports.

It’s an engineering company with three divisions: Defence, Forgings, and Petrol Station Superstructures. Defence, which makes naval gun systems, is its largest division and Petrol Stations its newest, having been acquired in 2010. It supplies oil companies, supermarkets and dealerships across Europe. Forgings probably supplies the other two divisions as well as its own customers.

While nervous about the global economy and constrained defence budgets chairman Michael Bell, who owns 26% of the shares, is expectant when it comes to the prospects for his businesses:

1. Defence: "it is inevitable that the dam will burst on our ‘Defence’ prospect-list".
2. Forgings:  "…is in dynamic form, capable of competitively accommodating any further rise in activity".
3. Petrol Station Superstructures: "stands before a wealth of opportunity".

Looking at it’s past record of solid profitability, its strong finances, and prospects, the Human Screen thinks MS is a stalwart, and with 60% of exports coming from abroad (supplying 40 navies) these sentiments:

We must and will, maintain our prudent approach to managing and steering the Group for the long term interests of shareholders and not just the immediate future. Corporate focus remains on creating excellence in everything we do for there is no room for complacency in these highly competitive and tight markets that we serve.

May be the sentiments of a hidden champion. If this level of profitability is sustainable, an unlevered after tax earnings yield of 19% seems ludicrously cheap.

^HS++ (currently being considered for inclusion in the Thrifty 30)