Ann: Contracts Update, page-159

@madamswer[/USER] any insights into the SP fluctuations of late? Todays action makes the chart very bearish especially if it closes under 15.60
Can't see any news in general or particular which would explain away the SP fragility although I note CIM is also getting pounded. Just general infrastructure weakness, you think?

@Bundy,

Other than mere inherent market randomness, I'm afraid I have no idea what drives share prices during any given day/week/month (or even any given year, for that matter).

So, why MND's stock price fell yesterday is totally unclear to me, as is why the stock price has done the opposite today. Same for every other fluctuations on the share price chart.

The reason I spend no time trying to determine what drives share prices over the short- to medium-term is because over my 25-year investing career, I have not come across a single successful investor that has a demonstrated track record of sustainable superior investment returns based on the trading of short-term share price movements.

Ditto, for investing on the basis of trying to predict macroeconomic developments.

Instead, I have for decades seen a great deal of very successful investing that is based on the fundamental valuation of enterprises.

So, naturally, in trying to create value for myself, what I simply try to do is to emulate what demonstrably works, namely value-based investing.

And, in MND's case, the valuation argument to me goes something like this:

It is a cyclical business that has the internal resources and the organisational capacity to generate EBIT between $160m and $180m (for context, EBIT is currently running at a little over $100mpa, and the peak cycle EBIT reached $220m), and will be valued by the market at that time at an EBIT buyout ratio (i.e., EBIT/EV, as a proxy for un-geared FCF) of between 8% and 10% (which is equivalent to 10x and 12x EV/EBIT).

Using the mid-point of those inputs, i.e., 11x EV/EBIT multiple on future EBIT of ~$170m, it yields an Enterprise Value of ~$1.90bn. Adding the >$200m net cash balance gets one to an Equity Value of around $2.1bn.

Based on MND's 94m shares on issue, that works out to a share price of $22.00.

Now when exactly that will transpire is uncertain, but while I wait for it to eventuate, I get paid an above-inflation premium.

As for the exact day-to-day, week-to-week, month-to-month path the share price will take between its current price and my expected price, I will leave the inevitable running commentary on that futile subject, for others to make.