Thank you everyone for sharing their "negatives" about MND. I really enjoy this kind of open discussion.
@MarsC
I agree with you that MND's business is cyclical in nature, and that it's no ARB. ARB is also exposed to the mining industry but somehow is always able to keep growing its geographic reach and product breadth such that its financial performance keeps going from strength to strength.
I am however hoping that when the next up cycle arrives, MND's weaker competitors will have disappeared and that MND's relative competitive position is stronger.
The move into water business should also provide further diversification of revenue.
@madamswer
Big negative:
As already mentioned by @MarsC, MND's business is highly cyclical. I think we all buy into MND fully aware of this particular fact.
Medium negative:
I also prefer to invest in companies that don't employ any of these share-based incentive plans. In MND's case, the dilution factor of 20% over 12 years is actually one of the better ones in ASX. The list of companies with a dilution factor much higher than this is very long.
As a very recent shareholder of MND, I actually benefit from all of the DRPs and options that were exercised at a much higher level than the current share price. Only the last 2 DRPs (1st half of 2016 and 2nd half 2015) were issued at a level lower than the current share price. The older DRPs were all issued at a much higher price.
It is also important to note that all current options are out of the money as they have exercise prices much higher than the current share price.
In the last annual report, MND mentioned that starting from the current financial year ending 30/06/2016, they are going to move from issuing ordinary options to issuing performance rights (basically $0 exercise price options) to employees participating in their LTI plan.
What this means going forward is, the number of new shares issued to management will be much less than in the past.
The negative about this is, as long as management fulfills the rights' performance hurdles, they will get some kind of value from the conversion of the performance rights. At the moment, every time their options expire unexercised, they get zero value from these options that were awarded to them a few years ago.
Back to the DRP, now that I'm a shareholder, and considering that MND is currently swimming in cash, I prefer for the DRP to be suspended indefinitely. If they don't have any intention to do this, then I intend to participate in the DRP as long as I consider the current share price is still of good value. The moment the share price goes out of the bargain territory, then I will suspend my DRP participation and opt for cash.
1st potential negative:
I agree that the top management has been around for a very long time and the regeneration is over-due. According to the website, the chairman is 69 years old and the CEO is 55 years old. I expect the chairman to announce his retirement in the next few years. In regards to the CEO, considering that he's still 55, if he's still enjoying his gigs, he still has at least a good 10 years before we should worry about MND post his retirement.
2nd potential negative:
During the boom, they didn't do any silly big acquisitions and since the peak in 2011/2012, they haven't blown their piggy bank. Therefore, I have to give them the benefit of the doubt that they won't do anything gung-ho in the future.
This year, MND actually bought a small company called Evo Access. They didn't bother to announce the acquisition. We found out about this from the Appendix 3B, which shows MND issuing 13,750 shares to the vendor as part of the acquisition. Why bother issuing $100k worth of shares when you have $200m in the bank? The only explanation is the vendor must have insisted for part payments in MND shares.
@Vesupria
Without knowing the details of the dispute, it is impossible to know from the outside, who is right and who is wrong. Considering that MND has a long and proud history of building partnership with customers, this WICET dispute is very out of character. As a biased shareholder of MND, I'd like to think that MND in time will win the dispute.
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The medium negative that I can come up is:
MND's main asset besides its piggy bank is its people. Its ability to keep winning contracts and keep growing the business profitably depends on the people at the top, the project managers and all of the engineers. Unfortunately for MND, these assets all have legs that can walk out of the door.
All it takes for these walking assets to start walking out of the door is for a dimwit to be selected as a leader and start introducing "improvements" in policies or processes, which actually have the unintended consequences of alineating these walking assets.
When this happens, it is the beginning of the end!
Have a nice working week, everyone!
MND Price at posting:
$7.17 Sentiment: Buy Disclosure: Held
(20min delay)