A very good result, not only in comparison to their peers, but...

A very good result, not only in comparison to their peers, but also with respect to their earlier guidance - over recent years they have continued delivering what they said they would despite the market doubts. MLD is the only company in mining services that I rate as a BUY.

The balance sheet is very strong, no net debt, no intangibles. The share placements over the last two years at much higher than book value may have diluted shareholders but has strengthened the balance sheet considerably. And not giving retail investors access to the share placements has proven to be a real blessing - one of the few times that institutions have subsidised the smaller end of the share registry.

MLD seems to have a good level of cost elasticity maintaining a fairly constant EBITDA margin, and I expect that they can ramp costs down as revenue dips. They have diversified revenue away from iron ore, however future predictions are still dependent on your outlook for the IO market.

I estimate profit breakeven is presently at $290M revenue for the full-year - that is, revenue has to drop 45% before we start making a loss. As most of the fixed costs are depreciation/amortisation, cash flow breakeven is much lower. At this late stage, FY15’s profit is almost locked in - management say they will do better than $56M … 24cps, P/E 4.3, FCF 39cps … lots of cash for dividends and capital returns.

According to their latest presentation, next year they have $344 of revenue already signed up, of which $80M is from IO customers. Management believe there is another $36M in existing order add-ons. My personal view is that next year will be a struggle - the probability of picking up new work is matched by losing existing work, so I estimate $380M revenue / $18.5M NPAT … 8cps, P/E 13, but FCF still 23cps - 23% cash yield on current share price.

If FY16 is a struggle, then there will likely be a bounce-back in FY17 - we live in a cyclical world and pessimistic predictions must be balanced. I believe that the iron market will have picked up by FY17 and if not, then gold will in demand - MLD’s diversification will pay off. My present FY17 prediction is 20cps, P/E 5.2.

Apart from an extremely pessimistic future outlook of the world economy, MLD looks a very good investment at current prices. I bought some more today. My opinion only, not meant as advice, dyor.