MYR - charting, page-50

I would echo those sentiments – it’s something of a ‘cigar butt’ trade. Not a great business model by any stretch, but the stock itself looks oversold, with the market overreacting to the downward revision last week.

The revision doesn’t seem that bad. Forecast NPAT for FY17 was guided down to $66-$70 million from $69.3 million (pre-implementation costs) back in May, primarily ongoing weakness in trading conditions. The stock relinquished $50-60mn in market cap following the announcement. A bit too much, I reckon.

Positives:
(1) Fourth highest short ratio on ASX at 15.7% (oversold)
(2) Reasonable balance sheet with the company far from insolvent, though intangibles are substantial.
(3) Cash flow, not spectacular, but CFO less CFI is consistently positive over past several years.
(4) Consensus forecasting grossed-up dividend yield of 10.5% for FY17, 11.1% for FY18 (which will likely come down, but hopefully not too much).
(5) Solly Lew owns 10% and will likely pressure board to stay focused, possibly mount a takeover.

Negatives:
(1) Trading conditions could easily get worse if consumer sentiment further deteriorates and interest rates push higher.
(2) Intangibles on BS are big, further non-cash write-downs are almost inevitable, and may spook the market a bit more.
(3) RSI at 48, would prefer if it were lower

Not a long-term buy and hold, and certainly outside my ordinary sphere of focus given the level of non-ownership by management, but negativity around the stock affords a decent probability of gain in the near term.

I’d add aggressively to my small position if the share price slips below $0.65 before (hopefully) heading north again. I'd start to exit above 95 cents.

MYR looks a bit like NEC back last year / earlier this year – unloved, oversold. That one came back.