Thanks Madamswer,I understand that manufacturing utilisation at...

Thanks Madamswer,

I understand that manufacturing utilisation at $100m - $120m was circa 70% - 80%.

As you've rightly alluded to the manufacturing site has been leased back negatively impacting OPEX and margins. The other side of the coin is that most of our competition has exited the market with the cycle turning. During peak times we needed to compete on price negatively affecting gross profit margins. This cycle has now turned in our favor with diminished competition with weak balance sheets and limited manufacturing utlisation.

Lastly if we do move into a prolonged period of increased production and exploration spend (which I think we will) companies will try enter. Entry into this industry is a capital intensive process with long leads times to execute on revenue even once established. I would argue that MCE has a moat around its forward earnings from capital exiting the industry and the high barriers to entry. Its also possible that MCE consolidates the industry to further solidify this positioning. Its unclear whether this is a better source of capital relative to growing organically.

The share of the subsea market has diminished greatly and only a select few stand to benefit from a mean reversion in offshore production and exploration spend. What is different for MCE from then to now is two fold, 1: diversification of earnings & 2: offshore wind. Both these variables I would argue require a more favorable EV/EBIT (x) paid for the business.

Its difficult to value MCE due to the movement in gross profit margins. What I am speculating on is the cycle reverting back to say 70%-85% of the 2011 year. Its also possible that corrosion and materials grow materially if the heavy equipment capex & commodity cycle continues. I consider the risk/return proposition very favorable and have positioned myself accordingly.