"Madamswer I'd be very interested in your view on MVF. My...

"Madamswer I'd be very interested in your view on MVF.
My personal view is that it is way undervalued but the public brawls between senior staff hardly make for an investment grade opportunity.
Currently we are waiting to let a court decide (27/7) if the Clinical Director can walk away from her contract and set up her own practice while her main protagonist, the CEO, has also resigned. Not the best recipe for confidence."



@Patient,

Like you, I think the stock is interesting, but - somewhat unlike you - I don't think it is undervalued, let alone "way undervalued".

I suspect you might be taking your valuation cue from the stock's P/E multiple which is currently around 12.5x, according to my modelling, which does not provide for any cyclical rebound in demand for MVF's services over the next 12 to 18 months.

Of course, you could say that 12.5x P/E for a 30% EBIT Margin, 20% ROE business does look cheap and it is certainly not pricing in any cyclical rebound, anyway.

But what that overlooks is that the company - like its peer, VRT - carries a reasonable slug of debt which, at the current record low interest rates, is not captured properly by vanilla P/E multiples.

As case in point, on an EV/EBITDA basis - which does incorporate the borrowings into the valuation framework - the stock is trading on 9.0x.

For a company of this apparent quality, financial pedigree and market position (which are decidedly above-average), I would probably be happy to pay 10x EV/EBITDA, or possibly even 11x, if it came with a somewhat longer operating and financial history for me to be able to assess the performance of the business across more than just one business cycle.

But because the stock has only been a listed company, hanging its laundry out in the public for all to see, for just a few years, this detracts from my notional full-value EV/EBITDA multiple of 10 to 11 times.

Viewed in terms of a "business owner" mindset, with a focus on Free Cash Flow generation, the stock is trading on 7.3% FCF Yield (based on Market Capitalisation) and 5.8% FCF Yield (based on Enterprise Value).

In other words, for me to buy the business now, it would take me some 17 years (1.0/5.8% FCF Yield) to theoretically recoup my capital (including retiring all of the debt).

While a 17 year payback is not an eternity, it is not a no-brainer, either.

So, if I put all of the valuation metrics discussed above into my mincer-mixer-shredder-liquidiser, I come to the view that the stock is cheap-ish on some metrics (P/E) and fairly-valued on others (EV/EBITDA and the one that carries most weight in my mind, namely FCF Yield on EV).

All-in-all, however, I come to the conclusion of:

Fair Value, No Investment Opportunity.

It is a stock that I will continue to monitor patiently in case some extraneous development drives the share price down to the valuation level at which I will feel comfortable buying with conviction.


"I have seen many long term holders walk away from MVF in frustration. I am not sure they're wrong."

I never invest on the basis on what others are doing. I find it just muddies the water.