MS International (LSE:MSI), a British engineering company, is selling at a low price relative to its past earnings, its net current asset value and its earnings power. I have bought shares at an average of £1.292 for my Buffett-style portfolio (Market Capitalisation is £1.292 x 16.5m shares = £21.3m).
MS International has two economic franchises:
(a) specialised defence equipment, mostly unique naval guns,
(b) dominant position in building and maintaining petrol station superstructures in Europe.
It also has a business forging forks for fork-lift trucks, but this is not a franchise.
There is a strong business in corporate branding with a particular emphasis on petrol station branding (signage etc.). I’m not sure if this qualifies as a franchise because, although it had two terrific years, already earning back the €3.4m (£2.6m) paid for it in June 2015, I’m not sure if it has sufficient dominance of its industry?
There are three characteristics of a franchise business according to Warren Buffett. The product or service is:
Good in the past, and strong balance sheet
MS International is a family-run firm with very experienced managers, most of whom have been with the company for decades. I have followed MSI for years and so have been witness to many managerial statements and subsequent events - there is no dressing up announcements, or over-promising and underdelivering. They just get on and tell it like it is.
I’ve also met the directors and concluded that they are likely to act with decency regarding the interests of minority shareholders (although they do tend to pay themselves very well).
The four businesses, taken singly, are not especially stable, with falls into losses from time to time. But diversity helps to stabilise overall Group profits, most of the time. Average profits after tax over the last ten years amount to £2.76m.
The balance sheet is exceptionally strong, with no debt and £14m………………To read more subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1
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