Undervalued Bricks and Payment Services - Michelmersh and PayPoint
Michelmersh Brick Holdings (LON:MBH) – results due soon offer buying opportunity
With its Interim Results to end June due to be announced on Tuesday 5th September, it may well be a good time to take another look at this brickmaking company.
Capitalised at around £85m this company is not only the UK’s largest specialist brick manufacturer, but it is also the fourth largest brick maker in the country.
Established in 1997, the Haywards Heath-based company produces over 122m clay bricks and pavers each year.
Operating at the premium end of the market, the company currently owns most of the UK's premium manufacturing brick brands.
It has seven market leading brands: Blockleys, Carlton, FabSpeed, Freshfield Lane, Michelmersh, Floren.be and Hathern Terra Cotta.
These divisions operate within a fully integrated business, combining the production of premium, precision-made bricks, pavers, special shaped bricks, bespoke Terra Cotta products and prefabricated brick components.
The group also includes New Acres, a landfill operator, and seeks to develop future landfill and development opportunities on ancillary land assets.
In the AGM Trading Update issued on 18th May the group stated that it had made a robust start to 2023, and combined with its balanced forward order book, it remains on track to meet full-year expectations.
It continued to add to its quality forward order book with resilient order intake for its broad product portfolio from the group’s loyal customer base and distributor relationships across its end markets, whilst production volumes have continued in line with expectations.
Obviously, the construction sector as a whole has been impacted by higher interest rates tempering demand, however the company offset such effects by appropriate portfolio pricing to maintain an end market spread in its forward order book drawn from the social and specification housing, RMI, new build and commercial sectors.
Analyst James Wood at Canaccord Genuity Capital Markets still rates the company as a Buy, fixing a Price Objective of 180p on the shares.
His estimates for the current year to end December are for sales to have risen to £83.5m (£68.4m), while fractionally edging its adjusted pre-tax profits to £12.8m (£12.5m) for the period, leaving earnings at 10.4p (10.6p). while paying out an unchanged dividend of 4.3p per share.
Wood sees a gently better year in 2024, with £85.7m revenues, £13.4m profits, 10.7p earnings and a 4.5p dividend.
Those estimates put the shares out on a 35%-40% discount to its sector peers.
That looks unjustified considering its robust control and management of costs.
Last night the group’s shares closed at 88p, still some way off my Target Price, however the quality of this group deserves a far better rating than it has currently, my price aim remains totally firm.
(Profile 27.03.2023 @ 91p set a Target Price of 115p)
PayPoint (LON:PAY) – another ‘pure money machine’
For tens of thousands of businesses and millions of consumers, this group delivers innovative technology and services aimed at making life a little easier.
The company serves a diverse range of organisations, from SME and convenience retailer partners to local authorities, government, multinational service providers and e-commerce brands.
The company’s products are split across four core business divisions: Shopping, E-Commerce, Payments and Banking, and Love2shop.
In Shopping the company enables payments and commerce for the public and private sector, connecting millions of consumers with over 60,000 retailer partner and SME locations.
It provides digital solutions, technology and payment services for SMEs and retailers to deliver vital community services, through retail services such as EPoS, FMCG, Counter Cash, and ATMs, while also providing Card payments and Home delivery.
Its clients include the Co-Op, Euro Garages and the Booker Group.
In E-Commerce it provides a technology-based delivery platform to deliver best-in-class customer journeys for e-commerce brands and their customers over the ‘first and last mile’, covering Collect+ for parcels pick up, drop off and send.
Its clients include Amazon, DPD and EBay.
In Payments and Banking it delivers a channel agnostic payment platform that gives clients and consumers choice, through Digital payments – MultiPay and PayPoint OpenPay, Cash through to digital payments – eMoney, and by Cash payments – bill payments and top-ups.
Its clients include TV Licensing, E-ON and Monzo.
The Love2shop side provides employee and customer rewards and prepaid savings solutions to thousands of consumers and businesses, through its Love2shop digital platform and through its Park Christmas Savings, which is the UK’s biggest Christmas Savings Club.
Its clients include Primark, Argos and Aldi.
The group recently issued a Trading Update for the three months to end June, declaring another positive quarter where it delivered further net revenue growth across the company and continued the strong performance that was seen in the full year to end March 2023.
CEO Nick Wiles stated that:
“Our compelling characteristics of strong cash flow and resilient earnings remain constant, and our materially enhanced platform is positioned to deliver sustainable and profitable growth for our shareholders, and further progress in the delivery of these objectives in the current year.”
Analyst Joe Brent at Liberum Capital rates the group’s shares as a Buy, setting a Price Objective at a massive 1100p.
For the current year to end March 2024 he is estimating sales to increase to £176m (£129m), lifting pre-tax profits up to £64m (£50.8m), earnings better at 66.41p (60.32p) and a dividend of 40.25p (37.00p) per share.
For the next year he has £182m sales, £70.0m profits, 72.65p earnings and 42.04p dividend per share.
We shall just have to wait until November to see just how well the first half year will have traded, however before that the group will be holding its 2023 AGM on Thursday 7th September, which could well see another Update.
However, in the meantime I look forward to seeing the £407m capitalised group’s shares, now trading at only 560p, gradually moving back over the 600p mark and heading to somewhere close to my Target Price, which currently is looking somewhat adrift.
I like the feel of this group’s cash generation and the enormity of its marketplace.
(Profile 17.02.21 @ 598p set a Target Price at 750p)
(Asterisks * denote that Target Prices have been achieved since Profile publication)