Headquartered in Windsor, Morgan Advanced Materials (MGAM) supplies a range of high-performance products to industries as diverse as metal processing, cement making, glass and ceramics, power generation, health care, the aerospace sector and even semiconductors.
Generally, we tend to prefer higher-margin ‘asset-light’ businesses to those in manufacturing, and admittedly MGAM’s earnings have been ‘lumpy’ in the past, in line with the business cycle, which makes this a slightly contrarian call.
Indeed, the firm’s first-half results published last month contained several references to ongoing weakness in its end-markets due to ‘global uncertainty’.
However, we were encouraged by new chief executive Damien Caby’s decision to clear the air and reset earnings expectations for the year at the low end of market forecasts.
Caby, who joined MGAM from German chemical giant BASF in 2022 as president of the Thermal Products division, and took over the top job at the start of July, has been part of the drive to simplify the company and optimise its operating processes.
Therefore, it was little surprise when after less than two months in the hot seat he announced the sale of the Molten Metal Systems unit, part of the Thermal Products division he used to head.
The deal will see MGAM receive £75.8 million, or 14.6 times 2024’s operating profit, in a mix of cash and shares, and frees the company up to invest in higher-return businesses in faster-growing markets, like its semiconductor division, while reducing the total amount of capital spending needed to keep the group’s operations ticking over.
As well as self-help measures, we see positive tailwinds for the company over the next few years in the form of falling input prices, in particular energy, and falling interest rates, which will help reduce the cost of the firm’s net debt.
Assuming Stockopedia’s revised earnings forecasts are roughly in the right ballpark, the shares are currently trading on a multiple of just under 10 times this year’s profit, falling to just over nine times next year’s profit.
Although growth will take a while to come through, we think the valuation is attractive given the strength of the group’s underlying businesses, its trusted relationships and its diverse global markets.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
magazine
