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Mincon shares look cheap right now. Is it time to buy as the outlook improves?


Mincon [LON:MCON] [ISEQ:MIO], the Irish and AIM-listed engineering company is due to publish its full-year results to the end of December on Monday (11th March).

The company’s share price has been somewhat in the doldrums since last August, closing 1st August 2023 at 90.75p before dropping off a precipice to land around 54p on 3rd March the lowest it has been for around five years. Over one year the company’s shares have fallen over 40% in value.

Mincon manufactures hard rock drill bits and equipment for the mining and construction industries globally and self-styles itself as ‘The Driller’s Choice’. It was founded in Shannon, Ireland, in 1977. Today the company operates in multiple countries, close to mining hubs including Australia, Canada, Finland, Sweden, South Africa where it has manufacturing facilities, as well as the UK and US.

Performance tied to health of mining sector

The company has waxed and waned according to the health of the mining sector and is in many ways a bellwether stock for mining. As the industry contracted, especially on the African continent, revenues dried up to a trickle and a slowdown in North America didn’t help.

In August the Irish engineering company published a disappointing set of results at the half-way point of the year. Revenue fell over 5% year-on-year to EUR80.6m (GBP68.9m), gross profit took a 5.5% tumble y-o-y to EUR25.6m and operating profit was down EUR1m to EUR7.8m.

Mincon’s CEO, Joe Purcell admitted that the first half of the year had “been a challenging period” with revenues down year-on-year and attributed this to a slowdown and reduced sales to the mining sector, as exploration activities came under pressure and funding dried up, and unfavourable foreign exchange conditions.

Signs of life in construction

Purcell also noted that Mincon’s larger customers had also used what he described as “improved freight conditions” to reduce the inventories that they had been building up. Although mining was something of a busted flush in the first half of the year, Mincon did see activity in construction, especially amongst smaller construction projects, which has helped to diversify revenue generation away from the slower-moving mining sector.

The Irish company has reacted to the slowdown by reducing its costs, and the efficiency savings, said Purcell, will start to feed through to the bottom line in the second half of the year and, said the CEO, should “help […] to recover margins”.

Despite the setback, Purcell was still fairly upbeat, he said: “In the short term we expect to deliver revenue growth in [the second half of the year], while also realising the benefits of our cost reduction program to deliver a much-improved margin in 2H23 over 1H23.”

However, rolling forwards another three months to the end of September, the challenging conditions that Purcell noted in the first half of the year were still loitering around in September.

As opposed to turning things around, Mincon’s group revenues contracted further in 3Q23, falling 7% behind revenues from the same period in 2022, which the drilling equipment manufacturer attributed to further contractions in the mining sector, again highlighting exceptionally poor performance in Africa.

Mincon also had North American hopes dashed, with two large construction projects that were supposed to break ground in 4Q23 not going ahead as planned, with one cancelled outright and the second pushed back to sometime in 2024.

On the bright side, in the third quarter Mincon managed to improve its working capital and reduce its debt by clearing some of its inventory, but lower demand led to lower factory output and lower gross margin for the year.

Fourth quarter to the rescue for Mincon?

Nevertheless, the company still hopes that the fourth quarter will save the year. Management believes that despite those challenging conditions sticking around like a piece of toilet paper to the bottom of your shoe, where demand will remain depressed in Mincon’s two main markets – construction and mining – that 4Q23 performance will lift the company’s year and expects to achieve full year EBITDA ahead of previous guidance of EUR20m.

We will see come Monday, but arguably Mincon will pick up as the recession recedes, the demand for commodities revives and interest rates fall, allowing Mincon’s customers to access affordable debt to progress the early, hardest-to-finance stages of their mining or building projects. Arguably Mincon is trading at a discount and might be worth a moderate punt whilst share prices are still cheap.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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