Monday, January 14, 2013

MTQ

MTQ: DMG Initiates Coverage at Buy, with TP $1.66. House note that MTQ’s core business of oilfield equipment servicing is booming due to the high rig utilisation worldwide, it is trading at only 5.6x FY13F EPS vs peers at 6-19x. This sharp undervaluation may be the result of low liquidity, which is not a fundamental worry. All the indicators (profitability, balance sheet, cash-flow, valuations) are positive, and the step-up to another record-high core profit should be the catalyst to a revaluation. 20% ROE. Strong cash generator. 4.3% yield and rising. MTQ has been steadily profitable through the GFC, and earnings are now jumping to a new level. The co generates strong operating cash flows with modest capex requirements. Dividends have increased from 2¢ in 2008 to 4¢ in 2012. expect the dividend to be raised to 5¢ this year on the back of record earnings. House value MTQ at 8x FY13F EPS, at the low end of peers’ multiples due to its small size. Assumed breakeven profits in Neptune until further clarity emerges, and this provides a large upside potential to estimates. The strong cash flow of the MTQ business plus NMS yields a DCF-value of $2.00 at 11.5% WACC.

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