Quick Random Thoughts – MTU and Grantham
I attended the M2 Telecommunications AGM yesterday afternoon. I had a couple questions to ask, but before I could Vaughan Bowen addressed them all in his CEO presentation. M2 well positioned for the NBN roll-out, with an organisation built around the low margins of a re-seller. Speaking of margins Bowen reaffirmed guidance and made it clear they would enjoy margin expansion this year. While that was obvious from their guidance of earnings expanding faster than revenue, it was good to hear that their focus is on profitability. I think that is a distinction that many CEOs fail to really internalise.
MTU’s Net Profit Margin over the last five years show that they have room to grow from 2010′s 4%; 2005 -2010 7.67%, 6.56%, 5.52%, 4.73%, 3.69% and 3.98% in 2010.
Bowen made it clear that M2 value their employees and are proud of the $1M per employee they generate. Many senior executives fail to truly appreciate the real value of their companies doesn’t appear on the balance sheet, it walks out the door each day. Bowen clearly gets it. In other MTU news the Cornish Group increased their ownership and now own 6.09% of M2. MTU currently sits in my valuation sell zone, yet I’m going to continue to hold as my admiration of Bowen and his team continues to grow. They could be one of the winners from the NBN transformation.
In other news Jeremy Grantham from GMO published his quarterly report this week. GMO’s seven year forecast also came out this week. Both are essential reading. Australian residential investors should at the very minimum flick to the last page. Grantham reiterates that the S&P500 could hit 1400-1500 in the next year, while he says 50/50 chance he goes on to speak about the danger of providing such probabilities. My takeaway from this is that as soon as widely followed and respected people like Grantham mention upside targets then the market starts to believe they could be achieved and thus a path of least resistance is formed.
I still see inflation as the end game, though how to profit from it is more elusive.
I’ve been looking at a few small cap companies lately, but haven’t found any screaming bargains. I’ve got a few Australian small caps on my watch-list, including MCE, VDM, TFC, ZGL and HLD, and am hoping for a market pull back. My dream scenario is for the S&P500 to climb higher to Grantham’s 1400-1500 range, at which point I would go to cash and then practice patience.
A couple friends have asked me about the QR National IPO. My lazy response is that if it was a good deal they wouldn’t be flogging it so hard in the media. If you want a more informed view then Roger Montgomery blogged about it a few weeks back. A finance professor also commented that he did not know any finance academic who was interested in the IPO.
Disclosure: Long MTU.AX
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