The last time I wrote about MaxiTRANS Industries Limited (ASX: MXI) was just after its first half results in April.
At the time I suggested investors avoid the stock, as management advised that dividends were expected to fall and that second-half profit would come in substantially worse than the 50% decline that was experienced in the first six months of 2015.
Unfortunately, that market update proved fairly indicative of what shareholders received when the company reported Friday afternoon:
The What:
- Revenue fell 6.5%
- Net Profit After Tax (excluding significant items) fell 63.1% to $6.3m
- Net Profit After Tax (including significant items) fell 73.7% to $4.5m
- Earnings per share were 2.43 cents, down from 9.16 cents in 2014
- Maxitrans share of the trailer market improved
- Strong revenue growth of 39% in New Zealand, albeit from a small base
- $4.3m cash at bank
- $47m in interest-bearing liabilities, with interest cover* of 4.2 times
- 'Subdued' outlook for 2016
So What?
Falls in revenue and earnings reflect more aggressive discounting and pricing strategies as well as declining demand from certain sectors. It was no surprise to see a 53% decline in tipper sales compared to 2014, and while Maxi suggests their new VersaBOLT tipper product will cause sales to rise again in 2016 I don't see it having a major impact.
On other fronts the demand for refrigerated vans is a positive sign and shows that the company has alternatives to selling products purely for mining purposes. Similarly growth in New Zealand was a positive and I am left with the impression that Maxitrans is competing successfully on price with its competitors.
However, this is also a double-edged sword as the business appears to be trading on razor-thin levels of profitability, especially if the performance in the second half is the 'new normal' going forwards.
Debt rose meaningfully during the year and with negative free cash flow, it is likely to continue rising unless management is able to trim back capital expenditure – which might shoot the business in the foot by delaying new products and facilities.
Now What?
As I wrote back in April, I again suggest that shareholders steer clear of Maxitrans for the time being. Trading on a Price to Earnings (P/E) ratio of 16, it still does not appear cheap given the number of alternatives available for a similar valuation.
When you're investing for the future – which, really, is the definition of investing – it is better to play it safe than take risks with companies being punished by forces outside their control.
