MRS – CEO Paul Brenton

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Management Resource Solutions CEO Brenton on where the services firm is headed next

This year has seen Management Resource Solutions (LSE:MRS) emerge from a period of turmoil with numerous developments across its mining services and earthworks divisions. However, despite this increasing newsflow, the firm’s shares have struggled to advance for any sustained period. We asked chief executive Paul Brenton to talk us through recent developments, synergies and future plans to get a better picture of where shares could be headed.

Multi-purpose

MRS currently splits its business into two main divisions. The first of these is MRS Services Group (MRSSG), which is based in a  mining region in New South Wales called Hunter Valley. MRSSG is one of the largest employers in the Hunter Valley, with over 300 skilled employees, offering a wide range of mining services like equipment repair, refurbishment and fabrication, mine rehabilitation, earthmoving, and road construction. It serves many different types of clients in Australia but currently generates around 90pc of its revenues from blue-chip miners like Rio Tinto, BHP, and Glencore.

After experiencing some teething difficulties following its acquisition in October 2016, MRSSG generated an A$1.9m profit in the six months ended 31 December 2017. Since then, MRS has furthered strengthened the division.

For example, in May, the firm bought the facility it had been renting as MRSSG’s operating base for $3m. It now plans to spend another $2m on additional developments. Then, in June, MRS announced that mining giant Glencore had awarded MRSSG a three-year, re-tendered contract. The agreement will see it provide labour, equipment, and materials needed for clearing and rehabilitating a mining site. Finally, in July, MRSSG was awarded another three-year contract by Glencore to deliver a final geo fluvial landform design. To meet the growing demand, MRS acquired a number of key plant and machinery, increasing its capabilities by at least 15%.
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MRS’s other arm is Bachmann Plant Hire (BPH).  Based in Ipswich, west of Brisbane, BPH has been operating for over 40 years, employing over 100 skilled operators and is well known as the market leader specialisng in bulk earthworks for the civil construction industry. It also provides residential and urban building pads, constructs sports ovals & dams, and rehabilitates landfill sites. In the last six months of 2017, BPH generated a $1.8m profit, up from $0.9m in the same period a year before.  Although the business operates at historically high levels of utilisation, considerable progress through continuous improvement & integration programs have positioned the business to execute and deliver better capital returns

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In July, MRS purchased a new plant and machinery for BPH to providing  15% additional capacity and functionality. Then, in August, BPH was awarded a 12-month contract with BMD Constructions worth $3m. The deal will see it carry out civil project works required to complete the excavation of a 500,000 cubic meter lake. Finally, last month, BPH won a $2m contract with Australia’s government for a project in the country’s Northern Territory. These contracts are significant for BPH for a number of reasons

  • the usual contracts are generally $200k to $400k, these are substantially larger
  • not the usual residential property contract
  • not in the usual geographical location

Bringing it together

Over the last 12 months, the business has also been working on bringing its two divisions together by aligning capabilities,  leveraging group purchasing, and restructuring senior management. Indeed, MRS now has group HR, asset management, procurement, and financial management functions. Brenton said the work has cut costs and enabled MRS to enter new areas, as evidenced by the BPH government contract:

‘Over the last 12 months, the key has been bringing together the two parts of MRS as opposed to having them operate in isolation. We and our customers are now starting to see the benefits of bringing the two sides together as we are now attracting new work and looking at areas we previously would not have been able to consider. For example, we recently won the government job up in the Northern Territory, and there are a lot of other bits of work we have taken on and are looking at, which is fantastic.’

Moving forward

With revenue-generating contracts and cash in place, Brenton expects to report progress on both a company and macro level across the entire organisation over the next year and beyond. For example, at BPH, he intends to extend capacity to keep up with an anticipated jump in government expenditure:

‘The work we have done is really increasing our visibility, so we are looking to leverage this by investing in good quality equipment and bringing through our best talent so we can continue growing the business. Alongside this, the government, particularly in New South Wales, is forecasting record levels of infrastructure spend in areas like rails and roads over the next ten years. We will look to win this as a way of growing.’

Meanwhile, he said strong mining activity are favouring the firm’s services arm in Hunter Valley. Beyond this, he said the business will also look to take its services model to other, similar areas:

‘We are one of the major suppliers for work at Hunter Valley so, while the strong mining activity helps our existing contracts, as firms commit to repairs and maintenance, there is only a limited amount we can grow within one area. As a result, we are looking to take our services and offer them up in other areas where there is a lot of government work and large mines. If the right opportunities come up and make commercial sense, there we are ready to take advantage of them.’

Finally, he said MRS will continue to make the most of synergies between its two arms as it expands:

‘With the two divisions coming together we can easily make the most of our equipment by moving it between sites as and when it is free. These synergies are significant as we look to keep costs down moving forward.’

Potential re-rate?

Despite its progress, MRS has struggled to move past 9p since soaring in December after settling legacy issues. What’s more, recent weeks have seen shares languish around 7p  So, with its current c.£14m market cap partially covered by cash (it raised c.£1m in July) and the value of recent contracts, what could see the market ascribe more importance to MRS’ portfolio? Brenton tells us the answer could be imminent:

‘The share price has been difficult for us as there are so many things we are working on in the background that we haven’t been able to put out to the market. I think these will have a very positive influence on our share price and will usher a new period for the business where we will be able to deliver news to investors much more frequently. We are moving from strength-to-strength, and I am looking forward to the months ahead.’

The author does not hold shares but was remunerated


Categories: Bulletin