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A Tale Of Two Halves!

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Management Resource Solutions 

The last three months have seen Management Resource Solutions enter a period of intense volatility after investors lashed out in response to its purchase of a loss-making business called Alerion Consulting for £1.32m. With shares sitting close to all-time lows at 2.65p, this article goes some way to explain the contentious events, allowing investors with an appetite for risk to decide for themselves whether the company currently represents good value.

Questions asked

To recap, MRS is a maintenance, fabrication, civil, and earthworks organisation. The firm’s operations primarily span two subsidiary businesses.

The first, MRS Services Group, operates in Hunter Valley, New South Wales, where it offers a wide range of mining services. These include equipment repair, refurbishment and fabrication, mine rehabilitation, earthmoving, and road construction. The division serves many types of clients. However, it currently makes around 90pc of its turnover from blue chips like Rio Tinto, BHP, and Glencore.


The company’s second arm is Bachmann Plant Hire, which operates west of Brisbane in Ipswich. The division is the area’s market leader for bulk earthworks in the civil construction industry. It also builds and rehabilitates residential and urban building pads, sports ovals & dams, and landfill sites.

After a relatively successful first half to its financial year that saw group revenues, EBITDA, and net profit before tax increase, MRS fell from 4.6p a share to 2.4p over a matter of days in April.

The trigger for this decline was the news that a new subsidiary of the firm called Ariel Survey Solutions would purchase a business called Alerion Consulting for £1.32m. The payment would be satisfied by the issue of 26.4m ordinary MRS shares at 5p each. MRS also announced that its founder Elliot Talbott would join its new subsidiary under an initial one-year service agreement to build up its uncrewed aerial vehicles operations.

Alerion owns the rights to a program called Aerial Cinematics, an uncrewed aerial systems-based photography, mapping, and surveillance systems design product. Upon announcing the deal, MRS said Alerion’s technology would boost all of its existing operations, providing the precision aerial mapping of open-pit mines and earthworks among other benefits.

However, investors were alarmed that the business, which is now worth just £5.4m, paid more than £1m for a firm with c.£48k of tangible assets that have lost £88,000 since being launched in August 2018. 

Damage limitation

The weeks that followed saw MRS enter damage limitation mode, going to great lengths to sweeten sentiment. Firstly, on 3rd April, the business’s non-executive chairman purchased £110,360 of shares at a low average price of 2.48p, presumably demonstrating his continued belief in the firm’s prospects.

Then, the business released a lengthy and unusual update on 15th April in which it reiterated its commitment to the Alerion transaction and shared further detail of relationships. (click here to read the RNS)

Finally, MRS announced that it was commissioning its legal advisors to draw up a report into the relationships of its shareholders and any potential conflicts of interest.  The business also commissioned an independent report into the bases and assumptions underlying its valuation of Alerion. As of 12th June, the results of both reports had not been released, with MRS advising at the end of May that the legal report should be released towards the end of June and the valuation reports ‘no later than early July’.

Despite the release prompting an increase in MRS’s share price, the confirmation of previous ties between the firm and Alerion served only to make investors question the acquisition valuation further. The whole debacle triggered a host of activist activity.

In April, a group of shareholders requisitioned a general meeting demanding an immediate change of the board’s composition, In response to the requisition, MRS chief executive Paul Brenton advised remaining shareholders to vote against the proposals, adding:

‘Various allegations ranging from bad judgement to conflicts of interest have been levelled at the board in relation to the Company’s acquisition of Alerion, all of which are categorically denied. An independent valuation of Alerion and an independent legal review of the board’s procedures leading up to the acquisition have been initiated and the conclusions of both will be announced as soon as they are available.’

Elsewhere, shareholders also voted against a special resolution to allow MRS directors to issue shares for cash, in certain circumstances, without being required to apply pre-emption rights.

Toing and froing

The response to the requisition in the weeks that followed was bittersweet for the requisitioners. At the beginning of May, MRS announced that Mr Zorbas would step down from the business. However, it also announced the appointment of two new independent non-executive directors.

Ultimately, shareholders rejected all of the requisitioners’ proposals – with each one receiving roughly 75m votes in favour and c.91m votes against. In response, Brenton said:

I am pleased that these resolutions have been put behind us and that the focus can now be on growing MRS successfully for the benefit of all shareholders. As announced on 2 May 2019 there is a board succession plan in place and we will move swiftly to announce the first of our new non-executive directors.’

Where next?

So, that brings us to the present day and Against a backdrop of recent shareholder activism, Brenton has called for calm ensuring all relevant reviews would be sought independently of the company in order to satisfy the concerns raised by shareholders of the company attempting to coalesce all parties moving forward.

The amount of background noise surrounding the business at the moment seems to show the path of most resistance, however, the fact remains that MRS has, for a long time, been one of those stocks that attract a lot of retail interest. If the more risk-hungry punters out there think it can emerge from this challenging chapter intact, then the fact that its shares are currently sitting close to all-time lows could be of some interest.

The author holds no shares but was remunerated