And now for that eternally present, but never resolved riddle: why are Mitchell Services shares constantly trading at a noticeable discount vis-a-vis peers?
Stockbroker Morgans adds this is once again the case, despite a “very strong” looking outlook for the drilling services provider. The broker also points out there might be a suitor appearing at some stage, given that steep valuation discount.
Rating: Speculative Buy, with M&A upside potential. Target $0.66.
And now for that question: why the persistent discount?
Morgans offers a few possible explanations, beginning with the company’s relatively smaller size while low liquidity likely restricts institutional investor interest. But also: the SMS dispute possibly raised concerns about potential inter-related transactions.
However, company management’s recent preferencing of growth over shareholder returns aligns with the motivations of micro-cap investors and is a less plausible driver of the discount, in Morgans’ view.
Sector: Capital Goods.
Target price is $0.66.Current Price is $0.38. Difference: $0.28 – (brackets indicate current price is over target). If MSV meets the Morgans target it will return approximately 42% (excluding dividends, fees and charges – negative figures indicate an expected loss).
