Summary

• Earnings grew by 304% over the past year
• Shareholders have been substantially diluted in the past year
• MBH has a great PE ratio (4.54x) in comparison to the consumer services industry average (15.1x)
• MBH future earnings and revenue growth is estimated to be around 13.4%, which is better than the industry (9.5%) and market (4.8%) estimates
• Added a fourth vertical
• MBH stock is undervalued

MBH Corporation added a fourth vertical “health” with its latest acquisition of Samuel Hobson House. This acquisition is part of the company’s agglomeration “buy and hold” strategy wherein, the company acquires 100% of 15–20 new subsidiaries in all-share acquisition across multiple geographies and sectors every year. The company now has a presence in health, education, construction, and engineering services.

The company settled the purchase consideration in form of loan note of GBP 1.8 million (not payable for 3 years) and GBP 150000 by way of issue of shares at Euro 1.47 per share. This will end up diluting the value of already diluted shares.

The price of the share has seen heavy fluctuations. The share was trading at Euro 1.35 on December 3rd, 2018 and the price was steady till the end of April when it was trading at Euro 1.36 on April 29th, 2018. The share price saw a slight peak with the price reaching Euro 1.58 on May 13th and June 24th, 2019. After reaching the max share price the share has seen a volatile downward trend and the share is currently trading at the lows of Euro 0.53. To truly understand MBH’s performance we have to look at the PB (Price to book value) and PE (Price to Earnings) ratio of the company. Traditionally any value under 1 is indicative of an undervalued stock and considered a good value.

PB ratio
Book Value per share (as per co filings 6/30/2019 in GBP) — 0.97
Share price in Euro 1/16/2020–0.53
Share price converted to GBP (Exchange rate 0.852) — 0.45
Europe Consumer service Industry PB ratio (Source — Median Figure of 23 Publicly-Listed Consumer Services Companies) — 2.36x
Germany market PB ratio (Source — Median Figure of 574 Publicly-Listed Companies) — 1.86 x

PB Ratio Calculation — Market share price/Book Value per share = 0.45/0.97 = 0.46x

MBH is a good value stock based on its PB Ratio (0.5x) compared to the European Consumer Services industry average (2.3x).

PE ratio -
Earnings Per Share (as per Company Filings (6/30/2019) in GBP)- £0.098
MBH Share Price (as per DB (1/16/2020) in EUR) — €0.53
MBH Share Price converted to GBP (Exchange rate (EUR/GBP) 0.852) — £0.45
Europe Consumer Services Industry PE Ratio (Median Figure of 14 Publicly-Listed Consumer Services Companies) — 15.21x
Germany Market PE Ratio (Median Figure of 403 Publicly-Listed Companies) — 20.62x

Calculation
PE Ratio for MBH- Share Price ÷ EPS (both in GBP) = 0.45 ÷ 0.098 =4.54x

MBH is a good value based on its PE Ratio (4.54x) compared to the Consumer Services industry average (15.21x) and compared to the German market (20.6x). Generally, a high PE ratio of stock in comparison to industry average is considered better as it means the consensus of the market is that the company is going to do better than the market and as a result deserves to be valued at a premium. However, a low PE ratio can also mean that the company is undervalued and the growth potential is unknown to the market. MBH is a fairly new company that is deploying resources to gain a foothold on the market. Forming an opinion on the basis of performance in its formative year would be a disservice to the company and its agglomeration strategy.

Another reason for the fall in the share price of MBH might be the result of the disappointment of shareholders due to the non-disbursement of dividends last year. The company is in the formative stage and is looking to grow organically by retaining earning and using the retained earnings to strategically acquire companies. The company was first listed at the stock exchange in November 2018, hence 2019 was its first year as a public company. The company achieved a staggering growth rate of 304.5% since becoming public. It is a commendable feat for MBH as during that time the industry grew at 43.5% and the market grew by 3.2%. The company’s forecasted annual revenue growth is 13.4% per year and is expected to make a revenue of GBP 96.8 million during 2020 and GBP 99.5 million during 2021, which is faster than the German market (4.8% per year).

Current stock price is not reflective of the growth potential of the company and is expected to outperform the market expectations. It would be a good idea to buy MBH stock.