Resetting the bar
MPAC (formerly Molins) is a specialist provider of high speed packaging machines (76% of sales) and complementary services (24%, eg spares/maintenance) with c. 350 staff.Selling high-value packaging machinery to large corporates can sometimes feel like ‘threading the needle’. For the vast majority of the time everything runs like clockwork - however occasionally unforeseen problems crop up. Indeed, at this morning’s pre-close trading statement MPAC revealed it had encountered some technical challenges on two legacy contracts which would result in “material†cost over-runs this year.
Moreover, despite the positive start in Q1, overall business sentiment has since “softened†due to “general economic as well as Brexit related uncertainty†- leading to extended customer purchasing decisions and weighing down on pipeline conversion.
Clearly this is not ideal and illustrates once again the importance of the firm’s strategy to reduce its exposure to ‘lumpy hardware’ bookings, shift more towards recurring service revenues and migrate further up the value chain. In fact, we were encouraged to hear there are no more onerous contracts, and the current order book is of a “higher quality and lower project complexityâ€.
In terms of the numbers, we have reduced our 2018 EBIT forecast by £1.3m to £1.5m on sales of £57m and trimmed the 2019 LFL growth rate from 10% to 6% - consistent with the broader market. Similarly, the valuation drops from 225p to 170p/share. That said, we see significant upside to our projections in the event the Board’s strategy can be successfully implemented in terms of achieving 10% organic topline growth alongside 10% EBIT margins (vs estimated 2.8% 2018).
Mpac Group is focused on its Packaging Machinery business, Mpac Langen, which designs, precision engineers and manufactures packaging solutions, machinery and high specification automation, secondary packaging equipment and end-of-line robotics and at-line instrumentation and testing solutions as well as providing solutions including the design and integration of packaging systems.
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