79% upside vs our 120p/share price target
​This morning Molins reported 2015 results that were in line with market expectations, delivering revenues, adjusted PBT, EPS and net debt from continuing activities of £87.0m (-0.4%), £3.8m (-29.2%), 15.1p (-32.6%) and £3.2m (up £1.1m) respectively. The YoY decline was principally caused by a sharp contraction in demand across its Tobacco machinery and Instrumentation activities.
In contrast, the company reported a strong performance from its Packaging Machinery division, where operating profits more than doubled to £3.9m on the back of a 26% jump in LFL revenues to £51.0m, driven by a broadening of the customer base, new products, a robust opening backlog and buoyant Asian demand.
It is worth noting that the UK Pension Scheme ended with a net surplus (post tax) of £10.6m (vs a £14.1m liability LY), whilst the US deficit was largely unchanged at £6.6m. The overall improvement is as a result of revised assumptions with regards to interest rates (ie higher AA corporate bond yields), as well as member demographics/longevity and good investment returns.
The group reports that trading conditions for Packaging Machinery softened towards the year end, with customer purchasing decisions lengthening "across all regions", as a result of less confidence in the global economy. The tough trading conditions seen in 2015 for the Instrumentation and Tobacco Machinery division generally continue. As a result for 2016 we now forecast group adjusted PBT of £2.64m, giving EPS of 10.6p, and a full year dividend of 2.75p. The prospects for 2017 looks more positive. The shares are trading at a large discount to our revised target price of 120p.
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