Temporary headwinds starting to ease
​In Molins’ end 2016 trading update, released today, the company said that Q4 trading has been “materially†affected by delayed orders and lower gross margins, due to extended customer procurement cycles and “unfavourable sales mixâ€. Here we suspect that some of the deferrals might have also been triggered by macro uncertainties, such as the November US presidential elections. That said, as the ‘economic fog’ lifts, client capex budgets are returning to normal, generating much improved activity levels. Indeed Molins said that order intake in the last three months has been positive, up 80% over the same period last year, with the Packaging Machinery businesses in particular benefiting from a strong period of conversion of prospects.
As a result the Board now expects to close 2016 with a “significantly higher†backlog than enjoyed 12 months ago (~£25m 1st Jan’16). So, despite cutting our 2016 adjusted PBT from £1.9m to £0.8m, we have held 2017 estimates intact at £3.2m on the back of the anticipated stronger opening order book.
In the update this morning the company also said that the development of the Group’s strategic plan is continuing positively. This review, initiated by new CEO Tony Steels, is aimed at ensuring the Group is in the best position to serve its customers, and is focused on market opportunities and operational efficiency. The outcome of this review is expected to be presented in Q1 2017.
At 53p Molins shares trade at a 25%-30% discount to June’16 net tangible assets (75p), and on a modest CY+1 PER of 4.1x, whilst offering a 5.2% yield (1.2x covered). Our sum-of-the-parts valuation indicates the stock would be worth around 82p per share, based on a 10x 2018 EV/EBIT multiple, discounted back at 12% and adjusted for net debt, £0.9m prefs, the pension deficit and the optionality of spare land (approx. 10 acres) owned in Buckinghamshire.
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