Packing a powerful punch
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. The group was rebranded MPAC in Jan’18, encompassing the design / manufacture of cartoning equipment, case packers, end-of-line and robotic packaging solutions, as well as undertaking turnkey projects involving the design/integration of packaging systems.Since taking the helm in June’16, CEO Tony Steels has engineered a meteoric turnaround at MPAC. Firstly, disposing of the sub-scale tobacco division to GD Spa for gross proceeds of £30m (£23.5m net) in August 2017. Then refocusing the business entirely on niche, high-speed packaging solutions within the ‘sweet-spot verticals’ of pharmaceuticals (eg powders), healthcare (contact lenses) and food/beverages. All benefitting from the shifts towards urbanisation, convenience, recycling and nutrition – whilst also expanding at 4%-5% pa (vs global GDP ~3.5%).
What’s more, the company believes it can double this growth rate over the economic cycle – thanks to greater market penetration, higher attachment rates between original equipment (76% sales) and services (24%), new product launches (eg incorporating advanced soft/firmware), x/up-selling and end-to-end solutions. Which, combined with favourable operating leverage and tight cost control, should enable MPAC to meet its ‘ambitious’ (vs past performance) and ‘industry leading’ goals of delivering 10% pa LFL top-line growth alongside 10% EBIT margins.
In order to convert these plans into reality, more investment is required with the firm’s £29.4m cash-pile (as at Dec’17) being ear-marked for a step-change in both organic (eg R&D) and acquisitive growth. For instance, developing/launching innovative new machines (eg integrating remote diagnostics, data analytics and artificial intelligence), further expanding the Service proposition and selective M&A. The latter probably involving the purchase of specialist know-how, smart factory technology and/or solutions capability, whilst being within the £10-£30m price range and offering IRRs above 15%. Hence the Board’s decision today to temporarily suspend the dividend – and instead allocate the capital to internal (primarily) and corporate development.
The #1 takeaway for investors in today’s fy results was the “excellent†LFL growth, with order intake (£61.1m) and turnover (£53.4m) climbing 21% and 29% respectively – on top of a 1.14x Book:Bill ratio. In turn, exceeding our estimates, with revenue growth broadly split volume (ED Est +21%), forex (+6%) and price (+2%). Divisionally, Original Equipment jumped +40.3% to £40.3m, which was complemented by a small uptick in Service +2.4% (£13m) – although we expect the latter to materially improve in 2018 helped by the July appointment of an experienced Services exec.
With regards to this year, revenues are forecast to rise +10% to £58.7m, with adjusted EBIT and EPS coming in at £2.8m (vs £1.3m LY) and 9.9p (4.2p) respectively – supported by further operational efficiencies and 30% EBITDA drop through rates. LY’s improvement in gross margins (28.4% vs 27.2% LY) was tempered slightly due to a fall in Service, reflecting adverse mix from spare parts to new equipment. Nevertheless, given the “excellent†strategic progress made over the past 12-18 months and enhanced pension position (re robust investment returns), we have upgraded our valuation from 180p to 225p/share.
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.
Equity Development enables companies to become better understood and supported by investors. Since our launch in 1996 we have consistently focused on helping our clients improve their communication and relationships with both existing and potential shareholders. Our clients have come from a wide variety of sectors and domiciles, are both private and quoted and range in size from micro-cap to $multi-billions. We offer free access to company research notes written by experienced analysts. These notes include detailed forecasts, financial models and a fair value. We host regular Private Investor Forums at which investors have the opportunity to hear company directors present, and to ask questions. These are free to attend. We broadcast live Webinars with company management that include active Q&A. We also make the recordings available online. We arrange face to face meetings between private investors and company management. We are active users of Twitter, commenting daily on company news, share price moves, Directors’ Dealings, Equity Development Research Notes & Events.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.