MPAC is a specialist international business providing high speed packaging machines and complimentary services.


Resetting the bar
Published: Jul 18 2018

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 complexity”. 
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).
Nothing untoward as GFD decides to step down
Published: May 04 2018

MPAC, the specialist provider of high speed packaging machines and complementary services, announced that Group Finance Director, Jim Haughey, had resigned as a board member for “personal reasons”. 
Having spoken to the company, we understand there is nothing untoward for shareholders to worry about, since this is absolutely Jim’s decision. Indeed he has willingly agreed to work his 6 month notice period until a suitable replacement is found.
Additionally, there is considerable bench strength in the in-house finance team, so we don’t believe the news will in anyway impact the business’s day-to-day operations. CEO Tony Steels, adding: "Whilst it is disappointing to lose a member of the senior management team, we respect Jim's decision and wish him well for the future. We will commence a search process immediately and update shareholders in due course". 
By way of reminder, MPAC revenues are forecast to rise this year by 10% to £58.7m, with adjusted EBIT and EPS coming in at £2.8m (vs £1.3m LY) and 9.9p (4.2p) respectively. This news does not affect our estimates or fair value of 225p/share.
An Interview with the Management of MPAC Group March 2018
Published: Mar 08 2018

Tony Steels, CEO and Jim Haughey, Group FD, discuss the Group's recent results announcement at the Equity Development offices.
Packing a powerful punch
Published: Mar 06 2018

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.