MPAC is a specialist provider of high speed packaging machines (76% of sales) and complementary services (24%, eg spares/maintenance) with c. 350 staff.
MPAC’s recent ‘bump’ occurred after experiencing a temporary lull in demand with H1 bookings being 20% below LY, primarily because of macro uncertainties and delayed customer decision making. The good news is that since the July profit warning, orderflow has started to recover, albeit pipeline conversion is still not fully back to normal.
More positively, the previously announced £1m of cost-overruns relating to two legacy contracts (one in Canada and the other UK) have been thoroughly investigated with remediation plans now in place. Here, the UK first-of-a-kind machinery project is being commissioned with final delivery set for H2’19. While the Canadian job should be concluded by December.
Management reckon today’s backlog is of much “higher quality and lower complexity” than before. In turn, underpinning this morning’s ‘in line’ 1st half results and confident outlook. Where H1’18 adjusted EBIT came in at £0.0m (£0.3m LY), impacted by the above one-off contract issues – on turnover up 11% to £28.2m (£25.4m) thanks to the strong opening orderbook.
Plus, there is no shortage of financial muscle to execute strategic initiatives, with net cash of £24.9m, equivale Importantly from a risk perspective, we estimate that as there is >90% cover to reach our 2018 sales and EBIT forecasts of £57.0m and £1.5m respectively. Aided by the extra cost cutting measures (eg headcount reductions) that were implemented after the period end. nt to 123p/share. Which together with the 253p/share of tangible net assets, should also in our view, provide a solid floor under the 120p stockprice.
Accordingly, we make no change to either our forecasts or 170p/share valuation.
