COVID-19 is a highly infectious pathogen, not only for humans but also corporates. Indeed there were 55 LSE announcements yesterday alone, detailing how businesses were being impacted by this sudden global pandemic.
Similarly today Mpac said it was beginning to experience slowing activity levels and difficulties accessing client premises to fulfil shipments (re social distancing).
Sure this is frustrating, however we reckon the majority of its orderbook (£52.2m Dec’19) should be completed at a later date. Yes, delays will undoubtedly hit 2020 results – probably more so in Q2 than H2. Yet the longer term fundamentals of Industry 4.0, direct to consumer deliveries and the shift towards more environmentally friendly packaging, continue to play to Mpac’s strengths.
Elsewhere the balance sheet is strong, sporting £18.1m of net cash (89p/share) as at Feb’20 (ie £19m less £0.9m of preference shares), alongside a fully undrawn £10m credit line. Moreover the group has come through these types of short, sharp, economic shock before. And besides, there are other levers to pull if things were to significantly deteriorate. Not least, reducing capex (£2.3m 2019), discretionary spend and non-essential purchases.
Lastly the Board has decided to cancel the previously recommended final dividend of 1.5p - whilst also evaluating government support measures available across various jurisdictions. Likewise, we have temporarily withdrawn our forecasts until there’s greater clarity surrounding COVID-19. But believe at 205p, the stock is attractively priced, trading on trailing 5.2x PE and 6.6x EV/EBIT (pension adjusted) multiples.
How long will all this go on for? Unfortunately nobody knows, albeit the political mood music in Washington seems to be now questioning whether ‘the cure is worse than the disease’. With President Trump stating he ideally wants to ‘re-open’ the US economy by the 12th April Easter holiday. Maybe a little premature, but an aspirational target nonetheless. North America of course is Mpac’s largest market (58% 2019 sales).
