MPAC is a specialist provider of high speed packaging machines (79% of sales) and complementary services (21%, eg spares/maintenance) with c. 350 staff. The group (80% non UK), encompasses the design/manufacture of cartoning equipment, case packers, end-of-line and robotic solutions, as well as undertaking turnkey projects involving the design/integration of packaging systems.
Amid all the concerns about Brexit, the slowing Eurozone/Chinese economies and trade tariffs, the long term fundamentals of aging populations, environmental/nutritional awareness and ecommerce remain intact. Sweet music to the likes of MPAC, a specialist provider of high-speed packaging machines and complementary services. Its products tick all the right boxes, and are on track to become even smarter with the inclusion of more Industry 4.0 functionality - eg remote diagnostics, software, Big Data analytics & Artificial Intelligence.
Encouragingly, bookings soared in H2 after a challenging H1, driving better than expected 2018 results, and pushing the Dec'18 closing orderbook up 16% to a record £39.8m. Likewise turnover leapt 9% LFL (negligible impact from forex) to £58.3m (vs £53.4m LY) thanks to impressive performances from the US (+23% to £22.7m), UK (+59%, £11.6m) and Healthcare (+55%, £20.2m). Partially offset by sluggish demand in China and subdued order intake in EMEA for bespoke/customised solutions.
Furthermore, visibility is excellent. Here, based on the natural flow-through of the backlog, augmented by repeat Service business (eg spares), we estimate our upgraded 2019 £63.0m sales target (+8% YoY) is already >80% covered. As always though, investors need to be aware that there can be some lumpiness over period ends.
2018 operating profits came in at £1.4m (£1.3m) “equivalent to a 2.4% margin“ despite incurring £1.2m of one-off costs to resolve 2 legacy contracts (previously flagged) and £0.6m on the PPF statutory levy. Underlying cashflows were strong at £4.1m (ie excluding £3.0m of pension recovery payments) bolstered by a +£1.9m working capital swing - leaving year end net cash at £27m (worth 134p/share), up from £24.9m in June'18.
There seems to be little danger currently from commodity price pressures (eg steel & aluminium) and/or the Trump trade tariffs. Meaning that we have raised our adjusted EBIT forecasts for this year (+17.6%) and next (+16.0%) to £3.5m and £4.4m respectively - in turn boosting our valuation / share from 170p to 200p.
