One of the last unsolved mysteries puzzling many economists has been the breakdown of the Phillips Curve, the relationship between earnings & employment. Indeed despite jobless rates falling to multi-decade lows in Britain, Japan & America, there is still very little sign of real wage inflation.
To us the answer is simple - technology. In the past, labour was considered a finite resource. Whereas today robots are replacing humans at an incredible clip. Having not only reached cost parity across many walks of life. But also pinned salaries down to the substitutional price of new machinery/software which is becoming more advanced, intelligent and cheaper by the day.
A phenomenon nowhere more evident than on the humble factory floor, where processes are quickly being Smart, Big Data & AI enabled (ie Industry 4.0). In turn, offering secular growth opportunities to specialists like MPAC that develop high speed, manufacturing, packaging & automation equipment.
Here the company posted strong interims this morning adding that FY19 results were also anticipated to be significantly above expectations. H1 turnover and EBIT climbed to £45.8m (+62% vs £28.2m LY & 43% LFL) and £4.6m (£0m LY) respectively, delivering EBITDA margins of 12%. The latter reflecting operational efficiencies and improved product mix, after shipping a much higher proportion of repeat (vs one-off) orders.
Consequently, we've raised our FY19 sales (+2.4% to £87m vs £58.3m LY), EBIT (£7.0m vs £1.4m) and adjusted EPS (26.2p vs 4.5p) projections (see below), on top of nudging up the valuation from 260p to 275p/share.
Moreover, a large chunk of this growth is coming from the economically resilient healthcare sector, where a substantial contract was secured in 2018. Providing both favourable near-term visibility and multi-year expansion prospects - incorporating design, configuration, hardware, service, spares and remote diagnostics.
