After Friday’s storming US jobs report, augmented by dovish comments from Federal Reserve Chairman Jerome Powell and extra stimulus measures in China – are we out of the woods? Nobody knows for sure. The equity rebound could simply be a ‘dead cat bounce’ or ‘relief rally’. Either way, with the AIM Index in bear market territory, future returns should at least be better than 4 months ago.
We suspect the richest rewards will be earned by investors who are prepared to ‘cherry pick’ those ‘fallen angles’ that have declined the most. Step forward MPAC, a specialist provider of hi-speed packaging machines and related services. Generating c.85% of revenues from outside the UK - where it should not only be a beneficiary of the lower £, but also insulated somewhat against any Hard Brexit.
Encouragingly, this morning’s positive trading update said “2018 sales (ED est £57m vs £53.4m LY) and PBT (ED est £1.3m vs £1.13m) [were] in line with expectations, supported by a strong closing orderbook, which will provide a platform for continued growth in 2019.” Confirming the soft patch experienced in H1 was a temporary blip, and order flow has now returned to normal levels.
Additionally, the £1m of cost-overruns relating to two legacy contracts, have been contained. The UK machinery project is “resolved”, whilst the “Canadian agreement should be [fully settled] during 2019”.
Elsewhere, there seems to be little impact either from commodity price pressures (eg steel & aluminium) and/or the Trump trade tariffs. Plus, we look forward in hearing how the cost cutting measures that were implemented post June are set to bear fruit in 2019. Meaning at this stage, we make no change to our financial projections, or 170p/share valuation.
