MPAC Group plc
MPAC is a specialist international business providing high speed packaging machines and complimentary services.
Mpac Interview covering Trading Update July 2020
Tony Steels, CEO, and Will Wilkins, CFO, discuss how Mpac have successfully traded through the pandemic, how the business has held onto orders, and the digital initiatives which are helping them gain a competitive advantage.
When the tough get going
Successful businesses ‘never let a crisis go to waste’. Indeed since an otherwise strong Q1’20 was interrupted by COVID-19, Mpac has further streamlined operations, accelerated R&D and launched new remote equipment diagnostic/acceptance testing, virtual reality & other ‘Industry 4.0’ services.
Sure these initiatives haven’t yet had time to fully feed through into the numbers, especially given access to some client sites has been restricted during the lockdowns. However “no orders have been cancelled” due to the pandemic, new contracts are being signed, the backlog stands at a healthy £45.4m (vs £39.9m LY & £52.2m Dec’19), H1’20 aftermarket sales were up YoY (£7.6m LY) and net cash closed June at £22.1m (or 110p/share, post £0.9m preference shares vs £18.0m Dec’19) thanks to tight working capital management (re debtor days at pre CV19 levels).
The latter providing both ample liquidity to weather the most extreme of scenarios, and optionality (re M&A) if rivals ever become available at attractive prices.
Profitable & cash positive in H1’20
Conditions haven’t yet returned to pre-crisis levels and a handful of shipments were delayed in the first half. Hence our finger-in-the-air ‘guesstimate’, is that overall H1’20 revenues declined between 20%-25% (H1’19 £45.8m, previous record), delivering adjusted EBIT margins of 5% (vs 10% LY).
Going forward we believe H2 will be stronger than H1, underpinned by a robust orderbook and “resilience” within the US & Healthcare sector (see below) - provided of course the global economy continues to reopen. Elsewhere, Europe, Asia & the UK are on an upwards trajectory too, with Food & Beverage not far behind.Download Now Missing Out Get our research first
Mpac - Well placed and cash rich
Mpac is well placed to survive the COVID-19 induced downturn, exploit opportunities that arise and flourish when the economy eventually gets back on its feet. With a £18.1m net cash balance (or 89p/share as at Feb’20), on top of an undrawn £10m credit facility, this provides ample fire-power to not only weather even the most extreme of scenarios, but also take advantage if some less well capitalised rivals ever became available at distressed levels.
Mpac have reduced/deferred capex (£2.3m 2019) and discretionary spend, alongside utilising government aid. They have, however, remained mindful not to harm the long term design and operational capability.
With regards to valuation, the stock at 235p remains attractively priced - trading on a 2019 EV/EBIT multiple of 7.4x (see below) vs 11x–15x typically for peers (pre CV19).
Sure the coronavirus will impact 2020 numbers, yet ultimately we believe Mpac will prosper. Benefitting from secular tailwinds (eg Industry 4.0, Direct-to-consumer deliveries), improving margins, a large installed base, positive cashflows and a host of loyal, blue-chip customers.