Mpac Group – really getting automated

This £37m capitalised group’s shares, now trading at just 182p, appear undervalued on just 7 times current year earnings, writes Mark Watson-Mitchell. 

I wonder what Jose Molins would think if he could see what happened to the business that effectively started from him making cigars in Havana, Cuba way back in 1874.

His sons moved to London in 1911 and produced a machine that made packets for almost anything from cigarettes to tea. The Molins Machine Company was started a year later, patenting the first cigarette maker in 1924. Within four years their machine was able to make 1,000 cigarettes a minute.

In 1954 an industry changer came from a patent registered by the company in 1937 – it was the hinge-lid cigarette pack, which Philip Morris used to relaunch its Marlboro brand. The success of this innovation saw the Molins company enjoy strong post-war expansion.

The group went public in 1976 and subsequently fought off a number of predatory takeover bids.

In 1985 its technology side was established and later produced the pyramid tea bag, another game changer, but one which boosted the consultancy business.

It was not until 2017 that the Molins Group decided to sell off its entire Instrumentation and Tobacco Machinery division and rebrand itself as the Mpac Group (LON:MPAC), which today is a global leader in packaging solutions.

There are two main operations within the group, Mpac Langen and Mpac Lambert.

Lambert Automation, which was acquired in May this year for £15m cash, was a natural fit with the Langen operation because it took the group upstream in customers’ product and production lifecycles – thereby giving Mpac the ability to offer its clients a more comprehensive and broader range of automation and packaging solutions.

Overall, the group is a designer, precision engineer, specialist provider and manufacturer of high-speed automation, packaging and machines. It develops and then manufactures special factory equipment and robotic solutions.

Importantly, it also handles turnkey projects, in designing, making, installing and integrating its systems, in what it describes as ‘make, pack, monitor and service’.

Its list of customers includes leading companies in the high-growth food and beverage, medical, healthcare goods and the pharmaceutical sectors. These markets are expected to enjoy long-term growth rates of between 4% to 6%.

The group supports Procter & Gamble, Unilever, ConvaTec, Nestle, GlaxoSmithKline, AstraZeneca, Philips, Kellogg’s, CooperVision, Ferrero and Diageo.

Operating globally, with some 80% of its business derived from overseas, Apac maintains manufacturing facilities in Canada, the UK, and the Netherlands, while having sales and service teams in the Americas, in Europe, the Middle East and Africa, and also the Asia Pacific regions. As a group it now employs over 510 people across the world.

For the full year to the end of this month, sales are estimated to increase 49% to £87m, with adjusted pre-tax profits leaping from £1.4m to £7m, worth 26p in earnings per share.

While it is still in part of its five-year strategic plan the group is retaining its cash and not paying any dividend. End-year cash could be around £11m.

The previous pension deficit position has been catered for and is being handled.

Just how well the group will be doing in the next couple of years will become evident in a few weeks when the company announces its trading update.

I see sales moving ahead and profits powering into the mid 2020s.

This £37m capitalised group’s shares, now trading at just 182p, appear undervalued on just 7 times current year earnings.

My end 2020 target price is 235p.