MPAC Group – looking good ahead of next week’s results

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MPAC Group – looking good ahead of next week’s results
Master Investor Magazine

Master Investor Magazine Issue 59

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Shares in this innovative little company appear substantially undervalued, and Mark Watson-Mitchell is convinced that next week’s results will confirm the group’s potential.

Little did I think that the shares of MPAC Group (LON:MPAC) would more than double within two months of my profiling the company a week before last Christmas.

But they did do just that – rising from 182p on 19 December to 377p on 6 February for a 107% price increase.

What helped the rise was the announcement of the group’s trading update on 8 January, which gave out the second earnings beat since last September.

It was at that time that this high-speed packaging and solutions company stated that it expected that profits to end-December 2019 were will be significantly above the board’s and the market’s expectations.

The company had strong momentum that it maintained in the first half of that year and continued through into the second half, and that push has continued still further, in fact it has speeded up.

In the final quarter of the year the group enjoyed a very strong order intake and accelerated project execution.

Furthermore, progress has been made in achieving financial benefits from its strategic implementation of its plans for delivering on the group’s ‘One Mpac’ business model.

Well, that trading update worked wonders for the share price, accelerating it from 207p on 8 January on the announcement, up to 312p within the next couple of weeks.

They fell back to 278p on some profit-taking, before resuming the charge upwards again.

Ahead of the 2019 finals being reported on Wednesday 4 March, I went over my figures on the company again to see whether we could be missing out on something. And yes we are!

Mpac serves customers’ needs for ingenious, innovative packaging machinery and automation. As a packaging specialist it can claim to have created flip-top cigarette packets and pyramid tea bags – it is incredibly inventive.

It designs, precision engineers and manufactures high speed automation and packaging solutions, with embedded process monitoring systems.

The group, which dates back over 156 years, operates today as a single business with regionally focused sales and service organisations, and employs some 510 people worldwide.

The business is focused on supplying principally to customers in the pharmaceutical, healthcare, and the food and beverage sectors.

Its customers include Kellogg’s, Ferrero, Philips, Johnson & Johnson, CooperVision, Nestle, Unilever, GlaxoSmithKline, 3M, ConvaTec, Procter & Gamble, Bausch+Lamb, Diageo, and AstraZeneca.

I am now looking for the group to report sales revenue up from £58.3m in 2018 to £90m last year, with adjusted pre-tax profits leaping from £1.4m to £7.5m, and boosting adjusted earnings over 820% from 4.5p to 37.2p per share.

Broker estimate that sales will rise steadily to £140m by 2025, with profits more than doubling to £15.3m in the same period. That impressive improvement could see earnings coming out at just over 60p per share.

In my view these shares are substantially undervalued, I am convinced that next week’s results will confirm the group’s potential.

This company is ‘class’ – and if you missed investing in it before, there is still time to take advantage of yesterday’s market fall, with its shares now at 330p.

Profile 19.12.19 @ 182p set an end-2020 target price of 235p.

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