Mpac Group – yesterday’s impressive figures emphasise undervaluation

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Mpac Group – yesterday’s impressive figures emphasise undervaluation
Master Investor Magazine

Master Investor Magazine 60

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After these results I am even more confident about the investment merits of this company, with its undervalued shares currently trading at 270p, writes Mark Watson-Mitchell. 

What a cracking set of figures Mpac Group (LON:MPAC) announced yesterday.

This company has a declared mission to become a global leader of ingenious high-speed assembly and packaging automation solutions.

It has now gone through three years of a five-year transformation and restructuring process that is now showing some real progress.

Its May 2019 strategic £15m acquisition of Lambert Automation helped spread its offer and potential.

It is now pushing strongly upon its ‘One Mpac’ model – make, pack, service and monitor.

Make – takes in the creating and enabling of new ideas for its customers, giving them a competitive advantage and helping to keep them at the forefront of their markets.

Pack – covers the provision of high-speed processing and packing technologies that drive both business performance and long-term value.

Service – handles the providing of a lifetime service and the sustaining of excellence, globally, quickly and efficiently.

Monitor – condition monitoring technologies are incorporated into the solutions that the group provides to help ensure both product quality and compliance.

The group operates in the healthcare (74% of sales), food and beverage (23%), and the pharmaceutical (3%) sectors. It is now planning to gain bigger sales into the pharmaceutical sector.

Its clients include Nestle, Kelloggs, GlaxoSmithKline, Unilever, Johnson & Johnson, Ferrero, Philips, 3M, Diageo, AstraZeneca and Procter and Gamble amongst hundreds of other fast-moving consumer goods product manufacturers.

There was a 50% increase in original equipment sales at £69.4m, with services showing a 60% improvement at £19.4m.

The group has well over 10,000 machines in service across the world – with some 80 countries served.

The group’s supply chain from China represents a very small element of its total global supply chain, while it has restricted travel in Asia for its employees.

The excellent 2019 results show an order intake up 37% at £87.6m at the year end, with sales up 52% at £88.8m, operating on a 21% improved gross profit margin of 29%.

The underlying pre-tax profit was £7.5m against £1.4m in 2018, while earnings came out at an impressive 39.5p per share, up from 4.5p underlying. There was also a confidence inspiring recommencement of a 1.5p per share dividend.

The group has a declared aim of its market capitalisation rising to £100m plus – which would show both organic and acquired growth. And it still has another two years in its strategic plan to work through.

The strong and diverse closing record order book of £52m gives confidence for 2020. Its order prospect pipeline remains robust and results are in line with market expectations.

The company is remaining in continuous contact with its key customers and suppliers to monitor the impact on Mpac from the spread of the coronavirus.

Last week the group’s shares fell to as low as 235p on the market panic. Yesterday morning, upon the results, they touched 322p before easing back on heavy two-way trading turnover of some 600,000 shares to close at 283p last night.

The sector currently trades on 17 times earnings, while Mpac is close to 8.3 times current year anticipated earnings.

After these results I am even more confident about the investment merits of this company and with its undervalued shares currently trading at 270p.

I see them easily rising back above their previous 377p high.

Profile 19.12.19 @ 182p set an end-2020 Target Price of 235p.

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