Mpac Group is a specialist international business providing high speed packaging machines and complimentary services.


COVID-19 induced demand pause
Published: Mar 26 2020

COVID-19 is a highly infectious pathogen, not only for humans but also corporates. Indeed there were 55 LSE announcements yesterday alone, detailing how businesses were being impacted by this sudden global pandemic.
Similarly today Mpac said it was beginning to experience slowing activity levels and difficulties accessing client premises to fulfil shipments (re social distancing).
Sure this is frustrating, however we reckon the majority of its orderbook (£52.2m Dec’19) should be completed at a later date. Yes, delays will undoubtedly hit 2020 results – probably more so in Q2 than H2. Yet the longer term fundamentals of Industry 4.0, direct to consumer deliveries and the shift towards more environmentally friendly packaging, continue to play to Mpac’s strengths.
Elsewhere the balance sheet is strong, sporting £18.1m of net cash (89p/share) as at Feb’20 (ie £19m less £0.9m of preference shares), alongside a fully undrawn £10m credit line. Moreover the group has come through these types of short, sharp, economic shock before. And besides, there are other levers to pull if things were to significantly deteriorate. Not least, reducing capex (£2.3m 2019), discretionary spend and non-essential purchases.
Lastly the Board has decided to cancel the previously recommended final dividend of 1.5p - whilst also evaluating government support measures available across various jurisdictions. Likewise, we have temporarily withdrawn our forecasts until there’s greater clarity surrounding COVID-19. But believe at 205p, the stock is attractively priced, trading on trailing 5.2x PE and 6.6x EV/EBIT (pension adjusted) multiples.
How long will all this go on for? Unfortunately nobody knows, albeit the political mood music in Washington seems to be now questioning whether ‘the cure is worse than the disease’. With President Trump stating he ideally wants to ‘re-open’ the US economy by the 12th April Easter holiday. Maybe a little premature, but an aspirational target nonetheless. North America of course is Mpac’s largest market (58% 2019 sales).
Transformational year results interview
Published: Mar 04 2020

Tony Steels, CEO, and Will Wilkins, CFO, run through the key highlights of their Full Year results. 
0.06 - Have your strategic initiatives delivered a step change in performance?
1.53 - How important has the 'One Mpac' approach been to delivering these results?
3.07 - What's next for the New Product Development roadmap?
4.30 - What lies behind your decision to restore the dividend?
5.50 - What are you looking forward to in 2020?
Transformational year and on track for 2020
Published: Mar 04 2020

Buying wonderful businesses that are benefiting from multiple secular growth trends, at attractive prices is part & parcel of successful long term investing. The problem as always, is finding these rare situations, and then having the stomach to step in, irrespective of the broader macro concerns doing the rounds.
We think Mpac falls into this camp. Today releasing excellent” 2019 revenues, adjusted EBIT and EPS that were in line with expectations at £88.8m (+52%, +24% LFL), £7.7m (margin 8.7%) and 39.5p respectively. The dividend was also reinstated to 1.5p, reflecting good H2 cashflows and closing net funds of £18.0m (vs £9.6m June’19), equivalent to 89p/share.
Better still, after strong pipeline conversion in H2, forward visibility is robust with the backlog closing Dec’19 at £52.2m (vs £53.1m LY) - split across a wide customer base, and skewed towards higher margin healthcare orders.
In terms of the Coronavirus, the Board believe the outbreak shouldn’t materially impact future profits. The vast majority of Mpac’s top line growth is coming from Healthcare (74%) within the US (58%). Whilst it’s relatively modest supply-chain/demand exposure within AsiaPac (8% 2019 turnover) is manageable.
Going forward, we’ve nudged up our 2020 EBIT to £7.7m (2.7%) on the back of the slightly better out-turn, and maintained both the revenue at £95.5m & 350p/share valuation.
Strong Q4’19 drives 5th profit upgrade in a row
Published: Jan 08 2020

Alongside cloud, 5G, IoT & artificial intelligence, there’s another equally significant, yet lesser-known technological revolution occurring – namely ‘Industry 4.0’. Indeed this seismic shift in supply chain management is triggering one of the biggest upgrade cycles in the history of manufacturing, data analysis and system integration. With cutting edge equipment, infrastructure and robotics being deployed in all sorts of factories, warehouses and distribution centres across the world - in order to improve product quality, lower cost and satisfy increasing online demand.
One business riding this wave is MPAC, which provides the required expertise in high speed production, packaging & automation machines, along with turn-key / remote diagnostics services (c. 20% turnover).
So much so, that this morning the company said it had enjoyed a strong Q4, especially in terms of order intake (US & Healthcare), project execution, profit margin (re 22.5% EBITDA drop through rate) and cashflow (H1 working capital unwind & receipt of customer deposits) – all ahead of expectations. Consequently we have raised our 2019 sales, EBIT and yearend net cash forecasts to £89m (vs £87m B4), £7.5m (£7.0m) and £17.8m (£11.0m & £9.6m Jun’19) respectively (see below) – the latter representing 88p/share.
Better still, we reckon the Dec’19 backlog closed at a record £52m (vs ED £40m B4 & Jun’19 est. of £35m) - not only providing robust visibility, but also underpinning our revised 2020 EBIT target of £7.5m (up 15% from £6.5m) and 27% hike in the valuation to 350p/share (vs 275p previously). Even after factoring in a slight forex headwind for the year ahead, reflecting the £’s recent strength against the $ & € (c.80% of turnover derived overseas).
At 208p, the shares trade on a meagre 2020 PER of 6.2x vs 16.7x for the sector.
Half year results interview
Published: Sep 09 2019

Tony Steels, CEO, and Will Wilkins, Group Finance Director, discuss the recent acquisition of Lambert, and the excellent position the business is in with the strengthened offering, and a strong qualified order book.
Riding the revolution in ‘smart factory’ technology
Published: Sep 05 2019

One of the last unsolved mysteries puzzling many economists has been the breakdown of the ‘Phillips Curve’ – the relationship between earnings & employment. Indeed despite jobless rates falling to multi-decade lows in Britain, Japan & America, there is still very little sign of real wage inflation.
To us the answer is simple - technology. In the past, labour was considered a finite resource. Whereas today robots are replacing humans at an incredible clip. Having not only reached cost parity across many walks of life. But also pinned salaries down to the substitutional price of new machinery/software – which is becoming more advanced, intelligent and cheaper by the day.
A phenomenon nowhere more evident than on the humble factory floor, where processes are quickly being ‘Smart, Big Data & AI’ enabled (ie Industry 4.0). In turn, offering secular growth opportunities to specialists like MPAC that develop high speed, manufacturing, packaging & automation equipment. 
Here the company posted strong interims this morning – adding that FY19 results were also anticipated to be “significantly above expectations”. H1 turnover and EBIT climbed to £45.8m (+62% vs £28.2m LY & 43% LFL) and £4.6m (£0m LY) respectively, delivering EBITDA margins of 12%. The latter reflecting operational efficiencies and improved product mix, after shipping a much higher proportion of ‘repeat’ (vs one-off) orders. 
Consequently, we’ve raised our FY19 sales (+2.4% to £87m vs £58.3m LY), EBIT (£7.0m vs £1.4m) and adjusted EPS (26.2p vs 4.5p) projections (see below), on top of nudging up the valuation from 260p to 275p/share. 
Moreover, a large chunk of this growth is coming from the ‘economically resilient’ healthcare sector, where a substantial contract was secured in 2018. Providing both favourable near-term visibility and multi-year expansion prospects - incorporating design, configuration, hardware, service, spares and remote diagnostics.
Going like a train
Published: Jul 16 2019

Successful turnarounds are the stuff of investor dreams. Back in Sept’16 MPAC’s shares were languishing at 49p, after a sustained period of under-performance. However on 6th Jun’16 CEO Tony Steels was appointed. Since then he has engineered a >3-fold rise in the stockprice - centred on business simplification, the disposal of the Tobacco equipment division, a one-team culture, new product launches and importantly a rapidly expanding top line. 
In May, the latest piece of the growth jigsaw was put in place. This time by acquiring Lambert Automation for £15m – and adding automated production technology to MPAC’s expertise in high-speed packaging machinery. Hence, now being able to offer clients fully integrated, ‘end-to-end’ solutions from design & build, right through to installation & aftermarket support. 
The good news is the strategy is going down a treat with customers. The firm saying today that FY19 results would be “significantly above expectations. Consequently, we have upgraded our FY19 & FY20 turnover forecasts to £85.0m (+25% organic growth in packaging) & £95.5m respectively – which has likewise pushed adjusted EBIT higher to £5.5m (+20%, vs £4.6m before, £1.4m LY) & £6.5m (+2%, vs £6.4m) for this year and next.
Plus, due to the strong H1 and encouraging outlook, we have raised our valuation from 245p to 260p/share - underpinned by excellent visibility for H2’19, based on YTD revenues, orderbook flow-through and normal repeat service business.
Tony Steels adding: “Trading is ahead of the Board’s and market expectations, with the momentum gained in the latter months of 2018 continuing into H1’19. The current order book, year to date order intake and the volume of quotation activity provides confidence in the prospects for the remainder of FY19. The Board anticipates that profit for FY19 will be significantly above market expectations.”


Compelling £15m acquisition at an attractive price
Published: May 01 2019

The trick to successful M&A is knowing the target inside-out, not over-paying and then integrating flawlessly to deliver the desired synergies. On all of these fronts, today's £15m purchase of Lambert Automation (excludes 3 year £2.5m earnout) scores highly.
Indeed, this strategic acquisition is not only a perfect fit with regards to technology, culture and customer base, but also relatively low risk (re similar businesses) and value accretive.
On top the deal should be "materially earnings enhancing", along with delivering RoIs significantly above the enlarged group’s cost of capital. 
Consequently we have upgraded our 2019 and 2020 PBT forecasts to £4.6m (vs £3.5m before) & £6.4m (£4.4m) respectively. In turn, lifting adjusted EPS to 17.2p (vs 13.0p) and 23.8p (16.5p) for the next two years, and likewise pushing up the valuation from 200p to 245p/share.
FY 2018 results interview with CEO and Group FD
Published: Mar 07 2019

Mpac's Senior Management team, Tony Steels and Will Wilkins, review their recent results and update on progress with their strategic aims.
Gearing up for double digit growth
Published: Mar 05 2019

MPAC is a specialist provider of high speed packaging machines (79% of sales) and complementary services (21%, eg spares/maintenance) with c. 350 staff. The group (80% non UK), encompasses the design/manufacture of cartoning equipment, case packers, end-of-line and robotic solutions, as well as undertaking turnkey projects involving the design/integration of packaging systems.
Amid all the concerns about Brexit, the slowing Eurozone/Chinese economies and trade tariffs, the long term fundamentals of aging populations, environmental/nutritional awareness and ecommerce remain intact. Sweet music to the likes of MPAC, a specialist provider of high-speed packaging machines and complementary services. Its products tick all the right boxes, and are on track to become even ‘smarter’ with the inclusion of more ‘Industry 4.0’ functionality - eg remote diagnostics, software, Big Data analytics & Artificial Intelligence. 
Encouragingly, bookings soared in H2 after a ‘challenging’ H1, driving better than expected 2018 results, and pushing the Dec’18 closing orderbook up 16% to a record £39.8m. Likewise turnover leapt 9% LFL (negligible impact from forex) to £58.3m (vs £53.4m LY) thanks to impressive performances from the US (+23% to £22.7m), UK (+59%, £11.6m) and Healthcare (+55%, £20.2m). Partially offset by “sluggish” demand in China and subdued order intake in EMEA for bespoke/customised solutions. 
Furthermore, visibility is excellent. Here, based on the natural flow-through of the backlog, augmented by repeat Service business (eg spares), we estimate our upgraded 2019 £63.0m sales target (+8% YoY) is already >80% covered. As always though, investors need to be aware that there can be some lumpiness over period ends.
2018 operating profits came in at £1.4m (£1.3m) – equivalent to a 2.4% margin – despite incurring £1.2m of one-off costs to resolve 2 legacy contracts (previously flagged) and £0.6m on the PPF statutory levy. Underlying cashflows were strong at £4.1m (ie excluding £3.0m of pension recovery payments) bolstered by a +£1.9m working capital swing - leaving year end net cash at £27m (worth 134p/share), up from £24.9m in June ’18.
There seems to be little danger currently from commodity price pressures (eg steel & aluminium) and/or the Trump trade tariffs. Meaning that we have raised our adjusted EBIT forecasts for this year (+17.6%) and next (+16.0%) to £3.5m and £4.4m respectively - in turn boosting our valuation / share from 170p to 200p.
Wrapping up 2018 in fine fettle
Published: Jan 07 2019

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.
Half year results interview with MPAC
Published: Sep 12 2018

Tony Steels, CEO, and Will Wilkins, GFD, discuss the improving pipeline and quality of the order book, and how cost-cutting and raw material cost management is helping the business back on a firm footing. 
Back on track
Published: Sep 06 2018

MPAC is a specialist provider of high speed packaging machines (76% of sales) and complementary services (24%, eg spares/maintenance) with c. 350 staff.
MPAC’s recent ‘bump’ occurred after experiencing a temporary lull in demand with H1 bookings being 20% below LY, primarily because of macro uncertainties and delayed customer decision making. The good news is that since the July profit warning, orderflow has started to recover, albeit pipeline conversion is still not fully back to normal. 
More positively, the previously announced £1m of cost-overruns relating to two legacy contracts (one in Canada and the other UK) have been thoroughly investigated with remediation plans now in place. Here, the UK first-of-a-kind machinery project is being commissioned with final delivery set for H2’19. While the Canadian job should be concluded by December.
Management reckon today’s backlog is of much “higher quality and lower complexity” than before. In turn, underpinning this morning’s ‘in line’ 1st half results and confident outlook. Where H1’18 adjusted EBIT came in at £0.0m (£0.3m LY), impacted by the above one-off contract issues – on turnover up 11% to £28.2m (£25.4m) thanks to the strong opening orderbook.
Plus, there is no shortage of financial muscle to execute strategic initiatives, with net cash of £24.9m, equivale Importantly from a risk perspective, we estimate that as there is >90% cover to reach our 2018 sales and EBIT forecasts of £57.0m and £1.5m respectively. Aided by the extra cost cutting measures (eg headcount reductions) that were implemented after the period end. nt to 123p/share. Which together with the 253p/share of tangible net assets, should also in our view, provide a solid floor under the 120p stockprice. 
Accordingly, we make no change to either our forecasts or 170p/share valuation.
Resetting the bar
Published: Jul 18 2018

MPAC (formerly Molins) is a specialist provider of high speed packaging machines (76% of sales) and complementary services (24%, eg spares/maintenance) with c. 350 staff.
Selling high-value packaging machinery to large corporates can sometimes feel like ‘threading the needle’. For the vast majority of the time everything runs like clockwork - however occasionally unforeseen problems crop up. Indeed, at this morning’s pre-close trading statement MPAC revealed it had encountered some technical challenges on two legacy contracts which would result in “material” cost over-runs this year.
Moreover, despite the positive start in Q1, overall business sentiment has since “softened” due to “general economic as well as Brexit related uncertainty” - leading to extended customer purchasing decisions and weighing down on pipeline conversion. 
Clearly this is not ideal and illustrates once again the importance of the firm’s strategy to reduce its exposure to ‘lumpy hardware’ bookings, shift more towards recurring service revenues and migrate further up the value chain. In fact, we were encouraged to hear there are no more onerous contracts, and the current order book is of a “higher quality and lower project complexity”. 
In terms of the numbers, we have reduced our 2018 EBIT forecast by £1.3m to £1.5m on sales of £57m and trimmed the 2019 LFL growth rate from 10% to 6% - consistent with the broader market. Similarly, the valuation drops from 225p to 170p/share. That said, we see significant upside to our projections in the event the Board’s strategy can be successfully implemented in terms of achieving 10% organic topline growth alongside 10% EBIT margins (vs estimated 2.8% 2018).
Nothing untoward as GFD decides to step down
Published: May 04 2018

MPAC, the specialist provider of high speed packaging machines and complementary services, announced that Group Finance Director, Jim Haughey, had resigned as a board member for “personal reasons”. 
Having spoken to the company, we understand there is nothing untoward for shareholders to worry about, since this is absolutely Jim’s decision. Indeed he has willingly agreed to work his 6 month notice period until a suitable replacement is found.
Additionally, there is considerable bench strength in the in-house finance team, so we don’t believe the news will in anyway impact the business’s day-to-day operations. CEO Tony Steels, adding: "Whilst it is disappointing to lose a member of the senior management team, we respect Jim's decision and wish him well for the future. We will commence a search process immediately and update shareholders in due course". 
By way of reminder, MPAC revenues are forecast to rise this year by 10% to £58.7m, with adjusted EBIT and EPS coming in at £2.8m (vs £1.3m LY) and 9.9p (4.2p) respectively. This news does not affect our estimates or fair value of 225p/share.
An Interview with the Management of MPAC Group March 2018
Published: Mar 08 2018

Tony Steels, CEO and Jim Haughey, Group FD, discuss the Group's recent results announcement at the Equity Development offices.
Packing a powerful punch
Published: Mar 06 2018

MPAC (formerly Molins) is a specialist provider of high speed packaging machines (76% of sales) and complementary services (24%,  eg spares/maintenance) with c. 350 staff. The group was rebranded MPAC in Jan’18, encompassing the design / manufacture of cartoning equipment, case packers, end-of-line and robotic packaging solutions, as well as undertaking turnkey projects involving the design/integration of packaging systems.
Since taking the helm in June’16, CEO Tony Steels has engineered a meteoric turnaround at MPAC. Firstly, disposing of the sub-scale tobacco division to GD Spa for gross proceeds of £30m (£23.5m net) in August 2017. Then refocusing the business entirely on niche, high-speed packaging solutions within the ‘sweet-spot verticals’ of pharmaceuticals (eg powders), healthcare (contact lenses) and food/beverages. All benefitting from the shifts towards urbanisation, convenience, recycling and nutrition – whilst also expanding at 4%-5% pa (vs global GDP ~3.5%). 
What’s more, the company believes it can double this growth rate over the economic cycle – thanks to greater market penetration, higher attachment rates between original equipment (76% sales) and services (24%), new product launches (eg incorporating advanced soft/firmware), x/up-selling and end-to-end solutions. Which, combined with favourable operating leverage and tight cost control, should enable MPAC to meet its ‘ambitious’ (vs past performance) and ‘industry leading’ goals of delivering 10% pa LFL top-line growth alongside 10% EBIT margins.
In order to convert these plans into reality, more investment is required with the firm’s £29.4m cash-pile (as at Dec’17) being ear-marked for a step-change in both organic (eg R&D) and acquisitive growth. For instance, developing/launching innovative new machines (eg integrating remote diagnostics, data analytics and artificial intelligence), further expanding the Service proposition and selective M&A. The latter probably involving the purchase of specialist know-how, smart factory technology and/or solutions capability, whilst being within the £10-£30m price range and offering IRRs above 15%. Hence the Board’s decision today to temporarily suspend the dividend – and instead allocate the capital to internal (primarily) and corporate development.
The #1 takeaway for investors in today’s fy results was the “excellent” LFL growth, with order intake (£61.1m) and turnover (£53.4m) climbing 21% and 29% respectively – on top of a 1.14x Book:Bill ratio. In turn, exceeding our estimates, with revenue growth broadly split volume (ED Est +21%), forex (+6%) and price (+2%). Divisionally, Original Equipment jumped +40.3% to £40.3m, which was complemented by a small uptick in Service +2.4% (£13m) – although we expect the latter to materially improve in 2018 helped by the July appointment of an experienced Services exec. 
With regards to this year, revenues are forecast to rise +10% to £58.7m, with adjusted EBIT and EPS coming in at £2.8m (vs £1.3m LY) and 9.9p (4.2p) respectively – supported by further operational efficiencies and 30% EBITDA drop through rates. LY’s improvement in gross margins (28.4% vs 27.2% LY) was tempered slightly due to a fall in Service, reflecting adverse mix from spare parts to new equipment. Nevertheless, given the “excellent” strategic progress made over the past 12-18 months and enhanced pension position (re robust investment returns), we have upgraded our valuation from 180p to 225p/share.