Mpac Group plc
Entering 2021 in excellent shape 7 January 2021
Like many awful dreams, the Covid19 nightmare hasn’t quite finished, recently mutating into an ultra- Company Data contagious super-bug. The risk being global transmission and infection rates spiral out of control, swamping healthcare systems again. EPIC AIM:MPAC Price (last close) 420p However this time there is an answer. Hunker down for a few months, and inoculate as many 52 week Hi/Lo 455p/162p vulnerable people as possible to reduce fatalities/hospitalisations. Plus, the Oxford/AstraZeneca Market cap £84.7m vaccine is relatively simple to distribute (re 2°C to 8°C). Making rapid nationwide rollouts feasible, ED est net cash Dec’20 £14.5m alongside ultimately bringing the curtain down on this dreadful virus. Share count (incl 20.172m Treasury) ED valuation 445p/share New Year, New Variant but the outcome should be different
Share Price, p So what should investors do? Well trying to trade around the newsflow is almost impossible. Instead 490p we prefer to stick with quality, battle-hardened names, underpinned by strong orderbooks & fortress 440p balance sheets, such as Mpac. 390p
340p In fact, this high speed packaging & automation solutions provider has already navigated the 290p 240p pandemic in fine fettle. Saying today that 2020 adjusted profits would be ahead of expectations, 190p thanks to top line resilience, cost savings and favourable product mix (re healthcare). 140p
90p
40p Consequently we’ve increased our EBIT estimate by 7% from £5.8m to £6.2m (7.5% margin) on 02/15 02/16 02/17 02/18 02/19 02/20 revenues of £82.25m (£88.8m LY). Climbing to £7.6m (+22%) and £95m (15%) respectively in 2021 Source: Share Cast (see overleaf), assuming life starts to return to normal in H2. Description Importantly too, the group is well placed to benefit from permanent shifts in socio-economic behaviour (eg work-from-anywhere), Industry 4.0 and trades (at 420p) on modest EV/EBITDA, Mpac is a specialist provider of full line, EV/EBIT & PE multiples of 9.2x, 11.9x & 13.4x (see below). high speed packaging & automation solutions, employing c. 510 staff. Summary valuation metrics vs specialist engineering peers Manufacturing factory equipment & robotics, along with undertaking turnkey projects involving the design & integration 24.5 25.0 of such systems. >80% of revenues are generated outside of the UK.
20.0 Core verticals are Healthcare, 18.2 Pharmaceutical and Food/Beverage, supporting the likes of 3M, J&J, Nestlé, 15.0 GSK, P&G, Philips Advent, ConvaTec, 13.2 13.4 11.9 AstraZeneca, Unilever, Kellogg’s, Diageo, Ferrero, Bausch + Lomb & 10.0 9.2 CooperVision.
Next news: Prelims early March 2020. 5.0
0.0 Mpac 2021 CY peers Mpac 2021 CY EV/EBIT peers Mpac 2021 PER CY PER peers EV/EBITDA EV/EBITDA EV/EBIT Paul Hill (Analyst) Source: Equity Development (Mpac EBIT & EBITDA multiples have been pension adjusted) 0207 065 2690 [email protected]
Please refer to the important disclosures shown on the back page and note that this information is Non-independent and categorised as Marketing Material Mpac Group plc 7 January 2021
Strong 2020 close, with a £55.5m backlog & Est £14.5m cash pile
What’s more, our conservative numbers are supported by a robust closing £55.5m orderbook (£55.4m LY) - reflecting positive Q4 bookings in North America & healthcare, in spite of a handful of orders shifting to the right (albeit no cancellations). Alongside an estimated (ED) £14.5m net cash pile (worth 72p/share vs £10m in Sept’20), boosted by tight working capital control & lower debtor days. Providing the Board with ample funds to invest in new products, organic growth &/or strategic M&A, if opportunities arise at attractive prices.
Resilient 2020 results despite the coronavirus
Summary Financials (£'000s) FY18 H1'19 H2'19 Act FY19 H1'20 Est H2'20 Est FY20 Est FY21
Closing orderbook (ED Est) 53,100 39,900 52,200 45,400 55,500 56,888
Equipment 46,200 38,200 31,200 69,400 27,100 31,150 58,250 61,500 Service 12,100 7,600 11,800 19,400 9,700 10,300 20,000 20,500 Switchback 4,000 4,000 13,000 Revenues 58,300 45,800 43,000 88,800 36,800 45,450 82,250 95,000 Reported % growth rate 9.2% 62.4% 42.9% 52.3% -19.7% 5.7% -7.4% 15.5%
Equipment 9,300 10,400 7,800 18,200 6,911 8,235 15,145 16,605 Service 4,700 2,700 5,100 7,800 4,365 4,435 8,800 9,225 Switchback 1,200 1,200 3,900 Gross Profit 14,000 13,100 12,900 26,000 11,300 13,870 25,145 29,730 % margin 24.0% 28.6% 30.0% 29.3% 30.7% 30.5% 30.6% 31.3%
Operating expenses (excl D&A) -11,800 -7,700 -8,500 -16,200 -8,000 -9,069 -17,045 -19,991
Adjusted EBITDA (post SBPs) 2,200 5,400 4,400 9,800 3,300 4,800 8,100 9,739 % margin 3.8% 11.8% 10.2% 11.0% 9.0% 10.6% 9.8% 10.3%
Depreciation -600 -700 -1,200 -1,900 -600 -1,100 -1,700 -1,964 Amortisation of intangibles (non acqn) -200 -100 -100 -200 -100 -100 -200 -200
Adjusted EBIT (post SBPs) 1,400 4,600 3,100 7,700 2,600 3,600 6,200 7,575 % margin 2.4% 10.0% 7.2% 8.7% 7.1% 7.9% 7.5% 8.0%
Net interest 0 -100 -100 -200 -100 -100 -200 -200 Adjusted PBT 1,400 4,500 3,000 7,500 2,500 3,500 6,000 7,375
Tax -503 -300 687 387 -300 -540 -840 -1,033 Adjusted earnings 897 4,200 3,687 7,887 2,200 2,960 5,160 6,343
Adjusted EPS (pence) 4.5p 21.0p 18.5p 39.5p 11.0p 14.8p 25.7p 31.4p EPS growth % 7.5% 777.7% -47.6% -20.1% -34.9% 22.3%
Dividend 0.0p 0.0p 1.5p 1.5p 0.0p 0.0p 0.0p 0.0p
Net cash / (debt) - Ex IFRS16 27,000 9,600 18,000 18,000 22,500 14,500 14,500 12,952 Net cash per share 134p 48p 89p 89p 112p 72p 72p 64p Source: Equity Development.
Smooth integration of $13m Switchback acquisition
Elsewhere, the integration of its earnings enhancing $13m acquisition of Switchback in September, has proved a major success. Already generating synergies by combining its case packing machines with Mpac’s high-speed cartoning solutions.
Additionally, management plans to launch Switchback in Europe later this year, together with bolstering its US service proposition by leveraging the group’s enlarged worldwide footprint/capability.
Reinstatement of the dividend is not out of the question either, and will be reviewed at the prelims in March.
Work from home, Industry 4.0 & reshoring to drive L/T demand
Yet that’s not all. Going forward, in addition to pent up demand (re delayed projects), several FMCG brands are now planning to expand manufacturing capacity particularly in America. In order to satisfy greater home worker consumption of treats such as cappuccinos (eg coffee pods), freshly baked popcorn & luxury ice-cream. Here employees will be loath to abandon these sunk costs, with new habits equally difficult to reverse.
Similarly, Mpac’s medical grade packing/cartoning expertise is ideally suited for boxing Covid19 test kits and vaccine vials/ampoules. Although this opportunity was not mentioned specifically in the RNS, we
2 www.equitydevelopment.co.uk Mpac Group plc 7 January 2021
reckon it could offer substantial potential upside – and is not priced into our upgraded 445p/share valuation (vs 380p before).
Encouraging 2021 outlook
CEO Tony Steels concluding: “Our customers remain active, and we continue to win OEM & service orders with robust demand, particularly in Healthcare and the Americas. Our pipeline and closing order book give confidence for 2021.”
Revenue forecasts (£’000s)
140,000
117,920 120,000 109,706 102,080 100,000 95,000 88,800 82,250 80,000
58,300 60,000
40,000
20,000
0 2018 2019 Est'20 Est'21 Est'22 Est'23 Est'24
Source: Equity Development.
Operating profit margin progression
12.0%
10.4% 10.0% 9.8% 9.1% 8.7% 8.0% 8.0% 7.5%
6.0%
4.0%
2.4% 2.0%
0.0% 2018 2019 Est'20 Est'21 Est'22 Est'23 Est'24
Source: Equity Development.
Key risks
COVID-19 impacts last longer than expected. Plus in past recessions, capital equipment volumes are typically exposed to the cyclical nature of the global economy.
The large size of the UK (£403.2m of liabilities as at December 2019) & US (£13.5m of liabilities) defined benefit pension schemes compared to Mpac's market capitalisation.
3 www.equitydevelopment.co.uk Mpac Group plc 7 January 2021
Currency exposure, trade tariffs, raw material price increases (eg steel, aluminium) and competition.
Mpac is smaller than its rivals/clients (eg German and Italian) and could see margins squeezed.
Slower than expected growth, higher costs and/or lower cash generation.
Industry suffers occasionally from lumpy orders, protracted customer purchasing decisions and irregular cashflows over the period end.
Long term trend towards clients outsourcing production to ‘low cost’ contract manufacturers.
Continued industry consolidation could impact pricing and margins.
4 www.equitydevelopment.co.uk Mpac Group plc 7 January 2021
Summary projections (£’000s)
Mpac Group plc - continuing 2017 Act 2018 Act 2019 Act 2020 Est 2021 Est (December year end) £'000s £'000s £'000s £'000s £'000s
Closing orderbook 34,400 53,100 52,200 55,500 56,888 Growth 34.9% 54.4% -1.7% 6.3% 2.5%
Equipment 40,400 46,200 69,400 58,250 61,500 Service 13,000 12,100 19,400 20,000 20,500 Switchback 4,000 13,000 Turnover 53,400 58,300 88,800 82,250 95,000
Equipment 40.3% 14.4% 50.2% -16.1% 5.6% Service 2.4% -6.9% 60.3% 3.1% 2.5% Total % YoY growth 28.7% 9.2% 52.3% -7.4% 15.5%
Equipment 9,200 9,300 18,200 15,145 16,605 Service 5,300 4,700 7,800 8,800 9,225 Switchback 1,200 3,900 Total gross margin 14,500 14,000 26,000 25,145 29,730
Equipment 22.8% 20.1% 26.2% 26.0% 27.0% Service 40.8% 38.8% 40.2% 44.0% 45.0% % gross margin 27.2% 24.0% 29.3% 30.6% 31.3%
EBITDA 2,200 2,200 9,800 8,100 9,739 % Margin 4.1% 3.8% 11.0% 9.8% 10.3%
Distribution -5,400 -5,000 -7,200 -6,763 -7,602 Administration -7,300 -7,200 -10,300 -10,829 -11,757 Switchback -600 -1,950 Other -500 -400 -800 -753 -846 Adjusted EBIT 1,300 1,400 7,700 6,200 7,575 % Operating Margin 2.4% 2.4% 8.7% 7.5% 8.0%
Underlying interest charge -170 0 -200 -200 -200
Adjusted Profit before Tax 1,130 1,400 7,500 6,000 7,375
Adjusted EPS (p) 4.2p 4.5p 39.5p 25.7p 31.4p EPS growth rate 7.5% 777.7% -34.9% 22.3%
Dividend (p) 0.0p 0.0p 1.5p 0.0p 0.0p Yield 0.0% 0.0% 0.4% 0.0% 0.0%
Reported sharecount (Ks - incl Treasury) 20,172 20,172 20,172 20,172 20,172
Valuation benchmarks P/E ratio 100.3 93.3 10.6 16.3 13.4 PER (adjusted for pension recovery payments) 44.8 -132.0 EV/Sales (pension adjusted) 1.68 1.54 1.01 1.09 0.95 EV/EBITDA (pension adjusted) 40.8 40.8 9.2 11.1 9.2 EV/EBIT (pension adjusted) 69.1 64.2 11.7 14.5 11.9 PEG ratio 0.60 Corporate tax rate -26.5% -35.9% 5.2% -14.0% -14.0% EBITDA drop through rate 0.0% 24.9% 26.0% 12.9% Return on equity (%) 1.9% 2.2% 16.6% 9.8% 10.7%
Net cash/(debt) 29,400 27,000 18,000 14,500 12,952
Information only - Estimated non-underlying Pension charges UK pension recovery payments -1,900 -1,940 -1,981 -2,022 Topup UK pension payments above £5.5m EBIT 0 -726 -231 -685 UK pension admin costs -900 -1,200 -1,224 -1,248 UK tax shield 532 735 653 752 US pension recovery payments (net tax shield) -790 -790 -514 -540 Deferred consideration (Lambert & Switchback) -3,241 Cashflow effect -3,058 -3,921 -3,297 -6,985
Net cash per share 146 134 89 72 64 Net assets / diluted share (p) 212 201 235 261 293
Shareprice (p) 420p Source: Equity Development
5 www.equitydevelopment.co.uk Mpac Group plc 7 January 2021
.Appendices - sector valuation metrics and KPIs
Current Year (CY) EV / EBITDA vs peers
Sector average 13.2
Weir 17.6
Trifast 13.2
Rotork 17.3
GEA Group 8.7
Krones 8.2
Mpac (Est 2021) 9.2
Winpak Ltd 8.4
SIG Combibloc 13.3
Sealed Air 9.6
IMI 10.1
Oxford Instruments
Renishaw 32.0
Morgan Adv Materials 7.4
600 Group
Avingtrans 7.2
Melrose Industries 10.5
Hill & Smith 10.7
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0
Source: Equity Development (Mpac pension adjusted)
Current Year (CY) EV / EBIT vs peers
Sector average 18.2
Weir 20.3
Trifast 19.7
Rotork 19.4
GEA Group 13.2
Krones 17.9
Mpac (Est 2021) 11.9
Winpak Ltd 11.0
SIG Combibloc
Sealed Air 12.0
IMI 13.5
Oxford Instruments
Renishaw
Morgan Adv Materials 9.4
600 Group
Avingtrans 11.2
Melrose Industries 18.7
Hill & Smith 14.9
0.0 5.0 10.0 15.0 20.0
Source: Equity Development (Mpac pension adjusted)
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CY PERs vs peers
Sector average 24.5
Weir 25.6
Trifast 28.3
Rotork 26.8
GEA Group 19.0
Krones 25.4
Mpac (Est 2021) 13.4
Winpak Ltd 19.9
SIG Combibloc 23.9
Sealed Air 13.8
IMI 16.5
Oxford Instruments
Renishaw
Morgan Adv Materials 14.3
600 Group
Avingtrans 17.7
Melrose Industries 28.2
Hill & Smith 19.9
0.0 5.0 10.0 15.0 20.0 25.0 30.0
Source: Equity Development
CY EV/sales vs peers
Sector average 2.3
Weir 3.3
Trifast 1.1
Rotork 4.4
GEA Group 1.1
Krones 0.6
Mpac (Est 2021) 0.9
Winpak Ltd 1.9
SIG Combibloc 3.7
Sealed Air 2.1
IMI 2.0
Oxford Instruments 3.7
Renishaw 7.8
Morgan Adv Materials 1.1
600 Group 0.5
Avingtrans 0.8
Melrose Industries 1.3
Hill & Smith 1.8
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5
Source: Equity Development (Mpac pension adjusted)
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CY EBITDA margins (%) vs peers
Sector average 16.3%
Weir 18.7%
Trifast 8.6%
Rotork 25.4%
GEA Group 12.9%
Krones 7.6%
Mpac (Est 2021) 10.3%
Winpak Ltd 22.5%
SIG Combibloc 28.0%
Sealed Air 22.0%
IMI 19.4%
Oxford Instruments 19.2%
Renishaw 24.5%
Morgan Adv Materials 14.5%
600 Group 2.6%
Avingtrans 11.0%
Melrose Industries 12.3%
Hill & Smith 17.3%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Source: Equity Development
CY % EBIT margins vs peers
Sector average 11.7%
Weir 16.2%
Trifast 5.8%
Rotork 22.6%
GEA Group 8.5%
Krones 3.5%
Mpac (Est 2021) 8.0%
Winpak Ltd 17.3%
SIG Combibloc 12.8%
Sealed Air 17.6%
IMI 14.6%
Oxford Instruments 16.2%
Renishaw 16.9%
Morgan Adv Materials 11.4%
600 Group 1.7%
Avingtrans 7.1%
Melrose Industries 6.8%
Hill & Smith 12.4%
0.0% 5.0% 10.0% 15.0% 20.0% 25.0%
Source: Equity Development
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CY + 1 sales growth
Sector average 6.1%
Weir 8.8%
Trifast 8.6%
Rotork 6.1%
GEA Group 6.1%
Krones 6.6%
Mpac (Est 2021) 7.5%
Winpak Ltd 0.3%
SIG Combibloc 4.5%
Sealed Air 2.0%
IMI 3.0%
Oxford Instruments 5.0%
Renishaw 10.9%
Morgan Adv Materials 7.8%
600 Group 10.0%
Avingtrans 5.9%
Melrose Industries 8.4%
Hill & Smith 1.9%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
Source: Equity Development
CY dividend yield (%)
Sector average 1.3%
Weir 2.5%
Trifast 0.9%
Rotork 2.1%
GEA Group 2.9%
Krones 1.2%
Mpac (Est 2021) 0.0%
Winpak Ltd 0.3%
SIG Combibloc 2.4%
Sealed Air 0.0%
IMI 1.8%
Oxford Instruments 0.7%
Renishaw 0.8%
Morgan Adv Materials 3.6%
600 Group 0.0%
Avingtrans 0.9%
Melrose Industries 1.3%
Hill & Smith 1.1%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0%
Source: Equity Development
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Market capitalisation of peers
Mrk Cap CY net cash / Enterprise Shareprice (Millions) (debt) Millions Value (Millions)
Hill & Smith 1,410p £1,121.0 -£174.0 £1,295.0 Melrose Industries 175p £8,502 -£3,131 £11,633 Avingtrans 275p £86.4 -£7.4 £93.8 600 Group 13p £14.8 -£16.7 £31.5 Morgan Adv Materials 305p £869.3 -£126.0 £995.3 Renishaw 5,920p £4,310 £152 £4,158 Oxford Instruments 2,030p £1,165 £61 £1,104 IMI 1,240p £3,373 -£223 £3,596 Sealed Air $45.50 $7,053 -$3,373 $10,426 SIG Combibloc € 18.41 € 5,892 -€ 1,252 € 7,144 Winpak Ltd $33.59 $2,184 $503 $1,681 Mpac (Est 2021) 420p £84.7 £14.5 £70.2 Krones € 67.00 € 2,117 -€ 30 € 2,147 GEA Group € 29.70 € 5,361 € 68 € 5,293 Rotork 335p £2,918 £165 £2,753 Trifast 150p £202.5 £3.3 £199.2
Weir 2,100p £5,460 -£1,262 £6,722 Source: Equity Development
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Contacts
Andy Edmond Direct: 020 7065 2691 Tel: 020 7065 2690 [email protected]
Hannah Crowe Direct: 0207 065 2692 Tel: 0207 065 2690 [email protected]
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