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Mpac Group jumps on strong revenue and profit growth in FY23

15:14, 19th March 2024
Paul Hill
PMH Capital

The UK is a hot bed of engineering talent, spawning household names like BAE Systems, Rolls Royce, JCB, IMI and Dyson, alongside smaller firms such as Oxford Instruments, McLaren, Renishaw and Mpac Group (MPACFollow | MPAC.

The latter is a global leader (split 44% US, 25% Europe, 16% UK and 15% RoW) in high-speed packaging and automation solutions, serving the resilient healthcare (36% of sales) and food/beverage (40%) sectors, alongside supplying battery producers FREYR Battery and Ilika with innovative new clean energy systems. Indeed, Mpac Group's customer list is "one to die for" (see below), including Nestlé, GSK, CooperVision, Kellogg’s, Diageo, Dexcom, Mars and J&J.

These high quality factors helped drive today’s strong FY'23 results and positive outlook, augmented by the secular tailwinds of automation, operational efficiency, smart manufacturing, re/near shoring, and recyclable packaging.

Here, Mpac Group not only reported "record bookings" (+41% YoY to £118.5m) and a 17% jump in revenues to £114.2m, but also a doubling of pre-tax profit (£7.1m vs £3.5m LY) and adjusted EPS (26.2p vs 13.3p), with net cash closing Dec'23 at £2.1m (ex IFRS16 leases) vs -£4.7m LY. This was thanks to a normalisation of EBIT margins (9.1% H2 vs 4.2% H1) and working capital, combined with a broadening of the client base and a standout performance from the strategically important services division (28% of sales vs 24% LY), which generates repeat income from spare parts and R&M across an installed base of c. 4,000 machines in 80 countries.

What's more, Q1 has started brightly too on the back of a robust £72.5m opening orderbook with current trading said to be "in line with FY’24 expectations" of adjusted PBT £10.5m and 38.7p EPS on turnover of £120m (est Shore Capital Markets), whilst over the next 3-5 years the board is targeting EBIT margins and LFL top line growth of 10%+.

So putting this together, how much is the business worth? Well, this is where it gets really interesting for GARP investors.

You see, at 380p the stock trades on attractive FY'24 EBITDA, EBIT, PE and PEG ratios of 5.7x, 7.0x, 9.8x and <0.25x respectively. To me, this appears far too cheap, especially compared to industry benchmarks and my base case valuation of 460p-540p/share (re 12x-14x EV/EBIT multiple). Plus, in the event the longer-term goals are achieved, the upside scenario moves to 750p.

CEO Adam Holland commenting: "In 2023, the Group reported a substantial increase in revenue and profit in H2 vs H1. This momentum has continued into 2024, with trading in line with expectations. We have an expanding order book & prospect pipeline and an exciting new product development roadmap to launch in the coming years. Under our five-year plans we are seeking to deliver equipment and Service growth at improved margins, doubling revenue from our existing businesses by the end of the strategic period."

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