Ordinarily I would be a buyer, particularly as the shares are down circa 15% in only a few weeks on what I see is quite good news, that I think Mr Market has misunderstood.
However I do not want any holding over 10% of my portfolio on a long term basis and MPAC has been over 10%, even with sales, for some time. So do I buy a business that seems to be cheap and breach the 10% rule or not?
But I think MPAC should be an easy win when you get into the detail of the results.
I also have to admit to being more and more impressed by Tony Steels the CEO. He had a vision he laid it out and as time has gone past it is easier and easier to see the plan being delivered. That said I am conscious that Mr Steels is just one man and I remain to be convinced whether the other key managers are too his standards. That being said he has in the past acted to exit poor staff, particularly after the tobacco machinery business exit and I therefore remain confident that he will continue to look to put the right senior managers in place if not there already.
Mr Steels introduced a “One MPAC” vision which is not just about an international organisation under the MPAC brand so every country team can sell all of the products, (which matters more and more as the business expands) ,but also a service offering so the same equipment sale can be multi-faceted and made more of a whole life sale. Very much a “would you like fries with that”, model both functionally and operationally
The key numbers for me are as follows;
H1 H2
Orders £30M £53.4m
Sales £36.8m £46.9m
PBT -£0.1m £3m
These PBT figures do not tie (by HY) to the figures given by MPAC as I manipulate what MPAC calls non-underlying costs. By and large I think they are both real and a genuine cots of the business and need to be properly reflected and apportioned. If MPAC accepted the costs and just adjusted for either exceptional or extraordinary I think the accounts would be better understood.
As it is the accounts produced by MPAC for H1 v H2 suggest that H2 was far less profitable than H1, which I think is misleading.
The other thing that I think can be misunderstood is that MPAC is an Order Driven Business. You almost only sell what you have an Order for so what the Orders for H2 suggest is that MPAC is moving from being an £83.7m turnover business to a £100m turnover business.
What I would also note is that whilst the Lambert acquisition has gone well there has been a lot of associated costs, and presumably some level of management time spent on this. In particular the relocation of the Coventry operation to Tadcaster. Hopefully now there can be an increasing concentration on delivering the business. There has also been the Switchback acquisition in the US, which seems to be delivering ahead of expectations. It gives not only a genuine American location to an increasingly US focussed business but also a new range of machinery to sell in the worldwide model.
Both of these have been good well delivered acquisitions. MPAC is clearly looking to do more and management suggested that they were now using advisors to source a specific acquisition type. Of the right, size, in the right field. Price will of course be everything.
So on a current Market Capitalisation of £100m. With cash of £10m you get an Enterprise Value of £90m. (I use a lower cash figure than the actual accounts as it is clear the cash has been boosted by working capital and the FD was not convincing that this was anything other than a covid blip). I think the business is currently running at a PBT level of circa £6m and with a superior and growing order book I expect that to grow at a reasonable level over the next few years.
Equity Development have a £6 a share valuation and that doesn’t seem overly rich to me. In particular at the ½ year the target price was £3.5 and ED has privileged access to MPAC. So much so that when at the investor presentation when management referred to meeting the forecasts and I asked what the forecasts were the referral was to ED’s figures.
https://www.equitydevelopment.co.uk/hubfs/Research/Mpac/Mpac%20Group%2030%20March%202021.pdf
This is a link to ED’s forecasts and attendant report.
I do note that the company a few years ago (pre-covid), talked about a dividend. And part of the current selling may be people who are after that. I personally would not be a fan. MPAC has sown in the last couple of years an ability to periodically do acquisitions. There is no rush to my mind, maximising the synergies from both Lambert and Switchback have some way to run and the C19 pandemic shows the wisdom of available cash in a business.
And in answer to my original question I put in a bid for more shares which was not quoted so I now have a limit order on.