Principal markets are the Americas (71%) in particular the US, Canada and Mexico and EMEA (21%) , in particular UK and the Netherlands. There is a growing presence in Asia Pacific (8%).
I have been a long term investor in MPAC, based largely on the fact that the company traded for little more than cash and that the valuation of the operating business was IMHO too low. In previous write ups I have given some idea as to what the valuation could be if only a limited number of problems could be addressed or some of the initiatives delivered.
As it is, MPAC has now made a substantial acquisition and this does help drive the valuation forward.
I have also been critical of the management team as they have been quick to claim success only for that success to not be delivered in the next period.
However hats off to them, in particular the CEO Tony Steels, as so many of the areas he has identified and said the company is working on have begun to be delivered in this period.
Everyone can get lucky some of the time but in the last 6 months MPAC has succeeded in many areas.
- In the past (2018) MPAC has had issues with legacy contracts. This has led to £millions in provisions. Previously Mr Steels had said he was bringing this sort of overpromised contract to an end and he seems to have been successful with this as there are no further provisions in these figures.
- In line with the above Mr Steels has previously said that he was looking for more standardised products, both removing the new product risk and allowing higher margins. Success in delivering this is specifically cited in the ½ year report.
- The company has for a while said it has been improving its sales team and the better results from H2 2018 have continued into 2019 with LFL Orders up 42% over H1 2018. It is worth noting that for a company such as MPAC Orders are the lifeblood of future sales which may take many months to appear.
- MPAC has for a while been laying out the concept that Services would be sold with Original Equipment orders and that Service could be better driven as a sale in itself. This initiative has been under “Make Service a Business”. Previously the need to utilise the key Service engineers to make up for the mistakes on legacy contracts has been highlighted as a delay in taking this initiative forward, no longer. In these results Service order intake is up 75%. It is also worth noting that whilst OEM margin is reported by MPAC at 27% the Service Margin is reported at 36%.
- MPAC has been looking for an acquisition. Whilst it is still early to judge the Lambert acquisition seems to be very well fitted to MPAC. It both brings in related product lines that enable MPAC to offer a more end to end solution, and it does so in a high margin business. For the last few years Lambert has maintained a higher margin. (Though legacy contracts and the related Service issues confuse the exact details).
- The Lambert acquisition also was at a price point so as to leave MPAC with significant cash both to invest in the business and if relevant other acquisitions.
- Mr Steels has in the past cited the need to change a significant amount of the historic management. In the not so recent past MPAC was Molins a larger business with a significant tobacco machinery business. Selling much of the business and bringing in his new ideas for how MPAC should be run led to a number of staff leaving or being dismissed. Particularly in the Americas. The growth of the Americas is one of the successes of this period.
- The company had identified that it wished to grow in the Healthcare market and that was a feature of the growth recorded in this period.
Gross Profit went from £5.9m to £13.1M up 122%. That is a GP % of 28.6% from 20.9%.
Profits went from a loss of £(0.9) to £2.6m
It is also worth noting that one of the “clouds” on MPAC’s horizon has been its legacy pension schemes in the US and UK. Neither of these has to me seemed to be as big a problem as has been made out and they continue to be less important to the group, but will continue to be a legacy issue.
As I long term shareholder I do feel I ought to say how impressed I am to see so many of the initiatives or intentions laid out by management, and in particular Mr Steels, being delivered at one time.
Issues for the Company do remain;
The significant growth in the Americas (199%) and Asia Pacific (29%) mask a 32% fall in EMEA.
Also the growth in healthcare masks a fall back in Pharmaceutical sales.
However equally true is Lambert was only included in these results for part of the period and will only be included in a full year in 2020. Also Lambert has some acquisition related costs that will not repeat in H2 2019 or 2020 and thereby help improve the actual profit. The best may yet be to come.
I understand brokers seem to be giving a valuation in the 275-300p range which looks fair to me, particularly at the lower end. My valuation is 280p but that is as always only one of a number of possibilities and I wouldn’t hold myself to it.
My base entry price into MPAC is now 144p as I have bought a little more around the 200p mark.
Schroders holds about 21% of the business.
As always, and particularly in the case of so much change, always DYOR.