Over the last few years there has been little indication that MPAC has got the say-do mantra down pat, but this may now be changing.
Let me first say that I am going to largely ignore the pension scheme situation. The situation is broadly OK under IAS19, but there could be a significant deficit under actuarial assumptions. However this is subject both to bond yields, which will vary over the next 10 years, and it is a situation that can be dealt with over many years. I also note that the trustees have agreed a target of £5.5m operating profit before increased payments are required. If the operating profit gets to £5.5m I believe the share price will be considerably higher than it is today.
The only other factor to mention on the pension is that the major GMP equalisation charge was previously signposted and I am going to simply lump it into the general deficit.
I am not a fan of MPAC’s choice of how they calculate “underlying” profit. I think they are choosing to exclude legitimate cash costs that are routine and regular in their operation. In particular reorganisation costs and the annual pension scheme administration costs. For reorganisation costs I do not believe that if you fire 1 person it is an expense you recognise but if you fire 10 you can exclude them. Nor do I see the cost of the staff pension scheme as being any less real than the cost of the HR department.
Given that I see the “underlying” profits as being.
All figures are £M 2016 2017 2018
Underlying Per MPAC (1.5) 1.1 1.4
Pension Admin (0.9) (0.8) (0.9)
Reorganisation (0.8) (0.7) (0.8)
Real Profit/(Loss) (3.2) (0.4) (0.3)
So whilst much has been said there is currently little to show for it. And the company continues to lose money. Though with a cash pile of £27.9m at December year end there is no need to panic at the moment. This is down from £30.3m, but the rationale for the decrease being bigger than the operating loss has been previously flagged.
However this was very much the message I got when I met the CEO in December and as a consequence whilst not excited by the result I am not disappointed. The words I heard match the results I am seeing and the words I heard where very much focussed on 2019.
That having been said there were 2 significant provisions on contracts in 2018. A total provision of £1.1m. If these had not been required the 2018 figures would suggest a significant improvement. If more provisions are not needed in 2019 and management have claimed these were problems from the past then 2019 should show a significant improvement.
Given a market cap of £29.2m. Cash of £27.9m, if the company actually made profits it has to be worth over £1.3m. (Though the pension does confuse this).
With Order intake growing by 4% to £63.8m, particularly in the second half. (Against revenue of £58.3m) And a starting order book up 16% YoY I would expect delivery ahead of last year and presumably no further provisions with regard to “legacy” contracts. That said the results say that the legacy contract from the Canadian office has not been fully resolved as yet. I also note that this order increase was generated in the Americas with what looks to be significant declines in both Europe and Asia
The company has and mentions a number of initiatives, "Going for growth", "Make Service a Business", "Operational Efficency", "One MPAC". Very few numbers were used to cover these so whilst they sound very sensible I am not able to realistically consider their efficacy, Perhaps this will become clearer in 2019.
The potential development of the Market Risborough site remains undiscussed but a potential boost to cash.
I personally remain pleased that as yet management have not felt the need to spend the cash on an unwise investment. Though I am probably tempting fate in saying this. That is not to say that there are no wise investments, but until they have sorted out their own operation I would be concerned that they felt they should be doing something else.
I remain of the opinion, given in earlier posts that this business should be able to attain a valuation of at least £40m. Whilst the jury remains out on this 2019 is very much the year that we should find out if this is truly going to be delivered. My expectation is that it will be and I remain a holder. At these prices I may purchase more.