Mpac (MPAC:268p), a small-cap niche packaging engineering business supplying customers in the pharmaceutical, healthcare, nutrition and beverage industries, has prompted analysts to push through their fifth earnings upgrade since the annual results in March last year ('Mpac’s massive earnings upgrades', 5 Mar 2019).
Mpac supplies its blue-chip client base with high-speed, cutting-edge packaging machinery and equipment in a global market growing by 4 to 6 per cent a year, and one where demand is being underpinned by the need for large original equipment manufacturer (OEM) customers to improve efficiency and lower costs and wastage in their production lines. Mpac earns more than 80 per cent of annual revenues outside the UK, so it is benefiting from strong global trends including the migration to smart technologies, which is accelerating growth rates as large companies adopt artificial intelligence-enabled equipment and robotics in their production facilities and warehouses.
Mpac’s order intake (especially in the US and healthcare segment), profit margins and cash generation are all ahead of analysts' full-year expectations even though they had already lifted forecasts at the time of the 2019 half-year results (‘Mpac delivers fourth earnings upgrade this year’, 9 Sep 2019). Paul Hill at Equity Development now expects Mpac’s 2019 pre-tax profits to rise from £1.4m to £7.5m, representing a £500,000 upgrade, on revenue up by more than half to £89m, buoyed by a surge in operating profit margin from 2.4 to 8.4 per cent – the margin expansion highlighting the operating leverage of the business given its relatively fixed cost base.