Shares in Mpac (MPAC:210p), a small-cap niche packaging engineering business and a constituent of my 2018 Bargain Shares portfolio came close to my 250p target when the price hit a 14-year high of 238p in April. Both the chairman and finance director then announced their departures in quick succession, so some profit-taking was understandable given the price was already up 52 per cent on my 156p entry level (‘Bargain Shares: another chance to bag some bargains’, 14 May 2018).
It’s therefore reassuring to know that 45-year-old operations director Will Wilkins has been appointed successor to Jim Haughey, the outgoing finance director who leaves at the end of August. Mr Wilkins is a Grant Thornton-trained chartered accountant and has been with Mpac for six years, including four as group financial controller between 2012 and 2016. The appointment also highlights the considerable strength Mpac has in its in-house finance team. Furthermore, with non-executive director Andrew Kitchingman, a former corporate financier at KMPG, taking the role of chairman then investors can return their focus on the operational progress the company is making.
Bearing this in mind, Mpac’s first-quarter trading was bang in line with internal budgets, and the market for packaging equipment remains favourable with industry growth around 5 per cent a year. The order book at the start of 2018 was up over a third year on year, adding weight to analyst predictions of 10 per cent revenue growth this year. On this basis, Paul Hill and Hannah Crowe at Equity Development expect pre-tax profits to more than double from £1.1m to £2.6m on revenue of £58.7m to produce EPS of 9.9p. Operational gearing means that an increasing proportion of incremental sales falls to the bottom line, so modest growth in revenues results in a sharp boost to both operating margins and profits.
I would flag up that Mpac has net cash of 148p a share, which accounts for more than two-thirds of the company’s net asset value of 216p a share. Strip cash out and the shares are effectively being priced on a forward PE ratio of 6 for 2018. The shares are worth buying ahead of the interim results on Thursday, 7 September. Buy.
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Simon's second book Stock Picking for Profit has been reprinted and is available to purchase online at www.ypdbooks.com for £16.95, plus £2.95 postage and packaging, or by telephoning YPDBooks on 01904 431 213 to place an order. Simon has published an article outlining the content: 'Secrets to successful stock picking'
