- Annual revenue declines less than 1 per cent to £61.2mn
- Operating profit falls £1mn to £4.4mn
- Upside from Emma Hardie and Brodie & Stone acquisitions to be seen this year
- Cost reductions and manufacturing efficiencies to add to the bottom line by September
Creightons (CRL:39p), a Peterborough-based manufacturer of beauty and healthcare products, has mitigated the loss of Covid-19 related hygiene products, but has not been immune to the supply chain and inflationary pressures that have impacted all UK manufacturing businesses.
Excluding the £14.3mn revenue contribution from hygiene products which boosted the 2020/21 result, and £3.6mn of turnover from last summer’s acquisitions, revenue increased by an impressive £10.3mn to £57.3mn in the 12 months to 31 March 2022. Growth was delivered across the board: branded sales increased by 37.7 per cent to £16.5m driven by the group’s Feather & Down and Balance Active brands; private label sales increased 9 per cent to £24.9m with the reopening of the high street and the addition of a large contract with a key grocer; and contract manufacturing sales rose 29 per cent to £15.9m as major customers responded to higher consumer demand.
Last summer’s acquisitions of Brodie & Stone (brands include T Zone, Natural World and Janina) and Emma Hardie Skincare delivered £0.49mn of operating profit on revenue of £3.6mn (mainly in Creightons' second half), a performance that supports the £9.7mn total consideration paid.
Gross margin improved, too, up two percentage points to 42.8 per cent, but the £1.2mn increase in gross profit to £26.2mn was eaten away by £0.2mn of higher distribution costs and a £2mn rise in administration costs, the latter reflecting higher inputs such as energy, insurance and general overheads. This explains the £1mn operating profit shortfall.
Sensibly, the directors are cutting overheads and improving manufacturing efficiencies which should markedly reduce operational costs by the end of the year to 31 March 2023. For example, investment in higher grade machinery and equipment in the last 18 months has produced a 10 per cent increase in throughput rates since 31 March 2022, and will continue to do so.
Creightons will also benefit from a full 12-month profit contribution from the two acquisitions in the current year, a key reason why return on capital employed of 12.9 per cent should start to recover back towards the 22.4 per cent level reported in the 2022/21 financial year. Net debt only equates to 29 per cent of shareholders’ funds, so the balance sheet is sensibly geared.
So, although investors have sold down the shares to below the 44p entry point in my 2020 Bargain Shares Portfolio, I can see recovery potential with the shares valued in line with book value and on a price/earnings (PE) ratio of 8.5. Recovery buy.
Mpac share price battered by warning
Issues sourcing critical, customer specified electronic components is causing operational inefficiencies and pulling through to negative operational gearing at small-cap niche packaging engineering group Mpac (MPAC:242p). To put this into context, although analysts now expect 2022 revenue to be flat at £94.5mn (9 per cent downgrade), pre-tax profit and EPS estimates have been slashed by 60 per cent to £3.5mn and 16p, respectively.
However, experts are starting to hear a growing commentary around supply chain normalisation in the industrial sector into 2023, so this could be a short-term issue for Mpac. Indeed, Panmure Gordon expects a 91 per cent rebound in next year’s pre-tax profit and EPS to £6.7mn and 30.5p based on 10 per cent turnover growth. Current net cash is estimated at £9.7mn (48p a share), so the balance sheet remains strong.
So, although Mpac’s share price is now only 55 per cent up on the entry point in my 2018 Bargain Shares Portfolio, I feel that a forward PE ratio of eight fails to reflect the group’s solid order intake, and structural growth drivers. Recovery buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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