7:59 cut – MPAC

Mpac, the packaging company previously known as Molins, finally announce an acquisition with the cash received when they sold their tobacco operations in Autumn 2017.

The company has been generally traded at a discount to cash since a profits warning on 18th July 2018, subsequent half-year losses and ongoing issues with two legacy contracts. This despite an accounting pension surplus.

On 7th January 2019 they announced a more upbeat trading statement, confirming that one legacy contract has been resolved and an approach had been found to resolving the second one. The full-year results were messy with 30p / share statutory loss, but claimed underlying EPS of 4.5p / share. The adjustments go as follows:

  • Loss before tax: £8.8m
  • GMP pension equalisation: £7.3m (one-off, but demonstrates the risks of a large pension scheme)
  • Pension admin costs: £0.9m (ongoing cost)
  • Reorganisation and restructuring costs: £0.8m (quite likely ongoing since there was £0.7m the previous year).

Accordingly my adjustments still show a loss.

Furthermore, pension payments accounted for a further £3m cash due to a significant deficit showing at the last triennial valuation. Pension recovery payments are required even though they are showing a significant IAS 19 accounting surplus partly due to the timing of the last valuation, but mostly due to the significantly more conservative assumptions used.

Back to today’s announcement. The figures given suggest that the acquisition should bring the company into an unadjusted profit and significantly improve reported EPS. This could make the company look quite cheap on an P/E and EV/EBITDA level. However dividends will be highly constrained by pension payments and this seems likely to continue for another 3-4 years at least. Risks in contract delivery also remain.

Ultimately today’s announcement is good news and they look like a trading buy this morning.

Edit: It was possible to buy around 140p first thing, but that was more than I was willing to pay. I do not hold but will continue to monitor.

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