Quick notes – MPAC

The following missed this morning’s 7:59 cut but for completeness I would like to comment on them.

Mpac (MPAC) – H1 Results

Clearly this is an impressive outcome. H1 underlying EPS of 21.3p compares with previous forecasts of 22.1p for the whole year and so it is hardly surprising that the full year is expected to be “significantly above current market expectations”.

I previously commented that the word “recurring” appeared nowhere in the annual report and highlighted the risk of bespoke packaging machine designs. Therefore I am particularly pleased to see talk “an increased number of repeat projects” and especially “Several long-term service agreements, generating recurring revenue”.

On the negative side, a lot of cash has been consumed in inventories, receivables, contract assets (work in progress) and contract liabilities (reductions in advanced payments from customers). Most of these items are a reflection of growth, but they underline the capital intensiveness of the business and contract performance risks. The order book suggests that H1 performance won’t be repeated in H2, as do broker forecasts.

It looks like management have been doing a great job of transforming the business and today’s share price move looks like an under-reaction if anything, Only the poor cashflow (which was expected) stops me from jumping in.

Vertu (VTU) – H1 Update

They report inline. This continues to be my pick in this sector due to tangible asset backing.