Norcros (NXR) – Pension

I was surprised to see today that Norcors’s pension trustees calculated fund liabilities as at 1/4/2018 to be virtually the same the IAS 19 accounting liabilities on 31/3/2018, resulting in a very similar deficits on both basis. This is highly unusual, for example I reported yesterday that MPAC’s trustees calculate liabilities about 17% higher than IAS 19, resulting in a significant deficit and recovery payments vs a significant accounting surplus.

Ultimately the only explanation is that the differences between assumptions used by the accountants when calculating IAS liabilities and those used by the trustees are much smaller than with other companies / funds. By why?

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7:59 cut – QUIZ, MPAC

Quiz – FY Results

This appears to be a slight revenue and EPS miss. Back in September EPS forecasts were for 7.8p which fell steadily to 0.54p vs the 0.33p reported today. Net cash has fallen by £1.7m to £7.5m. The cash may be be helped by trade payables increasing £5m on flat revenue, although receivables have also increased by £3m and debt has reduced.

With the stated plan for “a reduction in our exposure to UK department stores” (i.e. Debenhams), growth of 34% in online revenue to approaching 1/3rd of the total is critical. In the outlook they confirm this growth has continued albeit at a lower level.

Despite a weak high street, overall they say sales have been broadly flat since the last update. If they can recover margins then this would imply a considerable bounce-back next year – 3.7p was forecast before these results.

The dividend has been cancelled.

Even adjusting for cash the shares do not look especially cheap on previous FY2020 forecasts and there is no indication that these forecasts will be raised or FY2021 will be significantly better. I have a small holding I will try to sell today, albeit partly motivated by a desire to tidy up my portfolio.

Mpac – Pension Update

Back in August 2018 Mpac traded at a negative enterprise value having disposed of their main cigarette packaging business for cash, issuing a profits warning and having a large pension recovery payments uncovered by profits in the remaining business.

However, on an accounting (IAS19) basis they had a significant pension surplus and it was evident that the timing of the last triennial valuation was unfortunate, locking them into recovery payments over 10 years based on a high deficit that was significantly out of date even by the time negotiations had finished.

Since then they have bought another business for £15m (leaving cash of around £12m [edit: £10m after pension payments]) and today have announced a halving of the actuarial deficit. As expected, the trustees have not been willing to reduce the level of the recovery payments, but this does of course imply a recovery period of half the length. Other aspects such as restrictions on dividend payments remain.

The reduction in the deficit was broadly as projected (by me and likely others), but today’s statement may focus investors minds on the light at the end of the tunnel. Not only can meaningful dividends be expected in 5 years, but the absolute liabilities have now probably peaked since the scheme was closed some time ago and this should limit future risks. However, it is unlikely the company would be able to access any of the accounting surplus for 10+ years and the insurance company buy-out value likely remains considerably in excess of even the actuarial deficit. Longevity, interest rate and investment performance risks to the pension remain. Admin costs and pension protection fund payments must still be borne by the company.

There may be a rise this morning, but five years is still a long way off in most investors timeline and the recent acquisition has yet to bed in. I will continue holding off from any investment.

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.

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