Mpac (MPAC)
In a statement to accompany today’s AGM, Mpac reports that the strong earnings momentum established in the second half of 2023 has continued into 2024. Accordingly, the Group is on track to meet FY24 market expectations, with the customary second-half earnings weighting.
As we noted at FY23 results on 19 March (Going for Growth: FY23 results ahead on all metrics), following FY23 performance which was ahead of our outlook in all respects, including record £118.5m intake, the Group returned to normalised operations. We raised our Fair Value to 530p/share from 485p/share with the prospect of FY25 adj. EBITDA c.40% above FY23.
In the AGM statement, Mpac notes that the combination of the timing of H1 24 order intake and project milestones has led to working capital expansion, resulting in a small net debt position at the end of the period. This is expected to revert to a net cash position in H2 24. Our FY24 year-end estimated net cash outlook is unchanged at £4.1m.
Underlying target market resilience and growth strategy As noted at FY23 results
40% of revenue is derived from the Food & Beverage sector, with Healthcare taking the combined weighting to 76%. These are sectors which display both strong underlying demand and the requirement for innovative, especially environmentally acceptable, packaging solutions. In line with Group strategy, latest earnings data showed 28% of total derived from Service revenue, the basis for increased profitability and client retention. In FY23, the Group increased the technical staff headcount from 272 to 330, and technical hours billed from 295,000 to 383,000, +30%.
At FY23 results, Mpac outlined its strategy to broadly double revenue within a five-year horizon, noting that over 37% of Original Equipment (OE) orders by value stemmed from new customer wins, and OE orders were achieved with 78 different customers. The Group sees a strong correlation between the ability to win new business and a technical environment which fosters innovation and encourages creative solutions. The growth strategy is augmented by the opportunity to expand through acquisition, notably in areas of new technology, and development of new verticals such as clean energy (8% of FY23 revenue).
Outlook maintained: Fair Value 530p
Following the AGM statement, our outlook is maintained. Our Fair Value of 530p/share is indicative of a FY24 EV/EBITDA multiple of 7.9x and PE of 13.9x. Compared to market cap weighted averages of 11.8x and 18.2x respectively for a group of Mpac peers1 , Mpac trades at a significant discount.
Read or download the full report here....