Mpac Group (LON:MPAC) – Latest acquisition makes strategic and financial sense
Yesterday this high-speed packaging and automation solutions specialist very easily raised some £29m from a Placing of 7.25m new shares @ 400p each.
Showing the professional respect for the group and its strategy, it was perhaps understandable that the issue was significantly oversubscribed, with existing and new institutions giving their support.
And that was despite a very small discount to the previous night’s closing price – just 3.6% lower than the market price.
The Placing represented 25.2% of the group’s enlarged equity.
The Acquisition
On Tuesday morning MPAC announced the £46.6m acquisition of CSi Palletising, a leading provider of design, manufacturing and installation services for end-of-line automation and palletising solutions.
CSi is based in Rotterdam in the Netherlands and has manufacturing facilities in Romania.
It looks to be a natural fit for the expanding Mpac group.
CEO Adam Holland stated that:
"I'm delighted to announce the transformational acquisition of CSi Palletising, which along with our recent acquisitions of BCA and SIGA Vision, will significantly transform our customer offering and core capabilities, consistent with our stated strategic ambition.
We have substantially expanded the breadth of our technology and extended our customer reach globally.
We are excited about the numerous growth opportunities for the enlarged Group."
Mpac is a specialist in machine building, i.e. robotics, for clients requiring solutions for packaging machinery, cartoning and case handling, particularly in the food and beverage and healthcare sectors, and now emerging in the field of clean energy.
Alongside original equipment manufacture, Mpac has a well-established service offering for its customers.
This acquisition is highly complementary to Mpac's existing business, and significantly improves and increases its capability and offering in end-of-line and palletising solutions.
CSi Palletising, which is a high-quality provider of solutions for palletising and material handling, offers an enhanced package of maintenance and aftermarket services across a growing global installed base.
It has long-standing, ‘blue-chip’ customer relationships in attractive sectors and its top six customers all exceed 30-year tenures.
The company, which has strong robotics and systems integration/turnkey capabilities, has long-established, lower-cost manufacturing and assembly facilities in Romania.
It is envisaged that the enlarged grouping will enable CSi’s product sales will be boosted by MPAC’s presence in the US, Canadian and Latin American markets.
It will also give MPAC a cost-saving manufacturing and assembly facility in Romania.
Researcher’s Views
Analyst Sanjay Vidyarthi at Panmure Liberum is impressed by the group’s recent acquisitions and reckons that they are transformative deals, helping to put the group’s shares onto attractive multiples.
He previously had a 550p a share Price Objective but has put that ‘under review’ until the group’s General Meeting on Friday 18th October.
However, he has stated that the group’s Management needs to execute, but reckons that there is scope for upside from synergies and operating leverage, while indicating a potential 750p to 955p valuation range.
Akhil Patel and Robin Speakman at Shore Capital Markets, consider that their cash flow analysis based on conservative forecasts (inc. zero CSi synergies) supports a fair value of around 900p, which is more than twice the current share price.
They strongly support the rationale for the CSi acquisition, believing it to be very strategically and financially compelling for Mpac.
Over at Equity Development analysts Mike Jeremy and Rachel Hayes have materially increased their ‘fair value’ per share from 550p to 865p following the deal and fundraising.
For this year to end-December they estimate revenues of £129.8m (£114.2m) and adjusted pre-tax profits of £10.2m (£7.1m), generating earnings of 31.8p (26.2p) per share.
For next year they see £218.1m of enlarged group sales, with £16.9m of profits and 43.4p of earnings per share.
The year to end-December 2026 they reckon will see revenues of £233.1m, with profits of £21.7m, worth 54.7p in earnings per share.
My Opinion
The Acquisition is in line with the Company's stated ambition to double revenue in five years from 2023.
And looking at the various researcher estimates MPAC really does appear to be on an excellent growth phase, which its shares have yet to reflect.
A year ago, they were just 190p, they reached up to 550p in May this year, while the Fundraising was completed at 400p a share.
In reflection to the CSi deal and the investment support, the group’s shares hit 449p at one time yesterday, before closing up 30p at 445p – which is a clear pointer that the City has appreciated the moves and the potential.
I have been a long-time fan of this group, they touched 665p three years ago, before collapsing back to 184p this time last year, so I have been pleased to see this recent action spurred on by such sensible deals and money-support.
At the current levels I would suggest that holders should just sit back and enjoy the ride, while new investors should quickly add some MPAC shares into their portfolios, because I am sure more good news will ensue.
(Profile 19.12.19 @ 182p set a Target Price of 235p*)
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