MIDAS SHARE TIPS UPDATE: Drugs packager Mpac is healthier after giving up cigars

Updated: 11:18 EDT, 12 May 2020

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If you've not heard of Mpac, you might remember Molins, a tobacco-packaging business founded by a cigar-maker in Havana.

In a wise, but ironic, pivot, the company, which was well known for its sophisticated packaging machines and robots, sold off its tobacco arm, and now parcels up asthma inhalers instead of cigarettes.

Its machines are to be found in factories used by AstraZeneca, GlaxoSmithKline, Unilever and a host of other consumer goods and pharmaceutical businesses.

Mpac sold off its tobacco arm, and now parcels up asthma inhalers instead of cigarettes

Mpac is valued for its innovation – this is the company that worked out how to make pyramid-shaped teabags – so it was a relief to see this week that it has now managed to apply that ingenuity in the Covid-19 pandemic, establishing effective social distancing and hygiene practices across its factories, with employees 'working effectively within the new rules'.

The company's presentation at its annual meeting this Wednesday was particularly welcome after a bleaker assessment on March 26, when chief executive Tony Steels cancelled the final dividend of the financial year to December 31, 2019, 'to protect the business and conserve cash during this period'.

The company's shares dropped to £1.75, but they have since bounced back considerably, rising 5 per cent on the day of that statement alone, and now stand at £2.55. So why the optimism?

The company's clients are large and demand for their products continues despite the pandemic.

Big pharmaceutical companies are particularly valuable at present – and no one has stopped drinking tea.

Midas tipped Mpac in July last year, when the shares stood at £2.03

Mpac is fiscally conservative too. The company is debt-free and reported a £5.4 million pre-tax profit for 2019, up from a £7.4 million loss in 2018.

On a price-to-earnings ratio of six, Mpac still doesn't look expensive, and investors can be hopeful that the dividend policy will be reinstated when the coronavirus crisis recedes.

Midas Verdict: Midas tipped Mpac in July last year, when the shares stood at £2.03. It's been a bumpy ride since then, but the shares are already far above that level at £2.55.

Last week's announcement shows that the company has the financial firepower to make it through the next few months.

With Steels at the helm, there's little danger of the company running out of steam. Worth packing away in your portfolio.