It sounds like the start of a tough pub quiz: what links Mars ice cream, Covid tests, PG Tips’ pyramid teabags, and the circular glucose-monitoring patches increasingly stuck on Britons’ arms?
The answer is a maker of niche packaging machines, Mpac. The Aim-listed firm designs and builds complicated, often bespoke devices for factories. Over the years, that has included the kit that packs 12 Mars ice creams into a box per second, the equipment that packed Unilever’s pyramid-shaped teabags in the 1990s, and, more recently, the kit that helped scale up pandemic virus testing.
Blue-chip customers use Mpac now to organise the packaging machinery for products as diverse as contact lenses, drinks and asthma inhalers.
The company, which recently opened a new corporate headquarters in Coventry to take part in the West Midlands Investment Zone, is flourishing. It is growing both by helping clients make their factories “smarter” — through speeding up production lines — and by repeatedly diversifying into new industries. One of its novel contracts is with Freyr, a maker of clean batteries, where Mpac is working on the cell assembly system for its US battery gigafactory.
Such contracts have helped Mpac’s share price rise 60 per cent over the past 12 months to 377p. The stock remains, however, well below the 640p mark seen two years ago, with the company still being punished for historical supply issues and semiconductor-sourcing problems that have since been resolved.
At a trading update last month, Mpac reported that its order book was 11 per cent stronger than a year ago at £75 million — and it looks to have finished the second half of its financial year, to December 31, with margins of about 12 per cent, compared to 6 per cent in the first half and helped by healthcare contracts. Larger after-sales servicing deals are more lucrative, too; these already bring in a third of Mpac’s total revenues, but the firm’s performance monitoring of packaging machinery that it has previously sold is increasingly in demand.
Analysts anticipate that Mpac’s revenues will be 10 per cent higher at £107 million, and that pre-tax profit will double to £7 million at March’s annual results.
That’s quite a surge — but while the business is on the up, with huge opportunities in robotics, 5G and AI control systems, the shares still have a long way to go. Robin Speakman, an analyst at broker Shore Capital, expects Mpac’s growth to “accelerate significantly” in the next few years, “driven by client demand and opportunities to extend into complementary equipment and emerging economic sectors”.
At their current valuation, the shares represent a price-earnings ratio of 8, which is about 30 per cent cheaper than the 17 times average ratio of other UK engineers such as Weir and Smiths Group. “Materially undervalued” is Speakman’s verdict.
Mpac’s balance sheet is strong, with £2 million cash that the firm could deploy on acquisitions to tackle the still very fragmented automated-packaging market. Mpac’s management, led by new chief executive Adam Holland (whose CV includes spells at JCB, Siemens and Rolls-Royce), is certainly hungry for growth, which looks imminent. Buy.
