2021 is ‘The Year of the Package’ – three interesting Small Caps
Companies: MCB, MPAC, RBN
Recent news that the UK is running out of cardboard does not surprise me. After all, as families have been sitting at home during enforced periods of lockdown, the online sales business has ‘gone through the roof’ – especially for companies like Amazon.
A recent headline in Forbes Magazine stated that 2021 was the ’Year of the Package’.
The UK Packaging Manufacturing Industry has annual sales of £11bn and employs some 85,000 people – representing 3% of the UK’s manufacturing workforce. It is a major contributor to the UK GDP.
Packaging ensures that people can buy and use products when they want them, in good condition and with little wastage.
Whether it’s plastic bags at supermarkets or over-packaged items using an array of plastic and cardboard, most people have a pet-hate linked to packaging. It really can attract a lot of bad press.
Without packaging, much food and many goods would be damaged or spoiled before they arrive at their destination. In less developed countries, without the sophisticated distribution and packaging systems that we have in the UK, as much as 50% of food never reaches consumers.
The primary role of packaging is to protect and preserve the product. Reducing packaging may increase product wastage and reduce product hygiene – with environmental impacts much greater than that of the packaging that may have been saved.
The largest recycler of paper and cardboard in Europe is DS Smith, which is the leading supplier of corrugated packaging solutions, operating in 37 countries and employing over 31,000 people.
Great company as it is DS Smith is of little real interest to me because its market capitalisation, at £5.4bn, is way outside of my ‘Small Cap’ remit.
However, this week I have selected three companies that operate within and around the packaging sector – a company that actually designs and makes the packaging machinery, one that supplies a range of packaging products to its clients, and then a group that uses packaging for its range of products.
I believe that all three have good investment merits and that are certainly well worth investigating.
My Research-Tree ‘Pick of the Bunch’
This company was founded in 1874 and is based in Coventry. Previously known as Molins, this group changed its name in 2018.
It provides packaging and automation solutions to the healthcare, pharmaceutical, and food and beverage sectors worldwide. Some 80% of its revenues are generated outside of the UK.
The company designs, manufactures, and engineers packaging solutions, automation and secondary packaging equipment, end-of-line robotic with integrated testing solutions, turnkey solutions, and the design and integration of packaging systems.
It offers the cartoning and case packing of bags, stick packs, pouches, and flow wrapped products.
The company also provides pre-owned and rental machines, as well as turnkey solutions, including design and integration of packaging systems.
The group’s client list, amongst hundreds of others, includes AstraZeneca, 3M, Kellogg’s, Unilever, ConvaTec, Johnson & Johnson, Nestlé, Bausch + Lomb GlaxoSmithKline, Procter & Gamble, Philips Advent, Diageo, Ferrero, and CooperVision.
Analyst Paul Hill at Equity Development concluded that the group had entered 2021 in excellent shape. The early January Trading Update suggested that 2020 adjusted profits would be ahead of expectations.
The group, whose shares have trebled in the last year, should be announcing its finals to end December 2020 in the first week of March.
Its CEO Tony Steels, who will report a robust performance for last year, is confident of a positive outlook for 2021.
The company was founded in 1839 and is headquartered in Chesterfield. It manufactures and sells plastic and paperboard packaging products in the UK, Europe, and internationally. The company provides various plastic packaging products comprising injection moulding products, such as thin-walled containers, hinged caps, wide-mouth closures, overcaps and plugs, tamper evident tubs and lids, pudding basins, aerosol activators and overcaps, thick and thin-walled jars, specialist mouldings and devices, and multi-chamber jars.
It offers blow moulding products, which include integral handles, trigger sprays, wide mouth jars, dosing packs, and jerry cans, as well as products for shampoo, shower gel, laundry care, automotive, toilet cleaners and bleach.
The company also provides various types of paper packaging products, including conventional boxes and lids, clam packs, slip cases, and shoulder boxes. It also makes luxury rigid boxes for confectionery, food, toiletries and cosmetics.
Robinson provides products and services to major players in the fast-moving consumer goods markets including McBride, Procter & Gamble, Reckitt Benckiser, SC Johnson, and Unilever.
In a major move by the group, last week it announced the debt free cash free £7.7m complementary acquisition of Schela Plast A/S, the Danish designer and manufacturer of blow moulded containers. In one quick move Robinson has expanded its geographic reach to gain new business in the fast-moving consumer goods sector.
Analysts Raymond Greaves and Michael Clifton at the group’s brokers finnCap upgraded their Target Price on the group’s shares to 185p, looking for it to increase revenues from an estimated £37m for last year to end December up to £48.6m this year.
They see the expansion cost and new investment into Schela to slightly slow the profits growth from £2.6m in 2020 to £2.7m pre-tax this year, worth 14.4p of earnings (13.8p) per share.
The finals are due next month. However, if you look a little deeper into the company you will identify that it has very appealing property assets which could prove to have useful development potential.
This manufacturing and packaging group is one of the companies that Robinson supplies. It is a leading European manufacturer and supplier of contract manufactured and private label products for the domestic household and professional cleaning and hygiene markets. Its Surcare brand takes in non-bio laundry powder, liquid and capsules, as well as fabric softener and washing up liquid.
Its Oven Pride brand includes cleaning solutions, bags and gloves. Its Hospec brand includes various products for laundry, dishwashing detergents, general disinfectants and sanitisers, and general cleaner lines.
Towards the middle of last September Edison Investment Research analysts Sara Welford and Russell Pointon stated that the shares were trading at a sharp discount to the household sector.
They considered that a re-rating will be contingent upon a turnaround in the group’s performance. That may well be underway right now.
Brokers Peel Hunt have recently been appointed joint broker with Investec Bank. On Tuesday of next week (23rd) the group will be announcing at 7am its interim results and then at 1.30pm on that day it will hold a Capital Markets Day presentation.
About the Author - The Small Cap Veteran
He has been around the track a few times, now this former stockbroker and AIM company boss, gives us his views and pointers on his specialist subject – The UK Smaller Company Sector.
His comments are his own, he is not giving readers advice on whether you should Buy, Sell or Hold any of the companies that he might mention in his market ramblings.
He does not know what you might be looking for in your market dealings, so it is imperative that you must make up your own mind on his column’s content.
Check up on the Research Tree Company Profile pages in helping to forge your own opinions.
There are masses of overvalued companies in the Small Cap arena, but there also remain a multitude of ‘value situations’ still out there well worth researching.
What does he look for?
In seeking out ’value’ he looks for companies that have:
- good balance sheets (even if they have borrowings),
- good market positions with products that are competitively priced both at home and abroad,
- good sales prospects,
- good operating margins, and
- creating reasonable earnings for both their workforce and their shareholders.
That is where Research-Tree really does come in so very handy. A quick assimilation of what various brokers have to say about a particular company, can justify the requirement to delve even deeper into how it operates, its markets and its potential.