August was brutal for UK investors, with the FTSE100 and AIM indices declining 6% and 12% respectively. Triggered by fears over a deteriorating world economy, manufacturing Armageddon, sliding business confidence, Brexit and a protracted US-Chinese trade war. Worse still, there is presently more than $15 trillion of negative earning debt, with several pundits warning of an imminent recession (not our view) after both the US & UK yield curves briefly inverted last month. The good news is that this rhetoric appears misplaced (at least to us), since many quality businesses are still firing on all cylinders. Take MPAC, who this morning reported strong interims, with FY19 results likewise anticipated to be “significantly above expectations”.
Here, not only did H1 turnover and EBIT climb to £45.8m (+62% vs £28.2m LY & 43% LFL) and £4.6m (£0m LY), but also the firm reported a 54% jump in bookings (Services +75%) alongside 12% profit margins. The latter reflecting operational efficiencies and improved product mix, after shipping more ‘repeat’ (vs one-off) orders. Thus reducing upfront customisation, commissioning and implementation costs. Better still, the outlook for the rest of the year is positive too, thanks to the approx £35m (ED Est) June closing orderbook (flat vs 12 months’ ago) and increasing proportion of recurring revenues (c. 10%-15% of group).
As such, we’ve lifted our FY19 sales (+2.4% to £87m vs £58.3m LY), profit margin (8.0% vs 2.4% LY), EBIT (£7.0m vs £1.4m) and adjusted EPS (26.2p vs 4.5p) projections, on top of nudging up the valuation from 260p to 275p/share.