So after Friday’s storming US jobs report, augmented by dovish comments from Federal Reserve Chairman Jerome Powell and extra stimulus measures in China – are we out of the woods? Nobody knows for sure. The equity rebound could simply be a ‘dead cat bounce’ or ‘relief rally’. Either way, with the AIM Index in bear market territory, future returns should at least be better than 4 months ago.
Here we suspect the richest rewards will be earned by investors who are prepared to ‘cherry pick’ those ‘fallen angles’ that have declined the most. Step forward MPAC, a specialist provider of hi-speed packaging machines and related services. Generating c.85% of revenues from outside the UK - where it should not only be a beneficiary of the lower £, but also insulated somewhat against any Hard Brexit.
What’s more, this morning’s positive trading update said “2018 sales (ED est £57m vs £53.4m LY) and PBT (ED est £1.3m vs £1.13m) [were] in line with expectations, supported by a strong closing orderbook, which will provide a platform for continued growth in 2019.” Confirming the soft patch experienced in H1 was a temporary blip, and order flow has now returned to normal levels.
Additionally, the £1m of cost-overruns relating to two legacy contracts, have been contained. The UK machinery project is “resolved”, whilst the “Canadian agreement should be [fully settled] during 2019”. Tony steels adding “H2 saw us secure a number of new contract wins that support our strategic objectives. We are well on the way to finalising the remaining legacy contract and I am confident that we are back on track with a good platform for growth.“
In terms of the balance sheet, we estimate the group ended Dec’18 sporting a net cash pile of £25m, equivalent to 124p/share, and net assets of 263p/share.