Macfarlane Share Discussion Threads

[kacker1] 14/2/2022 19:44

bit of shame to see this so far from the mid year high. Lets hope its not the upcoming results and just everyone getting hyped over Putin

[tole] 16/1/2022 18:20

Yes good point. Protective packaging specialist Macfarlane (MACF) gained 3% to 133.8p as it confirmed it had sold its Macfarlane Labels division on 31 December 2021 to The Reflex Group for £6.4 million.The market appears pleased by the exit from a lower-margin part of its business and the modest, though still helpful cash injection associated with the proceeds from the deal.In November, the Glasgow-headquartered firm reported a 25% increase in sales for the 10-month period to October and pre-tax profit well ahead of the same period last year. Its shares are up 48% over the last 12 months.Macfarlane Labels designed and printed self-adhesive and resealable labels, principally for fast moving consumer goods or FMCG companies.The proceeds from the sale would be 'strategically invested in the continuing growth of Macfarlane's protective packaging businesses,' the company said.'BUY AND BUILD' IN PROTECTIVE PACKAGINGThe group's net bank debt at 30 November 2021 was £3.2 million with a bank facility of £30 million in place until December 2025.Shore Capital analysts Robin Speakman and Akhil Patel said: 'The labels business was expected to generate revenues last year in our model of c.£20 million, generating a margin below that of the rest of the group.'The Labels sale leaves Macfarlane focused on its 'buy & build' model in protective packaging solutions, working closely with its clients in the UK and growing into Continental Europe. Coming at the year end, we adjust our forecasts for the sale for 2022 and 2023, reducing revenues by c£21 million for each year, but noting a net margin accretion and a lower interest cost expectation.'Our forecast EPS (earnings per share) for 2022 reduces by 0.1p to 10.6p. However, we expect the sales proceeds to be utilised by the group (backed by the debt facility) in coming quarters in the organic and acquisitive growth strategy – while operating conditions continue to normalise from the pandemic.'

[whittler100] 16/1/2022 16:29

Seems the Motley Fool is a touch behind the curve as MACF sold their labels business, RNS on 4th January, & MF article dated 16th January. Only read the headling notes, maybe the subscription article is more informed.

[tole] 16/1/2022 13:16

https://www.fool.co.uk/2022/01/16/4-nearly-penny-stocks-id-buy-to-own-for-10-years/Packaging powerhouseThe relentless growth of e-commerce means that Macfarlane Group's labels and packaging products should remain in high demand. The business designs, makes and distributes generic and bespoke packing materials which it sells in the UK and Europe. It also sells its labels in the US. It therefore has considerable strength through geographic diversification.Its operations might not be the most exciting but they serve an important part of everyday life. Researchers at Statista think the global e-commerce market will be worth $6.39trn by 2026, up from $4.89trn last year. Despite the threat posed by rising raw material prices I think Macfarlane's could be a great buy for the online shopping boom.

[cockerhoop] 04/1/2022 09:34

With both receivables and payables both running at around £50m and Inventories of around £20m i'd expect some quite noisy monthly variations.

[cockerhoop] 04/1/2022 08:47

Net Bank Debt was £2.0m at the end of October so has increased by £1.2m during November.

[effortless cool] 04/1/2022 08:35

Duplicate - deleted.

[effortless cool] 04/1/2022 08:35

So there goes the labels business, £15.4m of revenue in 2020 with a lower gross margin than the balance of the manufacturing businesses. Probably well shot of it, since it has been a consistent struggle over many years to generate an adequate return.

An interesting point from today's announcement is that net debt at end-November was £3.1m. This compares to my year-end forecast of £5.1m. Thus, unless there is a seasonal increase in December, cash generation would appear to be quite well ahead of my expectations.

[tomps2] 17/12/2021 10:24

#MACF discussed by Richard Leonard, the one that got away from him.
c38m

[pireric] 25/11/2021 14:52

Good conversation. Thank you both. I am a little lower on M&A contribution than you EC which explains our Q3 difference

I'm quite optimistic on H2 gross margins as I think the dynamics are strongly in MACF's favour (supply tight, very strong demand and packaging shortages). That is an environment for the largest player in the sector to enjoy at least normal margins, if not slightly excess margins (good H1 margins too). Plus still operating leverage at the EBIT margin level on top against the impressive revenue performance. I would be surprised if the end of 2021 result on adjusted eps is not closer to 12p than your 10.6p illiswigig, but time will tell!

I imagine there is some cross-fertilisation into the distribution base from GWP. If the product is quality then as long as you dont compromise on the customers choice then why not show them what GWP can offer.

Eric

P.S. I would again point you to have a look at James Latham's results today as evidence for the gross margin dynamics for a distributor in a tight supply strong demand environment. There are some differences between packaging and timber which we must bear in mind and I am not suggesting evenly remotely close to the magnitude of benefit they are seeing. But even so..... I think like at H1 we are set up for a big beat against expectations on profit at the full year 2021 results day

[illiswilgig] 25/11/2021 14:32

EC and Eric,

Thank you both for your hugely insightful thoughts.

Very pleasing update on sales and cashflow.

My own forecasts for MACF have got into something of a twist - I find I've updated them 4 times in the last 4 months - 3 to account for updates and once to account for my own concerns over cost pressures in materials and labout and supply constraints.

For what its worth my own forecast for revenue is now £284m - and like you Eric - I think that's still a tad conservative.

I am forecasting 10.6p eps - which is the middle of a range as sales increases trade off against my concern over gross margin pressures.

It looks to me as if GWP in particular is turning out to be a big success - and will transform the performance of the manufacturing division. Which gives me another difficulty in predicting how the margins will turn out in manufacturing.

My figures are for 19m revenue contribution from the two acquisitions in the full year - largely due to continued growth at GWP. I noticed recently that they were recuiting an extra HGV driver for a weekend artic run from Swindon to Glasgow and back - presumably cross selling of GWP packaging by MACF distribution is going well?

Well done all!

cheers

[effortless cool] 25/11/2021 14:04

Hi Eric,

I have double-checked and found that I had the swapped the March acquisition in April and vice versa. My corrected numbers match yours in q1 and q2, although I have 11% LFL growth from Jul-Oct (Q3+1).

My full year forecast now requires 1.5% LFL growth in the last two months Your £283m requires 8%. (Both less in practice, as the acquisitions likely have a q4 seasonal bias).

I think we are both in a very plausible range and certainly think my risk of error is mainly to the upside.

[pireric] 25/11/2021 12:26

I need to double check my maths EC, but if I take your organic numbers then you are assuming 14.6% roughly organic growth for the first 10 months of the year and that acquisitions have added therefore £19.5m in the first 10 months

That seems rather too high to me given the first 6 months had acquired sales of £8.1m (even if only partial contribution in Q1). I'm at more like £20m in M&a contribution for the entire year (not extrapolating full 2Q levels) which makes quite a big difference to the organic business growth in 1/2 quarters.

My revised maths is that the organic business did 12% in Q1, 26% in Q2, 14% in Q3 on a base comparison 9.5 points harder than Q2.

Although I am splitting hairs because the overall business performance is clearly very strong. Im happy to be at £283m of revenues and I actually feel there is upside to that. I also suspect that profitability come the end of the year will be looking very rosy.

Eric

[effortless cool] 25/11/2021 12:18

Good to have you joining us, Martin.

Looking back at my records, I first bought MACF in March 2015 and, over the years, have made 27 purchases in all, with no sales. 2018 and 2020 were down years, but my overall IRR exceeds 22%, which is well above the 15% I target. With, I believe, a lot more to come, I'm very happy with Macfarlane.

[shanklin] 25/11/2021 12:04

Surprised to be able to buy in volume at £1.346 given the positive nature of the update. I see its over 15 years since I last held MACF and they look in much better shape now.

[effortless cool] 25/11/2021 11:41

Headline revenue growth is quite heavily impacted by the two sizeable acquisitions made this year, one in March and one in April.

Doing some rough calculations, I reckon that LFL growth over the year has progressed as follows:
Jan-Mar - 13.8%
Apr-Jun - 24.3%
Jul-Oct - 9.1%

Extending the analysis to the full year, I reckon that my current revenue forecast of £279.5m implies a meagre 0.2% LFL growth in Nov-Dec. I'm comfortable with that, given the current impact of supply chain challenges and the tough comparatives.

The end-October net debt position of £2.8m is a lot better than my year-end forecast of £5.7m. Last year, net debt improved by £0.3m from October to December so, assuming this year is similar, it looks like my current forecast is too pessimistic. However, the variance of £2.9m is small compared against current assets/liabilities that will be around the £90m mark at year-end, and could easily just reflect "noise" in working capital movements.

Overall, I'm comfortable that my current forecast is broadly consistent with this update, albeit with a slightly prudent bias. Hence, I am not updating my model. Due to an increase in the market median forecast PE ratio since August, however, my valuation of MACF has improved to 231.5p.

Apparently, MACF shows up on a "neglected firms screen" on Stockopedia. Given the muted reaction to today's good news and the huge gap between market price and my valuation, that seems about right to me. Sooner or later, however, I am confident that that gap will close.

[pireric] 25/11/2021 07:43

Nice 10 month trading update today
- sales +25% despite comps in q3 and October getting tougher. I reckon 15% organic growth in Q3 compared to 11% in Q1 in spite of harder comps
- I now think the full year outturn can be £283m revenue and 12p of adjusted eps putting this on an 11x PE
- Shore capital have updated to £280m of revenue but 10.5p of eps and Im convinced their numbers are too low, especially on profit. Which sets up a nice beat into the full year results
- net debt down to only 2m

Fair value? Not close to 130p in my view, more like 180p and above given quality of the company, track record, structural growth drivers on ecommerce and M&A levers too.

Eric

[effortless cool] 19/11/2021 11:32

Thanks, eric. I hope that my financial projections are more reliable than my RNS predictions!

[pireric] 19/11/2021 11:05

Trading update intended by the end of the month. Have confirmed with the company.

Eric

[bscuit] 17/11/2021 16:02

Recommended as buy/Strong hold by VectorVest at Mello Investment Trust webinar yesterday.

[effortless cool] 13/11/2021 15:41

Hi, gregg. My 2021 projections are ahead of analyst consensus, per the latest update in the header, so I am expecting a good update. I have no insights into any pressure on margins through raw materials inflation or on the effect on demand from exiting lockdown so, with all that is going on in the world, there is plenty that could knock the business off course. I remain optimistic, however.

[greggphilips88] 13/11/2021 14:00

Are you still expecting it to be a good update EC?
Is the share price fair value now?

[effortless cool] 12/11/2021 19:45

I'm expecting a trading statement this week, on either Tuesday, Wednesday or Thursday.