Macfarlane - The Long Story

Sunday, Feb 24 2019 by
31

Stockopedia give an excellent summary of Macfarlane (LON:MACF) on their share page:

"Macfarlane Group PLC is a United Kingdom-based company, which is engaged in designing, manufacturing and distribution of packaging products.

The Company's segments include Packaging Distribution, which is engaged in distribution of packaging materials and supply of storage and warehousing services in the United Kingdom, and Manufacturing Operations, which is engaged in designing, manufacturing and supplying of self-adhesive labels to a range of fast moving consumer goods (FMCG) customers in the United Kingdom, Europe and the United States.

The Company's business operates approximately 18 Regional Distribution Centers (RDCs) supplying customers with a range of packaging materials and services. The Company's Macfarlane Packaging Distribution serves in various sectors, such as Internet retail, third party logistics (3PL) and aerospace. Its Macfarlane Labels serves in various sectors, such as health and beauty, food and household goods".

Packaging Distribution

The Packaging Distribution division is by far the largest, generating 87% of 2018 revenues. It is also the most successful, having been consistently profitable for many years.

It is boringly predictable, which makes forecasting relatively easy. The brown line in the chart below shows half-yearly revenues from 2011-2018, along with my projections for 2019-2020. Note that the historical data has been 'as if' adjusted to include acquisitions (of which more later), so will not tie back exactly to the data in the published results.

5c724becc2110Picture1.png

The green line shows a seasonally-adjusted fitted trend line. The fit is remarkably good, although it can be seen that there are actually two trend periods in the data: 2011-2013, when there was very little growth, and 2014 onwards where there has been a consistent growth trend. The transition is likely driven by the advent of internet shopping, with all the packaging that requires.

Manufacturing Operations

The much smaller Manufacturing Operations division has been more problematic for Macfarlane (LON:MACF) management. That business actually shrunk over the period 2011-2017, and struggled to make money throughout those years.

Management efforts to turn this around appear to have been successful in recent periods, however, as shown in the chart below.

5c724eb5bc7b5Picture2.png

The last three periods have shown a dramatic reversal in the trend of reducing revenue and the…

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As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Macfarlane Group PLC is a United Kingdom-based company, which is engaged in designing, manufacturing and distribution of packaging products. The Company's segments include Packaging Distribution, which is engaged in distribution of packaging materials and supply of storage and warehousing services in the United Kingdom, and Manufacturing Operations, which is engaged in designing, manufacturing and supplying of self-adhesive labels to a range of fast moving consumer goods (FMCG) customers in the United Kingdom, Europe and the United States. The Company's business operates approximately 18 Regional Distribution Centers (RDCs) supplying customers with a range of packaging materials and services. The Company's Macfarlane Packaging Distribution serves in various sectors, such as Internet retail, third party logistics (3PL) and aerospace. Its Macfarlane Labels serves in various sectors, such as health and beauty, food and household goods. more »

LSE Price
96p
Change
1.5%
Mkt Cap (£m)
149
P/E (fwd)
11.5
Yield (fwd)
2.8



  Is LON:MACF fundamentally strong or weak? Find out More »


5 Posts on this Thread show/hide all

rhomboid1 24th Feb 1 of 5
2

Hi Effortless Cool

Fantastic summary of a v well performing business, it’s a business that it is easy to underestimate because it always looks around fair value but then uses acquisitions to great effect to supplement modest organic growth

One Q if I may...these acquisitions are generally about geographic footprint...how many white spaces still exist worth filling in the U.K. ?are are they now likely to go overseas for future growth?

PS are you on Twitter?

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Effortless Cool 24th Feb 2 of 5

Thanks, rhomboid - positive feedback appreciated.

As to geographic footprint, my naive interpretation of the map linked below is that there is still plenty of scope to keep bolting on small acquisitions. (Input a post code and select a 500 mile radius).

https://www.macfarlanepackaging.com/locations/

I am only on twitter passively, as an occasional viewer off other's tweets, rather than tweeting myself.

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rhomboid1 24th Feb 3 of 5
1

I’ve looked at the map they have some notable open points remaining,Wales, Swindon Norwich Hull Kent Oxford to name but a few ..so continued growth is plausible

Great long term compounding candidate in my view & seems notably well managed, as you say greater FCF from pension scheme being fully funded will give a kicker to valuation

I’ve held before & it’s definitely a company that I’d happily hold again ..thanks for highlighting

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Effortless Cool 18th May 4 of 5
2

There has been a bit of positive RNS activity from Macfarlane (LON:MACF) recently.

On 7 May, they announced the acquisition of Ecopac (UK), continuing the 'buy and build' strategy in their Packaging Distribution division. The cost of £3.9m (assuming full payment of a £0.8m earn-out) represents 65% of historical revenue, versus the 77% that Macfarlane (LON:MACF) is currently priced at, and a historical PE ratio of 10. As usual, it is expected to be earnings-enhancing in its first full year.

On 14 May, they issued a trading update for the first four months of 2019. Packaging Distribution growth was consistent with my expectations for the first half year, with 3% organic growth and 3% from acquisitions. Manufacturing Operations, however, has delivered 15% growth over the prior comparative period, indicating that the turnaround in this business now has real momentum, and I have strengthened my forecasts accordingly.

5ce05b376a60ePicture1.png

The updated operational leverage analysis, reflecting both of these announcements, is shown below.

5ce05f80e321dPicture2.png

The only issue is with the pension deficit, where my prediction of imminent elimination will not now come to pass, due to the reduction in longer-term bond yields. However, Macfarlane's large holding of liability-driven investment funds will, at least, mitigate the deterioration in its pension position.

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wilkonz 19th May 5 of 5

Excellent review thanks Effortless Cool. It's the sort of company I like.

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