The UK Scheme
> IAS 19 surplus of £11.1m before tax (December 2016: £4.6m surplus)
> Assets increased by £1.9m to £403.8m
> Liabilities decreased by £4.6m to £392.7m, with discount rate of
2.4% (December 2016: 2.5%) and decrease in inflation rate of
> Interest rate sensitivity: 10bp rise = £5.9m deficit reduction
With US rates scheduled for further increases -- and possible further 10bp rises, each narrowing the deficit by £5.9M a time, could this be a significant upside for the way the company is viewed, from a value perspective. Especially so since the share price is still significantly below net asset value.
Obviously not having such a massive pension at all would be the preference but here it is.
The outlook statement in the presentation gives this :-
"""Order intake and sales both strongly ahead of the same period last year in the continuing operations and prospects remaining strong in the second half"""
Well - let's hope so eh?
Games - nice fag end of a company if we see a positive contribution from the pension + a further uptick in packaging sales.
The board of Molins PLC ("the Company") announced on 27 June 2017 that the Company had entered into an unconditional agreement to sell its manufacturing facility in Ontario, Canada, with completion expected to take place by the end of November 2017. The board announces that completion of the transaction is now expected to take place by the end of December 2017. The board will provide a further update in due course.
The share price of small-cap packaging company Molins (MLIN:163p) have risen by 15 per cent on an offer-to-bid basis after I highlighted the valuation anomaly a couple of months ago, prompted by some fine equity research from analysts Paul Hill and Hannah Crowe at Equity Development (Four small-cap plays, 4 Jul 2017).
The move is justified on many counts, not least of which is the disposal of its underperforming tobacco business, which has left the company with pro-forma net funds of £22m, a healthy sum in relation to Molins' market value of £32.6m. Furthermore, the sale of a packaging facility in Ontario, Canada, for a net £5.9m a sum well in excess of the £1.5m book value of the assets will bolster that cash pile by a further £4.9m when the deal completes in two months' time. Molins is leasing out a newly built plant nearby that facility at an annual cost of £350,000 and will spend £1m on fit-out costs.
Analyst Sanjay Jha at house broker Panmure Gordon forecasts a year-end net funds position of £28m, or 139p a share, slightly higher than Equity Developments forecast of £27m. Thats solid asset backing and theres still an outside chance that the company could yet reap a windfall from a slimmed-down residential planning application on a 10-acre site it owns in Buckinghamshire that's now surplus to requirements. An application for a mixed 131-unit scheme on the green belt land was turned down by the Secretary of State at the end of July, but Molins board still believes there may be scope to resubmit a slimmed-down version of the application for fewer housing. A decision will be made before the year-end.
Importantly, prospects are robust for the companys remaining businesses, which supply high-speed packaging equipment and machinery. In the six months to the end of June 2017, Molins revenue shot up 40 per cent to £25.4m, buoyed by a trebling of sales in Asia Pacific to £5.6m, and 58 per cent top-line growth to £9.5m in the EMEA [Europe, the Middle East and Africa] regions. Turnover was flat in North America, the largest market segment, but the company was facing pretty tough comparatives there. More important is news that current order intake is supportive of full-year expectations that point towards underlying pre-tax profit rising from £0.9m to £1.1m on revenue of almost £48m, as analysts at Panmure Gordon predict to deliver a 39 per cent hike in EPS to 5p.
Drivers of growth
Critical to this growth, and predictions that Molins can grow revenue by 8 per cent in both 2018 and 2019, is demand from the pharmaceutical, healthcare, nutrition and beverage end-markets that the company services. These markets are expanding at around 5 per cent a year and have attractive underlying long-term growth drivers such as urbanisation, convenience and health awareness. During our results call, chief executive Tony Steels, who has led the companys restructuring since his appointment in May last year, highlighted an ambitious medium-term target to grow revenue annually at an organic rate of 10 per cent, and generate a 10 per cent return on sales. It will take some doing as analysts at Equity Development predict an operating margin of 2.1 per cent this year, doubling to 4.6 per cent in 2018, rising to 5.7 per cent in 2019, but if it can be achieved the shares will clearly warrant a price well in excess of NAV of 203p a share.
Thats because as sales rise, and operational gearing of the business kicks in, then profit will rise sharply too. This explains why Panmure expects Molins underlying pre-tax profit to ratchet up to £2.6m in 2018 and to £3.6m in 2019, an outcome that should drive up EPS to 10.4p and 14.7p, respectively. Equity Development has similar forecasts. In other words, even without deploying its war chest on bolt-on acquisitions, there is a potentially a strong organic growth story here, and one that should support the reinstatement of the
OK now that everyone has swallowed the sale of the ciggy business, it's time for the company to focus on the rest of the packaging concern.
In the report just released, I had overlooked something that could be quite fundamental and maybe a worring concern.
For the ongoing business it looked great on the surface, because the revenue grew from £18.2M to £25.4M -- a growth of 39.5%
Yet at the same time the cost of sales also grew 36.5% almost negating the gain.
On top of this the distribution expenses jumped from £2.4M to £2.8M and the admin costs jusmped from £3M to £3.7M
So the operating profit was a mere £0.4M --- or 1.5%
Games -- This all looks very hand to mouth and perhaps the bounce in the share price is now the exit point?
Good growth in sales. If you exclude the profit contribution from discontinued operations, it still made a loss but a much smaller one compared to last time.
No interim dividend.
Pension surplus increased to £11.1M compared to £4.6M last time.
Profits declined in the US, Increased 3X in EMEA and doubled in ASIA Pac.
Pension in UK into surplus, in the US, although a small relative concern, is in deficit by £6.6M.
Closing Net Debt reduced from (£4.6M) to (£1.1M)
Outlook on sales is :--
"""Overall progress in the development of the continuing operations, with order intake and sales both strongly ahead of the same period last year, is expected to continue and the continuing group's future prospects remain strong."""
A number of readers have been asking me to comment on the recent corporate activity at Molins (MLIN:138p), a small-cap packaging company that has announced some important disposals. I have history here as I included the shares in my 2012 Bargain Shares Portfolio at 107p, enjoyed an 82 per cent surge in the share price by the end of the next year, before a series of trading setbacks sent the shares tumbling and prompted my exit in the autumn of 2014, marginally below my advised buy-in price (Molins profits go up in smoke, 14 Oct 2014). My concern was the scale of the deterioration in the companys tobacco machinery division as customers delayed equipment orders. It was justified, too, as trading deteriorated further and the shares continued to head south. They ended up bumping along the 50p level for all of last year.
However, what makes the company interesting now is that its selling off its underperforming tobacco business for £30m in cash to recoup the book value of the assets after accounting for £2.7m of fees and taxation. A further £2.7m of the cash will be paid into the companys UK pension fund, and £1.5m set aside for warranties and indemnities pursuant of the sale. That leaves £23.1m of cash, a healthy sum in relation to Molins market value of £27.8m. In addition, the company is selling off a packaging facility in Ontario, Canada, for a net £5.9m, a sum well in excess of the £1.5m book value of the assets, and will pay £350,000 a year to lease out a newly built plant instead. After fit-out costs this disposal effectively boosts Molins cash pile by a further £4.9m to £28m, or 139p a share.
For good measure, I understand from analysts Paul Hill and Hannah Crowe at Equity Development that there might be additional treasure tucked away in Buckinghamshire where the board has submitted an appeal for residential planning on 10 acres of spare land. If granted, this plot could be sold to developers for £15m plus. Of course, the appeal may fail, but it does offer potential for further good news.
Furthermore, the board has just announced that order intake in the ongoing packaging business is considerably ahead of the same period last year. Analysts at Equity Development believe that the packaging business should increase revenue from £41.5m to £49.8m this year to deliver a near-50 per cent rise in pre-tax profit to £1.3m. Moreover, they are predicting 10 per cent revenue growth in 2018 to underpin a doubling of pre-tax profit to £2.6m after factoring in £400,000 cost savings, and better profit margins, too. On that basis, the shares are trading on 13 times next years likely earnings, hardly a punchy valuation for a business with a war chest to invest in earnings-accretive acquisitions in the packaging sector. In the circumstances, analysts sum-of-the-parts valuations of 180p a share seem reasonable to me.
Still cheap after today's rise, with cash exceeding market cap when the two sales complete The remaining business will bear the full company overheads until they can be slimmed down, but this will be more than covered by the profit on the sale of the Canadian property. The pension fund deficit will need to be studied after the dust has settled down, but it all looks good at the moment.
The 2 analysts offering 12 month price targets for Molins PLC have a median target of 100.00, with a high estimate of 110.00 and a low estimate of 90.00. The median estimate represents a -15.97% decrease from the last price of 119.00.
and on hargreaves, only one broker is listed :-
March 2017 Panmure Gordon 02/03 Reiterates Buy 110.00p
As pointed out on here, it seems somewhat well under the radar.
Games -- Well at 139 I get my money back and given I more than doubled it on the last down-up cycle before this one, I'll be pleased with the result.
Gamesinvestor, the remaining business, where prospects look much brighter than a year ago, should be capable of returning profits to about £4M from sales of About 50M. If we assume a net profit of about 3M, then a market cap of 30M, 50% higher than the current 20M, would give a P/E ratio of 10, significantly less than the market average
There are two many uncertainties to answer your question on the pension fund. The last accounts showed a significant improvement in the value of pension fund assets, and the continuing strength of markets should have improved assets further. The fund will also benefit from any increase in interest rates, as this factor features prominently in the calculation of liabilities. There are many companies out there that are prospering in spite of large pension liabilities (look at BT and IAG (British Airways)).
Yes, i think a return to about 180p, the price about 18 months ago, is very possible, and it would be nice to see the dividend returned to 5p per share, which should be possible from a strong balance sheet, and would be covered about three times from net earnings of £3M.
Even after today's rise, the shares look seriously undervalued. The shares have looked undervalued for several years, with a market cap that is out of line with sales and assets, but the tobacco machinery business and pension fund deficit have held back progress and the market was not too happy with the dividend cut. With this drag on the company out of the way, it should be blue skies ahead with a more realistic valuation and, hopefully, a growing dividend.
market likes it because it was sold at book value incl goodwill ie
£30m received (net £23.1m)
with 20 m shares in issue mkt cap is still only £20m at 100p ps so we have further to go.
I wonder what the remaining business is worth and what prospects it has ?
Also the implications for future pension liabilities - I note £2.7m payment contribution as part of the deal (so net of the £23.1m) and i presume that all is good there now?
Also Molins had substantial property assets _ I wonder how much goes as part of the deal?
Questions questions, but there looks to be clear upside to me
If you would like to hear Tony Steels, Chief Executive, present on behalf of Molins he will be appearing at our next investor forum on the evening of Wednesday 29th of March. Also appearing will be the management of Watkin Jones and Accrol.
To learn more about the forum and to register for free please follow this link: https://www.eventbrite.co.uk/e/equity-development-investor-forum-march-2017-tickets-32226603639
It is with regret that I have today sold the remainder of my shares. This has been one of my worst performers having held since January 2015. It's a shame but it was my fault for not sufficiently appreciating how the pension deficit (currently requiring £1.8m a year) is going to drag this company backwards. Essentially, it has to be run for the pensioners first and shareholders second.
The scrapping of the dividend in the present, and the uncertainty of how and when it will be reinstated, means that MLIN is no longer any use at all for my income orientated investments.
Perhaps MLIN will recover and its share price increase. I hope so for other holders, but even that is clouded in uncertainty so its adios from me (for now!).
I'm inclined to think your wrong about the pension deficit going away as rates rise.
Certainly Bond yields will rise but only following interest rates that follow inflation upwards - that improves the asset side of the equation, however the liabilities side is driven by CPI which will probably increase even more quickly. (Remember we had a ~15% devaluation in sterling which I expect we will need to absorb through inflation over the next few years).
Just take the last 12 months of Molin's pension-performance: the assets are up by 15%, but liabilities are up by nearer 20%.
Incidentally, as I read the figures there is no deficit at the moment, it is actually a 4M surplus but that is down from 10M surplus the previous year.
- However with only 2M pa. currently contributed to the deficit, the deficit could easily spiral out of control.
The results are not pretty, but I like the optimistic tone of the chairman's statement and the increase in orders is very encouraging.
Increase orders, an efficiency drive in progress, net cash on the balance sheet and a tiny market cap compared with sales level and profit potential makes for an enticing recovery situation. Even the one bug, the pension deficit, will reduce as interest rates rise due to the way in which it is calculated. Note the increase in the value of the pension fund assets.
Yes, ugly! I was expecting fairly poor results, but its some of the little things that I find particularly worrying.
Calling recurring costs non-underlying does not make them exceptional - the finance costs and pension administration are annual recurring expenses, so the company is now making a small net operational loss, unless they can reduce their pension contributions in the three-yearly valuation.
And why isn't that valuation settled yet? what's lurking in there? It's taken a year longer than the previous one with the massive deficit - they'll need to start the next one in just fifteen months time!
And no more juicy dividends, or profits to pay them from.
I'll revisit Molins in a year when its clearer whether bond yields are increasing faster than CPI on the pension.
Just had a quick spin through the results and Tony Steel's management speak ramblings.
I can't see this will go down well with Mr Market today. I might be wrong (if expectations are low) but effectively they're saying they made a loss, there's no final dividend, a new dividend policy will be initiated only when there has been a recovery and when the Board see fit, oh, and the pension deficit of £53m is x4 the market cap of the company.
Glad I sold about a third of my holding last month (at a loss).
Annual Results - for the 53 weeks to 1 Jan 2017. Note that there's an extra week in these 2016 results, so that will flatter profit slightly.
This is a fascinating business - in structural (probably terminal) long-term decline, yet generating prodigious profit & cashflow. The cashflow is being used to fund its enormous pension fund deficit, but also to make acquisitions & pay divis.
Profits in line, per one broker which has put out an update this morning.
Revenues up 20.3% due to the acquisition of Local World, from £592.7m in 2015, to £713.0m in 2016 - so this is a substantial business.
Adjusted profit up 23.9% from £107.5m in 2015 to £133.2m in 2016.
Ongoing cost cutting is offsetting the impact of lower circulation & advertising revenues.
Adjusted EPS up from 33.9p in 2015 to 38.1p in 2016 - so a staggeringly low PER of just 3.0.
Digital revenue - up 12.8% on LFL basis, to £78.5m - becoming fairly significant.
Net debt - down from £62.4m a year ago, to £30.5m
Dividends - total 5.45% (yield of 4.8%), and policy is to grow by at least 5% p.a.
So there are clearly some attractive numbers above. However, the reality is that newspapers are just gradually dying. The advertising revenue is steadily moving online, and circulation is falling. This can only be masked by cost-cutting and acquisitions for a while.
The revenue trends are still relentlessly downwards;
On a like for like basis, revenue fell by 8.0% with publishing digital revenue growing by 12.8% and publishing print revenue falling by 10.7%.
Whilst the digital revenue growth is encouraging, it's still nowhere near enough to offset the decline in print revenues.
Also, advertising is relentlessly declining;
The challenges in print advertising markets resulted in a decline in display advertising across a number of sectors, in particular retail. Most classified advertising categories also came under pressure, in particular recruitment.
It's not surprising really, as these things are just moving online gradually, and it's difficult to imagine that trend changing. The trouble is, newspapers are losing revenues that are very unlikely to ever return.
Circulation revenues declined 5.2% with volume declines partially mitigated by cover price increases.
A decline of 5.2% in circulation revenues doesn't sound too bad, but of course that's flattered by the price going up. So the volume declines must be greater than 5.2%.
Strong growth in digital display and transactional revenue of 24.7% was partly offset by digital classified revenue declines of 11.3%, primarily due to falls in recruitment advertising. The growth in digital display and transactional revenue was driven by the growth in digital audience with average monthly page views on a like for like basis growing by 15.4% to 636.1 million.
I don't really know what to make of this.
Pension deficit - this is the elephant in the room, of course.
The highlights section says this today;
The IAS19 pension deficit increased by £160.8 million to £466.0 million (£385.1 million net of deferred tax) driven by a fall in long term interest rates and higher inflation expectations. The Group paid £40.7 million into the defined benefit pension schemes during 2016.
I suspect this might be responsible for the share price fall today. I'm no expert on actuarial matters, but my hope was that pension deficits would decline, as bond yields have risen recently. Any benefit from that seems to have been overwhelmed by increased inflation expectations (due to Brexit-related fall in sterling).
The interesting question is whether this is a one-off surge in inflation, as occurred after a similar fall in sterling back in 2008
Important message from the Financial Conduct Authority:
Posting inside information that is not public knowledge, or information that is false or misleading, may constitute market abuse.
This could lead to an unlimited fine and up to seven years in prison.
If you have any information, concerns or queries about market abuse, click here.
The content of the messages posted represents the opinions of the author, and does not represent the opinions of Interactive Investor Trading Limited or its affiliates and has not been approved or issued by Interactive Investor Trading Limited.
You should be aware that the other participants of the above discussion group are strangers to you and may make statements which may be misleading, deceptive or wrong.
Please remember that the value of investments or income from them may go down as well as up and that the past performance of an investment is not a guide to its performance in the future.
The discussion boards on this site are intended to be an information sharing forum and is not intended to address your particular requirements.
Whilst information provided on them can help with your investment research you need to consider carefully whether you should make (or refraining from making) investment or other decisions based on what you see without doing further research on investments you are interested in.
Participating in this forum cannot be a substitute for obtaining advice from an appropriate expert independent adviser who takes into account your circumstances and specific investment needs in selected investments that are appropriate for you.