i reckon there is a 50/50 chance
that MLIn will be one of Simon T's picks for the year.
it is exactly the sort of share he likes,
and he has tipped it before.
there is good upside potential for either...
profit improvement at current businesses,
a decetn bolt on acquisition,
higher interest rates help CASh pile and also eliminate risk with the pension - albeit that it is already in a surplus.
at the mo i think c 140p + of the Market Value is in CASH so this limits a lot of the downside.
also if the share price can break above 170p it is a HUGE chart break out which is the sort of share he likes....
1. Any guess or information as to reinstatement of the dividend?
2. The pension liability has been plugged with some of the sale proceed cash in the short term, but servicing a pension that's many times larger than the company seems to be a permanent ball around it's neck that's so large it will always put the business in the shade.
Unless of course we all believe interest rates are going to the moon and the discount rates calculated by actuaries put's the pension investments into a permanent surplus. Can't see this to be honest but you never know, but if it did go up then the economy would be in a mess, so it's a bit like swings and roundabouts.
Having rebounded and stabilised the company after the sale of the tobacco division is it now all in the price?
Discounting the fact the company has lots of cash and the market cap is modest in proportion to net asset value, is it really going anywhere?
Historically Molins has been a low margin/low ROCE lumpy type of business subject to the vagaries of the industrial economic demand. It's margins on building machine packaging have always been realistically low, what's likely to change if anything, except for the fact they won't have tobacco customers anymore?
Yes it's going to focus on healthcare instead of healthdon'tcare, but it's still a low ROCE low margin business. And, one that's not paying a dividend, at least at the moment.
Looking at the P/E going into this year, it's at 16 after expecting to more than double last years dismal £1M of pre-tax number.
But isn't it all in the price and we are now left guessing if the new management really knows how to increase margins, and revenue on what's left of the packaging machinery, or watch and wait while they buy something else?
Having cycled this twice and doubled my money in the first instance, on the 2nd time around I was sitting on a huge loss, now turned into a 21% gain.
Is it time to go or is there more to Molins than meets the numbers, can they build a more high margin growth business or is that a dream -- after all they have had years and years of trying and failing?
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.
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