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Buy Molins at 155p target price 200p

By Steve Moore | Thursday 14 September 2017

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Tom and I tipped shares in Molins (MLIN) at a 125p offer price in June as we considered that the price did not reflect the potential value following a transformational “Proposed sale of division” announcement earlier that month. The company has now updated with results for the first half of 2017. It is all good news and the shares are still a buy at up to 155p.

The results follow completion of the Instrumentation & Tobacco Machinery division sale on 1st August – the company having noted “pressure due to health awareness, government tax schemes and the introduction to the market of a large number of new nicotine delivery products” and more positive market dynamics for its other, Packaging Machinery, division as well as positive progress in the latter arising from initial implementation of plans identified from a strategic review led by June 2016-commenced CEO Tony Steels.

On recommending the shares in June, we emphasised “considerably” improved continuing group order intake – and the initial result is a stated continuing operations £1.2 million swing on the first half of 2016 to a £0.3 million pre-tax profit on revenue 40% higher (29% after the translation impact of sterling) to £25.4 million. However, there was, as in the 2016 period, then £0.9 million of defined benefit pension payments and after also particularly a net working capital outflow there was a £1.9 million swing to a £1.1 million net debt position. Ex-disposal group, net current assets were £9 million, non-current liabilities £17.9 million and non-current assets (excluding intangibles) £20.3 million.

However, there has now been £23.1 million of net cash proceeds from the sale of the Instrumentation & Tobacco Machinery division – with it stated this “has provided the financial resources necessary to accelerate the execution of the group's strategy to expand its presence within the packaging machinery sector and further exploit the growth opportunities that exist”. It is added “an acquisition strategy is beginning to be implemented, where the group will seek complementary businesses which can enhance the full solution customer proposition in our focused growth markets of Pharmaceutical, Healthcare, Nutrition and Beverage”, whilst “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.”

House broker Panmure Gordon sees further stated profit progress in the second half of the year and earnings per share exceeding 10p next year and approaching 15p for 2019 – noting also these take no account for potential acquisitions, which have clear accretive potential. With also anticipated year-end net cash of circa £28 million, a current – with the shares at 150p-155p – barely above £30 million market cap looks too harsh an assessment. Thus, although recommended with an initial 135p limit buy price, we now raise this to the 155p and, at here and below, the stance remains BUY  with a 200p target.

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