31.01.2025
Within the next few weeks we should be seeing Macfarlane Group (LON:MACF) announcing its Final Results for the year to end-December 2024.
I believe that, at the current share price of just 105.50p, this £168m capitalised group is looking very undervalued.
A good investor boost may become evident with the group’s accompanying statement on its current year business prospects and the synergistic acquisition two weeks ago of The Pitreavie Group.
The Business
Macfarlane Group, which was established way back in 1899 and went public in 1973, is headquartered in Glasgow.
The group employs over 1,000 people at 40 sites, principally in the UK, as well as in Ireland, Germany and the Netherlands.
Through its two divisions, the group services a broad range of business customers, supplying them with high-quality protective packaging products which help them to reduce supply chain costs, improve operational efficiencies and sustainability and enhance their brand presentation.
The divisions are:
Packaging Distribution - Macfarlane Packaging Distribution is the leading UK distributor of a comprehensive range of protective packaging products; and
Manufacturing Operations - Macfarlane Design and Manufacture is a UK market leader in the design and production of protective packaging for high-value and fragile products, it assembles timber, corrugated, and foam-based packaging materials and also recovers waste-paper and corrugated boards for recycling.
The group supplies more than 20,000 customers, principally in the UK and Europe.
In partnership with 1,700 suppliers, it distributes and manufactures some 600,000 lines supplying to a wide range of sectors, including: retail e-commerce; consumer goods; food; logistics; mail order; electronics; defence; medical; automotive; and aerospace.
Management Comment
Alongside the end-November issued Trading Update broadly in line with expectations, Aleen Gulvanessian, Chair of the Macfarlane Group, stated that:
"The management team is responding effectively to the market headwinds.
Our strong balance sheet gives us confidence we can continue to execute accretive acquisitions.
There is good new business momentum as customers increasingly recognise the added value we can offer both on an environmental and cost savings basis.
The group remains well-positioned to benefit when the macro-economic outlook improves."
Upon the mid-January announcement of the £18m acquisition of The Pitreavie Group, Macfarlane CEO Peter Atkinson stated that:
"Pitreavie is a fast-growing, well-invested company with an experienced management team that is fully committed to the business.
The acquisition represents a unique and exciting opportunity to grow our business in Scotland and provide in-house supply to our businesses in the North of England.
We look forward to working with the team at Pitreavie to support its continued growth and develop opportunities for us to work together to provide our customers with a broader portfolio of protective packaging solutions."
Analyst Views
At Shore Capital Markets, analysts Robin Speakman and Akhil Patel suggest that a valuation of 150p is well supported by cash flow analysis, reflecting positive visibility on cash generation.
They rated the Pitreavie purchase as earnings-enhancing and highly complementary.
For the year to end-December 2024 their estimates for the group are for revenues slightly lower at £271.4m (£280.7m), with adjusted pre-tax profits of £25.0m (£25.8m) and earnings of 11.8p (12.8p) but with an increased dividend of 3.7p (3.6p) per share.
For this year they look for £310.7m sales, £26.6m profits, 12.4p earnings and a 3.8p per share dividend.
Looking ahead to 2026, the analysts have pencilled in £321.2m of revenues, £27.1m in profits, 12.6p of earnings and a 4.1p per share dividend.
In My View
I have followed this group for decades and seen it endure challenging market conditions before coming through them and still continuing to expand.
The recent acquisition takes them into the food and drink sector which is a bonus.
The shares, which peaked at 262p in May 1996, later fell to a 12p Low in June 2012, before climbing up to a recent High of 147.50p, scored in May last year.
They are currently just 105.50p, from which level I see the potential of them trading then 120p/130p price range within months.
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