Mpactful investment in South Africa


Mpactful investment in South Africa


Published Date: 2021-06-17 | Source: INCE|Community | Author: The Finance Ghost

Mpactful investment in South Africa

Mpact has updated the market on its trading performance for the five months ended May 2021. The announcement also serves as a trading statement for the six months ended June 2021.

Growing profits vs. last year isn't difficult for most businesses, so it's encouraging to see growth vs. pre-pandemic numbers. Mpact has achieved this outcome in both the Plastics and Paper businesses, which will please investors.

Revenue for the five months is 16% higher than last year. Thanks to the effect of operating leverage, this is enough to more than double operating profit vs. last year.

Mpact's business units operate in complex environments. For example, the Paper business (up 15% vs. the prior period) is affected by global containerboard prices, waste paper input costs and levels of overall demand.

The Plastics business (up 20% vs. the prior period) has polymer prices to contend with as an input cost, with the usual supply and demand factors on the other side of the equation.

Within the Paper business, Mpact was helped by a recovery in restaurant sales but hindered by a later start to the citrus season than in the prior period. The company highlighted that the 2021 citrus crop is predicted to be up by as much as 8% vs. the prior year. This business unit is an interesting way to take a view on recovery in restaurants and the strength of our citrus exports.

Further happy news for shareholders comes in the form of an approved interim payment of R30m from Mpact's insurers, relating to the Spring Mill electricity supply interruption of 2020.

A reduction in net debt vs. June 2020, along with lower interest rates, will drive net finance costs lower by 25% for the six months to end June. That's a substantial saving considering the comparable 2020 number was R95m. Importantly however, net debt will be higher than it was at December 2020 due to higher working capital driven by increased inventory levels to ensure availability of product.

Mpact's share price has been on a charge this year, partially supported by substantial share buybacks. Mpact invested R257m in buybacks in the first five months of 2021. The market cap of the company is around R3.5bn.

There's more to come from this company, with R500m approved for further investment. Over the next 24 months, Mpact will build new purpose-built facilities and will invest in solar power production as well, taking the group's renewable energy generating capacity to over 10 MW by the end of 2022.

This includes new sites in both the Paper and Plastics units across a few provinces. A R200m debt facility is being arranged for the plastic container projects in Gauteng and Brits, which will expand the business in a vertically integrated fashion.

Mpact expects headline earnings per share and earnings per share to both exceed 90 cents per share for the interim period. To assess this against the current share price, investors should investigate the seasonality of Mpact's business and estimate the results for the second half of 2021.

The detailed interim results will be released on or about 5th August 2021.


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