Packaging products manufacturer Macfarlane (LSE: MACF) has done it again! Despite the stock market’s apparent indecision about whether to mark the share price up or down (so it’s been doing both), the company keeps progressing its operations, as today’s full-year figures demonstrate.
Indeed, the stock has been all over the place over the past couple of years. And right now, at 98p, it’s back down to broadly where it was when I covered the interim results last summer. Could we be seeing an opportunity to buy decent value here?
Good figures
Today’s numbers are good. Revenue rose by 4% compared to last year and earnings per share moved 11% higher. Profits have grown for 10 consecutive years, the report trumpets. And, as the directors point out, the good trading outcome in the period arose “against a well-publicised backdrop of economic uncertainty resulting in weaker demand.”
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My guess is that the top management team is optimistic about the future because they pushed up the total dividend for the year by 7%. That means the shareholder payment is around 50% higher over five years, which I see as pleasing.
Right now, the forward-looking dividend yield for 2020 sits just above 2.7% and, given the strong record of growth, I think the valuation is attractive. Indeed, you can pick up a few of the shares on an anticipated earnings multiple just above 11 for the current year.
One of the things I like about Macfarlane is that its business appears to enjoy robust cash flow. I reckon the firm operates in a sector with defensive characteristics and consistent cash flow is a persistent feature of the trading and financial record.
It’s hard for me to imagine the demand for packaging products disappearing in today’s world.
Acquisitive growth
But the firm does have its challenges in the market. Although sales from the Packaging Distribution division increased by 4% in the period, the directors reckon revenue from existing customers dipped because of “weaker demand and sales price deflation.”
Happily, growth in new business and the benefit of £5.7m from acquisitions offset the decline. And the 2019 acquisitions of Ecopac and Leyland Packaging “have performed well.”
Meanwhile, both net borrowings and the firm’s pension deficit declined a little during the year. I think the company is in a good position to control those measures because of the strong incoming cash flow. And the dividend is covered more than three times by anticipated earnings. Macfarlane’s finances won’t keep me up at night because the figures appear to be moving in the right directions.
The outlook is positive and City analysts following the firm have pencilled in high single-digit percentage increases in earnings ahead. I see the shares as attractive despite all the ‘noise’ regarding the weak stock market right now.
