Protective packaging specialist Macfarlane (MACF) gained 3% to 133.8p as it confirmed it had sold its Macfarlane Labels division on 31 December 2021 to The Reflex Group for £6.4 million.
The market appears pleased by the exit from a lower-margin part of its business and the modest, though still helpful cash injection associated with the proceeds from the deal.
In November, the Glasgow-headquartered firm reported a 25% increase in sales for the 10-month period to October and pre-tax profit well ahead of the same period last year. Its shares are up 48% over the last 12 months.
Macfarlane Labels designed and printed self-adhesive and resealable labels, principally for fast moving consumer goods or FMCG companies.
The proceeds from the sale would be ‘strategically invested in the continuing growth of Macfarlane's protective packaging businesses,’ the company said.
‘BUY AND BUILD’ IN PROTECTIVE PACKAGING
The group's net bank debt at 30 November 2021 was £3.2 million with a bank facility of £30 million in place until December 2025.
Shore Capital analysts Robin Speakman and Akhil Patel said: ‘The labels business was expected to generate revenues last year in our model of c.£20 million, generating a margin below that of the rest of the group.
‘The Labels sale leaves Macfarlane focused on its ‘buy & build’ model in protective packaging solutions, working closely with its clients in the UK and growing into Continental Europe. Coming at the year end, we adjust our forecasts for the sale for 2022 and 2023, reducing revenues by c£21 million for each year, but noting a net margin accretion and a lower interest cost expectation.
‘Our forecast EPS (earnings per share) for 2022 reduces by 0.1p to 10.6p. However, we expect the sales proceeds to be utilised by the group (backed by the debt facility) in coming quarters in the organic and acquisitive growth strategy - while operating conditions continue to normalise from the pandemic.’
