7th May 2024 11:47
(Alliance News) - Analysts highlighted long-term value in Macfarlane Group PLC on Tuesday despite it reporting a "challenging" start to the year.
"As anticipated, the start of 2024 has been challenging, with first quarter sales and profits below the same period in 2023," Macfarlane said in a trading update ahead of Tuesday's annual general meeting.
Shares in the Glasgow-based packaging firm were down 8.8% to 129.56 pence each in London on Tuesday.
However, despite the slow start to the year, expectations for the full year are unchanged, it added.
Macfarlane said first quarter sales fell 9.5% from a year prior with continued weak customer demand and price deflation.
The profit impact was partially offset by strong gross margins and the benefit of acquisitions, the company added.
In March, Macfarlane completed the acquisition of Allpack Packaging Supplies Ltd, protective packaging distributor based in Bury St Edmunds.
Macfarlane expects trading to improve in the second half of 2024 through the conversion of a strong new business pipeline combined with some sales recovery from existing customers, good management of gross margins, control of costs and further benefits from M&A activity.
It said net bank funds at March 31 were GBP4.7 million, an improvement on GBP500,000 reported at December 31.
"The group continues to operate well within its bank facilities of GBP35 million and related covenants, which are committed until December 2025," the company added.
Stifel viewed the maintenance of guidance as "encouraging" in a challenging market backdrop, demonstrating the "resilience of the model and benefit of management actions."
"Although we remain watchful of the macroeconomic backdrop, we see scope for continued market outperformance given its strong track record and scope for market share gains," the broker remarked.
Longer term, Stifel thinks the group's sustainability expertise leaves it "ideally placed" to expand its sustainable packaging range, enabling it to play a "central role" in the shift across the protective packaging market.
Stifel reiterated a 'buy' rating on Macfarlane.
House broker Shore Capital believes Macfarlane trades on an "unjustified" discount to peers with similar industry qualities.
"Macfarlane is a much more diverse, resilient, profitable and higher-quality business relative to the past five years," the broker said.
Shore Capital said a share price above 160p per share is "comfortably supported by cash flow analysis, reflecting its visibility on cash generation."
By Jeremy Cutler, Alliance News reporter
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