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Online traffic adding to growth

Macfarlane ready to wrap up acquisition in first half of year

AsosGrowth in buying goods online is providing a boost to Macfarlane, the Glasgow packaging group, which is close to tying up its first acquisition of the year.

Chief executive Peter Atkinson today confirmed today that it had reduced an initial list of 60 potential targets to a shortlist of eight and hopes to seal a deal in the first half. The target companies range in turnover between £4 million and £10m.

Macfarlane made three acquisitions just ahead of the 2007/08 financial crash and after calling a “time-out” during the subsequent recession it returned to seeking in-fill businesses, buying Lane Packaging and Network Packaging last year.

“We have one more to complete in the first half of this year and a pipeline of activity over the next few months,” said Mr Atkinson. They will strengthen the group’s geographic footprint.

He said the company now held a 25% share of a total market in protective packaging worth between £600m and £700m. While acquisitions were adding to the top and bottom lines, income also rose via a 5% increase in organic growth. Online business was now an important revenue stream. Business with Asos, the online retailer, was up by 200%.

The group, established by Lord Macfarlane in the 1970s, unveiled an 11% rise in annual pre-tax profits from £5.1 million to £5.6m on a turnover up 7% from £143.9m to £153.8m.

It is proposing a final dividend of 1.15p per share, taking the full year payout to 1.65p, a 3% increase on the prior year’s dividend of 1.6p.  I will be paid on 4 June.

Shares in the group have responded to the growth strategy, doubling in the last two years after a period of treading water.

Ben Thefaut, analyst at in-house broker Arden Partners, said: “The group’s quality of earnings and medium term growth prospects are considerably understated.

“We anticipate online retail will continue to be a major growth area for the group. This is generating stronger demand for protective packaging given the delivery channels relative to high street retailers. Internet retailers have sought advice from suppliers such as Macfarlane on packaging solutions, using Macfarlane to enhance value in the supply chain.”

He estimates that revenues from the present £150m could grow to nearer £180m over the next 2 years and is confident profits of £8m+ are achievable.

“This will be assisted by targeted acquisitions where opportunities arise, focussed on protective packaging distribution where the group can build on its market leading share. ”

Macfarlane shares are trading on just over 9x FY15 earnings with a yield over 4%.

Thefault said: “We believe the UK stock market will continue to search out domestic focussed earnings aligned to the prospects of an improving economy with yield support. We are confident the shares will move towards 50p+ in coming months thereby justifying our inclusion of Macfarlane as one of our core stock picks for 2015. We reiterate our Buy stance.”

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