Macfarlane: UK Market Leader and Consolidator in Protective Packaging

José Antonio Larraz of Equam Capital presented his investment thesis on Macfarlane Group (UK: MACF) at European Investing Summit 2024.

Thesis summary:

Macfarlane is the UK’s leading designer, manufacturer, and distributor of protective packaging products for business. The company was founded in 1949 and floated on the stock exchange in 1974. It has 1,000+ employees, 65,000 SKUs, and 20,000+ customers.

Macfarlane has been growing through a combination of organic growth and acquisitions. It has annual sales of £281 million and EBITDA of £28+ million.

The industry is quite attractive, with steady mid-single digit growth. Management keeps working capital reasonably low, while the business has low capex needs (~1% of sales).

While the business focuses primarily on the UK, Macfarlane entered the European market in 2022 following the acquisition of German company PackMann. Macfarlane holds strong share in the UK packaging distribution market and has an excellent opportunity to grow in other European markets.

Due to a strong balance sheet, with no debt and an available bank facility, the company is in a position to continue financing attractive acquisitions.

While recent financial performance has been challenging due to UK economic weakness, post-covid ecommerce sales normalization, and logistics standardization, the higher-margin manufacturing business is becoming a greater piece of sales and operating expenses are well-controlled.

According to José, the recent market quotation of Macfarlane shares does not reflect the underlying value of the business, with the shares trading at an FCF yield above 10%. José believes that the company should recover from recent challenges and return to the historical growth demonstrated over many years.

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About the instructor:

José Antonio Larraz is a founding partner of Equam Capital. Jose has 15 years of experience as a partner in Capital Alianza Private Equity, investing in Spanish private companies in the middle market. He has investment experience in chemical, food, retail, outsourcing and telecommunications sectors, having participated in the board of directors of six different companies. Jose has 4 years of experience in financial advisory, corporate finance and M&A at Lehman Brothers in London and New York and He is a Professor at Instituto de Empresa since 2008. Jose holds a degree in Law and Business Administration from ICADE University and MBA from Insead.