December 02, 2010 - 5:03pm EST by
2010 2011
Price: 4.98 EPS $0.00 $0.48
Shares Out. (in M): 3 P/E 0.0x 10.3x
Market Cap (in $M): 17 P/FCF 0.0x 4.3x
Net Debt (in $M): 0 EBIT 0 4
TEV ($): 17 TEV/EBIT 0.0x 4.3x

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MPAC, a maker of folding boxes and stationary, has been written up on VIC twice before. The company went through a couple of ups and downs as part of a foray into the very competitive business of commercial printing. Last year they decided to close that segment, focus on their traditional lines and have generated profits ever since. But the stock is still undervalued using various metrics with 50-100% upside by my calculation. The company has practically no debt and is buying back its own shares. The family owns a big chunk of the equity.

History, Management & Share Ownership.

MPAC used to be a subsidiary of Astronics (Nasdaq: ATRO). CEO Kevin Keane has always tried expanding MPAC and in 2003 the company was spun off as a separate entity. At the time, the Keane family was developing Vistaprint, an online printing business which was eventually itself spun off (now trades on Nasdaq: VPRT). During the same time MPAC ventured into printing, notably doing the printing for VistaPrint. The stages of this commercial printing adventure are outlined in previous write-ups & messages. It took the company many years of trying to printing around before giving up. Finally, in June 2009 the new CFO David Lupp, who has now been given the title of COO, led an exit out of all printing-related operations except (i) social event stationary (ii) the printing that MPAC does on folding boxes & bags. He seems to be a driving force behind MPAC's recent performance. So MPAC now operates two lines of business: packaging (mainly boxes & bags used for gifts) and 'personalized' printed stationary (wedding invitations and other accessories for social occasions). VPRT still exists and seems to be doing quite well. The CEOs of VPRT are now, respectively, Kevin's two sons.

MPAC CEO Daniel Keane owns 17% of MPAC shares and his father Kevin owns 19%. In total, directors and officers own 39% (including both class A shares and class B shares which have 10:1 voting power). Three institutions own 5-6% each. The company has a history of buying back shares and is doing so currently.


Segment Description

The packaging line is divided into regular stock items and custom items ("custom folding cartons"), where the customer can request a specific size as well as their logo etc' printed on the item. Stock packaging is sold primarily to small retail confectioners who are more seasonal and sensitive to the economy. Their packaging is closer to the lower-end of the spectrum which may be more recession-resistant than average as confectionary companies choose a cheaper packaging solution for their candies. Custom packaging is sold to larger companies. MPAC is known for reliability and excellent customer service. Their competitive advantage in custom folding cartons is their ability to fulfill on-demand orders of specific quantities required by customers. As result they have a no-minimum policy for printed orders and flexibility in addressing customers' needs. This builds long-term value because clients who have very small or very 'annoying' orders tend to be newly-formed businesses and those people's positive experience with MPAC is appreciated and remembered. I should probably mention at this point that in my family there is a gift packaging business which has ordered boxes from MPAC over the years and we can testify to this exceptional level of service.

The personalized print segment relies on store, catalog and web sales. They provide personalized dinner and cocktail napkins, small boxes for sundries at events, and other celebration type items for retail and corporate markets; this product line is sensitive to economic downturns but is small.



Because the company completed its exit from non-core lines in June 2009 and because I expect the economy to perform roughly in line with what we've seen in the past year, I am using TTM results to value the stock. I expect the company to make further progress in marketing its core lines and they do have a lot of operating leverage. In terms of managing costs, they've cut most of the fat but they should continue to perform well. I expect further buybacks as well as new buyback authorizations. All this is gravy on top of my valuation.

Here's the TTM revenue breakdown. Custom cartons, the least seasonal and least economically sensitive, is the biggest segment:

Custom folding cartons


Stock packaging


Personalized print




For shares outstanding I use all class A + class B shares + options with strike below $10. That is a total of 3.7mm shares. I added back options comp in the earnings calculation and assumed 34% tax rate (NOLs will no longer shield them) but guidance on taxes will come with the next report. For EBITDA I use the company's calculation of adjusted EBITDA and for EBIT I deducted maintenance cap-ex of 1.4mm based on conversation with the company.

Price/book = 0.75

Price/sales = 0.38

P/E = 10.3


EV/EBIT = 4.3x


Clearly on an EBIT basis it seems much cheaper than with the other metrics but I can't recommend it as a valuation tool. I was told that for this year they expect between 1.4 - 1.6mm of cap-ex, which is not all maintenance - it includes a few hundred thousand for a new piece of equipment. So I assume it's 200k which implies 1.4mm on the conservative side. The question of course is whether these machines make the company more profitable overall or whether they replace stuff that was going to be obsolete anyway and the company is buying such machines just to hang on. These questions are tough to answer without intimate knowledge; the point is that I'll believe the cap-ex estimates as the years go by. Overall though I did get the impression that cap-ex would not be as enormous as in years past.



-          Valuation itself

-          More share buybacks

-          Market share gains vs. operating leverage increases profits further

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