Molins is a small company with a patchy track record, but a move to the Czech Republic may herald better times.
Molins
(LSE: MLIN)
has been something of a "value trap" for investors in recent years, continually looking like a potential turnaround story whilst the value ebbs away.
The company designs and makes tobacco processing machinery, other packaging machines, and also provides scientific services for the tobacco industry. So ethical investors should stop reading now.
Molins continues to have a full-listing, but with a market capitalisation of £22.7m at the mid price of 113p, you can't be sure how long that will last.
There are two big potential outers which might boost the share price. Firstly, trading may improve; secondly the company may realise the value of a 26-acre site in Saunderton, Buckinghamshire.
The interims to the end of June were uninspiring on the surface. Molins reported a whopping £9m headline deficit following the lancing of a loss-making boil (this was Sasib, an Italian subsdiary which was sold incurring a £8.5m special charge).
The good news was that the underlying operating profit from the remainder of the group came in at £1.6m on sales of £45.8m. What's more, profits are expected to be weighted towards the second half.
The weakest area is in tobacco machinery which showed a £100,000 operating loss in the first half. It's the company's intention to transfer the remaining Tobacco Machinery manufacturing activities from Saunderton to the Czech Republic if/when the site is sold.
Molin says: "a significant proportion of the infrastructure costs at Saunderton will be reduced, the benefits of which will be delivered progressively through 2007."
Planning Permission?
The first application for planning permission for business space at the Saunderton site was turned down by Wycombe District Council last year.
This was ostensibly due to the additional traffic likely to be generated by the proposal. However, I suspect the real reason may have been a desire to wring more infrastructure concessions from the company next time around. A second application was made in August which "addresses the issues raised by the Council." We're still waiting for the Council's response.
Valuation
It's been suggested on TMF bulletin boards that the value of the Saunderton site could be around £25m. If the site was sold for only 65% of that figure, it would wipe out net debt.
The company would then be valued at under four times the underlying operating profit achieved in 2005. Or a multiple of under seven times operating profit for this year, assuming a repetition of the first half. Thereafter, the transfer of operations to the Czech Republic should begin to bear fruit.
Assuming all goes well, the combination of a gradual turnaround in trading and the sale of the Saunderton site should see a decent re-rating from the current level.
David owns shares in Molins.
