🎄Xmas Edition: Shares I Looked at This Week

Can these three shares, all with four letter tickers, put a 🚀 to portfolio returns in 2025? CRPR, MACF, and CLBS

James Cropper #CRPR $CRPR.L

I last wrote about this in Jan24. Recently they released interim results.

This is a company of two halves; they have a legacy Paper division, that makes things like fancy packaging and boxing for luxury goods. And a newer, Advanced Materials division, that does high tech materials such as technical fibres for aerospace and electrolysers for manufacturing of “green” hydrogen.

Things haven’t really improved. Their Advanced Materials division is still struggling, having been hit hard by much lower sales to hydrogen infrastructure projects. This is market driven; hydrogen for now is taking a backseat to other green energy projects in terms of new infrastructure investments.

I asked Microsoft copilot to imagine the green hydrogen power plants of the future… and this is what it came up with. I wonder what those floating spheres are? Source: Microsoft Copilot

Their Paper division continues to contract. Driven by the downturn in luxury goods, where they make high end packaging and boxing. However, it also feels like their non-luxury sales are also struggling? Not enough commentary to judge.

On top of that, there's still a debt and covenant risk. They are reliant on the banks being lenient, for now. Pension continues sucking out lots of cash.

So pretty much headwinds wherever you look here, at James Cropper.

The crown jewel in this business is the Advanced Materials division. Historically, by far the main profit driver. And where valuable IP lies. Both divisions are struggling right now, but Paper is the true millstone here, dragging down profitability AND valuation rating.

There’s a simple answer here to unlock value for shareholders. Split the Paper and Advanced Materials divisions. Individually they will be worth more than combined.

Just so much unlocked value here, but can it be realised? That is the key. New CEO coming in. Will he come up with a radical strategy? Will the founding family be open to splitting the business? The pension is another obstacle, in deficit and sucking in low millions of cash every year.

Back of the envelope suggests that the Advanced Materials division could do like £5-10m a year PBT in the medium term. EV is currently like £35m (£21m equity, £14m net debt). Which is a bargain for a high-tech, promising growth business. Especially if hydrogen energy projects start taking off again. And this excludes any value from Paper, which should still be worth something to a trade buyer for example.

I think EV for the entire group should be more like £50m-£100m when “value” is fully realised here, which could be a doubling to quadrupling of the share price.

Macfarlane #MACF $MACF.L

After writing this commentary, I decided to buy a position in Macfarlane. More to come in my December monthly update.

Their latest trading update for the 10 months of FY Dec24 contained no surprises. Another weak last few months, so broker forecasts nudged down a bit as management guides “broadly in line”.

However, it is interesting to see that despite a -4% revenue fall, and the company claiming that pricing in the market is under pressure, margins held up decently so that the broker EPS downgrade was only -2%. Clearly the company has some sort of competitive moat in its more advanced/niche packaging solutions compared to more run-of-the-mill packaging companies.

I won’t rehash the usual bull points here that you can find elsewhere: acquisitions, acquisitions, acquisitions. I would stress that management have hinted strongly about a very strong current pipeline, probably from smaller players struggling with the tepid demand and cost inflation in the last two years. So I expect them to be able to make some bargain acquisitions over the next 12 months.

On the downside, I was digging into the profiles of the executive team and the board. The CEO has been there since 2003, Finance Director since 1996 (became FD in 2021, probably handpicked by CEO). So really, the CEO runs the show here. He’s proven himself a good steward over the last 20+ years. However, when looking at the board, it is very lightweight, both in terms of industry experience and also seniority. Looks like it was picked to serve the CEO, not the other way around? That combined with the fact that the CEO only has <1% of shares (albeit a very large LTIP programme) means we have a CEO that wields quite a lot of power here at Macfarlane, but not many checks and balances on his strategy and decisions? Food for thought.

I am tempted to invest though. They clearly are a well run company, and I think that broker forecasts for next 12-24 months are assuming zero market demand recovery, and zero transformative acquisitions. Which I think is too conservative a view. Coupled with the sub-10x PE when normally this could trade at c12x, I think there is a potential easy 30-40% gain to be had here in a 24 month time period. My buy trigger price is below the current (114p) price but not by much.

Celebrus #CLBS $CLBS.L

I have been following this share for about 3 years now, never buying because it never came down anywhere near my buy price. But maybe I am too conservative, because at its low last year it was trading at 160p, and now it is touching 300p.

Celebrus is a B2B software company transitioning from a licensing to a SaaS model. They do Customer Data Platforms (CDPs) for marketing and customer relationship management purposes. This is a SaaS product category that I know well, from my professional experience in marketing.

The downside risk in the past was always that their one-off sales of licenses and hardware were too lumpy to be predictable. However, they have grown their SaaS ARR quite strongly in recent years. But it is still not the dominant driver of profits.

Take H1 revenues of $17.2m for example. c$10m are ARR, $1.2m are one-off licensing sales, and $6m are low-margin one-off hardware sales. H2 revenues are even more seasonally skewed towards license and hardware sales.

Given the high fixed cost nature of the business, it is still the licensing sales that dictates the profits outcome for a given year.

So the key to the Celebrus story is… can they keep growing their ARR, so that eventually it is the bulk of revenues? In the last few years, +20% 12m growth rates were common. However, in the last 3 months (Jul24 to Sep24) the ARR growth rate has really slowed down, to 2.7%. So that is 11% growth annualised. Barely double digits.

On the flip side, the bull case is that they have ramped up sales & marketing expenditure in the HY to Sep24, up more than 20% YoY. So perhaps, all that extra investment will result in a blow-out of ARR growth in H2.

However, even brokers seem to think that growth is rapidly slowing here, with the EPS forecast for FY Mar26 only +7.6% on FY Mar25. This shouldn’t be the case if the ARR is growing briskly, as there is huge operational gearing in this business model, given the really high software margins (not disclosed by company, but my best guess is maybe 60%+.

Crunching through the numbers, I think the 18.3c EPS forecast for FY Mar25 is achievable and safe. Albeit with the usual H2 risks on one-off license sales and hardware sales. At a 20x PE, Celebrus is not terribly expensive, given the emerging high quality metrics here. But if growth does slow in FY26, then I can see this struggle to re-rate to even higher valuations. And a disappointment could see this go down to a 15-17x PE, so there is some considerable downside risk.

I have got my buy target price set here for c240p and below. But judging by my track record here, I think others will probably find rewarding entry points closer to the current 300p share price.