I may class a business as boring but that doesn’t mean I wouldn’t consider buying shares in it for my portfolio. FTSE AIM incumbent Macfarlane Group (LSE:MACF) falls into that bracket. I’m interested in how it performs and whether or not it could generate a return for my portfolio rather than how glamorous it may be.
Packaging and labelling
Macfarlane Group is a packaging and labelling business headquartered in Glasgow, Scotland. The company was founded over 70 years ago and joined the London Stock Exchange in 1973. It has close to 1,000 employees and has customers throughout the UK, Europe, and the US.
Macfarlane operates in three key areas. These are the supply of packaging materials, design and manufacture of bespoke packaging, and design and print of self-adhesive and resealable labels.
As I write, Macfarlane shares are trading for 131p. A year ago, shares were trading for 82p, which is a nice return of 59% over 12 months. Year-to-date, the share price is up by 45% from 90p per share to current levels. It is worth noting that the shares have surpassed their pre-pandemic market crash level.
Why I like Macfarlane Group
I have pinpointed two primary reasons I like Macfarlane right now.
- I believe that Macfarlane operates in a ‘staple’ industry which offers it defensive qualities. Its products and services will always be in demand irrespective of how the wider economy is performing. In fact, I believe demand for packaging will only continue to rise as the shift from high street shopping towards online convenience shopping continues. I for one always wonder how much effort and packaging goes into my regular Amazon Prime deliveries!
- Many of the FTSE stocks I tend to like are consistent performers. I must note that historic performance is by no means a guarantee of the future but I find it a useful gauge nevertheless. Reviewing Macfarlane’s history, I see that revenue and gross profit have increased year on year for the past four years. This includes during the time of the pandemic which is impressive and solidifies my first point. Macfarlane’s half-year report for the six months to 30 June announced in August was also impressive. Sales grew by 26.5% compared to the same period last year. As a result, operating profit more than doubled! It also declared an interim dividend as well, which would make me a passive income if I were to buy shares.
All FTSE stocks carry risks
Despite my bullish attitude towards Macfarlane, I must note the risks involved too.
The main risk that springs to mind is the current lorry driver shortage and UK haulage crisis. The well-documented issues have seen deliveries affected and firms that rely on such services struggling. Macfarlane is not immune to this issue. The only upside to the bad news is that all its competitors are similarly affected.
In addition, the rising cost of paper and other raw materials could affect Macfarlane’s bottom line. Again, this would be an industry-wide issue and not just an problem for Macfarlane alone.
Overall, I believe Macfarlane is a great FTSE small-cap option right now. At current levels it is trading just below all-time highs and I believe it could continue to climb further. I would happily add its shares to my portfolio just now.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
This post was originally published on Motley Fool
