Tuesday, December 12, 2017

A current AIM International Fund Holding: Multi-Color Corporation (LABL) by: Max Mattappillil "A Pot of Gold at the End of This Rainbow"

Multi-Color Corporation (LABL, $72.10): “A Pot of Gold at the End of This Rainbow?”

By: Max Mattappillil, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Multi-Color Corporation. (NASDAQ: LABL) is a global leader in label solutions and supports many of the most prominent brands in the world. They cater to producers of home & personal care, wine & spirits, food & beverage, as well as healthcare and specialty consumer products.

• Operations have expanded globally at quite an accelerated rate.

• New management in the coming months.

• Prominent players have increased their stake in Multi-Color.

Key points: Multi-Color has completed numerous acquisitions this year, many of which have expanded the company’s international presence. In addition to their European acquisitions in France and Germany, Multi-Color is on the move in Africa as well as Oceania. Their startup company in New Zealand has begun to print labels and the move into Tanzania provides Multi-Color with a wide set of opportunities in this new space.

One of the biggest changes to Multi-Color comes from the billion dollar acquisition of the Austria-based Constantia Flexible, of which Multi-Color acquired their label-making division. Other than the obvious increase in European opportunities, the acquisition should be able to increase Multi-Color’s presence within Asia. Yet Constantia Flexible is more than just another company Multi-Color has partially acquired as the current executive vice president and head – Mike Henry – will be the new CEO of Multi-Color by January 2018. Although a new CEO could always spin the business into potentially undesired direction, former CEO Nigel Vinecombe will remain as executive chairman. Thus, a new flair on the company’s strategy combined with Vinecombe’s guidance may be optimal for Multi-Color going forward.

In terms of how other institutions have responded to the news, it seems to have been received in a positive light. Wells Fargo and JP Morgan have increased their stake in the company by 11% and 113% respectively. Additionally, Citadel just purchased a new position in the company which may be growing, considering Multi-Color’s recent activity. The combination of new business ventures in addition to increasingly positive sentiment could be the necessary tailwind to boost the company back to $80 or more per share.

What has the stock done lately?

Over the past one and a half weeks, LABL’s share price has fallen 11% with three significant drops occurring between November 7th and 9th. LABL also announced a dividend for shareholders as of November 15th and will be paid on December 1st, in line with their strong, annual dividend yield of 5.9%. LABL’s recent acquisitions and global expansion could breathe more life into the company and provide a nice boost to get back near its $87 high.

Past Year Performance:

LABL is effectively at the same price 12 months ago despite ranging from a low of $67.56 to a high of $87.38. The past three fiscal quarters have also seen an increase in sales QoQ while operating margins, albeit remaining in the low double digits, have slightly decreased QoQ as well.

 Source: FactSet

My Takeaway

Since the company was first pitched back in April 2016, a maximum upside of nearly 71% was reached at the stock’s height, providing strong support to the AIM portfolio. Despite the recent decline in share value, Multi-Color appears to be on the rise once again and may be in line to exceed its previous high of $87 based on the company’s projected outlook. The introduction of new management may be a little rocky for Multi-Color initially, but keeping Vinecombe at an influential level in the company should mitigate any short-term volatility. In the meantime, a 6% annual dividend for current shareholders should keep investors happy.