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.
Summary
•
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.
