Mpact ’s share price has become directionless after peaking at 2 815c/share in July last year. The rising bottoms formed since then suggest that buying momentum is still present.
Mpact produces paper and plastic packaging. In 2011, approximately 90% of its total revenue came from products including corrugated packaging, recycled cardboard and container board, recovered paper collection, PET preforms, styrene trays and plastic jumbo bins. Mpact is the largest producer in Southern Africa and was listed on the JSE on 11 July 2011. Mpact was formerly called Mondi Packaging South Africa and was part of the Mondi Group. It was unbundled from the Mondi Group in July 2011 because the company felt that it needed to become an independently listed business in order to have room to develop and selectively grow its leading market positions in rigid plastics, paper-based packaging and packaging papers, both domestically and elsewhere in Sub-Saharan Africa.
In August 2012, Mpact reported a 25% increase in HEPS, as rand weakness provided some relief by improving Mpact’s relative competitiveness in manufactured products compared to imported substitutes. Despite these good results, the share is still trading sideways. Have investors been spooked by projections made by RISI, a leading information provider for the global forest products industry in the US, that sales of tablets should reach 195m units by 2015, causing paper use in magazines and packaging to fall by 20% in the US alone.
Yet Mpact offers diversified products. As such, it should be able to overcome threats from the digital age and its gradual integration into other African countries will reap further benefits. POSSIBLE OUTCOME: An ascending triangle is a bullish continuation pattern, which means that Mpact should resume its bull trend after confirming a positive breakout of the pattern above 2 815c/ share. However, the relative strength index (RSI) must simultaneously breach its own medium-term resistance trendline in order to substantiate the breakout on the price chart. The upside target of this pattern, once confirmed, is situated at 3 380c/share and is achievable in the short term (one to six months). I believe that Mpact may even surpass that level. ALTERNATIVE SCENARIO: A reversal below 2 250c/share should f lag concern, as Mpact would have breached its major support trendline. A negative breakout of the primary bull trend would be signalled below 2 050c/share, in which case I would recommend a short position.