Mpact:

Finweek English Edition - - INVESTMENT -

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.

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