RPC cheap after biggest ever deal: RPC shares look cheap after the plastic packaging group agreed its largest ever acquisition, sending shares more than 5% higher. The FTSE 250-listed plastics company makes lightweight rigid plastic products. RPC’s fastest-growing markets is coffee capsules for machines. The company said it is buying Icelandic-owned rival Promens for €386 million (£306 million), and part of the deal will be funded through a £200 million discounted rights issue. That means investors are being asked to dig deep into their pockets, but in this case it looks like a sensible deal. The completion of so many acquisitions in such a short period of time brings risks for investors. However, RPC has an excellent track record, having successfully integrated the Superfos acquisition from 2010. Net debt is expected to increase to about £460 million by the end of March 2015, up from £216 million a year earlier. The company is cash generative, which should allow it to quickly reduce debt levels. The falling oil price will also help RPC as oil is the raw material for making plastic polymer. The company previously said profits took a £3 million hit when oil prices increased sharply, so the rapid fall in the oil price from June onwards should provide a boost to profits. Alongside these deals, RPC said revenue in the first half increased 12% to £588.9 million and pretax profits were up 16% to £34.9 million. The total dividend payout this year is expected to be 17.2p, a 10% year-on-year increase, rising to 18.3p next year. This will represent the 22nd consecutive year that the company has increased its payout, and the prospective yield is 3.1%. The group trades on a forward earnings multiple of 12, falling to 11.3, but that doesn’t even fully include the recent acquisition. Questor thinks that looks cheap given the rapid growth of profits at the company. Questor advised buying the shares last year (407.7p, June 6) and since then investors have enjoyed gains of 42%. The recent acquisitions look well priced and we are comfortable retaining our initial advice. RPC at 580p+33p. Questor Says “Buy”.
7 Jun '14
what a difference a year makes
Got out a year ago doh! That's shares for you GLA.
4 Jun '14
There's clearly support in the City for RPC - we hear that a £75m placing at 600p to part-fund the ACE deal, due to complete soon, was more than two times oversubscribed. A programme to save £12m of costs is entering its final phase, too, and results out on 4 June will meet forecasts. Broker JPMorgan has already upgraded EPS forecasts for the year to March 2015 by 4 per cent, and by 7 per cent for the year after. That means roughly double-digit growth for the next three years, poorly reflected in a forward PE ratio of under 13 and an enterprise value-to-cash profits ratio of seven. That discount to peers should really be a premium
3 Jun '14
Annual savings should reach £1m and RPC's blue-chip customer base is already opening doors for ACE. Organic operating profit has rocketed from just HK$94m (£7.2m) in 2011 to HK$245m last year on revenue up from under £58m three years ago to £104m in 2013. And both growth and margins have accelerated every year. First-quarter sales were "materially higher", too, although lower demand from the US motor industry due to bad weather and launch costs for a new iPad Air product meant profitability was flat. But those issues are one-offs, and demand, especially in Asia, is high. More rigid plastic containers are used there than anywhere else - about 30 per cent of global volumes - and consultancy Pira International forecasts a compound annual growth rate (CAGR) of about 10 per cent for the five years to 2018. And ACE management is obviously comfortable signing up to that earn-out which demands cash profit CAGR of at least 15.6 per cent out to 2017, weighted to year four. ACE does 30 per cent of its business in China, 38 per cent across the Americas and 13 per cent elsewhere. Less than a fifth of sales are to Europe. RPC already makes two-thirds of profits in euros and translating that into sterling hits earnings, which is why RPC wants to build a big presence elsewhere. Since launching its Vision 2020 plan last November, it has paid £103m for UK-based Maynard & Harris (M&H), which has a growing US business, and bought a Bosnian company called Helioplast with sales in eastern Europe. Both will boost earnings this year. (Global growth should be double the rate in Europe, says Pira.)
3 Jun '14
Things could get a bit messy without RPC Group (RPC). Its rigid plastic packaging houses everything from margarine and Ragu pasta sauce to Nivea sun lotion and hair care products for L'Oréal. Business is growing fast and a series of clever acquisitions could drive earnings up by 25 per cent next year. But with RPC's shares still trading at a big discount to peers, we feel the substantial benefits are yet to be priced in. Management has always bought well. Since paying £205m for Danish company Superfos at the bottom of the market in 2010, underlying earnings per share has surged by more than a third and RPC's share price has doubled. Now, it has snapped up China's ACE Corporation, one of the Far East's biggest manufacturers of plastic injection moulded components and injection moulding tools, for £255m - £178m upfront and the rest on earn-out over four years. ACE has been around for 25 years and is clearly very good at what it does. As well as traditional plastic packaging, it makes remote control car keys, engine parts, waterproof iPhone cases, syringes, golf tees and power switches. Half the business is home accessories and consumer electronics work for giants such as Philips, Unilever and P&G, and a fifth is automotive, both fast-growing sectors. And a multiple of 7.4 times cash profit on the initial consideration looks fair for the growth on offer.
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