RPC shares for long term growth: RPC’s shares are looking cheap after the plastic packaging group reported better-than-expected profits and said it would make larger savings from a recent acquisition. The FTSE 250-listed company is seeing higher sales from new products such as disposable coffee capsules and plastic paint containers, as the U.K. housing boom boosts DIY. Total group revenue increased by 17% to £1.22 billion in the 12 months to the end of March, while pretax profits increased by 14% to £67.1 million. Because RPC has a March financial year end, next year’s results should benefit from a whole year of trading following the Promens deal. Market consensus is for group revenue to increase by 40% to £1.7 billion, and adjusted pretax profits to jump 28% to £153 million. In the long run RPC is able to pass these price rises onto consumers, but in the short term it will drag on profits in the first half. Questor thought the shares looked cheap following the Promens deal (580p, November 28) and since then investors have enjoyed gains of 10%. The savings from the deal are ahead of schedule and we are comfortable retaining our initial advice. RPC at 634.5p +16.5p. Questor Says “Buy”.
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”.
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