S&P Upgrades Rating on RPC After 'Solid Operating Performance'

LONDON (Alliance News) - S&P Global Ratings upgraded its rating for RPC Group PLC to BBB- from BB+ and affirmed its stable outlook as a result of RPC's improved profitability and reduced leverage.

"RPC has recently exhibited solid operating performance, successfully integrating recent acquisitions," said credit analyst Divyata Ve.

"As a result, S&P global ratings-adjusted debt to earnings before interest, taxation, depreciation, and amortization stood at 2.6 times and funds from operations to debt at 31% for the financial year ending in March 2018, slightly ahead of our expectations," the analyst continued.

S&P considers both of these figures to be sustainable which led it to raise its long-term issuer credit rating on RPC, which makes packaging and plastic components, to BBB- from BB+.

The ratings agency said its stable outlook rating predicated on RPC's expected leverage remaining below 3.0 times and its ratio of funds from operations to debt staying above 30% for the next two years.

In its most recent financial year RPC performed slightly ahead of S&P's expectations. Its adjusted leverage was 2.6 times and it had a ratio of funds from operations to debt of 31%. The agency said that RPC's higher margins were achieved through lowered costs and acquisition synergies.

"Together with higher capital investments, we expect that further acquisitions and share buybacks are likely to moderate a further improvement in credit metrics. We believe that RPC will continue to undertake further acquisitions as opportunities for consolidation arise," Ve said.

S&P said it would consider lowering its rating should RPC's ratio of funds from operations to debt dip below 30% or if its debt to Ebitda exceeds 3.0 times.

"This could occur if Ebitda margins deteriorated, or the company made material debt-funded acquisitions or share buybacks," said analyst Ve.

"RPC benefits from relatively stable end-markets and a diversified product portfolio...These strengths are partly mitigated by the fragmented, somewhat commoditized, and highly competitive nature of the European rigid plastic industry," Ve said.

S&P finds it unlikely that RPC's ratings will improve in the next two years, adding that a higher rating would depend on a more conservative financial policy.

Shares in RPC were up 0.5% at 757.00 pence on Friday.