Northern Trust23 Mar 2017 08:37
Yesterday's Northern Trust report reminded me strongly of the report that destroyed Quindell "a country club built on sand"....that did nothing for my retirement fund.
I don't feel that RPC is another Quindell but just knowing that they are being watched closely will be no bad thing for the directors, it should focus their minds wonderfully.
For anyone who didn't read it yesterday.....
"RPC hit a six-month low on Wednesday after Northern Trust analysts accused the packaging maker of disguising structural problems with a lot of acquisitions. The group last week completed the $640m purchase of Letica, a Michigan-based peer, which was its tenth deal in 12 months.
According to Northern Trust analyst Paul Moran, RPC management has been encouraged to pursue value-destructive acquisitions by “innovative” bonus schemes and “some of the most aggressive accounting we have seen”.
He argued that RPC’s definitions of adjusted profit and free cash flow had been inconsistent over the past five years, and had flattered the figures in ways that sometimes “defy accounting logic”.
And by stepping up the pace of acquisitions over the 12 months, RPC had masked its structurally weak pricing power and labour cost inflation, Northern Trust told clients.
“We accept that a rights-issue funded, value destroying roll-up story can continue to report adjusted EPS growth for as long as shareholders are willing to fund it,” the broker said. “But should the hitherto supportive appetite for rights issues fade, we think shareholders will find a structurally challenged, low margin, highly levered, sub cost-of-capital business trading on circa 23 times [current year] earnings on our estimates, an undeserved 50 per cent premium to the market.”
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