Plastics manufacturer RPC Group (RPC) has shaken off concerns about poor performance and Hargreaves Lansdown believes its strong grip on its finances mean it will exit 2017 in peak condition.
Acquisitions pushed up half-year revenues to £1.9 billion, representing 45% growth at constant exchange rates. Cost savings were reflected in a 47% increase in adjusted operating profits to £214.7 million. The shares fell 6.5% to 902p yesterday.
Analyst Nicholas Hyett said: After concerns that deals were masking poor performance, the successful integration of recent acquisitions and decline in exceptional costs is key to proving to sceptics that the RPC strategy is delivering value.
Although the management team promised shareholders it would not make any more acquisitions this year as it needs to focus on integrating recent purchases, Hyett said talk of consolidating the European plastics market showed RPC was champing at the bit.
We wouldnt be surprised if RPC returned to the mergers and acquisitions trail as soon as it can next year, and wed support that move. But in the meantime the financial rigor being imposed on the group should mean it exits 2017 in peak condition, said Hyett.
Yep, failure to comprehend the numbers continues to hamper progress. I am OK with that. Board responded with a halt to the takeovers last time. It might just need the passage of time for analysts to get comfortable? Or maybe there is indeed sleight of hand however unintentional? Or the board still need to do much more? Multiple reasons why analysts might not like the stock including the company not giving them enough insider info for them to make a killing at the expense of PIs? Cynical? FWIW I'd much rather there was caution. Divi well up is the best sign but no guarantee.
I managed to slice a few at 1011p and have now bought back more shares at same cost-maybe the fastest re-buy I've made.
As they mention in the link below, "The market was not sure what to make of the results"
Hard to see any big issues, I think one difficulty the market has is as with all acquisitive companies, the EPS may be rising fast, but are the purchases really adding value and maintaining ROI or just driving up debt. RPC stated "ROCE, at 15.1%, grew 30 bps compared with the same period last year and remains well ahead of the Group's weighted average cost of capital." 15.1% not bad but not fantastic.
Net debt slightly up £1,070m (March 2017: £1,049m) representing a pro forma 1.8x EBITDA multiple (March 2017:1.8x).
The other big issue not mentioned in the report is the environmental concern- maybe that is worrying the market, but it didn't just come to light today, so who knows.
Sold out today with some gain (bought in earlier in the year just below 800) - for me its not so much how quickly these changes will come into effect but the inevitable negative sentiment that talk of change or regulation brings too. Packaging has had a fantastic fun over the last few years but theres no doubt that the wasteful coffee cup culture will come under greater scrutiny. Once the market gets a whiff that its going to happen share price reacts accordingly. Im out for now and put into SOLI on this mornings share price dip presumably as a result of the lacklustre results. But Im encouraged by the size of the future order book and the share price has been a lot higher.
H2 Thanks for your considered and helpful reply which I very much agree with. I noted that Sir David Attenborough was putting some rather alarming statistics forward about plastics in our oceans during his excellent Blue Planet 2 series last evening. Lots of negative vibes at the moment.
"The proposed tax on single use plastic containers, about which the government are entering into a consultation process, will have an immediate detrimental effect upon our investment here"
I wondered that when reading about the possible tax, looking at the geographic split of sales I think the answer is not so much short term.
UK external sales were 736.1 GBP out of total 2742 as reported in FY March 17, just over 25%. The tax is mooted as a UK thing so should only affect that market.
That might change if other parts of the world start to take similar measures. (Europe is over 85% of sales, I guess are more likely to follow suit than Trump's US or rest of world).
Unclear if tax will be introduced and how dramatic the impact would be if it was introduced, the plastic bags charge did what it was supposed to. There would no doubt be significant reduction in the superfluous plastic packaging often used on products, but RPC has moved into more specialized, value adding aspects which is where the future and the profit no doubt lies.
There may be some pressure on the industry and some may succumb to failure or consolidation, but in any event, the best performing businesses will always win out. RPC have been doing that and I think are well placed to take advantage whatever the outcome on tax in UK or elsewhere.
that the proposed tax on single use plastic containers, about which the government are entering into a consultation process, will have an immediate detrimental effect upon our investment here. I guess we will find out soon enough.
Capital Market Days held in London and NY over last couple of days, the main presentation is worth a read, acquisitions and industry consolidation are a key part of their strategy, the presentation gives good insight to RPCs aims and approach.
They seems to have good discipline and criteria in making purchases, in 5 years out of 360 opportunities presented they studied 97 in detail and acquired 17. Purchases appear all with EV/EBITDA in range 6- 8.
From 2013 after launch of Vision 2020 strategy, CAGR has been 29% on sales and 35% adjusted operating profit. (Although with significant acquisition costs and amortization)
RPC has been drifting down for a couple of months after good recovery from a dip to 720p in July. I was starting to get concerned and considered reducing my holding, but hopefully yesterday's rise reflected some enthusiasm from funds after the CMD and the start of the next leg up. I'll wait and watch a little longer.
Seemed very positive, I had planned to add so was surprised to see a dip at the open and happy to buy into it, now at 3.2% here. Market has since come to its senses and showing healthy rise, nice to have that happen after so many times achieving the opposite.
RPC looks very good value to me, the consensus EPS forecasts suggest good growth. Analyst SP targets are 1120-1180p, mean 1146p which is pretty similar to what I get on DCF basis. Some currency risk (both sides) and subject to global growth but seems a good buy to me.
With the shares at 943 today we are close back to the Theoretical ex Right Price of 980. In other words back to the price ( as adjusted) the day before the last rights issue and therefore have recovered almost all the losses caused by worries over the acquisition strategy, Leticia in particular and underlying trading performance. (share buybacks and significant divi increase will have helped !)
RPC overview here from Phil Oakley. www.sharescope.co.uk/philoakley_article160.jsp
Interesting comments about earnings quality, ROCE and the effects of the 'Exceptionals'. This came out before the Q1 trading update on 19th July which has given some reassurance about the accounts. The sharebuyback will tend to flatter Earnings per Share which will have the effect of increasing the directors bonuses!.
The Beneish M Score is something Im not familiar with but it is linked to work by Michael Jensen on accounting methods. Interesting topic but a lot of detail to grapple with.
Overall, I still think RPC has competitive advantages particularly with their patented designs. They are also developing recyclable and biodegradable materials.
The enlarged group needs to demonstrate organic growth and progressive debt reduction along with stronger cash flow and more clarity in the accounts - then I'll be happier!
The FT also did a recent piece on company earnings: www.ft.com/content/5d56ce34-7932-11e7-a3e8-60495fe6ca71
and another by Terry Smith on AZN accounts www.ft.com/content/50319614-75d9-11e7-a3e8-60495fe6ca71
Looks like a lot of companies are trying to pull the wool over our eyes!
I see that they have now started a share buy-back programme. It's a but rich really having caned shareholders with three rights issues in the last three or so years.
I guess it's supporting the share price though.
I have been ambivalent towards these shares since the rights issue in January and the SP crash, I sold a chunk of my holding at 860, and then saw the price go down to mid 700's. The update yesterday seems to have been taken positively, and of particular note to me was the commitment not to make any more significant acquisitions this financial year. Clearly the critics who said - too much too fast and financed and the once a year rights issues have to stop ! have been heeded. I hope we can see these regain their earlier highs. I was concerned the company's reputation was all built on sand but the full year results and this update have re-assured me. So I wont be selling any more soon, but nor will I be buying as I've still got too much of my portfolio here.
"Investors are back on side, after an unscheduled first-quarter trading update from LSE:RPC:RPC Group, the maker of packaging for food, healthcare and household products, was packed with good news. After hitting an all-time high late last year, ..."
There has been activity against this share, of that I have no doubt.
Just don't understand how it is achieved as I have not seen any reports of substantial shorts.
There have been days when there have been large numbers of trades in single or low double figures. These make no commercial sense but to some they convey trading intentions.These in one instance were accompanied by a report suggesting the company had become seriously overstretched , making too many take overs in too short a time, but with absolutely no detailed support for this view.
This type of action does take place, at one point recently four of my shares were showing exactly the same pattern ! I have held the shares throughout as I saw no convincing reason to sell. The company report just issued seems excellently prepared, the directors reports reassuring.
I may be wrong but I am sitting tight. Can't really buy more as this is one of my major holdings .
One day, maybe, we will get a properly managed market, and pigs will fly.
When retail investors buy share and it falls rather than admit they might have been wrong many prefer to trot out the old lines about "short sellers" or even "market makers playing games", demonstrating they don't have a clue how equity markets work.
I have a holding and I'm sitting on a loss but that's because I bought at the wrong time/price not because of other people's wickedness.
Market games? or something we don't know-if it is then it stink, PIs always the last to know. Topped up yesterday thinking it had been taken down enough but today.....? Tinhat time!
No noted shorts according to shorttracker website.
The last IC recommendation was to buy at 803 pence on 8 June.
"The 9 analysts offering 12 month price targets for RPC Group PLC have a median target of 1,135, with a high estimate of 1,175 and a low estimate of 1,119.92. The median estimate represents a 54.21% increase from the last price of 736.00."
Back in today @ 735p.on today's fall back.
Not my pick but fancied by O @ C after fall back on results7th June to 760p.
Been trying and failing to buy @ that price since .
So we will see again how it compares to my own picks.
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