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Plastics Capital Plc - Reaction to the Interim Results

Written by Ed Stacey

Reaction to the Interim Results

INTERIM STATEMENT

Plastics Capital Plc (LON: PLA) reported interim results (H1 end Sep 2017) on Wednesday 6th. These show positive progress on new business wins, reflected in the H1 organic revenue growth of 13.5%, and an increased pipeline of new business (see chart p2).

At the same time the company guided to a less favourable margin mix for FY Mar 2018, with some projects delayed in the Bearings business, and more of the FY revenue to come from the lower margin Films business.

BACKGROUND – THE PIVOT TO GROWTH

In May this year the company announced a capital raising, and within that statement and the FY results in July, the company detailed a series of measures to realign the group for higher growth. Measures included investment in new capacity and integration of acquired businesses, both in terms of Capex and P&L expense. This pivot-to-growth effectively framed FY18 as something of a transitional year, in our view. The benefits of the programme are expected to come through in future years.

CHANGES TO OUR FORECASTS

Based on the interim statement, particularly with regard to FY Mar18 revenue mix, we are lowering our earnings forecast for the current year. The table below shows our forecasts, new vs old.

CONCLUSIONS

We believe that the business pipeline supports solid prospective earnings growth in the coming years. The shares remain attractively value on P/E multiples (see below) or on other metrics.

The charts above show the breakdown of Plastics Capital revenues by product type and by geography. The product categories can be described as follows:

Mandrels: Plastic consumables used in manufacturing hydraulic hoses.

Bearings: Plastic rotating parts.

Creasing matrix: Plastic consumables used in manufacturing boxes and packaging.

Films: High strength film packaging.

In spite of the issues which have driven the downwards revision in Mar-18 profits expectations, the demand side of the equation has remained strong, particularly in Bearings and Mandrels. This is reflected in the business pipeline (projects won, but not yet generating revenues). The chart below shows the increase in the pipeline, which has positive implications for FY2019 and going forwards.

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