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Plastics Capital (LON:PLA) released a trading update on March 1st, for the year ending March 31st. The company reports that trading remains broadly in line with market expectations. Revenue growth has remained strong in the second half, particularly in the Films division, reflecting the company’s programme of investments in expansion.
In terms of profitability, the EBITDA margin is still expected to increase versus H1, but at a lesser level than previously expected. This is due to a slower growth rate in the higher margin Industrials division, compared with the lower margin Films business.
The main impact on our forecasts is to lower the EBITDA margin for FY March 2018e, with corresponding impact on PBT and EPS. We are also lowering our EBITDA forecast for 2019e, on the assumption that the revenue mix effect from H2 2018 persists into H1 2019e.
The trading update does not deal in detail with the medium term outlook, but the Chairman’s statement indicates that the direction of travel is unchanged.
During the last 2 years Plastics Capital has undertaken a significant programme of investments, including £3.4m of capex for new production capacity and £0.7m investment in new capabilities and specific customer projects.
The initial benefit of these investments has come through in the accelerated growth from the Films business. Our expectation for the next 2-3 years is for a continuation of strong revenue growth, with volume effect and improving mix to drive margins.
We have previously described FY Mar2018e as a transitional year for Plastics Capital (LON:PLA), with the new investments pointing the way to accelerating revenue growth. On the revenue front results so far are encouraging, and we believe that earnings will follow in the next few years. Given these dynamics, we argue that the current share price represents an interesting entry point.
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