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Plastics Capital PLC - Organic growth Accelerates

Writen by Ed Stacey

FY MARCH 2018 RESULTS

Plastics Capital PLC (LON:PLA) has reported a strong set of results for the financial year ended March 2018. Revenues of £76.7mln and earnings per share (EPS) of 9.5p are both slightly ahead of our forecast, which was last updated at the time of the detailed Plastics Capital trading update on May 2.

The most important headline metric, in our view, is the organic (like-for-like) revenue growth of 13.0%, which reflects a strategy shift undertaken last year to focus more on top-line growth.

KEY FEATURES OF THE OPERATING PERFORMANCE

The Films division delivered 23.2% organic revenue growth, reflecting new customer wins, and capacity expansion.

The plastic ball bearings business, within the Industrials division, experienced a 4% like-for-like decline in revenues as expected, reflecting delays that were announced in the first half relating to the slow ramp-up of production on some major new projects. The company reports that there was some improvement in the bearings business in the final quarter. We present an overview of the business segments on page 2.

MARGIN PROGRESSION

Underlying EBITDA margin declined to 9.2%, from 10.5% the previous year, in line with the guidance of the May 2 update. This is primarily a result of the business mix – more of the growth came from the lower-margin Films business rather than the Industrials division.

We believe that the Industrials division is now positioned to make positive incremental contributions from FY Mar2019 onwards, leading to group profit margins moving upwards again. Our margin forecasts are presented on page 2.

CONCLUSIONS

During the last two years, Plastics Capital has undertaken a significant programme of investments - £4.1mln in FY Mar2018, including £1.8mln of investment in new capacity. The benefits are evident in the FY Mar2018 revenue growth, and we believe that earnings will begin to follow from FY Mar2019 onwards. We believe that the current valuation at a Mar2019 price/earnings ratio of 9.3x represents an interesting entry point in light of these growth dynamics.

The chart above left shows Plastics Capital’s revenues by business segment:

  • High strength packaging (Films division) – High strength plastic films for industrial packaging applications.
  • Speciality sacks and pouches (Films division) – Packaging for the food industry and other applications.
  • Creasing matrix (Industrial division) – A disposable plastic insert used in the manufacture of cardboard packaging.
  • Plastic ball bearings (Industrials division) – Ball-bearing assemblies for applications such as steering columns, dashboard controls, and household appliances.
  • Hose mandrels (Industrials division) – A specialised plastic rod used in the manufacture of hydraulic and industrial hoses.

The chart above right shows the profit margin progression in 2018 and in our forecasts. The reduction in the EBITDA margin for FY Mar2018 is primarily due to the business mix, with more of the organic growth coming from the Films division, which is a lower margin business. The growth mix is illustrated in the following chart:

We believe that the 13.0% organic revenue growth in FY Mar2018 shows that the company’s investment programme is succeeding. Going forward we expect this growth to be reflected at the earnings level, as growth becomes more balanced across the business segments, leading to a better mix, and as the positive volume effect benefits margins across all businesses.

Important – Please read this information: This report has been commissioned by Plastics Capital Plc and prepared and issued by Capital Network for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however, we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Capital Network at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. Capital Network does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Capital Network’s solicitation to effect, or attempt to effect, any transaction in a security. This document is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Capital Network has a restrictive policy relating to personal dealing. Capital Network does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Capital Network may have a position in any or related securities mentioned in this report. Capital Network or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Capital Network within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Capital Network, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication.

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