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Synnovia PLC: Latest update

Written by Ed Stacey

Synnovia PLC: Latest update
Trading statement

Synnovia (LON:SYN) released a trading update on 19 February, confirming that trading in the full year (FY) to 31 March is broadly in line with expectations. We continue to forecast growth in revenue and earnings; however, we are lowering our FY earnings per share (EPS) forecast from 11.9p to 10.4p to reflect a slower increase in profit margins due to operating issues in the Films division.

Both the Films division and the Industrials division continue to deliver organic growth, and we believe the group is well positioned for growth in FY March 2020. Some details of the divisional dynamics are included on p2.

Conclusion

The company's rebrand to Synnovia (it was previously Plastics Capital) has gone smoothly, and growth initiatives are bearing results. Following the revised expectations, the shares are now trading on a forward price/earnings (P/E) multiple of 8.0x (our March 2020e forecast). We argue that this represents an interesting level for investors to revisit the Synnovia proposition.

 
Year end Mar 31 2017 2018 Current* 2020
         
Revenue £M 36.5 76.7 83.5 87.0
EBITDA (£m). 2.6 7.0 7.9 8.9
Underlying PBT 1.2 4.2 4.6 5.6
EPS (p) 2.8 9.5 10.4 13.1
         
 
Share Price

 

 
 
 

 

Revenues by segment, Mar2019e
 
Source: Proactive Research
Revenues and EBITDA margin
 
Source: Proactive Research

The chart above left shows Synnovia’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 plastic consumable used in the manufacture of cardboard boxes and packaging.
  • Plastic ball bearings (Industrials division) – Ball-bearing assemblies for application such as steering columns, dashboard controls, and household appliances.
  • Hose mandrels (Industrials division) – A specialised plastic rod used as a consumable in the manufacture of hydraulic and industrial hoses.

Growth strategy and mix effect:

In May 2017 the company announced a capital raise of £3.8mln, with the proceeds to be invested in various growth initiatives. The full-year benefit of this growth programme is expected to be evident in the March 2019e results, with strong growth across both divisions. Improving profit margins are driven by growth in the Industrials division, and in the Bearings business in particular.

Partly offsetting this mix effect, the 19 February update refers to delays and teething problems in major programmes to add new capacity and new capabilities within the Films division, resulting in cost increases ahead of revenue growth in this division.

For FY March 2020e we are forecasting continued revenue growth for both divisions, and increasing profit margins for the group.

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