Plastics Capital: Results Comment Boring is still sexy

PUBLISHED: Nov 27 2012 @ 12:11 | Comments (0) | More info about Tom Winnifrith

AIM-listed manufacturer of niche plastics products for global markets, Plastics Capital (LSE:PLA) has today announced its results for the six months ended 30th September 2012. This is a company whose shares I first recommended on t1ps – the website I founded in 2000 and left in September this year to set up the Nifty Fifty – at 40.5p in November 2009. I again commented positively here in September, with the shares then at 66p, and the shares currently trade unchanged at 72p on the back of today’s release. The following reviews the results and the outlook from here…

To read my last analysis of 69 days ago click here

The results show an adjusted pre-tax profit of £1.83 million on revenue 3.3% lower than in the corresponding 2011 period at £15.71 million, generating earnings per share of 5.5p – up from 5.3p. This was as earnings benefitted from lower interest costs as the company’s debt levels have continued to decrease and realised profits on foreign currency debt converted into sterling. The performance saw net debt continue to fall – reduced by £1.54 million over the half year, to end the period at £8.61 million. At the period net current assets totalled £2.87 million (+£0.551 million) and non-current liabilities totalled £7.70 million (reduced by £0.698 million).

Approximately 60% of the company’s sales are outside the UK to over 80 countries worldwide – though despite new business gains across the group, the revenue performance reflected these being counteracted by slowdown in Europe. The company is seeing more caution – with customers tending to order in smaller lot sizes and new business progress “slightly slower” than expected. However, it is “encouraged by the long list of prospects where conversion is close to being achieved” and has “a number of discussions ongoing with interesting target companies… We have greater confidence in being able to conclude an acquisition in the near future than at any time since our last acquisition in 2008”. Further reflecting its confidence for the future, the interim dividend is to be doubled to 0.66p per share (£181,781) – this to be paid on 28th December, with an ex-dividend date of 5th December. A forecast total dividend per share for the year of 2p (last year: 1p) equates to a yield of 2.8%.

There is no pretence that the current macro economic climate is making life easy for Plastics Capital, but the results show continuing strong resilience and an ability to win new orders to mitigate a softening in organic demand. As a result I continue to believe full-year earnings per share of 11.3p, rising towards 12.5p next time are realistic and, with debt now down to a level the company’s consistent operating cash flows mean it considers satisfactory and considering the tough economic environment, there should be decent potential to augment growth acquisitively. The share price here has clearly historically suffered due to a negative perception of the company’s debt position given the tough economic times. Despite, primarily from operating cash flow, the debt position having been consistently reduced – having reached £19.59 million at 31st March 2009 – I continue to believe there remains an element of this perception to be cleared and that as it gradually is the shares will further re-rate. As per my September piece, I continue to believe a share price in excess of 100p a realistic target here.

This is the sort of “boring” company that investors too often overlook in favour of sexy oil exploration blue sky piffle. But it delivers a cracking return for those who appreciate that boring is sexy.

This stock is a buy and for another boring is sexy buy have a look here

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