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After a strong recent performance, shares in RPC dipped slightly following the release of a pre-close trading statement covering the six months to 30 September.
Plastic packaging manufacturer RPC has been under pressure to prove its long-running acquisition programme is creating value for shareholders and not masking a lacklustre operating performance.
When the shares dropped sharply earlier this year as this worry took hold, we said we felt the fall was more down to a crisis of confidence rather than changes in the fundamentals. We're pleased to say recent results have given us further assurance the business remains solid.
Cash generation continues to look healthy. The 50% increase in the dividend announced in full year results remains well covered by earnings, and takes the group to 24 consecutive years of growth.
Exceptional integration expenses are still significant, up 23% on a year before. However, acquisition costs were also 77% ahead so we don't find this a great surprise. In any case, these exceptionals look set to fall in half year results.
RPC's organic growth has been ahead of the market, but in such a fragmented industry, acquisitions will inevitably form a key part of the long term growth story. However, with the pressure mounting, the group decided to try and restore investor confidence by taking a breather from what has been a frantic buying spree. This should allow RPC to demonstrate its acquisitions are adding value, and thus put fears to rest.
However, it does mean near-term performance will likely be steady rather than exceptional, and buying back shares with the spare cash freed up by the lack of acquisitions for will have destroyed some shareholder value. Nonetheless, given expansion has typically been funded by attracting new money from shareholders, we feel the group was right to prioritise in this way.
Overall, we remain upbeat about RPC's prospects. Its consumer goods customers are economically resilient and plastic is steadily replacing metal, glass and paper as the packaging material of choice.
The shares offer a prospective yield of 2.7%, and trade on 13 times expected earnings.
Revenues are set to be well ahead of the corresponding period last year, driven by the contribution from acquisitions, organic growth, polymer price tailwinds and beneficial foreign exchange movements.
With the group successfully realising synergies, both margins and profits are expected to exceed management's prior expectations. Growth was particularly strong in China, which benefited from investments made in the previous year.
RPC says its investment in innovation for product design and process engineering continues to drive a healthy pipeline, and it remains confident of achieving growth rates ahead of GDP.
Pim Vervaat, RPC's Chief Executive, said "The Group has progressed well in the first half with an encouraging trading performance whilst successfully integrating recent acquisitions and realising the associated synergies. We continue to successfully execute our Vision 2020 growth strategy."
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