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RPC - Growth slows, but profits steady

Nicholas Hyett | 1 February 2019 | A A A
RPC - Growth slows, but profits steady

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RPC Group plc Ordinary 5p Shares

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RPC reported third quarter revenues of £894m, with organic sales up 1.4%. Operating profit is expected to be similar to last year.

The RPC board has said it will engage with Berry Global over a potential rival to the Apollo bid.

The shares were broadly unmoved following the announcement.

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Our view

It took months for Apollo to make an offer for RPC, and just a week later the whole bid is up in the air again.

Berry is one of RPC's major rivals, and that actually makes a higher offer price easier to deliver. Unlike Apollo, Berry will be able to achieve cost synergies from merging with RPC, and synergies are the key driver behind consolidation in the plastic packaging space.

Although Berry has said it's interested in making a cash offer, there's also the potential for a bid to be made partly in shares. That would help a potential buyer keep debt down, while also giving RPC shareholders a slice of the benefits.

Of course all of that is speculation. But after a lowball offer from Apollo, shareholders will be pleased to see that others in the industry also think RPC is going cheap. The fact shares are now trading above Apollo's offer price suggests the market hasn't ruled out the possibility that a new deal can be done.

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Third Quarter Results

Third quarter organic revenue growth was behind the 2.6% seen across the first three quarter of the year.

RPC continues to pass increased polymer prices through to customers. However the time lag in doing so has held back operating profits this quarter - creating a £10m headwind.

Preparation for a disorderly Brexit has seen the group stock pile raw materials at several of its factories. That's had a negative impact on working capital and cash flow in the period.

Berry Bid - 31 January 2019

Packaging giant Berry Global has announced that it's considering a cash offer for RPC, and that it has requested due diligence information from RPC.

RPC shares rose 3.7% in early trading to 794p.

Apollo Bid - 23 January 2019

US private equity group Apollo Asset Management, has made a final bid for RPC of 782p per share. RPC shareholders will also be entitled to the 8.1p dividend due to be paid on 25 January.

The deal values RPC at £3.3bn - a 15.6% premium to the offer price the day before a potential deal became public.

The RPC board has recommended the offer, which is still subject to approval by RPC shareholders and regulators.

The shares rose 4.9% in early trading to 770p.

Find out more about RPC shares including how to invest

The Author holds shares in RPC.

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.


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