British Polythene Industries
Written by
British Polythene Inds. |
Out of China |
Disposal in Asia |
General industrials |
28 January 2016 |
Share price performance
Business description
Next event
Analysts
British Polythene Inds. is a research client of Edison Investment Research Limited |
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British Polythene Industries (BPI) is disposing of its Chinese facility for an expected £9.4m. We estimate this to be modestly earnings enhancing with an expected £4m book profit. UK-oriented revenues will largely be retained and the group’s grow and invest strategy is unaffected by the sale. Valuation multiples are now in single-digit territory with, we expect, a growing yield. FY15 results are scheduled for 29 February.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
507.5 |
22.1 |
59.1 |
14.5 |
11.1 |
2.2 |
12/14 |
499.0 |
25.1 |
66.2 |
16.0 |
9.9 |
2.4 |
12/15e |
480.9 |
27.0 |
72.0 |
18.0 |
9.1 |
2.7 |
12/16e |
488.3 |
28.3 |
75.7 |
18.9 |
8.7 |
2.9 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs amortisation of acquired intangibles and exceptional items.
Disposal of Chinese subsidiary
BPI has announced the disposal of its sole film extrusion and conversion facility in China for a c £9.4m (the majority of which is expected to be received in FY16). Annual revenue of c £9.6m in FY15 was spread across a number of product lines; just under two-thirds of revenue was generated in the UK with the remainder sold into local Chinese and adjacent markets. The business is understood to have been trading at break-even levels. At the indicated disposal price, BPI expects to book a gain on disposal of c £4m. The UK and Europe remain the largest contributors to group revenue and EBIT; this disposal does not represent any change to the group’s strategy of growing and investing in higher value added film products in its core group markets.
EBIT neutral, small interest cost reduction
The disposal is subject to local PRC authorities’ approval and is expected to complete in Q216. On an annualised basis, we expect BPI to shed c £5m of revenues following the sale. The business was trading at break even, so our EBIT estimates are unchanged and we have made a small reduction in interest costs to reflect the disposal proceeds. Based on revised estimates, BPI’s expected net debt of c £31m at the end of FY15 reduces to very modest levels by the end of FY17. We will review estimates fully with FY15 results, which are to be reported on 29 February.
Valuation: Single-digit multiples, growing yield
In weakening general stock market sentiment during Q415, BPI’s share price has retreated from its 750p high at the end of October. It is now back to similar levels as at the beginning of 2015, having outperformed the FTSE All Share index by c 11% over the last 13 months or so. With robust estimates throughout this period, BPI’s rating is now back to single digit P/E multiples, mid-single digit EV/EBITDA (adjusted for pensions cash) with a well-covered and growing yield.
Exhibit 1: Financial summary
£'000s |
2011 |
2012 |
2013 |
2014 |
2015e |
2016e |
2017e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
IAS19R |
|||
Revenue |
|
|
507,867 |
478,716 |
507,519 |
498,973 |
480,921 |
488,315 |
496,259 |
Cost of Sales |
(432,957) |
(406,047) |
(430,732) |
(421,632) |
(406,379) |
(412,627) |
(419,339) |
||
Gross Profit |
74,910 |
72,669 |
76,788 |
77,341 |
74,543 |
75,689 |
76,920 |
||
EBITDA |
|
|
34,200 |
33,973 |
37,883 |
41,345 |
43,431 |
45,362 |
47,515 |
Operating Profit (before amort. and except.) |
|
21,600 |
21,773 |
23,987 |
26,688 |
28,163 |
29,447 |
30,917 |
|
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Pension net finance costs |
(500) |
(2,749) |
(2,600) |
(2,949) |
(3,400) |
(3,400) |
(3,400) |
||
Operating Profit |
21,100 |
19,024 |
21,387 |
23,739 |
24,763 |
26,047 |
27,517 |
||
Net Interest |
(2,500) |
(2,050) |
(1,900) |
(1,550) |
(1,200) |
(1,100) |
(900) |
||
Exceptionals |
600 |
0 |
(1,000) |
0 |
(1,000) |
4,000 |
0 |
||
Profit Before Tax (Edison norm) |
|
|
19,100 |
19,723 |
22,087 |
25,138 |
26,963 |
28,347 |
30,017 |
Profit Before Tax (FRS 3) |
|
|
19,200 |
16,974 |
18,487 |
22,189 |
22,563 |
28,947 |
26,617 |
Tax |
(4,401) |
(5,178) |
(5,487) |
(5,825) |
(6,680) |
(7,054) |
(7,505) |
||
Profit After Tax (Edison) |
14,700 |
14,545 |
16,600 |
19,312 |
20,283 |
21,294 |
22,513 |
||
Profit After Tax (FRS 3) |
14,800 |
11,796 |
13,000 |
16,363 |
15,883 |
21,894 |
19,113 |
||
Average Number of Shares Outstanding (m) |
25.8 |
25.7 |
25.5 |
25.9 |
26.3 |
26.3 |
26.3 |
||
EPS - Edison norm fully diluted (p) |
|
|
53.2 |
51.7 |
59.1 |
66.2 |
72.0 |
75.7 |
80.2 |
EPS - Company norm fully diluted (p) |
|
|
46.9 |
51.5 |
59.1 |
66.2 |
72.0 |
75.7 |
80.2 |
EPS - FRS 3 fully diluted (p) |
|
|
50.2 |
38.9 |
43.2 |
57.5 |
58.1 |
80.1 |
69.9 |
Dividend per share (p) |
12.5 |
13.2 |
14.5 |
16.0 |
18.0 |
18.9 |
19.8 |
||
Gross Margin (%) |
14.8 |
N/A |
N/A |
15.5 |
15.5 |
15.5 |
15.5 |
||
EBITDA Margin (%) |
6.7 |
7.1 |
7.5 |
8.3 |
9.0 |
9.3 |
9.6 |
||
Operating Margin (before amort. and except.) (%) |
4.3 |
4.5 |
4.7 |
5.3 |
5.9 |
6.0 |
6.2 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
108,400 |
112,500 |
119,200 |
123,000 |
114,932 |
111,817 |
113,419 |
Intangible Assets |
1,600 |
1,300 |
3,500 |
3,100 |
3,300 |
3,500 |
3,700 |
||
Tangible Assets |
106,800 |
111,200 |
115,700 |
119,900 |
111,632 |
108,317 |
109,719 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
118,000 |
117,700 |
130,400 |
127,400 |
124,280 |
143,154 |
154,436 |
Stocks |
67,300 |
72,500 |
77,300 |
76,300 |
73,540 |
74,670 |
75,885 |
||
Debtors |
47,700 |
41,800 |
49,400 |
47,100 |
45,396 |
46,094 |
46,844 |
||
Cash |
300 |
100 |
800 |
500 |
540 |
16,586 |
26,903 |
||
Other |
2,700 |
3,300 |
2,900 |
3,500 |
4,804 |
5,804 |
4,804 |
||
Current Liabilities |
|
|
(82,007) |
(86,400) |
(100,200) |
(85,700) |
(82,006) |
(88,293) |
(94,724) |
Creditors |
(74,607) |
(78,700) |
(87,900) |
(83,100) |
(82,006) |
(88,293) |
(94,724) |
||
Short term borrowings |
(7,400) |
(7,700) |
(12,300) |
(2,600) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(89,793) |
(85,900) |
(81,200) |
(125,800) |
(91,122) |
(85,122) |
(79,122) |
Long term borrowings |
(23,900) |
(15,600) |
(18,600) |
(22,000) |
(31,200) |
(31,200) |
(31,200) |
||
Other long term liabilities |
(65,893) |
(70,300) |
(62,600) |
(103,800) |
(59,922) |
(53,922) |
(47,922) |
||
Net Assets |
|
|
54,600 |
57,900 |
68,200 |
38,900 |
66,083 |
81,557 |
94,009 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
37,400 |
33,373 |
31,583 |
35,545 |
27,368 |
38,746 |
40,831 |
Net Interest |
(2,500) |
(2,100) |
(1,900) |
(1,550) |
(1,200) |
(1,100) |
(900) |
||
Tax |
(4,600) |
(2,900) |
(6,200) |
(4,900) |
(5,825) |
(6,680) |
(7,054) |
||
Capex |
(11,800) |
(17,800) |
(19,800) |
(15,800) |
(20,500) |
(18,500) |
(18,500) |
||
Acquisitions/disposals |
0 |
0 |
(5,200) |
(300) |
0 |
8,400 |
1,000 |
||
Financing |
(1,700) |
(1,100) |
(1,400) |
(4,000) |
(3,100) |
0 |
0 |
||
Dividends |
(3,100) |
(3,300) |
(3,500) |
(3,900) |
(4,500) |
(4,820) |
(5,061) |
||
Net Cash Flow |
13,700 |
6,173 |
(6,417) |
5,095 |
(7,757) |
16,046 |
10,317 |
||
Opening net debt/(cash) |
|
|
45,600 |
31,000 |
23,200 |
30,100 |
24,100 |
30,660 |
14,614 |
HP finance leases initiated |
(2,600) |
(2,600) |
(1,000) |
(400) |
0 |
0 |
0 |
||
FX/Other |
3,500 |
4,227 |
517 |
1,305 |
1,197 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
31,000 |
23,200 |
30,100 |
24,100 |
30,660 |
14,614 |
4,297 |
Source: Company accounts, Edison Investment Research
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