British Polythene Industries — Update 27 January 2016

British Polythene Industries — Update 27 January 2016

British Polythene Industries

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British Polythene Inds.

Out of China

Disposal in Asia

General industrials

28 January 2016

Price

655p

Market cap

£178m

£/€ 1.31

Net debt (£m) at end June

29.2

Shares in issue

27.2m

Free float

88%

Code

BPI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.7)

(12.7)

1.6

Rel (local)

1.1

(7.4)

12.8

52-week high/low

753.5p

627.0p

Business description

British Polythene Industries (BPI) is one of the largest manufacturers of polythene film products in Europe. It is also Europe’s largest recycler of waste polythene film.

Next event

FY15 results

29 February 2016

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

British Polythene Inds. is a research client of Edison Investment Research Limited

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Research: TMT

Ebiquity — Update 26 January 2016

Ebiquity

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