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British Polythene Industries — Update 27 April 2016

British Polythene Industries — Update 27 April 2016

British Polythene Industries

Analyst avatar placeholder

Written by

British Polythene Industries

Strong start to the year

Disposal and trading update

General industrials

27 April 2016

Price

680p

Market cap

£186m

£/€1.28

Net debt (£m) at end December 2015

32.1

Shares in issue

27.4m

Free float

88%

Code

BPI

Primary exchange

LSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.3)

3.8

(1.7)

Rel (local)

(5.8)

(2.1)

8.9

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 events

AGM

10 May 2016

FY15 final dividend
(12.0p subject to AGM)

13 May 2016

Analysts

Toby Thorrington

+44 (0)20 3077 5721

Roger Johnston

+44 (0)20 3077 5722

British Polythene Industries is a research client of Edison Investment Research Limited

British Polythene Industries (BPI) has a seasonally stronger H1 trading pattern and a positive Q1 trading update allows us to upgrade estimates again, having done so after the FY15 results. The previously announced disposal of a Chinese subsidiary has completed on slightly better terms than previous guidance. Despite this progress, BPI’s rating remains stubbornly in single-digit P/E territory.

Year end

Revenue
(£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

12/14

499.0

25.1

66.2

16.0

10.3

2.4

12/15

468.3

27.4

76.6

18.0

8.9

2.6

12/16e

493.2

30.7

82.8

19.3

8.2

2.8

12/17e

501.8

31.8

85.8

20.6

7.9

3.0

Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, amortisation of acquired intangibles and exceptional items.

Strong Q1 trading and further upgrades

Following the FY15 results announcement at the end of February, we raised FY16 and FY17 EPS estimates by 5-6% (mainly reflecting updated FX assumptions). At that time, BPI commented that the current year had started well. It appears that this continued throughout Q1, which management now describes as “strong and ahead of expectations”. No particular sector was highlighted, but the effects of relative sterling weakness and lower input costs (chiefly net energy prices) are benefiting UK performance in particular. BPI’s seasonal H1 bias (eg more than 60% of FY15 EBIT was generated in the first six months) provides a good foundation for the full year outturn. To reflect this, we have raised our FY16 PBT estimate by £1m (or 3.4%) and, with some energy cost visibility into the following year also, lifted our expected FY17 PBT by £0.5m (+1.6%).

China disposal completion

In January, BPI announced the proposed disposal of its Chinese film extrusion facility subject to PRC authority approval (see our update note published in January). This has been received well within the indicated Q216 guidance and the transaction has now completed. Expected proceeds have risen slightly (by £0.3m to £9.7m in total) and the disposal profit has also increased (by £1m to £5m). We have incorporated both of these adjustments for FY16 in our model. As before, the majority of the consideration is to be received in FY16, with c £1m to come in early FY17.

Valuation: Current estimates versus track record

BPI’s share price is almost 40p (c 5%) below the level at the time of our last published note, while estimates have nudged up slightly. Consequently, the rating has compressed to a FY16e P/E of 8.2x and EV/EBITDA (adjusted for pensions recovery cash) of 5.2x with a prospective 2.8% yield. With FY18 estimates unchanged at this stage, the three-year EPS CAGR (FY15-18e) remains slightly below 5%, although underlying business momentum feels somewhat better. BPI is building a track record of beating market estimates, although this is yet to be reflected in its rating, in our view.

Exhibit 1: Financial summary

£'000s

2011

2012

2013

2014

2015

2016e

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

IAS19R

Revenue

 

 

507,867

478,716

507,519

498,973

468,282

493,183

501,780

507,357

Cost of Sales

(432,957)

(406,047)

(430,732)

(421,632)

(395,698)

(416,740)

(424,004)

(428,717)

Gross Profit

74,910

72,669

76,788

77,341

72,584

76,443

77,776

78,640

EBITDA

 

 

34,200

33,973

37,883

41,045

43,365

47,381

49,099

49,944

Operating Profit (before amort. and except.)

 

21,600

21,773

23,987

26,688

28,585

31,970

32,993

33,838

Intangible Amortisation

0

0

0

0

0

0

0

0

Pension net finance costs

(500)

(2,749)

(2,600)

(2,949)

(3,200)

(2,000)

(2,000)

(2,000)

Operating Profit

21,100

19,024

21,387

23,739

25,385

29,970

30,993

31,838

Net Interest

(2,500)

(2,050)

(1,900)

(1,550)

(1,200)

(1,300)

(1,200)

(1,100)

Exceptionals

600

0

(1,000)

0

(1,100)

5,000

0

0

Profit Before Tax (Edison norm)

 

 

19,100

19,723

22,087

25,138

27,385

30,670

31,793

32,738

Profit Before Tax (FRS 3)

 

 

19,200

16,974

18,487

22,189

23,085

33,670

29,793

30,738

Tax

(4,401)

(5,178)

(5,487)

(5,825)

(5,586)

(7,374)

(7,666)

(7,912)

Profit After Tax (Edison)

15,600

15,350

17,400

18,763

20,999

22,696

23,527

24,226

Profit After Tax (FRS 3)

14,800

11,796

13,000

16,363

17,499

26,296

22,127

22,826

Average Number of Shares Outstanding (m)

25.8

25.7

25.5

25.9

26.5

27.2

27.2

27.2

EPS - Edison fully diluted (p)

 

 

53.2

51.7

59.1

66.2

76.6

82.8

85.8

88.3

EPS - Company fully diluted (p)

 

 

46.9

51.5

59.1

66.2

76.6

82.8

85.8

88.3

EPS - FRS 3 fully diluted (p)

 

 

50.2

38.9

43.2

57.5

63.8

95.9

80.7

83.2

Dividend per share (p)

12.5

13.2

14.5

16.0

18.0

19.3

20.6

22.1

Gross Margin (%)

14.8

N/A

N/A

15.5

15.5

15.5

15.5

15.5

EBITDA Margin (%)

6.7

7.1

7.5

8.2

9.3

9.6

9.8

9.8

Operating Margin (before amort. and except.) (%)

4.3

4.5

4.7

5.3

6.1

6.5

6.6

6.7

BALANCE SHEET

Fixed Assets

 

 

108,400

112,500

119,200

123,000

111,220

110,709

113,902

117,096

Intangible Assets

1,600

1,300

3,500

3,100

2,900

3,200

3,500

3,800

Tangible Assets

106,800

111,200

115,700

119,900

108,320

107,509

110,402

113,296

Investments

0

0

0

0

0

0

0

0

Current Assets

 

 

118,000

117,700

130,400

127,400

138,307

154,430

165,317

176,107

Stocks

67,300

72,500

77,300

76,300

81,700

83,044

84,492

85,431

Debtors

47,700

41,800

49,400

47,100

44,203

46,554

47,365

47,891

Cash

300

100

800

500

500

17,526

27,154

36,479

Other

2,700

3,300

2,900

3,500

11,904

7,306

6,306

6,306

Current Liabilities

 

 

(82,007)

(86,400)

(100,200)

(85,300)

(83,287)

(85,247)

(90,199)

(94,732)

Creditors

(74,607)

(78,700)

(87,900)

(82,700)

(83,287)

(85,247)

(90,199)

(94,732)

Short term borrowings

(7,400)

(7,700)

(12,300)

(2,600)

0

0

0

0

Long Term Liabilities

 

 

(89,793)

(85,900)

(81,200)

(125,800)

(90,826)

(84,826)

(78,826)

(72,826)

Long term borrowings

(23,900)

(15,600)

(18,600)

(22,000)

(32,600)

(32,600)

(32,600)

(32,600)

Other long term liabilities

(65,893)

(70,300)

(62,600)

(103,800)

(58,226)

(52,226)

(46,226)

(40,226)

Net Assets

 

 

54,600

57,900

68,200

39,300

75,413

95,066

110,195

125,645

CASH FLOW

Operating Cash Flow

 

 

37,400

33,373

31,583

35,545

21,365

40,956

42,100

43,366

Net Interest

(2,500)

(2,100)

(1,900)

(1,550)

(1,200)

(1,300)

(1,200)

(1,100)

Tax

(4,600)

(2,900)

(6,200)

(4,900)

(4,200)

(5,586)

(7,374)

(7,666)

Capex

(11,800)

(17,800)

(19,800)

(15,800)

(17,500)

(19,500)

(19,500)

(19,500)

Acquisitions/disposals

0

0

(5,200)

(300)

0

8,700

1,000

0

Financing

(1,700)

(1,100)

(1,400)

(4,000)

(2,400)

(1,200)

0

0

Dividends

(3,100)

(3,300)

(3,500)

(4,000)

(4,500)

(5,044)

(5,397)

(5,775)

Net Cash Flow

13,700

6,173

(6,417)

4,995

(8,435)

17,026

9,628

9,324

Opening net debt/(cash)

 

 

45,600

31,000

23,200

30,100

24,100

32,100

15,074

5,446

HP finance leases initiated

(2,600)

(2,600)

(1,000)

(400)

0

0

0

0

FX/Other

3,500

4,227

517

1,405

435

0

0

0

Closing net debt/(cash)

 

 

31,000

23,200

30,100

24,100

32,100

15,074

5,446

(3,879)

Source: Company accounts, Edison Investment Research

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