British Polythene Industries
Written by
British Polythene Industries |
Managing variable demand, maintaining progress |
Trading update |
General industrials |
12 November 2015 |
Share price performance
Business description
Next events
Analysts
British Polythene Industries is a research client of Edison Investment Research Limited |
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An IMS noted maintained FY15 management expectations, despite some weaker areas of demand seen since the interim results. While H2 volume has been softer than anticipated, profitability has been sustained through operating efficiencies, investment and some easing of polymer pricing during the period. On unchanged estimates, BPI’s P/E rating is approaching single-digit levels.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
507.5 |
22.1 |
59.1 |
14.5 |
12.4 |
2.0 |
12/14 |
499.0 |
25.1 |
66.2 |
16.0 |
11.1 |
2.2 |
12/15e |
480.9 |
27.0 |
72.0 |
18.0 |
10.2 |
2.5 |
12/16e |
491.3 |
28.1 |
75.2 |
18.9 |
9.7 |
2.6 |
Note: *PBT and EPS (fully diluted) are normalised, excluding pension net finance costs, intangible amortisation and exceptional items.
Profit progress being maintained
Indications are that all three reporting regions and many of the sectors that BPI serves have experienced quieter demand to some extent during Q3. Silage stretch volume is reported to be up 5% y-o-y following investment in Europe and North America, despite a slightly shorter agricultural film-selling season than normal. Our sense is that underlying volume is broadly flat but lower in aggregate, allowing for uncommercial business for which BPI has elected not to compete. Polymer prices in BPI’s grades were more than 10% below June levels by the end of October and, historically, such downward movements have provided a short-term margin benefit. BPI typically operates with a relatively short order horizon and has successfully shown an ability to manage demand and input price variability well. BPI notes that polymer price increases are currently being sought by suppliers.
Taking action to lower costs
Against this backdrop of subdued demand, BPI is taking steps to strip out cost in certain UK operations. A small stretch film plant in Widnes is to be closed (with volume being redirected to Leominster), while sites at Worcester and Sevenoaks (consumer packaging and film exposure, respectively) are expected to undertake a degree of downsizing. Lastly, a small in-house, pre-press business has been sold for £0.2m. The £1m net cost of these actions will be taken as exceptional in FY15 with a similar cash outflow (excluding potential proceeds from a later Widnes site sale). Annualised cost savings are thought to be in the £0.5m-0.7m range.
Valuation: Outperforming, but single-digit multiples
BPI’s share price is up by c 9% since the end of June, while the FTSE All-Share Index is down by c 3%. Despite this, BPI is trading on a sub-10x P/E one year out and EV/EBITDA (adjusted for pensions cash payments) of c 5.7x. Profit growth has been good in recent years in some challenging market conditions and we continue to expect steady y-o-y progress. In our view, the rating gives little credit for delivered performance and has tended to lag rather than lead the upgrades that we have seen regularly over the last couple of years.
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 |
491,315 |
501,259 |
Cost of Sales |
(432,957) |
(406,047) |
(430,732) |
(421,632) |
(406,379) |
(415,162) |
(423,564) |
||
Gross Profit |
74,910 |
72,669 |
76,788 |
77,341 |
74,543 |
76,154 |
77,695 |
||
EBITDA |
|
|
34,200 |
33,973 |
37,883 |
41,345 |
43,431 |
45,361 |
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) |
(1,300) |
(1,200) |
||
Exceptionals |
600 |
0 |
(1,000) |
0 |
(1,000) |
0 |
0 |
||
Profit Before Tax (Edison norm) |
|
|
19,100 |
19,723 |
22,087 |
25,138 |
26,963 |
28,147 |
29,717 |
Profit Before Tax (FRS 3) |
|
|
19,200 |
16,974 |
18,487 |
22,189 |
22,563 |
24,747 |
26,317 |
Tax |
(4,401) |
(5,178) |
(5,487) |
(5,825) |
(6,680) |
(7,000) |
(7,424) |
||
Profit After Tax (Edison) |
14,700 |
14,545 |
16,600 |
19,312 |
20,283 |
21,147 |
22,294 |
||
Profit After Tax (FRS 3) |
14,800 |
11,796 |
13,000 |
16,363 |
15,883 |
17,747 |
18,894 |
||
Average Number of Shares Outstanding (m) |
25.8 |
25.7 |
25.5 |
25.9 |
26.3 |
26.3 |
26.3 |
||
EPS - Edison fully diluted (p) |
|
|
53.2 |
51.7 |
59.1 |
66.2 |
72.0 |
75.2 |
79.4 |
EPS - Company fully diluted (p) |
|
|
46.9 |
51.5 |
59.1 |
66.2 |
64.7 |
75.2 |
79.4 |
EPS - FRS 3 fully diluted (p) |
|
|
50.2 |
38.9 |
43.2 |
57.5 |
58.1 |
64.9 |
69.1 |
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 |
9.2 |
9.5 |
||
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 |
117,217 |
118,819 |
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 |
113,717 |
115,119 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
118,000 |
117,700 |
130,400 |
127,400 |
124,280 |
133,924 |
145,206 |
Stocks |
67,300 |
72,500 |
77,300 |
76,300 |
73,540 |
75,129 |
76,650 |
||
Debtors |
47,700 |
41,800 |
49,400 |
47,100 |
45,396 |
46,377 |
47,316 |
||
Cash |
300 |
100 |
800 |
500 |
540 |
7,614 |
16,437 |
||
Other |
2,700 |
3,300 |
2,900 |
3,500 |
4,804 |
4,804 |
4,804 |
||
Current Liabilities |
|
|
(82,007) |
(86,400) |
(100,200) |
(85,700) |
(82,006) |
(88,609) |
(95,260) |
Creditors |
(74,607) |
(78,700) |
(87,900) |
(83,100) |
(82,006) |
(88,609) |
(95,260) |
||
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 |
77,411 |
89,644 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
37,400 |
33,373 |
31,583 |
35,545 |
27,368 |
38,374 |
40,583 |
Net Interest |
(2,500) |
(2,100) |
(1,900) |
(1,550) |
(1,200) |
(1,300) |
(1,200) |
||
Tax |
(4,600) |
(2,900) |
(6,200) |
(4,900) |
(5,825) |
(6,680) |
(7,000) |
||
Capex |
(11,800) |
(17,800) |
(19,800) |
(15,800) |
(20,500) |
(18,500) |
(18,500) |
||
Acquisitions/disposals |
0 |
0 |
(5,200) |
(300) |
0 |
0 |
0 |
||
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) |
7,074 |
8,823 |
||
Opening net debt/(cash) |
|
|
45,600 |
31,000 |
23,200 |
30,100 |
24,100 |
30,660 |
23,586 |
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 |
23,586 |
14,763 |
Source: Company accounts, Edison Investment Research
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