British Polythene Industries — Update 11 November 2015

British Polythene Industries — Update 11 November 2015

British Polythene Industries

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British Polythene Industries

Managing variable demand, maintaining progress

Trading update

General industrials

12 November 2015

Price

732p

Market cap

£199m

£/€1.41

Net debt (£m) at end June 2015

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

1.2

4.1

12.2

Rel (local)

2.8

9.6

15.0

52-week high/low

753.5p

611.0p

Business description

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

Next events

FY15 year end

December 2015

FY15 results

29 February 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

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*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

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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London +44 (0)20 3077 5700

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New York +1 646 653 7026

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