The year to the end of March 2018 was a particularly strong one for the films division, which saw a 27% year-on-year increase in like-for-like sales and a 26% increase in underlying earnings (Ebitda).
Group revenue rose 16.6% to £76.73mln from £65.79mln the year before and was up 13.0% on a like-for-like basis. The top-line was a bit higher than the consensus forecast of £76.6mln.
Adjusted Ebitda edged up 1.9% to £7.03mln from £6.9mln the previous year, while adjusted profit before tax slipped 3.7% to £4.19mln from £4.35mln, but was ahead of the median forecast of £4.00mln from the estimates of analysts that follow the stock.
The company, which specialises in producing plastic products for industry, such as mandrels (rods used to make holes in hydraulic pipes), said organic growth was so strong that it opted not to reintroduce dividend payments as it believes the money would be better deployed growing the business.
Trading in the current financial year has been “relatively good”, making up for weak momentum at the end of the previous financial year.
The group’s bearings business has not suffered the sort of disappointing start to the year it experienced last year, although Rahmatallah conceded there is still some way to go for the board to be satisfied that the right momentum is being achieved in this business.
"FY2018 has been an outstanding year for organic growth, particularly in our films businesses. To capitalise on this, we have recruited and trained new staff, invested in new facilities and equipment, and raised equity capital to make sure that we have scope for further growth as we move into the next financial year. As a result, our operating profit margin has reduced somewhat during the year but we consider this to be a sensible trade-off for the creation of long-term shareholder value,” Rahmatallah said.
The Plastics Capital chairman added that the group should see some improvement to margins as losses incurred over the last two years from currency hedges taken out pre-Brexit fall away.
“We continue to have a number of exciting projects that we will be investing in as the current financial year progresses. We believe these projects will help us to deliver good growth over the next few years and we anticipate that this year will be another year of good progress," he added.
Ed Stacey, an analyst at Capital Network, said it was a strong set of results.
“Revenues of £76.7m and EPS of 9.5p are both slightly ahead of our forecast, which was last updated at the time of the detailed Plastics Capital trading update on May 2.
“The most important headline metric, in our view, is the organic (like-for-like) revenue growth of 13.0%, which reflects a strategy shift undertaken last year to focus more on top-line growth,” Capital Network added.
“We believe that the current valuation at a Mar2019 P/E of 9.3x represents an interesting entry point in light of these growth dynamics,” the research house concluded.
The company’s joint broker, Allenby Capital, said the results were in line with its previously reduced expectations, with the strong growth from the Film division offset by a disappointing outcome from the Industrial division, particularly BNL, the unit that manufactures plastic ball bearings and related assemblies.
“The disappointment arose through the volatile call-off on plastic components from two of BNL’s key customer projects. Excellent growth in the lower margin Films business was insufficient to make up the ground lost in the higher margin and leveraged Industrial division,” Allenby noted.
“Capital investment continues to be required to support strong organic growth and the final dividend was passed, contrary to our expectations. We anticipate a stronger performance from Industrials in the current year which, together with continued growth in Films, should allow our FY2019 forecast to at least be maintained and keep the group on track to achieve its five-year growth plan through to FY2020,” the broker said.
Shares in Plastics Capital were down 0.4% at 110p.
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