Shares fall 15% despite a healthy uplift in revenue
RPC profit surges but shares fall as plastics concerns grow
- Plastic packaging group posted full year results highlighting a 36% jump in revenue
- Despite a great set of results shares fell by as much as 15% on recycling regulation concerns
- The Share Centre recommends RPC as a ‘buy’ for higher risk investors
One of Europe’s largest plastics packaging groups RPC, has reported full year results this morning and on the face of it should have been very encouraging as revenues jumped by 36% to £3.7bn aided by track record of acquisitions and organic growth of 2.8%.
Meanwhile, adjusted operating profits grew by 16% and net cash flows from operating activities rose by 40%. These were a record year of profits for the group and acquisitions have enabled it to establish a global footprint. The dividend has also been taken up by 17%. The key performance measures all beat the markets expectations including an eps figure of 72p exceeding analyst estimates of 62.2p.
Key to the success of the group has been better macro-economic trends of rising economic growth in Europe and global trade flows, but just as importantly is the trend towards online shopping which has its own additional needs for packaging.
But the shares this morning have taken a deep dive, down as much as 15%, with it being difficult to pinpoint the disappointment in the results. However, the group and the plastics packaging industry has come under renewed pressure, spurred on by the Blue Planet II documentaries, to come up with better solutions to the recyclability and reusability of plastic packaging. The biggest fear is on tougher European legislation which seems likely, no doubt, it will have an impact on sales and earnings and make the task of delivering organic growth ahead of GDP a little more difficult.
Management are aware of the risks and have announced plans to offload some assets while focussing on holding onto assets that can adapt to changing regulatory environment and consumer preferences on recyclability. This is the biggest risk to the sector and our hope is that management are taking the right steps to address issues. Over the years RPC has been a great performer and we still believe in the longer term potential of the stock, however, investors must be wary that the risk associated with the stock and the sector has gone up. Meanwhile, today’s dip may present an attractive opportunity for investors to buy on the dip for a longer term position in the stock.
Nonetheless, we retain our ‘buy’ recommendation due to the company's good growth record, potential for expansion and strong dividend policy although there is the potential that new measures to reduce plastic waste may impact the group in future, so the shares are for higher risk investors.
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