Solid track record justifies RPC’s optimism
++the share hunter++george salmon++hargreaVes lansDoWn++
A BRIEF update from FTSE 250-listed RPC Group – which makes everyday plastics spanning everything from inhalers to yogurt pots and drinks bottles – caused the shares to rise 3.8 per cent.
In advance of its half-year results, due in November, management said revenues are set to be above the corresponding period last year. Organic growth, the contribution from recent acquisitions, polymer price tailwinds and beneficial foreign exchange movements are all helping things along.
With cost savings being realised as recently acquired businesses bed in, profit margins look to be improving, too.
The net effect is that half-year profits are likely to come in above management’s prior expectations. Growth was particularly strong in China, which benefited from investments made in the previous year.
While the upbeat tone was consistent with releases so far this year, as far as the share price is concerned, 2017 has very much been a game of two halves.
Shortly after confirming the £511million acquisition of US-based group Letica in February, concerns started to surface that its long-running acquisition programme was masking a lacklustre operating performance. However, given the group’s track record, which has facilitated 24 consecutive years of dividend increases, it hasn’t taken long for these concerns to fade away. After falling to a low of 714.5p in June, the shares closed at 976p on Thursday, almost exactly at their fair value at the time of the Letica deal.
As well as a solid operating performance, investors’ concerns have been alleviated by RPC’s willingness to grab the bull by the horns and confront the accusations head-on. To demonstrate its strategy is indeed adding value, it is taking its foot off the acquisition pedal for a while. This will reduce expansion and therefore stunt near-term progress but crucially, it seems to have got investors back onside.
In any case, with its resilient customer base, plus the fact that plastic packaging is still replacing paper and metals, the group remains confident of steady growth.
Given its solid track record, we are inclined to share its optimism. “This article is for investors who make their own decisions without advice, if unsure whether an investment is right for you, you should seek advice. Shares can rise and fall in value so you could get back less than you invest.”