Plastic pollution throws RPC into the spotlight

PLASTIC packaging manufacturer RPC has attracted some unexpected – and not altogether welcome – attention.

Plastic has been high up the regulatory hit-list since Blue Planet 2 raised awareness of plastic pollution in our oceans. Combined with worries that consumers would shun plastics, it’s not done the group’s share price any favours.

There have been questions about RPC’s long-running acquisition programme, too, with suggestions it’s masking a poor underlying performance.

The group’s been very successful at snapping up smaller competitors to strip out costs, but some analysts argued that the sales boost deals were covering up ever smaller margins. Amid the noise, two US private equity groups have come knocking. Stock market rules mean potential bidders usually have to make a firm bid, or walk away, within a month. But that deadline was extended last Monday, with both Apollo and Bain Capital still in the chase.

There’s no guarantee of an offer, but both potential buyers clearly think there’s an opportunity. We’re inclined to agree.

From an operating perspective the company looks healthy, and looks set to maintain its 25-year track record of dividend growth. RPC also thinks it’s well placed to weather the political turbulence, and could even benefit. It is Europe’s leading recycler of polyethylene film, and a focus on innovation means it can respond to demand relatively quickly.

We think scale and innovation are significant advantages. Plastics are a key weapon in the fight against carbon emissions and food waste, and RPC is well-placed to benefit from this.

Nonetheless a deal is important. The low share price stops it from using shares to buy smaller rivals and boost profits.

But if Bain and/or Apollo can get comfortable with the numbers and look beyond the current political climate, they won’t be too worried about access to funding. Both are giants with plenty of cash to fund a buying spree.

Having spent a considerable amount of time rummaging under the bonnet at RPC without seemingly finding anything too nasty, either could be the ideal buyer. “This article is designed 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.”