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Plastics Capital Plc: THE INVESTMENT CASE

Plastics Capital: Impervious to cyclical blips, set for growth

This is a business seemingly impervious to cyclical blips - defensive almost - though management are focused on growth and targeted acquisitions.
Colourful plastic tubes
The plastic manufacturer's valuation is deemed “undemanding”

Market crises, the oil sector’s wobble, Grexit and now Brexit have all failed to hobble Plastics Capital Plc (LON:PLA), a business for all seasons (or cycles).

“None of those things has floored the business though we may have fired on three cylinders rather than four sometimes,” said chairman Faisal Rahmatallah.

The latest results bear witness to this. The world economic backdrop has been sketchy and the domestic market mired by uncertainty in the months preceding Britain's vote to leave the European Union.

Buoyant demand for its films and mandrels lifted sales by almost a third in its latest half year.

Revenues rose 31% to £36.6mln, with organic growth of 13.5%, though earnings were held back by a combination of heavy expenditure on plant upgrades, raw material price rises and adverse currency movements.

Full-year profits are expected to be well ahead of the £4.35mln seen last year.

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Currency movements since the EU referendum have made Plastics's export based business 'significantly more competitive', he added, though the full benefit won't come through for a couple of years when its hedging unwinds.

As 45% of its income derived from exports, every cent the dollar appreciates against the struggling pound an extra £30,000 finds its way to the bottom line.

Managing for growth

The name is a giveaway – its speciality is plastics, specifically plastic products used by industry.

Its main activities are bearings, mandrels used to make holes in hydraulic pipes, templates that help create cardboard boxes and polythene sacks and films. They aren’t sexy; they are, however, steady and reliable.

The business today has been “built to a decent size” by a series of acquisitions, including Flexipol, acquired in late 2014 for up to £10.64million.

Acquisitions help drive growth

Plastics Capital is looking to push its market capitalisation to around £100million in five years and acquisitions will provide just over half the growth required.

“There are a number of opportunities we have been working on for a while,” said Rahmatallah.

“We want to do as many of those with our own cash resources and debt as opposed to issuing shares as we think that this is better for investors.”

Organically, the company is looking to launch new products. Some have been requested by customers, while it has created other products where it thinks there will be a demand.

Key to these self-help plans has been the recruitment of personnel who have the technical and sales skills to push new projects through.

“We have found the right people to work on the right initiatives; we are now in the position of ramping up our investment,” said Rahmatallah.

“You will see the benefits of that in two to five years’ time.”

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Colourful plastic tubes
January 11 2018
This is a business seemingly impervious to cyclical blips - defensive almost - though management are focused on growth and targeted acquisitions.

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