Worries over cash generation and tighter regulation of plastic products sent shares in RPC Group PLC (LON:RPC) tumbling.
Revenue and headline profit both rose by 36% to £3.75bn and £317mln in the year to March, but a raft of acquisitions drove the improvement with organic revenue up by a more sedate 2.8%.
READ: RPC expects 'significant' revenue growth as it responds to plastic waste campaign
Debt at the March year end was £1.14bn, while net cash flow was less than forecast at £229mln as the company upped its working capital and investment plans to accommodate the recent acquisitions.
Russ Mould at AJ Bell said two factors helped explain the market’s negative reaction.
“One is the reliance on M&A activity to deliver growth – organic growth for the period was a mere 2.8%.
“Sentiment towards the company began to sour in early 2017 as questions arose over the company’s accounting policies and strategy of pursuing frequent acquisitions. Notably, while full-year profit is materially higher, free cash flow fell 4%.”
Growing regulation
Mould also highlighted the growing regulation of the use of plastics amid concern over their environmental impact, which might impact the pace of growth of the next few years.
RPC itself said it had received more requests from customers to demonstrate its plastics are recyclable.
"It has also stepped up its own efforts to make items such as agricultural films recyclable and to increase use of biobased polymers.
“The £50m improvement targeted by 2021 is significantly less than the profit jump posted for the financial year just reported,” said Mould.
Nicholas Hyett at Hargreaves Lansdown said RPC might have been harshly treated by the market but added cash flow was 'a little disappointing and the worries about increased scrutiny over plastics in general haven’t been dispelled'.
The dividend for the year rises by 17% to 28p, the 25th year in a row the payout has gone up.
Shares fell 12% to 683p.