RPC Group PLC (LON:RPC) shares slid in late-morning trading Wednesday as revenue growth in the first quarter of its financial year was overshadowed by the company’s chairman highlighting investor disagreements over its acquisition strategy.
In a statement ahead of its annual general meeting (AGM) on Wednesday, the FTSE 250 plastic packaging supplier reported revenue from continuing operations for the quarter was £964.7mln, up 5.8% on the same period last year and helped by contributions from Astrapak, which it acquired in 2016, as well as polymer price tailwinds and organic growth of 2%.
READ: Plastic not so fantastic for RPC Group
The firm added that profitability from continuing operations was in line with management expectations and grew versus last year, while cash flow development was also in line with expectations and would continue to benefit from returns on previous capital investments.
In its portfolio, RPC said good progress had been made in disposing of its non-core businesses, although the European Automotive business was continuing to experience cost inefficiencies associated with last year’s launch.
Meanwhile, the company said its acquisition of German packaging firm Nordfolien, completed in April, was working on realising cost synergies, primarily from procurement and best practice exchange.
RPC also said an independent non-executive director, Martin Towers, would step down from the board following the AGM, while Lynn Drummond would be made senior independent director following re-election at the AGM.
Commenting on the update, RPC’s chairman Jamie Pike said that while he was “pleased with the trading performance of the core businesses” over the period “pressure on the company’s market valuation and differing investor views on the appropriate level of leverage is constraining the group’s ability to pursue some attractive opportunities for growth”.
The update followed a difficult month for RPC in June, when its share price tumbled as concerns on cash generation and tighter regulation of the plastics market, as well as frequent acquisitions, soured investor sentiment toward the group
Commenting on the news, Russ Mould, investment director at AJ Bell, said that roll-up strategies (a series of acquisitions used to create growth or an impression of such) "tend to work very well, until they don't and that is what serial plastic packaging company purchaser RPC now seems to be finding out the hard way,".
He added that “The best strategies use acquisitions to supplement existing momentum in the business rather than create it. A slowdown in the rate of acquisitions at RPC means that investors now have a better feel for the underlying growth rate of which the company is capable – and they do not seem to be overly impressed."
RPC shares were down 4.15% at 742.8p.
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