CAPITAL RAISING AND INVESTMENTS
Plastics Capital (PLA.LON) has announced a conditional share placing to raise net proceeds of £3.54m, for the purpose of increasing the group’s minority holding in CCM Group and accelerating organic investment within Plastics Capital (PLA.LON).
The impact on our forecasts is an increase in PBT for FY Mar2018, and an unchanged EPS forecast. We are reducing our dividend forecasts in line with today’s statement.
THE CCM INVESTMENT
A creasing matrix is a consumable plastic strip used in the automated folding of cardboard packaging. Plastics Capital (PLA.LON) operates in this market through its subsidiary C&T Matrix which is one of the two global suppliers which dominate this market niche. In May 2016 Plastics Capital acquired a 10% stake in Channel Creasing Matrix (CCM) in the US, strengthening the group’s US distribution.
The business segment has been performing well, and Plastics Capital now intends to use £1m from the placing to increase its holding in CCM from 10% to 49% and £0.25m to fund additional working capital in CCM. We believe the transaction is EPS neutral in FY Mar2018, with significant cost and revenue synergies going forward.
CAPEX INVESTMENTS FOR GROWTH
The company’s trading update on May 2nd highlighted strong order activity, not only in the matrix business, but across the group, particularly in mandrels and bearings. The statement also highlighted investment in capacity expansion to meet demand. The balance of the proceeds of the placing will be used to expedite these expansion plans.
VALUATION
The table below shows the changes we are making to our forecasts, together with a newly published forecast for FY Mar2019. Our PBT forecast for Mar2018 is increased by 8%, with EPS unchanged after applying the increased share count. At the dividend level, we applying no final dividend for FY Mar2017, and no interim dividend for the year to Mar2018, in line with today’s statement, with a resumed dividend at an annual rate of 2.0p thereafter (our own assumption).
We believe that today’s announcement provides strong underpinnings for the group’s growth strategy for FY2018 and beyond.