SOLID FY MARCH 2017 RESULTS
Plastics Capital (PLA.LON) has reported FY results which are closely in line with our expectations (see table below). The company delivered 29.5% revenue growth and 6.5% earnings growth, reflecting M&A and organic improvement, but offset by the cost of fixing operational issues at the Palagan films business and new P&L investments for future growth elsewhere in the business (both issues previously disclosed).
In this report we look at the revenue and EBITDA bridges for Mar16-Mar17, and we consider the dynamics going forward, supporting our view that the group is set for continued earnings growth in 2018 and onwards through 2020.
CAPITAL DEPLOYMENT
On May 26th the company announced plans for a capital raise and suspension of dividends, to finance significant growth opportunities both organically and via external investment. Today’s release gives additional granularity. Specifically the new investment pipeline includes £1m of Capex for new products and customer projects in films and in bearings, and £1.5 of Capex for general capacity growth across bearings, mandrels, and films.
In this report we present our forecast cash bridge for Mar17-Mar18. This supports our view that the expansion plans are solidly funded, and we continue to forecast a reduction of debt over the year and a resumption of dividend payments at a rebased level at the end of FY 2018 (our own forecast).
CONCLUSION
The shares currently trading on a P/E of 9.5x (our FY March 2018e forecast). We argue that this is an attractive valuation for a company which offers the prospect of continued solid earnings growth over the next several years.
EBITDA PROGRESSION
The charts above show the revenue and EBITDA progression for Plastics Capital (PLA.LON) during the March 2017 financial year. This shows that M&A and (smaller) FX contributions drove EBITDA in 2017, with organic EBITDA flat. Specifically there was a £500k decrement in the Films division, which we believe reflects £200k improvement at Flexipol offset by a £700k decline for Palagan driven by operational issues together with the costs of applying a fix. Meanwhile the Industrials division EBITDA rose by £500k organically.
In 2018 we again see limited organic increase in EBITDA as cost-base is put into place to support future growth. We still forecast growth in EBITDA and EPS for FY Mar2018, driven by full-year contributions from previous M&A. And beyond 2018 we believe the group benefits as more revenue comes through from the new investment projects, and also as FX hedges roll off. These dynamics support our expectation for continued EPS growth through 2020.
CASH / DEBT POSITION
The chart below shows our forecast cashflow bridge for 2018. Today’s statement supports our previous expectation that there is elevated Capex and Working Capital deployment in 2018, but with net debt still decreasing year-on-year.