H1 RESULTS TO SEPTEMBER 2018
Plastics Capital (LON:PLA) has reported first half (H1) results to September 2018 showing revenue growth of +11.4%, underlying earnings (EBITDA) growth of +42.8%, and adjusted earnings per share (EPS) growth of +67.9%. These results reinforce our confidence in our full-year (FY) March 2019 forecasts, including our EPS growth forecast of 25.3%.
WHAT’S CHANGED SINCE THE LAST UPDATE
When Plastics Capital reported FY Mar2018 results in June, the Industrials division was just beginning to show signs of improvement following some disappointing project delays, particularly in the high-margin Bearings business. The H1 results release shows 10.9% revenue growth for Industrials, including 18% for Bearings, with commensurate benefit to EBITDA. We argue that this provides very encouraging evidence that the growth plan for Industrials is moving back on track.
The Films division has delivered continued growth in revenues and profit, with further benefits still to come through from the integration programme in this division.
FORWARD-LOOKING COMMENTARY
The outlook statement confirms that Plastics Capital expects FY Mar2019 results “in line with consensus market expectations”. We believe this supports our (unchanged) forecast. The company lists various uncertainties that could affect the near-term or medium-term outlook – Brexit, trades wars, and the UK’s proposed plastics tax to be introduced in 2022. We believe that these are all well known to the market and do not represents new incremental risks.
Looking further forward, the company has rolled forward its EBITDA target, from “£10.5mln by FY Mar 2020” to “£15mln by FY Mar 2024”. We believe this reflects a continuation of the growth trajectory, following the success delivered in H1 2018/19.
CONCLUSION – POTENTIAL VALUATION UPSIDE
The company’s strategic pivot to a more growth-oriented strategy, which commenced in H2 15-16 is now delivering tangible results. We argue that the current valuation of 8.7x P/E (price/earnings) for FY Mar19 does not reflect the ongoing growth potential, and we would expect a valuation re-rating for the shares if progress continues as expected in H2.