Re: what a hammering! Still some ways from Jeffries' £11.50 target <yikes>
Re: what a hammering! Hi Hydrogen,I use ROIC (return on invested capital) it is similar to ROCE but adjust for debt/equity mixture, very important in the low interest environment since the crash. It is from ' The five rules for successful investing ' by Pat Dorsey, page 95. So many companies make acquisitions and say it is EPS enhancing so it must be fantastic , yet with interest rates at near zero it is bound to look good!! Really it should only be done if they can improve on their ROIC, otherwise the quality of the business declines and eventually the stock is de-rated as RPC has been. I also use ev/ebit and ev/ebitda for similar reasons, as it adjusts for the debt levels within the business .EV is market cap plus net debt ( or minus net cash) and ebit is clean operating profit. EPS and therefore the PE don't account for this. You can have two companies on exactly the same PE but with totally different debt structures which makes them totally different investment propositions. This is from Joel Greenblatt 'the little book that beats the market' again highly recommended.the way I thought RPC would open up slightly yesterday so what do I know!! and I bought FGP when the Chief Executive resigned as after 4 years of total mismanagement and a failed bid approach I thought they would finally give up the ghost but am currently still waiting and 5p down on my buy price.Good luck
Re: what a hammering! Wuffet The return on capital they achieve has dramatically fallen from 11.7% to just over 7% now. Id be interested in the source for this and how calculated, noting that concern, as stated in my initial note, the concerns about acquisition driven growth hiding lower returns on investment will remain, the quoted numbers below suggest some decline in ROCE but not as dramatic as your numbers. The following numbers are from the CONDENSED ALTERNATIVE PERFORMANCE MEASURES GLOSSARY at the end of the FY report, these are Company numbers and not IFRS but the calculation is laid out in detail.Return on net operating assets rose to 27.2% Vs 25.7% in 2017 ROCE - 14.8% 2018, 15.2% 2017, 15.7% 2016, 15.2% 2015I would agree that return on capital has slipped, likely by more than the Company numbers suggest, that is often the case for acquisitive companies as the capital employed increases immediately on acquisition and integration costs come soon after, but the synergy benefits take longer to accrue. ADVFN which surprisingly is already updated with 2018 numbers quotes ROCE as 8.9%. Northern Trust have been a long running critic here and some of it is justified although I think some is nit-picking on interpretation of the accounts. Their key point is FCF is main driver on board incentives and that thresholds have been set low to boost remuneration. This was laid out in their detailed not of July17 RPC (SELL): A CLOSER LOOK AT EBITDA. Figure 11 showed their estimates of FCF (by their definition), FY18(E) 141m, FY 19(E) 188m.RPC's definition gives a higher number, but sticking to NT definition, from their note posted below (thanks SG), FY 2018 they say "The FCF looks low; we get just £160M, which is a miss"I'm struggling to see why FCF 13% higher than their earlier estimate (by their definition) is a miss. I added a few at 666p, could that be an omen?H2
pretty decent results and divi,but they are at hands of shorters and doom mongers. i think a small retreat of 3-4 percent is due tomorrow.
Re: what a hammering! I cant see much mention of the terms of their loans but debt levels havent come down much and a lot of it is short term. Also low cash flow seems a concern to most analysts.Some comments below ....SGAn excerpt from the Northern Trust update by Paul Moran''The EBITDA at £590M is a small miss vs consensus, given the FX and polymer moves, this is disappointing. The FCF looks low; we get just £160M, which is a miss, cash taxes are higher (finally) and interest costs are higher, as is capex. Working capital more than reversed to -22M headwind and the one offs are about inline (new presentation of FCF so it is difficult to be exact at first look). The FY18 organic growth is 2.8% which is good and typical for RPC, but not flowing through into profits, which has been our point. The Depreciation charge looks LOW vs guidance, are they holding back here to make EBIT look good YoY in the bridge? Will be able to check when the slides come out. Given technical guidance, if you are assuming an extra £10M on EBITDA in FY19, with one offs almost gone, stock is on a 6.5% FCF yield for FY19 with some questions about underlying growth. We believe that this should be higher, as profits are declining. We remain a seller.''FT had an article also mentioning low Free Cash Flow and impact of the 'plastics backlash'www.ft.com/content/33cb91ac-699c-11e8-8cf3-0c230fa67aecH-L also had an update/commentry:''RPC reported full year revenue of £3.7bn, up 33% on last year when the effect of exchange rates is excluded. Growth was driven by acquisitions, with organic revenue growth of 2.8%.Profit before tax rose 32% to £389.4m, with earnings per share up 13% to 72p. Free cash flow was slightly below that reported last year, at £229m, following an increase in working capital.The group announced a final dividend of 20.2p. That takes the full year payment to 28p per share, up 17% on the previous year and the 25th year of consecutive growth.Plastic packaging manufacturer RPC has been under pressure to prove its long-running acquisition programme is creating value for shareholders, and not masking a lacklustre operating performance. Management have put a hold on acquisitions while it deals with those concerns. So far, we think the results are good. Organic growth is healthy and exceptional integration costs, the focus of much of the investor discontent, are falling. From an operations perspective the company looks healthy, and the group looks set to maintain its 25-year track record of dividend growth.Unfortunately the share price hasn't reflected the improvement. That's partly because RPC is facing new pressures. This time from regulation.Following the airing of 'Blue Planet', the UK government has faced calls to tighten up rules on plastic waste. The EU has followed suit, and is already tightening controls.RPC argues that it's well placed to weather the political turbulence, and could even benefit.The group is Europe's leading recycler of polyethylene film and the majority of its products are recyclable. Its focus on innovation should mean it can respond quickly to demand for more easily recyclable products. It says its innovation centres are actively researching renewable polymers and compostable materials that break down completely when treated correctly at the end of their life.We think RPC's scale and focus on innovation are significant advantages. However, it's unlikely the group would escape a crackdown on plastic completely unscathed.Nonetheless we remain upbeat about RPC's prospects. Plastics are a key weapon in fighting that other environmental bogeyman, carbon emissions, and RPC is well-placed to benefit from the consolidation the sector as well as increased demand.Prior to full year results the shares offered a prospective yield of 4%, and traded on 10 times expected earnings, well below their longer-term average. But with the public mood firmly against plastics at the moment, investors will need a change in sentiment be
Re: what a hammering! This is what ADVFN gave as the reason for the fall"RPC Group continued to melt lower amid market worries about the crackdown on plastic waste and analyst suspicions about its numbers. Despite a successful year turning plastic into dividends, with management trumpeting the "unprecedented" opportunities for growth in the market, analysts at Northern Trust Capital Markets highlighted adjusted profits slightly short of consensus, free cash flow that ''looks low" and organic growth "not flowing through into profits", with continued "questions about underlying growth"."So slightly lower profits than expected (may explain a slight weakness not a 12% drop) and doubts over how they will be hit by any plastics legislation (initial signs are they will not, but if Michael Gove is after headlines anything is possible.) And some concerns about the growth numbers and cash conversion. If they are the reasons for the drop, it is right to be concerned and keep an eye on the organic growth & cash conversion figures; but it seems overdone to me.
Re: what a hammering! One thing which confuses me about the large movement (& I would have been equally confused had the movement been up) is there were no surprises in this announcement: it was much as expected after their pre close trading statement.I will be interested to read the market commentators' explanation
Re: what a hammering! Hi HardboySorry mate got to pick you up on one thing. RPC have definitely not raised returns, not by the definition most people use anyway. Yes they have bought some growth, debt has gone up from circa 260m 4 years ago to 1100m now and ebit has obviously increased as a result but the return on capital they achieve has dramatically fallen from 11.7% to just over 7% now. So every £ they invest generates a lower return for shareholders which is part of the reason the shares are almost back to where they were 4 years ago, and implies the previous heady ratings the stock enjoyed will not be repeated. In an increasing interest rate environment it might not be wise to go on an acquisition spree that raises debt substantially and then allude to even more deals to come.As ever we're all good at explaining what has happened to a stock in the past but not so good at predicting what will happen in the future and why. Good luck
Re: in for less but into win In January I said:I feel rather lucky. A week before Xmas I bailed at 871p, taking a decent profit (18% IRR) and forgot about RPC. I take a quick look today and they're 770p. With volatility i.e. risk like that, I'm glad to be out. Weird. Now they're down a further 90p or so I can't help thinking I dodged a bullet and also that the bears/shorters were onto something, despite some whinging about that here at the time.
Re: what a hammering! If Even & H2 think it's a buying opportunity, then who cares what markets think? I increased my investment in RPC by 20% this morning @ 659.74. The timing was more by circumstance than judgement, but it's made a bit of a come back since.Valuing RPC at under £7 - a market leader in a niche market which is set to go on rising for the next 5 years, with a history of successful growth & raising returns - gives it a PE under 9.7 & a well covered yield of 4. That strikes me as cheap. At £10 it would value the company at a PE of 13.9 & a yield of 2.8, which still seems a little on the cheap side.
what a hammering! share price in free fall despite solid results. Presumably because of the threat of EU crackdown on plastic, and single use plastic in particular. Market over reaction? I'm hoping so as bought in again today. RPC don't make any of the blacklist single use items the EU plans to ban, it will surely invest in newer more eco plastics, has and expanding global reach, and plastic products are not going to go away overnight. Warren Buffet - buy when others are fearful!
Re: FT comment From FT Comment: "However, that was not enough to reverse a 20 per cent fall in RPCs share price since the end of September, as governments and regulators stepped up their fight against plastic waste. As one of Europes largest manufacturers of plastic packaging, the market feared RPCs businesses would be directly affected. Recent EU proposals target single use plastics, such as cutlery and straws, and calls for all plastic bottles to be recycled by 2025."From this morning's release: "During the year, the recyclability, reusability and responsible disposal of plastic products came into greater focus with the announcement of a 25 Year Environment Plan in the UK and, at the end of May 2018, the launch of a draft Directive on Single use Plastics by the EU Commission. RPC does not manufacture any of the items that will be restricted under the proposed EU directive, and is proactively working with the policy makers and industry bodies to best achieve their wider goals."
Results I think the decline is more to do with re-financing debt that is due for maturity this year and next.
FT comment worth a read [link] regulatory crackdown on single-use plastics, in the UK and in Europe, has raised many questions. Last Wednesday, with much of the City on its half-term holiday, the main one was: If straws have to be made out of paper from now on, can you still get bendy ones or will they just go soggy? A very good question and one that stumped this commentator. But, today, with FTSE 250 packaging group RPC reporting full-year results, its more a case of: will its profits and revenues hold up . . . or will they just go soggy?And, this morning, RPC has not been stumped. It has reported a 36 per cent rise in revenues, driven by acquisitions, which led to a commensurate 36 per cent rise in adjusted pre-tax profit, to £389m. Its most recent deal was the 75m acquisition of Nordfolien, which completed after the year end. On a statutory basis, pre-tax profit actually doubled to £317m reflecting a significant reduction in adjusting items in the past year.But revenues also grew organically, by 2.8 per cent, continuing RPCs recent record of increasing its sales by around 3 per cent a year, ignoring acquisitions. In China, organic revenue growth was 26 per cent, which helped to lift revenues outside Europe to £831m, from £384m previously making them 22 per cent of the group total nowadays. Cash flow generation was robust, too, with net cash flows from operating activities up 40 per cent to £386.7m. But free cash flow was lower than the prior year, at £229m, due to the non-repeatability of working capital related cash synergies.Many of the improvements had been expected after a trading update in March said the positive trading trends the third quarter update had continued, and revenue for the full year was expected to have grown significantly . . . aided by acquisitions, polymer price and foreign exchange tailwinds. Back then, RPC had flagged that profitability and cash generation before and after exceptional items were set to meet management expectations. However, that was not enough to reverse a 20 per cent fall in RPCs share price since the end of September, as governments and regulators stepped up their fight against plastic waste.As one of Europes largest manufacturers of plastic packaging, the market feared RPCs businesses would be directly affected. Recent EU proposals target single use plastics, such as cutlery and straws, and calls for all plastic bottles to be recycled by 2025.So, today, it is the outlook that investors will be drinking in, not last years performance. RPC chief executive Pim Vervaat insisted the group was well placed to benefit from opportunities driven by the recent sustainability trends, and from e-commerce. He said RPC was still expecting through the cycle underlying organic growth to be ahead of ahead of GDP growth, and adjusted operating profit in the core businesses to improve but more slowly. RPC expects it will be about £50m higher, but only by the financial year ending March 2021.Some analysts agree. Hargreaves Lansdown reckons that, longer term, RPCs focus on innovative design should mean it is well placed to weather a more difficult plastics environment. Tougher regulation may even improve its position relative to smaller competitors.
Re: Results Yes I must have missed something; or at least interpreted something differently from the professionals. Debt is high, but they've identified some businesses to offload which will bring it down; and they'd hardly have instigated the share buy back if they didn't feel it was manageable.