Half year results Today’s half year figures look reasonable enough to support interest in a healthy 3.7% yield and a fast approaching xd on 27 Dec. My concern has been the shorting issue where I’m trying to balance out whether it’s time to buy or to hold on for a while longer. The short positions increased steadily through the year but recently, as the sp has been dropping off, they have similarly come back down. short chart.png1096x425 17.3 KB [link] But…Fraser Perring’s views are worth bearing considering not least because of the much respected work done to expose accounting irregularities at Steinhoff Int. There are no known irregularities at RPC, but it would seem that there may be some “aggressive accounting” producing better looking figures than is actually the case. “The short-seller whose research group uncovered financial irregularities at South African retailer Steinhoff has struck out at plastics company RPC Group. Fraser Perring claims the FTSE 250 company has used a string of acquisitions to mask falling earnings, and said it had used “aggressive accounting” processes to allocate large sums of money as goodwill, making its end-of-year figures look artificially healthier.” [link] Hargreaves Lansdown seem fairly sanguine about the company; “Half year sales rose 7% to £1.9bn, with organic growth of 3.2%. However currency headwinds and higher raw plastic prices meant underlying operating profit rose just 3% to £214.3m. The interim dividend increased 4% to 8.1p per share. So far, we think the results are good. Organic growth is healthy and exceptional integration costs, the focus of much of investor discontent, are falling. From an operating perspective the company looks healthy, and the group looks set to maintain its 26-year track record of dividend growth. 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 demands for more easily recyclable products, and it’s also investigating renewable and compostable materials. We think RPC’s scale and focus on innovation are significant advantages. Plastics are a key weapon in fighting other environmental concerns like carbon emissions and food waste, and RPC is well-placed to benefit from consolidation within the sector as well as increased demand. A bigger problem in our view is RPC’s ability to make new acquisitions. A subdued share price - the shares trade on a price to earnings ratio of 9.4, well below their longer-term average - means using its own shares to fund future deals is expensive, while investors seem uncomfortable about debt levels. If the group can’t buy smaller rivals, investors are left with just an unexceptional organic growth rate.” [link] RPC’s ability to process, and innovate, recyclable plastics is just too big a lure for me not to be very interested in placing a buy or two. I’d be interested in reading anyone’s views or thoughts.
Letica acquisition RPC… XXXXX Risk here the deadline extended and i only see one company in the game now .
Letica acquisition RPC… XXXXX Third biggest gainer today but i did not notice until evening . Maybe just as well as i might of been tempted when it went to 850p @ 8.25am before falling back. Price went up to 979p in October 2017. Appears to be two company’s interested .
Talks with Bain & Apollo re possible offer RPC and Major shareholder SLA have been talking this up since July so no big surprise. I guess the buyers are viewing this a chance to pick up at a good price, I have sold a fair few in todays 20% jump as I see big risk of falling back if it doesn’t lead to a bid. We’ll se by 8th Oct H2 RNS Number : 2369A RPC Group PLC 10 September 2018 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION THIS ANNOUNCEMENT IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE “CODE”) AND THERE CAN BE NO CERTAINTY THAT AN OFFER WILL BE MADE, NOR AS TO THE TERMS ON WHICH ANY OFFER WILL BE MADE THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR IMMEDIATE RELEASE 10 September 2018 Statement re. media speculation The Board of RPC Group Plc (“RPC” or the “Company”) notes the recent media speculation and confirms that preliminary discussions are taking place with each of Apollo Global Management and Bain Capital which may or may not result in an offer for the Company. A further announcement will be made when appropriate. In accordance with Rule 2.6(a) of the Code, each of Apollo Global Management and Bain Capital is required, by not later than 5.00 p.m. on 8 October 2018, to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel in accordance with Rule 2.6© of the Code.
Telegraph -"RPC meltdown puts investors on bid alert" Some slip to day but still above resistance. The other key sign to watch is the reported short interest which ramped up to 8.69% from zero late last year (may have been some holdings at below the reporting threshold of 0.5%). No sign of any being squeezed out yet, the SP during this ramp up was 850 down to 650 so some will already be underwater. No doubt we can expect some negative stories to be put about to counter SLA’s blatant ramp!. I believe IC had a fairly negative update in last week or so. H2 image.png1326x539 18.9 KB
Telegraph -"RPC meltdown puts investors on bid alert" Hydrogen_Economy: If it can close above about 795p that would be a positive sign. Closed at 800 and up over 2% this morning. Looking positive…
Telegraph -"RPC meltdown puts investors on bid alert" The SP pick-up in the wake of the SLA comments about possible takeover has pushed it to the resistance of the downtrend of the last couple of years. If it can close above about 795p that would be a positive sign. H2 image.png1624x752 141 KB
Telegraph -"RPC meltdown puts investors on bid alert" This sounds like wishful thinking by SLA who are no doubt well underwater on RPC. Coincidentally a bit like many SLA shareholders after the Aberdeen merger. A bid would certainly be helpful to the woeful SP but I shall not be holding my breath. H2 The Telegraph RPC meltdown puts investors on bid alert RPC’s top shareholder has warned that the plastic packaging giant is “highly vulnerable” to a takeover bid as investors row over its expansion plans. RPC’s top shareholder has warned that the plastic packaging giant is “highly vulnerable” to a takeover bid as investors row over its expansion plans. Standard Life Aberdeen, which holds a 10pc stake, said that RPC’s low share price will have sparked bid interest from overseas rivals and private equity firms. Guy Douthwaite, fund manager at the heavyweight investor, backed the £3bn company’s plan to drive growth with bolt-on acquisitions. However, he told The Sunday Telegraph that it could be swept up amid a slew of consolidation deals in the sector. RPC seen its valuation sink by around a quarter since October. Its share price has been hit by war on plastic waste and doubts from investors over its debt-fuelled strategy. Chairman Jamie Pike warned that “differing investor views on the appropriate level of leverage” were stopping it from making “attractive” acquisitions to lift growth, interpreted in the City as an invitation to private equity firms to make a run at RPC. “It reads like somebody saying ‘we would be better off owned by private equity’,” said one top-20 shareholder. City sources say that buyout firms are already circling and Berry Global, a plastics manufacturer double RPC’s size, is thought to be looking to expand its European operations. “There’s a host of private equity firms that have been hot in the sector,” said Mr Douthwaite.
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