Profits ahead on stable volumes
British Polythene Industries (LONDON:BRPI) delivered FY14 profitability above our raised estimates and reduced its borrowings over the year. Investment drove progress in the two largest regions, more than carrying an adverse FX headwind and a short-term setback in North America. Further capex is planned and we expect this to translate to higher earnings in each of our forecast years. On modestly raised estimates, BPI is trading on a sub 10x P/E and adjusted EV/EBITDA of below 6x.
Good progress confirmed
FY14 results contained volume progress and good increases in PBT norm (+14%), EPS (+12%) and DPS (+10%). Strong UK profit progress was supplemented by a very good local currency EBIT uplift in Mainland Europe (and up c 13% in sterling terms), with some short-term drag arising from new North American investment. All regions and multiple locations have benefited from capex over the last two or three years in particular, and these results bear out the beneficial mix effects of upgrading capacity and capability that has been undertaken thus far. Towards the year end, the FX headwind strengthened, although polymer input prices also started to decline. Net debt reduced to £24.1m at the year end.
Further progress and investment expected in FY15
North American performance should turn around smartly in FY15 now that new equipment has bedded in and we expect to see incremental progress in the UK and Europe (although further euro weakness in FY15 to date will be a hindrance to y-o-y progress here). Planned capex and an additional pension cash payment (having changed the scheme inflation index) are likely to result in net debt nearer to £30m by the end of FY15, in our view. BPI has the financial flexibility to fund these discretionary cash payments and be in a position to make further investment where suitable opportunities arise.
Valuation: Good performance, more to come
BPI’s share price has performed in line with the FTSE All-Share Index so far this year – modestly outperforming on a 12-month view – and is approaching an all-time high. On revised estimates, BPI is trading on forward P/Es of below 10x (9.7x FY15 and 9.3x FY16) and EV/EBITDA (adjusted for ongoing pensions cash) below 6x. With good momentum in the business, we would expect to see further gains supported by trading newsflow.
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