British Polythene Industries: Increasing Confidence
Edison | Sep 10, 2014 06:36AM ET
H1 PBT was modestly ahead of the previous year and slightly ahead of our estimate. Behind this, strong UK/Ireland performance was substantially offset by a short-term setback in North America, which appears to be resolved now. Underlying momentum should become more apparent at the headline level in FY15, although we have increased estimates in all three forecast years. Even after a post-results share price bounce, British Polythene Industries (LONDON:BRPI) is still trading on attractive value multiples.
With little assistance from underlying markets, UK/Ireland operations delivered a 23% uplift in operating profit. Although revenue was flat year-on-year, an improved mix, good cost control and some acquisition benefit all contributed to this result. Elsewhere, Europe further enhanced reported profit, despite some FX translation drag. Investment has underpinned performance in both these regions. North America also undertook a significant capex project, which, in the short term, had a detrimental impact on profitability. Overall, normalised H1 PBT (excluding pension net finance costs) rose by 3.8% (to £16m), EPS FD by 4.9% and DPS by 11.1%. Net debt was broadly unchanged at the period end at c £30m.
h3 Upgrades to estimates/h3BPI is now looking to build on its H1 performance and further year-on-year progress in the seasonally quieter H2 period seems very likely. UK/Ireland operations are well set to add to the gains made to date and, at current exchange rates, we expect some incremental progress in Europe also. North America is unlikely to break even this year but, given that the newly installed line is now running, a reduced loss (ie H2 profit) should be achievable. On slightly lower revenues (mainly FX effects), we have raised EPS estimates by c 1% for the current year and by 9% and 10% for FY15 and FY16 respectively. Additionally, our DPS expectations have been increased by 5.6% in all three periods, with healthy dividend cover retained.
h3 Valuation: Fresh impetus/h3Interim results were well received, with a 5.5% share price rise since the announcement following a drift post the pre-close IMS in early July. On revised estimates, BPI is trading on a 9.8x P/E for FY14 and, with faster growth expected in FY15, 8.9x one year out. Similarly, EV/EBITDA adjusted (for pension cash) of 5.5x and 5.1x for these periods is more at the value end of the valuation range. Current momentum reinforces our view that growth risk remains to the upside.
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