Another boring packaging stock or a Really Pukka Company?

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Background from their website with the graphic providing a good overview and the detail are as follows: 

RPC was established in 1991 following the management buyout of the plastic operations of Reedpack Ltd from SCA. Originally comprising five UK factories, the company today has over 50 operations in 18 countries and employs around 8,000 people, with annual sales in excess of £1.1bn. It was listed on the London Stock Exchange in 1993 and entered the FTSE 250 in March 2011. 

RPC is unique in offering products manufactured by the three main conversion processes – blow moulding, injection moulding and thermoforming, each technology producing different product characteristics that are suitable for specific packaging applications. It is structured along market and technological lines into six clusters which are aligned to these three processes.

Each cluster has on average seven manufacturing sites, operating across a wide geographical area for reasons of customer proximity, local market demand and manufacturing resource. Each plant is run autonomously.

This structure gives RPC a high degree of knowledge and expertise, along with the flexibility to deal with all types of sizes of businesses, and enables the company to deliver packaging solutions tailored each time to individual customer requirements, as well as the highest levels of service and support.

Strategy (from their website & today's announcement)

RPC’s strategy is to grow and develop leading positions in our chosen product markets and geographical areas in the rigid plastic packaging industry by maintaining strong long-term relationships with our customers and by developing high quality, innovative products that meet customer needs.
 
This is being achieved by continued innovation and investment, leveraging our leading technological capability and through strategic corporate development both in our existing core markets and new geographical regions. 

The Group announced its Vision 2020: Focused Growth strategy in November 2013, which builds on RPC's strong market positions, leading innovation capabilities and the success of its investments in recent years. There are three core elements to Vision 2020, which are:

1)   continuing our focused organic growth strategy in selected areas of the packaging markets;

2)   selective consolidation in the still fragmented European packaging market through targeted acquisitions; and

3)   creating a meaningful presence outside Europe.

During the formulation of Vision 2020 the Group also identified a number of further opportunities to optimise its existing asset base resulting in the final phase of the Fitter for the Future business optimisation programme. This included the decision to sell the Cobelplast and Offenburg businesses.  Alongside the targeted focused growth strategy, the Group established de minimis (through the cycle) levels for RONOA of 20% and return on sales of 8%. The expectation is that the ROCE for the group of businesses prior to the recent acquisitions will continue to achieve a return of 20% through the cycle.

You can get a feel for their products from the picture below which you can click to explore these in greater detail if you want.

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Final Results
They reported their final results for the year to 31st March 2014 today. Turnover was up 7% at £1047 million v £1061 (F) with a 3% boost from acquisitions and some organic growth. While operating margins rose from 9.3% to 9.7% to five an operating profit of £101.3 million. This fed through to give earnings of 41.1 pence up by 11.4% against 37.9 pence (F) so a small beat there. The dividend was raised by a more modest 4% to 15.5 pence which was in line with forecast and means the dividend is covered nearly 2.7 x by earnings. They also report a RONOA figure of 24.5% up from 22.6% last year.

This leaves the stock on 15x and a 2.5% yield and around 14x and 2.75% for the current year which seems fair for this well managed business. I bought into this one in January 2011 at 248 pence during a rights issue period to fund their Superfos acquisition at that time. This is another thing I have learnt over the years that about a week before the end of a rights issue is the best time to try and pick up some cheap stock, if you like the deal or situation, as holders have to either elect to take up or sell rights at that time. This means the price tends to be at its weakest as that point in the process having gone ex rights etc. before that.

I have enjoyed the rise in the earnings and dividends since then and a modest re-rating which has delivered some useful triple digit returns for me. On the back of these numbers and the outlook I am happy to run with it as as part of a broadly diversified income portfolio even though the yield is now towards the lower end of what I normally look for from my investments as it is a Really Pukka Company which is well managed and not so boring after all!