RPC Group boasts sales and margins well ahead of expectations

Plastics packaging specialist RPC Group said first-half sales are likely to be "well ahead" of the corresponding period last year, with profit margins also ahead of management expectations.

Revenue growth for RPC, which was hit by a short-selling attack from Northern Trust that criticised management's use of acquisitions for 'disguising' structural problems, has been driven by acquisitions, organic growth, polymer price tailwinds and the weak pound.

Profitability levels are also projected "significantly up" on the same period last year due to the many of the same factors, plus synergies from acquisitions, lower exceptional costs and with the currency benefit more than offsetting a modest polymer headwind.

Chief executive Pim Vervaat, who responded to the Northern Trust attack by putting deals on the back burner and knuckling down to focus on integrating the £511m Letica acquisition in the US, said: "The group has progressed well in the first half with an encouraging trading performance whilst successfully integrating recent acquisitions and realising the associated synergies. We continue to successfully execute our Vision 2020 growth strategy."

The integration of Letica "continues to progress well" and Vervaat said he was "encouraged by the opportunities" from the acquisition, also assuring that the realisation of acquisition related cost synergies and the costs of achieving these synergies have continued in line with expectations.

The product pipeline was said to be healthy thanks to investment in product design and process engineering innovations, which makes Vervaat confident of continuing organic growth ahead of GDP.

"In the first half good growth has been achieved in China benefiting from investments made in the previous year."

Cash flow improved in the half, with RPC still having significant headroom under its debt facilities.

So far £12.4m of the £100m share buyback announced in July has been completed.

RPC shares were down a few pennies in early trading on Thursday to 933.5p.

Analyst George Salmon at Hargreaves Lansdown felt it was a "robust" performance.

"This solid performance builds on a series of positive updates in recent months and will likely further settle investors’ nerves, which had become frayed when concerns over the group’s accounting methods surfaced at the start of the year.

"Over the years, RPC has consistently delivered numerous earnings-enhancing acquisitions, which have helped it build an impressive 20-plus year record of dividend increases. The early signs of progress on its £511m deal to buy Letica appear positive, so we see no reason this record can’t continue in the future.”

Broker Numis said since the release of annual results in June, "improved disclosure, a commitment to no further significant M&A this year, the launch of a £100m share buyback programme, and plans to align management incentives with capital returns and cash generation have helped to improve investor sentiment".

With a capital markets day on 13 November providing scope for this process to continue in the near term, analysts believe "the shares remain cheap" with 2018 EBITDA forecast at 8.7 enterprise value and 2018 earnings per share 13.7 the share price, with forecast three-year compound annual growth rate for EBITDA of 15% and a 2018 free cash flow yield of 4.6%.