RPC under pressure from investors over growth plans

Plastics manufacturer RPC saw revenue growth slow in the first quarter and warned that its acquisitive growth plans were being constrained.

Europe’s biggest plastics packager said that revenues in the first three months of the year came in at £964.7m, a 5.8% improvement on the same period last year, helped by organic growth of 2% and the 2016 acquisition of Astrapak. However, this is down from revenue growth of 33% in the past full year, when organic growth was 2.8%.

Chairman Jamie Pike said RPC had made “further progress” during the period and that he was pleased with the trading performance of the group’s core businesses.

But he added: “However, pressure on the company’s market valuation and differing investor views on the appropriate level of leverage is constraining the group’s ability to pursue some attractive opportunities for growth and your board is working to resolve this.

“In the short term, the group will prioritise cash generation and the announced disposal of our non-core businesses, with a view to generating increased capital for deployment in the business or further returns to shareholders.”

When FTSE 250-listed RPC posted full-year results last month, showing acquisition-led growth of 33% but organic sales ahead 2.8%, with pre-tax profits up 32%, investors focused instead on the free cash flow, which fell 4% to £229.2m and the shares tumbled. Free cash flow is the money left over after acquisitions, debt and dividends have been paid.

Analysts at Numis said the trading update was in-line with expectations, and left their forecast for full-year earnings before interest and tax unchanged at £446m.

Russ Mould at AJ Bell said it was "an unusual trading statement" in that the company "effectively pressed pause on its growth ambitions", having relied heavily on acquisitions to expand in recent years.

“Reading between the lines, the implication appears to be that the company cannot raise funds in the equity markets because its share price has been weak for much of the year and it is fearful of taking on more debt to fund M&A," he said.

“Perhaps in the long run a more disciplined approach, focused on cash generation and the disposal of non-core businesses to provide funds for investment, could be the more prudent path, even if it is one the company has been boxed into rather than chosen for itself.”