Plastics Capital has the aspirations of a hidden champion, but has performed like a cyclical company. If in future it performs like a hidden champion, it could be good value.

Highlights

• Adjusted operating profit down 15%
• Return on tangible assets: 15%
• Adjusted net profit of ''3m compared to net cash flow of ''4 (''3.5m after net capital expenditure)
• Net debt including approximate capitalised lease obligations of ''5m down 13% at ''15m, 69% of tangible assets.
• Maiden per-share dividend (1p)
• Shares in issue unchanged

The Human Screen comments:

Plastics Capital is four plastic products manufacturers that make components for industry and packaging. It listed in 2007 having been founded in 2002 to acquire and consolidate such businesses.

As an acquirer of business it would probably like to be labelled a growth company and it has the aspirations of a hidden champion, manufacturing niche products mostly in Britain and exporting 61% of turnover around the world. It’s is not long established, though, and the business has cyclical qualities, growth this year was stymied by economic conditions, it made exceptional losses in 2009 as it restructured Trimplex, a business it had acquired in 2005, and the price of raw materials like polymer used by its film packaging business Palagan is highly variable, although the company says it has become adept at passing the costs on.

Bell Plastics, responsible for 10% of sales is illustrative of both the specialisation and cyclicality. It makes hose mandrels, used in the manufacture of industrial hoses to determine their internal diameter. Plastics Capital says end markets for hydraulic rubber hose are highly cyclical and its third largest customer went into administration midway through the year. A substantial proportion of BNL’S plastic ball bearings, gears, and shafts end up in cars.

The investment case depends on the categorisation because if this year’s earnings are sustainable and Plastics capital is a stalwart, it looks good value, its unlevered post-tax earnings yield is 10%. If earnings are too unpredictable, and an asset based valuation is more appropriate, it’s less compelling because so a large proportion of the assets (56%) is goodwill and Plastics Capital has negative net tangible asset value.

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HS++ (currently being considered for inclusion in the Thrifty 30)