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We believe shares have further to rise despite impressive past few years
Thursday 13 Oct 2016 Author: Tom Sieber

Investors haven’t missed the boat on plastic packaging firm RPC (RPC) despite the share price having doubled in the past two years. Decent scope for ongoing earnings growth suggests the shares have much further to run.

Panmure Gordon reckons the shares could trade above £15 in the next 18 to 24 months. Its confidence is backed by a forecast 23.1% compound annual growth rate in earnings per share through to 2018, a forecast which assumes no M&A activity.

RPC 131016

Double-digit gains

Even if the rating stays the same investors could in theory enjoy capital gains of 20% a year. Yet Panmure puts the company at a more than 10% discount to its peer group so there is re-rating potential as well, assuming RPC can eventually trade in line with similar companies.

The broker calculates that the combination of earnings growth and reaching parity with its rivals could see the shares reach just shy of £17.00.

RPC manufactures pots, bottles, jars, tubs and lids for a variety of consumer goods companies including Unilever (ULVR) and Kraft Foods (KRFT:NDQ). In theory these are simple, almost commoditised products, but in reality packaging quality is important in preserving the brand integrity.

The company is benefiting from a structural trend which sees conventional glass and metal packaging replaced by lighter weight plastics.

RPC operates in a fragmented market and is highly acquisitive. Two of its highest profile recent deals are the £470m purchase of French bottle-top maker Global Closure Systems, which completed in March 2016; and the £261m deal to acquire Scotland’s British Polythene Industries, which concluded in August 2016.

The company has a good track record with M&A, doubling its synergy target for Iceland’s Promens within months of buying it, for example. RPC also has a progressive dividend policy.

Despite international expansion, 86.7% of its revenue came from the UK and mainland Europe in the year to March 2016 so prospective investors do need to weigh the risks of a Brexit-related slowdown in the European economy. The company’s strong track record during previous bouts of economic uncertainty offers some reassurance. (TS)


RPC (RPC) 992p 

Stop loss: 793.6p

Market value: £3.2 billion

Prospective PE Mar 2017: 17.6

Prospective PE Mar 2018: 15.2

Dividend yield: 2.1%

Analyst price target: £12*

*Panmure Gordon

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