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Plastics Capital: a great AIM recovery story more than £0.5m of additional annual sales

Emerging from the aftermath of the financial crisis, Plastics Capital has been quickly paying down debts and increasing shareholder dividends. Plastics Capital is a group of four specialist manufacturing companies. Bell Plastics manufactures hose mandrels, lengths of plastic used in the manufacture of specialist reinforced hosing or piping. Quality mandrels are needed to ensure that the tube being formed is sized precisely. Through innovation and invention, Dorsetbased Bell has become a market leader. Bell Plastics contributed 13% of group sales in the year to March 2014.

Bell has become a market leader BNL is primarily a designer and manufacturer of plastic bearings to a wide range of applications. This ranges from cash machines and photocopiers to automotive steering columns and conveyors. This division was responsible for one third of group sales in 2014. C&T Matrix manufactures creasing matrices, the apparatus used in box manufacture. C&T Matrix accounted for 18% of plc sales last year. Plastics Capital claims that C&T Matrix is one of two world leading manufacturers of this equipment. C&T Matrix operates from its base in Wellingborough,


supplying precision-made matrices to 80 countries around the world.

judiciously reducing debt Finally, contributing just over one third of revenues, is Plastics Capital’s high strength film packaging business, Palagan. Typical end uses of this division’s products include packaging for couriers and manufacturers such as furniture and animal feed producers. After borrowing heavily to finance a string of acquisitions in the lead up to the financial crisis, Plastics Capital found its shares held back by depressed trading and large debts. The high watermark came at the end of 2009 when the company carried £19m of debt and was delivering £2.0m in pre-tax profit. At the time of the 2009 full year results, Plastics Capital’s market capitalisation was just £7.8m. Since then, management has been judiciously reducing debt. This has resulted in lower borrowing rates and improved cashflows. Plastics Capital was able to introduce a 1p per share dividend in 2012. This has since been increased steadily, reaching 3p for 2014.

Business progress, and the improved share price rating, has encouraged management to get back on the acquisition trail. In March 2014, Plastics Capital acquired Shengli, a Chinese manufacturer of creasing matrices. Before the acquisition, Shengli had been C&T Matrix’s largest competitor in China. Plastics Capital recently announced what it calls a “major commitment from a tier one automotive manufacturer” that will deliver more than £0.5m of additional annual sales for BNL, reaching a total of £4.0m over the life of the contract. Management expects that more similar projects will be secured in the next year. After earning a decent market rating, Plastics Capital looks well set to deliver further growth. While the underlying businesses will always be vulnerable to any economic downturn, the existence of a well-covered dividend should prevent a return to previous share price lows. Plastics Capital (LON:PLA) FOR New deal points way to more big sales Debts conquered AGAINST Vulnerable to input cost rises Historically high valuation Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high

£41m 131p:137p 10.6 3% 93p:146p

August 2014 AIM Prospector  
August 2014 AIM Prospector  

Analysis on five AIM-quoted companies: Iomart, Jarvis Securities, NAHL Group, Plastics Capital and Portmeirion