RPC Group (LSE: RPC) is a plastic packaging supplier. It targets the consumer, industrial, food and non-food markets. Maybe you have never heard of it, but it has a market cap of about £1bn. Guess why I am interested?
The stock of this FTSE 250-listed company has risen by about 200% in the last five years, and it could record a similar performance to 2019 if management continue to deliver. As the company continues to grow, its equity will likely appreciate, but will also attract interest from trade buyers and private equity firms.
In the meantime, RPC is wasting no time in deal-making. It announced on Thursday that it would acquire Iceland’s Promens Group for €386m, valuing the target at 6.8 times trailing Ebitda. That is a fair take-out multiple for the packaging industry.
The Promens Deal
There’s a lot to like in the deal’s structure.
RPC has proposed to finance the acquisition partly via a £200m rights issue, while the reminder will be funded by an existing revolver, essentially an undrawn credit line, which has been increased from £350m to £490m. This signals a willingness by lenders to support a combined entity that is expected to carry a manageable net leverage ratio of about 2x at the end of March 2015.
Management is ready to take swift action, and that’s important.
RPC stock has been under pressure since June, having lost about 17% of value over the period, but has bounced back with the market since mid-October and is up more than 5% on Thursday. Results released today showed that RPC’s net profit for the six months to the end of September rose by 10% to £22m, while acquisitions and organic growth pushed revenue up by more than 10% to £588.9m over the period.
Plenty Of Growth & A Takeover Target
Based on trading multiples, RPC shares aren’t particularly expensive and, equally important, do not price in a takeover premium, in my view.
A merger with Rexam would certainly make sense, and if leverage goes down quickly, there’s little doubt that RPC may attract interest from private equity firms seeking for capital arbitrage opportunities.
It’s too early for a takeover, perhaps, so if you buy RPC you may just end up owning a fast-growing company, with a sound balance sheet, a free cash flow yield at 2.5% and a forward dividend yield in line with that of the market. If you have never heard of it, well, you know what you should do right now.
